Saturday, January 31, 2009

High Mercury Corn Syrup?

High fructose corn syrup is a significant source of mercury that has not previously been considered. That’s the conclusion of a study released this week by the Institute for Agriculture and Trade Policy. An earlier study found mercury in about half of U.S.-made high fructose corn syrup, and the new study confirms that detectable levels of mercury are present in foods that feature high fructose corn syrup, including granola bars, ketchup, jelly, and yogurt. The levels are not nearly as high as have been reported in fish, but are a greater concern because most U.S.-made processed foods contain high fructose corn syrup, so people could be eating significant levels of mercury every day.

High fructose corn syrup is considered a “natural” sweetener because it features actual sugar molecules, but there is little that is natural about it. It is manufactured through a chemical process that depends on acids, enzymes, solvents, and heat. Traces of the chemicals used to produce high fructose corn syrup remain in the final product, and the researchers believe mercury is a contaminant in one of those chemicals.

Mercury contamination is not the only reason to avoid high fructose corn syrup. High fructose corn syrup contributes to hunger and weight gain and is suspected of contributing generally to inflammation-related diseases. But mercury may be the most important reason to avoid high fructose corn syrup. Mercury is the most potent of heavy metals, poisoning every part of the body it comes in contact with. Scientists do not consider any level of mercury exposure to be completely safe. The average U.S. consumer could be getting more than 10 milligrams of mercury per year just by eating food containing high fructose corn syrup. That is similar to the level of mercury exposure that consumers are thought to be getting from fish, but while you can avoid mercury from fish by not eating fish, to avoid mercury from high fructose corn syrup would mean reading the ingredients of everything you buy and avoiding most of the foods in the supermarket.

For the moment, that may be the only strategy available. People who are at risk of becoming overweight should avoid high fructose corn syrup anyway because of its link to hunger and weight gain. The threat of mercury poisoning is an even bigger reason to avoid high fructose corn syrup, at least for now.

Friday, January 30, 2009

This Week in Bank Failures

I don’t think bank executives have any idea how little esteem the public holds for their banks. It’s not just that people suspect that banks may somehow be responsible for causing a depression (by the way, there isn’t a depression, and probably isn’t going to be one, but in polls last year, most people thought there was or would be one). People just really don’t like dealing with their banks. If there were a way to not have to ever go to a bank any more, people would want to hear about it. I learned about this as I was trying to explain the “bad bank” concept to people this week. It went something like this:

— What do you mean, a “bad bank”?

— Well, the way I understand it, the federal banking regulators would divide up the assets of a bank. The bank would keep the “good” assets, the home loans and auto loans that people are actually making payments on, and the government would take away the “bad” assets, the mortgages that are in default and so on, and put them in another bank, which they’re calling a “bad bank.” And then, in theory, you leave the bank with just “good” assets, so it can keep operating and not go bankrupt. So then you have what they call the “good bank,” with the good assets, and the “bad bank,” with the bad assets, which the government would be stuck with, and they would have to keep pouring money into it because of all the problems with the bad assets. And if they were really going to do this across the whole banking industry, it would take about 13 trillion dollars, an amount of money that no one has, so it isn’t actually going to happen, at least not on the scale that people are talking about on Wall Street today.

— Would this “bad bank” have checking accounts?

— Well, yes, it would have to, it would have to do all the things that a bank does, but that’s not really the idea.

— But could I go to the “bad bank” with my paycheck and open a checking account?

— The “bad bank” wouldn’t have branches, so you couldn’t just go into an office and open an account, but if you knew someone, and could get your hands on the right forms, I suppose it’s possible . . .

— Well, then, why keep the “good bank”? Isn’t the “good bank” run by the same people who screwed up the bank in the first place? Why not just shut down the “good bank” and we can all go to the “bad bank”?

— I suppose that’s possible, but that would mean the government was running the banking system. Some of the people in Washington would consider that communist, and they would go to great lengths to avoid having things come out that way.

— Whatever. Just imagine how much simpler things would be that way. A “bad bank” wouldn’t ever do anything for you, but it wouldn’t be trying to cheat you either. You know, it wouldn’t change your interest rate for no reason, or cancel your credit card and not tell you.

— Um . . . you might have a lower credit limit, though . . .

— Oh, I know, but I shouldn’t be using my credit card so much anyway.

In other words, many people out there who have only a superficial understanding of banking think that the banks are the problem, and that replacing the banks is the solution. Sort of like in football, after your kicker misses five field goals in a row, you take him out and put in someone else who might do better. I have to admit, this take on the “bad bank” concept hadn’t occurred to me, yet the fact that people are asking about the possibility of a government-run bank tells you how badly the banking industry is doing. That is to say, in their fight to survive, banks are burning a lot of bridges.

To appreciate how bad this is, imagine it this way: The Bureau of Furniture Management is bailing out the furniture industry by taking all the “bad” furniture, including the sofas and tables that couldn’t be assembled correctly when they got to the stores. It collects them at a “bad furniture warehouse.” People come in droves to buy the “bad furniture.” “We’ll never have to go back to our old furniture store again!” they say. Of course, that could never happen. It could never happen in furniture, that is, because people like their furniture stores a whole lot more than they like their banks.

Okay, what this means, after a deep breath . . . to quantify the degree to which customers are unhappy, a bank can ask them whether they would prefer banking at the existing bank, or at a hypothetical new bank. This is a conventional measure of customer loyalty that marketing experts use. If customers show more than the slightest level of interest in a hypothetical competitor that doesn’t actually exist, it usually means your business is in trouble. More than a few banks would fail this test right now. This puts more pressure on the banks. After they survive the financial crisis, they have to keep enough customers to survive the economic expansion that follows. When consumers get to freely choose their banks again, why would they choose your bank? It’s a question that may make bank executives gulp, after they finally get around to asking it.

There were more complaints this week about the way banks are using bailout money, and some of the complaints focus on the business of drugs. Instead of making loans that might help the economy, bailed-out U.S. banks are providing nearly $20 billion in financing for this week’s massive pharmaceutical takeover in which Pfizer is buying Wyeth. Far from creating jobs or getting the economy moving, that deal will eliminate jobs and facilitate the slow-motion disintegration that both companies have been participating in for about a decade. Pfizer announced 8,000 layoffs at the same time that it announced the acquisition, and it is widely assumed that a greater number of jobs will be cut, and whole facilities shut down, after the deal closes. On top of all that, the banks consider the Pfizer deal a high-risk loan, yet they were reportedly lining up to participate.

The New York State attorney general is investigating $4 billion in bonuses paid by the now-defunct Merrill Lynch in December at the same time that Bank of America was seeking an additional $20 billion in bailout money in order to complete the Merrill Lynch deal. If the investigation finds that the bonus payments were irregular, the attorney general may ask the recipients to refund the money. The investigation is also expanding to see whether financial information was improperly withheld from stockholders.

Huffington Post is trying to find out whether bailout money may have been used to fund political campaigns. It focused first on a campaign involving Bank of America and AIG last fall that sought to influence legislative decisions on union organizing, but expanded to ask whether there was a conspiracy to funnel bailout money to any particular political organization. The timing and structure of the Wall Street bailout, as a slush fund with only token oversight set up just as a national election was taking place, raised concerns about this prospect from the outset, but Huffington Post is also concerned about other bailout funds coming from the Fed, Treasury, and FDIC.

The FDIC will make payments by check to depositors at MagnetBank of Salt Lake City. Usually when a bank is closed, the FDIC turns its accounts over to another bank, which keeps the offices running for at least a few weeks. This also saves the FDIC a mountain of administrative work, and it saves account holders from having to send new checks to replace the rent and utility checks that were not paid by their bank before it closed. The FDIC tried to find a bank to take over the deposits of MagnetBank, but there were no takers, so it is forced to make insurance payments directly to the depositors. The checks, for more than $250 million, will be mailed out starting Monday morning.

MagnetBank was apparently well managed but poorly positioned. It launched in late 2005 and was officially headquartered in Utah, but operated mainly from its office in Atlanta, at first concentrating on buying shares in other banks’ larger real estate loans. After getting its feet wet during the two worst years ever for real estate lending, it could not find a way to recover. A management shakeup, change in business model, and layoffs 11 months ago were probably too late to make any difference.

Two other small east coast banks closed in a more conventional way tonight. Deposits at Ocala National Bank in Florida and Suburban Federal Savings Bank in Maryland were transferred to other banks.

Ocala National Bank had four offices, all in Ocala, a small city in north central Florida, about an hour north of Orlando. It is an area that, like most of Florida, has especially high unemployment and a resulting high rate of home foreclosures. Its deposits have been taken over by CenterState Bank. CenterState is itself a relatively small bank, with 12 offices in the area between Orlando and Tampa. In addition to paying a premium of 1.7 percent for the deposits, CenterState is buying about a tenth of Ocala National Bank’s assets. The FDIC will sell off the remaining assets later and expects to bear a cost of nearly $100 million.

Suburban Federal Savings Bank was based in Crofton, Maryland, and had seven offices in the suburban center of Maryland between Baltimore and Washington. It had sought to expand its mortgage lending in 2005. That was bad timing, of course, leading to high loan losses. The bank had so many bad real estate loans that since March it has been operating under an order preventing it from writing most kinds of real estate loans It had been looking for a buyer for months, but was unable to find one.

Its deposits have been transferred to Bank of Essex, a small bank located across the Potomac River in Virginia. Bank of Essex had also acquired the deposits of a failed bank in Georgia two months ago. The shutdown may cost the FDIC around $125 million. That is an unusually high amount for such a small bank, probably indicating that the FDIC had been holding off, hoping Suburban Federal Savings Bank would be able to find a buyer on its own.

Thursday, January 29, 2009

The Clock-Punching Republicans

House Republicans were “feeling pretty relevant” this week as they voted unanimously against an $820 billion supplemental spending plan intended to counter the recession while taking advantage of the lull in the economy to get the government’s work done at a discount.

Yet the Republicans have offered no coherent explanation for their opposition to a plan that is supposed to help the economy, nor have they offered any alternate plan. It looks more like they are voting no out of habit. It’s a ten-year strategy of obstructionism that has seen the Republican Party lose 50 seats in the House, yet they somehow think it will continue to work its magic in its 11th year. Or maybe it’s just a feeble attempt to slow down the Obama train. Yet the result I expect is that the Senate makes a couple of amendments to the bill and passes it, the House passes the Senate version of the bill, and the only relevance the House Republicans will have is the same relevance that people out on the street will have: the opportunity to watch a bill pass without their participation.

It is hard to say what the Republican Party stands for these days. As Rep. Eric Cantor, a Republican leader in the House, said today, “At a moment when the country needs our help, it would be a great mistake for the House GOP to turn inward and simply become the party of ‘no.’” Yet Cantor and the rest of the Republicans are surprisingly mum about what they are trying to do.

It gives the impression of a party that is content to punch the clock — they want to go to the office, sit at a desk, and collect a paycheck, but raising their hands to say, “Yes, we want to solve the country’s problems,” is too much to ask of them.

Wednesday, January 28, 2009

Texting Style: Not So Different

Text messages border on gibberish.

That’s what I’ve heard, anyway. And it is not just said by people who have never seen a text message. But as linguist David Crystal has pointed out, it’s not really true. To see what text messages actually look like, you can go to that text-message home on the web, Twitter. Search at Twitter for a current trending topic, such as Super Bowl, and you see that text messages are formed from the same words as everything else. Even if you have never read text messages before, you will find that, for the most part, you can read them. To be sure, a few new abbreviations have been introduced and some old ones reintroduced for text messages (and a few just for Twitter), but these are not nearly as big as people make them out to be. They are about 1 word out of 20 in the actual text of text messages, which is to say, the average text message doesn't have even one abbreviation in it. My English dictionary from 1975 lists at least 100,000 abbreviations. Compared to that, the 50 or so abbreviations you need to learn to be fluent in texting are a pretty small set, and besides, about half of them are in that 1975 dictionary. It’s not so easy to fit a complete sentence in a text message, but the sentence fragments you see are just like the ones you see everywhere else: in headlines, advertisements, and lists.

The way people sometimes recoil at the new style of text messages isn’t so different from the culture shock people have at visiting another country, even a country that isn’t really so strange. Someone goes to France and comes back saying, “They don’t know how to slice bread over there!” We focus on slight, superficial differences just because they catch us by surprise. Once we get past that, it’s easier to see the many things that are the same, and after a while, we have to ask, “What did we think was so different about that?”

Tuesday, January 27, 2009

Investing in Institutional Strength

The political winds have turned against the excesses of institutional strength.

Bailout recipients John Thain and Citibank learned this the hard way. John Thain, the head of Merrill Lynch who negotiated its sale to Bank of America, has been publicly ridiculed for spending days, and over a million dollars, having his office redecorated in late 2007 and early 2008 even as the company he ran was already visibly collapsing. Citibank said yesterday it would go ahead with plans to buy a new $50 million airplane, then backed down when politicians suggested the Wall Street bailout funds were not meant to be used to flee the country at half the speed of sound.

New Treasury Secretary Timothy Geithner is only on his first day on the job, having been confirmed by the Senate yesterday, but he has already taken steps to limit the influence of lobbyists on the Wall Street bailout money. The new lobbying rules came after revelations over the weekend that companies had spent billions of dollars lobbying for bailout money. In effect, it means that a significant part of the bailout money is going to lobbyists.

In economic terms, lobbying can be understood as an investment in institutional strength. The same can be said for the airplane Citibank was considering and the $87,000 area rug Thain is said to have bought with Merrill Lynch’s money. These incidents are emblematic of what has gone wrong with the U.S. economy in recent years. Companies have been spending too much on institutional presence, or power, and not enough on the substance of their businesses.

The reason for investment is supposed to be that it creates productive capacity. Investments are supposed to make it easier for workers to get work done. But when you have a corrupt government that rewards institutional power, it’s only natural that businesses will invest in institutional power — instead of investing in productive capacity.

There are troubling indications that many of these businesses are continuing to invest in institutional strength at a time when productive capacity is desperately needed and when the government is signaling that businesses will have to pull their own weight. Some of the largest businesses want the world to think of them as essential, but they can’t be bothered to get their work done. The result of all this investment in institutional strength, I am afraid, will be a series of “mighty” companies in bankruptcy liquidation, as their executives are subpoenaed to explain what happened.

Monday, January 26, 2009

Cardboard Boxes in the Credit Bubble

The credit bubble claimed another victim today as Smurfit-Stone Container Corp. filed for bankruptcy protection. This is a move that must shock much of the business world. That’s because Smurfit-Stone, one of the world’s largest cardboard box makers, was a company that was making a profit and was not thought to be deep in debt. It had debts amounting to less than a year’s revenue, which ordinarily is considered safe ground for a business corporation. But its debt load was too high for it to get through 2009. What this says to the corporate world is that operating on credit is out of style.

It’s the same thing consumers have been grumbling about since early last year: if you owe more in unstructured debt, such as credit card debt, than you can pay off in two or three months, you’re living on the edge. The banks could decide you can’t continue to borrow the money, at least not at the same interest rate. Then you may owe money with no way to pay it back.

That’s essentially the situation Smurfit-Stone found itself in. In a normal year, it would just go to a bank and take out a new loan to replace the old loan that was expiring. This year, the banks are operating differently, and Smurfit-Stone was forced into bankruptcy.

For two years, we’ve been hearing about banks shoring up their balance sheets. Now, ordinary business corporations will be doing the same thing, cutting back on expenses and seeking new capital to pay off debts, reduce their leverage, and reduce the risk of becoming insolvent. Business corporations are obligated to protect their stockholders, so the most important thing they can do is stay out of bankruptcy, and in times like these, that means not leaning too heavily on the banking system.

In economic theory, when everyone is trying to deleverage at once, it’s not pretty. With every business trying to borrow less and spend less, there is less spending in aggregate, and a decline in total economic activity — we’re talking about a painful, prolonged recession. But it’s hard to see what the alternative is for a world coming out of a credit bubble.

Sunday, January 25, 2009

Preparing for a Time of Day

The brain works differently at different times of day. Usually this is just a scientific curiosity, but it becomes a practical consideration when you are preparing for a performance. A performance isn’t just a juggling act or a competition. It could be any situation in which you have to deliver results in a limited period of time. Anything you prepare for is a performance. You’ll be better prepared if you do some of your preparation at the same time of day as the performance.

For example, if you will be taking a test at 8 a.m., don’t do all your studying late at night. Do some of the studying in the early morning. That way, you’re likely to remember much of the material when you sit down for the test. Of course, this means you need to start preparing at least 24 hours before the test.

Theater groups know about this, and the tradition in theater is to run the last one, two, or three rehearsals just like an actual show, on the same stage with the same curtain time if possible. If the show goes through one of these dress rehearsals well, the company can be confident that it is ready to do the show for an audience.

Saturday, January 24, 2009

The DTV Delay Bill

Congress is talking about delaying the transition to digital television again. If the new Senate compromise goes through next week, the transition will be postponed from February 17 to June 12.

In delaying, Congress is seeking to protect the broadcasting industry and the advertising industry that so depends on it. The worry is that about 5 million households won’t bother making the transition to digital television broadcasts. For a household without cable service, the transition to digital can cost about $100 and can be expected to take a few hours of errands and tinkering, and facing that prospect, many people might be willing to let their televisions go dark. But once the television is off, getting it on again becomes less of a priority. Television advertisers could lose millions of viewers permanently. Congress is seeking to reduce the number of viewers lost by giving people a few extra months to buy and install the new digital hardware.

The proposed four-month delay won’t make much difference, though. If anything, the declining economy will find consumers even tighter with their money in June. And with all the summer outdoor activities to go to, television will be less of a priority than it is now.

Friday, January 23, 2009

This Week in Bank Failures

One week ago, when I learned of riots in Riga, I thought, “That’s crazy. That’s like saying there are riots in Reykjavik.” Well, now there are riots in Reykjavik. A crowd of more than 2,000 people, or nearly 1 percent of the country’s population, has been occupying a square in the center of the capital of Iceland to prevent its parliament from meeting, and could have been a factor in the prime minister’s call today for early elections. All this is the result of the spectacular collapse of Iceland’s banking system last fall and government’s lack of response to a crisis that has left half of the country’s homes and businesses effectively bankrupt.

Across Europe and in the United States, major banks reported new troubles this week. There were calls from Wall Street for the U.S. government to let struggling banks go under and send future bailout money to other banks that might be willing to make new loans. Another proposal called for banks receiving government assistance to shut down all their offshore operations — this coming after vague reports claiming that billions of dollars in bailout money has been moved to offshore tax havens.

President Barack Obama does not yet have a Treasury Secretary, with a vote on the nomination of Timothy Geithner expected Monday, so it is too soon to add up the new administration’s approach to the banking system. Geithner made waves, though, with his assertion before the Senate that China is manipulating its currency. No one can tell whether Geithner was simply confused or was trying to pressure China to start liquidating its U.S. dollar reserves, and in the latter scenario, no one has suggested what he might hope to accomplish by doing that. If the Obama administration will be pursuing a weak-dollar strategy, as this interpretation of Geithner’s comment suggests, that would add to the pressure on China’s already fragile manufacturing sector and add to the risk of a depression there. It would also add to the pressures on the U.S. banking system, but on the other hand, it would make it easier for foreign investors to acquire and recapitalize the banks. Is Obama’s strategy to salvage the U.S. banking system by turning much of it over to foreign owners? I’m sure the policy directions will become more clear in the coming weeks.

A southern California bank, 1st Centennial Bank, was closed tonight. The FDIC transferred its insured deposits to another southern California bank, First California Bank, which is paying a 5 percent premium for $664 million in deposits and also purchasing almost $300 million of liquid assets from the failed bank. The FDIC expects its cost to dispose of the other assets of the bank to be $227 million. Depositors also lost $13 million in uninsured deposits.

First Centennial Bancorp, the holding company of 1st Centennial Bank, had issued preliminary financial results on Tuesday, including a statement saying it was critically undercapitalized and casting doubt on its ability to continue operations. Like the other banks from the inland part of southern California that closed recently, 1st Centennial Bank had problems tied to real estate development loans. The large numbers of unsold houses, in a region where nearly all home sales now are from foreclosures, left developers unable to make their loan payments.

Thursday, January 22, 2009

Why Web Sites Need Stronger Passwords Now

There is a new trend in Internet crime: criminals breaking into web sites by guessing passwords, then installing cross-site scripting (XSS) exploits on the compromised web site’s pages. That in itself is nothing new, but the process has been automated somehow, so that apparently millions of web sites have been broken into in recent weeks. This forces a change in the way we handle web site passwords. It also calls for a change in web browsers.

It is more important than ever for a web site to have a strong password. The password of a web site should not be a single word or an obvious combination of two words. We can say now, it should also not be a combination of words that appear on the web site.

Just three years ago, we were encouraging people to form strong passwords by combining two unrelated words, as an improvement over single-word passwords. That strategy can still work, but it does not form a strong password if the words, or the combination of them, is obvious. A single word is too obvious because there are only a million words in common use on the Internet. A break-in program can try a million passwords in a blink of an eye. Yet if you think of an ordinary company or musician web site, it has fewer than 30,000 distinct words. These words form fewer than a million pairs of words, so the combination is still too obvious to use as a password.

So many web site passwords have been compromised that some web hosts have gone to the trouble of resetting all passwords. In truth, it would be hard to find out if someone had broken into your site. You would find out only if someone happened to notice the small and sometimes temporary changes in the web code, changes that would not be visible in the web pages themselves. And so the old suggestion of changing passwords periodically still applies — even for web sites on which the pages themselves barely change from year to year.

Web browsers could go a long way toward stopping this problem by giving users the option of disabling cross-site scripting, a practice of including on a web page in one domain a JavaScript routine or Flash application stored in another domain name. Cross-site scripting is a problem because it means you can’t make the Web secure by securing one domain at a time. Yet cross-site scripting is routinely used to place objects such as advertisements on web pages. I use it, or something like it, to place YouTube movies on this blog. The attempts at XSS blockers so far have had limited success because they have tried to distinguish between legitimate scripts and XSS exploits that are meant to damage a web page in order to gain access to user data. There are, however, browser add-ons to block all scripts. It shouldn’t be that much harder to block all scripts that don’t come from the same domain as the web page or from a list of known good domains provided by the user. And I think you could make a case that that should be the default behavior of a web browser.

Wednesday, January 21, 2009

Stopping the Midnight Giveaways

There has been entirely too much talk about Obama’s first 100 days in office, considering that he is still on his first full day. However, he has already done several things that will make a difference over the next few years. One of his first official actions was to freeze pending federal regulations so that they can all be reviewed. Some of these “midnight regulations” from the final days of the Bush administration doubtless contained unnecessary giveaways to specific industries. One rule that had drawn criticism was intended to prevent hospitals from firing workers who refused to work, if the work had anything to do with birth control. That would have created a bureaucratic mess for the already struggling health care sector, and it is hard to say who would have benefited. But it is the regulations we don’t know about that pose the greatest risk, and delaying them allows time for people to go over them, to make sure they are legal and are written in a way that will benefit the country as a whole.

Tuesday, January 20, 2009

Erasing a Leadership Vacuum

In a few hours, the United States will have a new president. The pundits are talking about the high expectations that Barack Obama faces, but in a more meaningful sense, the bar has been set very low. That’s because Obama is taking office in a leadership vacuum that has gone on so long that people have forgotten what a little bit of leadership can accomplish.

Obama replaces a man who was not a leader so much as a dissenter, a resister, who thought America’s strength came not from action but from standing firm against it, whose reaction when the country was attacked was to run and hide for a day, whose defining political issue was a plan to phase out Social Security for most of the country while keeping it for himself. He was surrounded by people who didn’t think twice about breaking the law, who were ready to give up and move on when things got tough, who put compromise before principles, who were frightened of change. The absence of direction from these supposed leaders was so pervasive and so extended that many came to accept it as normal, but it is anything but normal.

Obama might turn out to be a visionary leader, a thinker with great ideas, as many are hoping, but it does not take any particular kind of person to erase the leadership vacuum he is stepping into. If the new president is merely willing to give his stamp of approval to the good ideas that come along and to allow progress to take place, that in itself is enough to change everything. Obama may, indeed, have been hinting at that a year ago when he suggested that the change he was campaigning for would not come from him personally, but would originate in all the people of the country.

The United States has just been through a period in which people were reluctant to talk about change on the telephone for fear of being heard by the NSA and whisked away to a foreign country by the CIA. But that period is over. Now imagine what can happen if ordinary people, people who may not necessarily have the courage of an Arianna Huffington or the vision of a Deepak Chopra, can talk openly about the work that needs to be done. When a country’s institutional leadership is not resisting the solutions to the country’s problems, a solution can come from anywhere. Many of these solutions have just been waiting for a chance to come out in the open. This year they may all hit at once. I know Obama will do more than just cheer us along, but if he were to do only that, it would be enough to show us how much difference leadership can make.

Monday, January 19, 2009

The Better Shredder

Shredding documents is all in a day’s work at many companies. It’s a way of protecting sensitive information. Whether it’s working designs or customer lists, if it’s on paper, security rules call for the paper to be physically destroyed before it leaves the site.

But what if you could attach a miniature gasification plant to the shredder, so that the shredded paper gets turned into a kind of natural gas, which then can be used as a power source? You would make sure the documents were really destroyed, and generate heat or electricity at the same time. That’s the idea behind the mobile gasification units now being offered by IST Energy.

By shrinking a gasification plant to make it fit in a trailer, they can install it at a building site. According to IST Energy, the process is so efficient that the million-dollar unit can pay for itself in less than five years processing ordinary office trash. That’s if you feed in three tons of trash a day, the maximum amount the unit can process, and easily within the range of paper trash coming from a corporate office building. Part of the benefit is eliminating (or reducing by 95 percent) the need to haul trash away.

Businesses will, of course, be skeptical of the financial claims, and not every business will be able to spare the three parking spaces the unit takes up. Yet businesses that need to shred tons of documents anyway may be the first to give the idea a try. They’ll get the sensitive documents not just shredded, but gasified, onsite, leaving not the slightest chance that anyone might try to put the paper shreds back together. For some companies, that will be reason enough to give an on-site gasification plant a try.

Sunday, January 18, 2009

The Terabyte Challenge

Computer stores have started to advertise 1.5 terabyte drives. The standard hard disk drive is now the 1 terabyte drive, which you can buy for about $100. What this means is that we have finally reached the point at which the average computer user can use a computer for years without any particular concern about running out of disk space.

My first brush with a terabyte came years ago in one of my most highly visible computing projects. I was involved, along with nearly a hundred other people, in creating a data warehouse for one of the largest banks in the world. This project would, for the first time, give the bank’s marketing analysts ready access to the complete body of customer data. The gee-whiz aspect of this project, from the computer industry’s point of view at the time, was the size of the data. After the historical data was all loaded in, a process that was expected to take almost a year, the size of the database would be one terabyte. There was no computer that could comfortably process a terabyte of data, so we split up the work among a room full of computers that cost, we were proud to say at the time, less than half a million dollars.

So when a terabyte is the most ordinary hard disk drive, a 3.5 inch drive that weighs about a kilogram and fits in just any desktop computer, it says that times have changed.

What does it take to fill up a one-terabyte drive with your computer files? Here are some comparisons, for perspective:

  • A terabyte is a million megabytes. An average novel fits in a megabyte. If you read one novel a week for a year, those novels could take up 50 megabytes on your hard drive. That’s just 1/20,000 of your one terabyte drive.
  • A current high-resolution photo, lightly compressed, takes up about 2 megabytes. If you took 40 photos a month, after 10 years you would fill up just 1 percent of your one terabyte drive with photos.
  • A typical major computer application takes up 100 megabytes. If you learned one new application every week, in ten years you could fill up 5 percent of a one terabyte drive.
  • A typical music album takes up 50 to 150 megabytes depending on the compression scheme. If you had 1,000 albums in your music collection, it might still fill up only a tenth of a one terabyte drive.

To fill up a one terabyte drive, you have to do something unusual, such as:

  • Having a software failure . . . and letting it run for hours.
  • Keeping business data . . . for a Fortune 500 company.
  • Collecting a huge music collection . . . that you store uncompressed.
  • Making a feature film . . . that’s more than 2 hours long.
  • Watching TV shows on your computer . . . and never deleting any of them.

I’m sure people will come up with other ways, but you get the idea. You can basically put your whole life on your hard drive. Of course, that brings up another question: what happens when people start to do that?

Saturday, January 17, 2009

Begging for TARP Money

I’m in the process of turning my blog into a bank holding company.

I can’t help it. I want some of that TARP money the Treasury is handing out.

As a blogger, I’ve lent my name to dozens of worthwhile causes just in the last year.

I’ve often been seen lending a hand when people are doing something, or lending an ear when someone has something to say.

But now, I’m undercapitalized, and I won’t be able to carry on lending of any kind without a government subsidy.

I’m still working out the paperwork of getting my blog recognized as a bank holding company, but the day I get that taken care of, the Secretary of the Treasury is going to have my application for a federal bailout. In my application, I’ll be explaining everything I’ll be doing to get the economy moving again.

Now, some might say that my blog is not a real bank, and that I’m just trying to pass it off as a bank so I can get bailed out — that I’m no different from all those other banker-come-latelies out there.

All I can say in answer to that is that I am not asking to be recognized as a bank holding company, or for the $8.4 billion capital injection that I will be requesting in my TARP application, for my own personal benefit.

I’m just trying to do my part to help the economy.

Friday, January 16, 2009

This Week in Bank Failures

The largest U.S. banks looked disheveled today. Citi this morning reported an $8 billion quarterly loss and announced a sketchy plan to divide Citibank into two operating companies, one in banking and the other in investments, after splitting off its brokerage franchise. Bank of America lost $2 billion — and walked away with a backstop deal from the U.S. government (the Treasury, FDIC, and Fed each kicking in billions), a giveaway nearly as large as the $100 billion Citi got a couple of months ago. In spite of these moves, investors’ doubts that the banks can survive in their current form sent both banks’ stocks down all week, each losing nearly half its market value between Monday and Friday. And they were not alone. The bailout index closed at 724 today, down 28 percent in the two weeks since Nasdaq created it.

Another banking giant, JPMorgan Chase, showed the same kind of financial weakness that we saw in Wachovia one year ago. The profit JPMorgan Chase reported was a profit in name only, coming entirely from $1 billion in accounting gains from its purchase of Wamu. A near-break-even quarter for JPMorgan Chase wouldn’t be a concern at the end of a recession, but with the recession just getting rolling, it is, as JPMorgan described it, “very disappointing.”

The sight of riot police on the streets of Riga, the capital of Latvia, Wednesday served as another reminder of the extent of the financial crisis. After the collapse of an Iceland-style banking bubble and a housing bubble more extreme than California, worried Latvians have been demanding political reform. Even so, the report of rioting in Riga is unexpected. Latvia is, after all, a country that managed to navigate the breakup of the Soviet Union without this level of unrest. By tonight, the protests had spread to Bulgaria and Lithuania.

After a month-long gap, the FDIC oversaw its first two bank closures of 2009.

National Bank of Commerce, a community bank with two offices in the western suburbs of Chicago, was closed tonight. The FDIC transferred the deposits and sold most of the assets to Republic Bank of Chicago, a larger bank with 10 offices around the Chicago area. National Bank of Commerce had just over $400 million in deposits, according to the FDIC. Republic Bank of Chicago is buying the assets at a 12 percent discount and leaving the FDIC with $45 million in assets to sell separately.

An independent study released a week ago said that National Bank of Commerce had the lowest capital levels of any financial institution in the United States, according to one financial measure. The Office of the Comptroller of the Currency (OCC) said tonight the bank was “critically undercapitalized.”

In Vancouver, Washington, a city on the Columbia River across from Portland, Oregon, Bank of Clark County was closed, and the insured deposits turned over to Umpqua Bank. Bank of Clark County had two offices and deposits of $366 million. It had been open for nearly 10 years.

Umpqua Bank is a regional bank with nearly 100 locations in northern California and Oregon, along with three in Washington, including one in Vancouver. In addition to the deposits, Umpqua Bank is acquiring $30 million in liquid assets of the closed bank.

The Washington Department Of Financial Institutions (DFI) said the faltering economy had hurt Bank of Clark County’s loan portfolio, leaving it without enough capital or liquidity to operate.

Tonight’s two bank closures are likely to cost the FDIC almost $200 million. In addition, owners of uninsured deposits at Bank of Clark County have lost an estimated $39 million.

Thursday, January 15, 2009

Steve Jobs Lives

My best wishes go out to Apple CEO Steve Jobs as he goes on a five-month leave of absence for health reasons.

At the same time, I want to express my dismay at reading and seeing otherwise reputable people taking Jobs’ absence from the public eye in recent weeks as an excuse to spread rumors that he was on the verge of death, then using the announcement of the leave of absence as a reason to say, “I told you so.” I want to remind these people of the spiritual cost of aligning themselves with the idea of the death of a living person, particularly a person who is known for creating things. And I want to emphasize to them how very unseemly it appears to the world when they seize upon the rumors and speculation about the possible death of a person as an opportunity to promote the products of a competing company.

History records the efforts of those who create something new and useful. There is very little history can say about those who sit idle as they wait for a competitor to die.

Wednesday, January 14, 2009

Separating Energy Prices From Economic Trends

Energy prices are distorting economic statistics and could easily give some people the wrong idea about what is going on. A year ago, between December 2007 and June 2008, spiking energy prices gave economic statistics the appearance of a boom in a time when the U.S. economy was faltering. Now, in the statistics for the last three months, the collapse in energy prices gives the appearance of an economic collapse, when so far, the economy is only pulling back.

In the first half of 2009, energy prices are likely to edge upward, allowing some observers to imagine that an economic recovery is taking hold. Small pieces of the recovery are underway already, of course, but it is not a recovery in the aggregate until the economic measures increase above the level that energy price increases push them to.

Today’s retail sales report shows a decline in sales for December. December retail sales were nearly 10 percent below the levels of a year ago. That sounds like a depression, but it is not as bad as it sounds. Much of the decline reflects lower energy prices. In December 2007, gasoline was $3.00 a gallon. In December 2008, it was $1.70 a gallon.

With energy prices changing so rapidly, it is harder to pick out the economic trends. But it is still possible to do. The decline in gasoline prices is not the only reason gasoline station sales are down. Drivers are also driving 3 percent less, mainly because of the job losses. People can drive to work only when there is a job to go to.

Excluding automobiles and motor fuels, retail sales were still down in December. The holiday shopping season came earlier than in the past, and that too makes the December numbers look worse than they are, but also makes the November numbers look better than they are. Retail totals have declined every month since June, but in that series, November is the month that held up the best, as you would expect with the bump from holiday shopping.

And there is more bad news for retail: it’s January. U.S. retail sales tend to be weak in the first three or four months of every year. If consumers remain cautious, or if job losses keep piling up, the downward trend in retail could easily continue for several more months.

Tuesday, January 13, 2009

Talk About Google With No Sense of Scale

A haphazard physics analysis, mischaracterized in the press, then echoed uncritically on television and online (at BBC, CNBC, and elsewhere) show how badly wrong you can go when you approach a problem with no sense of scale.

Times Online, which appears to have invented most of the story, talks about “more than [200 million] internet searches . . . daily.” They do not say where they got this measure, but it is so obviously wrong that it does not belong in a serious discussion of the subject. If there are 1.5 billion Internet users, an estimate from last year, then 200 million web searches per day would mean the average web user conducts less than one web search per week. Having seen Internet users conduct 10 Google searches in less than a minute, and knowing that for some users, nearly every Internet interaction begins with a search, I would guess that the number of searches is closer to 100 per Internet user per day. Most Internet users do fewer searches than this, I believe, but there are also many who exceed 1,000 searches per day, and they bring the average up. If my guess is correct, the number of Internet searches is 150 billion per day — about a thousand times as many as the Times Online suggests.

If you are so removed from a subject that you cannot catch such obvious errors in scale, your chances of reaching a meaningful conclusion from your analysis are virtually nonexistent. That approach only leads to other nonsensical statements, such as this non sequitur just a few sentences later in Times Online: “Banks of servers storing billions of web pages require power.” This picture might sound plausible, but let’s take a look at it using a sense of scale.

The data size of a typical web page, not counting video, music, and slideshows, is about 100 kilobytes. A billion of these web pages would occupy 100 terabytes. A terabyte is a garden-variety hard disk drive these days, selling for $100, occupying a space about the size of a video cassette, and using, when active, perhaps 5 to 10 watts, not nearly enough heat to burn your fingers if you touch its case while it is operating. If we’re talking about a hundred of these, to store one billion web pages, we are not talking about “banks” of computers, but one rack of equipment with a size and power consumption similar to that of a large guitar amplifier.

But wait. Many web pages, including blog pages, classified advertisements, and news stories, are stored in data form. The stored size of the page is much less than the size of the web page you see. So we can take that pile of equipment and cut it in half, at least.

Yes, there are banks of computer equipment in Internet data centers — but the need to store web pages is not why they are there.

The Times Online story’s widely cited conclusion says that an average Google search “generates about 7g of CO2.” This figure too is so far off that anyone with a sense of scale can reject it offhand. Seven grams or 3.5 liters of carbon dioxide is much too big in material terms to result from something so small and ephemeral as a web search. Looking at it more closely only confirms how far off it is. In the worst case, 7 grams of carbon dioxide are generated when 7 watt-hours of electricity are generated. One watt-hour is enough electricity to operate a computer, excluding the monitor, for at least a minute. It is fair to guess that Google (or any other search engine) might use 10 or 20 computers to respond to your search request, but it uses them for a very short time, on the order of one thousandth of a second. Just as important, these computers are capable of doing hundreds of other things during the same time period. No matter how you look at it, the energy cost of the video screen on which you see the search result is far greater than the energy cost of the search itself — all the more so if you take a minute or two to study the search result.

There is a large energy cost in computing, but it is not particularly found in the data centers. Rather, most of the energy we use when we use computers goes to drive the video display we are looking at. We saved a fortune in electricity by switching from CRTs (around 300 watts) to flat-panel displays (around 100 watts), but the power consumption of other computer components fell at the same time. Today’s 1-terabyte drive uses half the power of the 1-gigabyte drive of a decade ago. A desktop computer, excluding the display, may use about 15 to 50 watts; portable computers use considerably less. A computer that is asleep uses a fraction of a watt. This means that the video displays still take up the lion’s share of the power, when it comes to computers. When you look at it this way, the whole concept of the energy cost of a web site is almost meaningless. You are using nearly the same energy no matter what web site you look at, or even if you are just writing a letter, simply by virtue of having the computer display on. And if you have a ceiling light on too, that could double your energy consumption.

Google exaggerated its own energy use in its response to this story. A search uses “0.0003 kWh” — but they had to have thrown in lots of unrelated energy uses to get a number that high, not just a share of the energy used to create the search database, but probably the lights and air conditioning for the offices at the Googleplex too.

The engineers who design and operate the larger data centers have a powerful incentive to reduce their energy use — an electric bill that comes out of their monthly budget, in direct proportion to the electricity they use. For the rest of us, the power used in data centers is small enough that we don’t need to worry about it.

Monday, January 12, 2009

Shellacked At the Auto Show

My latest stint at Chrysler might have been short-lived, but my automotive résumé was enough to get me into the big Auto Show one more time. Ironically enough, I wasn’t with any of the automobile companies this time. Instead, I was a spokesmodel of sorts for a bank I had never heard of. It occurred to me that I might mention my long history in the banking industry, but I thought better of it, as several of the banks I had worked for had already kicked the bucket, and there were whispers all day that one more was on its way out the door. Besides, knowing the difference between prime and Libor wasn’t going to make much of a difference in this job.

“Just tell everyone who will listen that auto loans are available,” the bank’s marketing director, a jaunty woman half my age, told me. “Tell them we’re lending. If anyone is curious, whisper that we have friends on Wall Street who have figured out how to slip auto loans into the mortgage-backed securities that the Treasury is buying. And above all, keep smiling.”

“Will do,” I said, half suppressing a laugh.

And so there I was at the big show, except that it wasn’t nearly as big as I remembered it, talking about auto loans all day long and smiling at everyone, no matter how depressing the conversation about the automakers got.

“Jimmy says he might run out of money as soon as next month,” one of my former coworkers told me, loud enough for at least five reporters walking by to hear.

“Well, we’re making new car loans left and right,” I replied, beaming. “If that won’t turn things around, I don’t know what will.”

“Yes, even if your company goes bankrupt, you can still qualify for an auto loan,” I told one skeptical assembly worker. “How can we do it? The government’s mortgage bailout now includes new car loans,” I whispered — well, okay, I was not really whispering, but shouting a little less loud over the Kid Rock music blasting nearby. “We’re the first bank to qualify for this new program.” I knew I was ad libbing and had wandered slightly off script, but I figured there was very little chance that I would get in any trouble for it.

“Loan or not, I think I’ll have to wait a few years to buy a new car,” he said. A lot of people were saying the same thing.

At the end of the day, when most of the attendees had already wandered out of the hall, a man came over with a paint sprayer that looked a little larger than what you would use to paint a fender. “We’re making new car loans left and — hey, what are you doing?” The man had walked right past me and was spraying some kind of clear paint on the ten-foot logo behind me.

“Didn’t you hear?” he said. “The word is, the whole auto industry is getting shellacked.”

But I’m not with the auto industry,” I said, making sure I kept smiling. “We’re in more like the financial sector. This is, you know, a bank.”

“Oh. Oh. That’s different,” he said, as he stepped back and waved his arm at a backhoe that was driving by. “Hey, Tommy, here’s one,” he shouted. “Here, you’d better stand back,” he said, as he took me by the arm and led me several steps away as the backhoe operator made short work of the aluminum frame that had been holding up the nylon banner with the bank’s logo, and then the rest of the bank’s booth.

“What’s going on?” I asked.

“Well, the auto industry might be getting shellacked, but the financial sector is getting leveled,” he said. Meanwhile, the booth I had been standing at all day had turned into a heap about four inches high.

“Oh, yeah, I think I heard something about that,” I said, still smiling.

A security guard walked up. “Hey, did you hear about our new car loans?” I asked.

“Yeah, I did,” he replied. “It’s really a shame.”

Update: On Friday, January 16, Chrysler Financial got a $1.5 billion loan from the Treasury to make auto loans. I didn’t have advance knowledge of this and wasn’t referring to Chrysler Financial in my story.

Sunday, January 11, 2009

Football Reloads

The experience of watching a football broadcast is not the same now that the two big product categories that for years paid for football on television, beer and pickup trucks, have fallen on hard times. There is still the occasional commercial for beer or a car, but not all game long the way it was three years ago.

Commercials for insurance, business software, weight loss programs, and mattresses helped fill the gaps, but these don’t necessarily have the same good-time, hard-hitting, rev-it-up feeling. The commercials can clash with the style of the game broadcast. If these are the new sponsors of football on television, the networks may have to come up with new music and graphics to better connect to the style of the commercials. Meanwhile, commercial directors will look for more energetic ways to tout the products they are now trying to sell during football games.

This may not be the most serious example, but it shows how one adjustment in the economy leads to other adjustments. It can take some time to get the new order to go together smoothly.

Saturday, January 10, 2009

Gasoline and Employment

The main reason for the decline in world oil prices is a decline in U.S. use of petroleum. The United States is importing less petroleum because Americans are driving less. Americans are driving less because employers have cut millions of jobs, and fewer Americans are driving to work.

There are other market forces involved, but it’s easy to pick out a connection between the job losses and the decline in gasoline prices. This also means that the world oil supply is a limiting factor on the U.S. economic recovery. The economic problems became a crisis because of the high price of energy. In essence, the economy ran out of steam because we couldn’t pay for all the gasoline.

If the economy halfway recovers, rising energy prices may prevent it from completing the recovery. But the good news is that even a half-hearted move away from oil may be enough to keep oil prices in check, at least for a few years. A 20-year transition to electric or hydrogen-burning vehicles, along with incremental improvements in other areas, might be fast enough.

It’s reason enough to make batteries and other power technology a bigger priority. We learned in the 1970s how severely energy can limit the economy. We now have the technology to overcome those limits. As Neil Young has been pointing out for months, there is no need to wait.

Friday, January 9, 2009

This Week in Bank Failures

No bank failures were reported tonight, but I don’t know of anyone who thinks the run of bank failures we’ve seen over the past five months is about to stop. The federal agency that does most of the hard work when a bank fails, the FDIC (Federal Deposit Insurance Corporation), has given itself an operating budget twice as large in anticipation of more work to come this year. It has also changed some of its rules in recent weeks in ways that seem intended to make its work easier.

The FDIC has already used one of those rule changes to sell IndyMac Federal Bank, the largest bank to fail last year, to a private investment group. In a deal announced January 2 and likely to close in February, IMB Management Holdings will buy and operate IndyMac. A group of seven investors, most with Wall Street ties, formed IMB Management Holdings. The investors plan to kick in enough additional capital to keep the bank solvent.

On the surface, it looks like a pretty good deal for the FDIC, which can’t afford to delay in selling off assets because of the possibility that its pool of assets from failed banks could continue to grow as the year goes along.

The U.S. Treasury has put an astonishing amount of money into bailing out some of the largest banks, and Nasdaq on Monday launched a new index to track those banks. The new bailout index, officially called the Nasdaq OMX Government Relief Index (symbol QGRI), includes all companies that have received at least $1 billion in bailout money from the Treasury’s Troubled Asset Relief Program (TARP), with the companies equally weighted. More companies will be added as more bailout money goes out. The index started at 1,000 and by this morning had fallen 7 percent to 924.

Some have started to ask why Washington has had so few questions about the financial crisis that last year caused the end of an era on Wall Street and brought down so many banks. The New York Times on Monday asked “Where Is Our Ferdinand Pecora?” suggesting that Congress might use its subpoena power to get to the bottom of the financial problems, as it did in a series of hearings in 1933.

Thursday, January 8, 2009

Cutting Corners on Ingredients

The recent trend toward food quality in restaurants may have to take a back seat to the financial survival of many of the restaurants this year. Restaurants are cutting back not just by serving smaller portions, but by substituting second-rate ingredients.

Of course, they don’t want to be obvious about it, so portion sizes are only perhaps 10 percent smaller, and most of the ingredients are the same. Still, the few ingredients that are changing can make a difference in the quality of a meal. I am seeing cutbacks in areas such as sauces, vegetables, and oil. At restaurants that last year were making a point of cooking in healthier oils, often canola oil, I have recently seen food cooked in a blend of oil that consisted mostly of the cheapest oil they could get. At restaurants that used to take pride in such things, I have recently been served sauces and salad dressing that were, to be kind, basically grease. And the bits of vegetables that used to dress up most of the entrees have all but disappeared from the menus of some popular restaurant chains.

It has always been the case that you stood a better chance of getting a meal you could live with if you bought the ingredients at a store and cooked them yourself, and that may be more true this year. And you save money and time by cooking at home. You might think you save time by having a restaurant cook for you, but restaurant meals can easily take two hours, yet if you make the same kind of food yourself, making it the way you want to make it, you can usually put it together in less than an hour. To make a profit for the restaurant, after all, an entree has to be something that takes less than five minutes of attention from the chef.

One of the ironies of this comparison, when you start looking at it, is that the same ingredients that restaurants are cutting back on are not so expensive when you buy them yourself. Where the restaurants have to cut corners, you can spend the extra 10 cents for real butter, or the extra 15 cents for premium salad dressing. For the price of a restaurant’s tuna salad sandwich, you may be able to buy a whole tuna, if that’s what you want.

No matter what they try, some restaurants will have to close. Ruby Tuesday’s is in the middle of closing 40 locations this winter, with 30 more to follow as leases expire, and if they have to cut back, other chains are likely to shut down completely. Recessions have always been tough for restaurants, and this one, so far, is no exception.

Wednesday, January 7, 2009

Announcement Season

This was one the longest news holes in recent memory. In the United States, people’s attention was distracted by the Olympics, the political conventions, hurricanes, the banking crisis, the presidential election season, and the holidays, in rapid succession. It was a tough time for those who had something new to announce, because it was hard to squeeze your announcement in amid all the noise.

That’s why I expect to see a flurry of new products and other announcements this month as people who saved their announcements finally get them out. Already I’ve seen more than a month’s worth of new technology. One example is a cord that lets you plug an ordinary guitar directly into an ordinary computer. It’s nothing earth-shattering, but then again, if you had a big announcement that would surprise everyone you could make it any day you chose. It is the smaller stuff that could get lost on a busier day that we’re likely to be seeing more of in the coming weeks.

Tuesday, January 6, 2009

My Food Diary

This is the year when people are really going to lose weight, if the response to yesterday’s post about food diaries is any indication. Several people wanted to see an example of a food diary, so here is my actual food diary from yesterday:

  • Rick Aster
  • Monday, January 5, 2009
  • Breakfast
  • Oatmeal and chocolate chips, 240, $.27
  • Lingonberry juice, 100, $.18
  • Morning
  • (none)
  • Lunch
  • Dates, 150, $1.05
  • Cookies, 120, $.23
  • Afternoon
  • Cheese, 120, $.80
  • Potato chips, 270, $.44
  • Candy, 160, $.28
  • Supper
  • Chili and cheese, 620, $3.77
  • Apple cider, 160, $.55
  • Potato chips, 70, $.24
  • Dates, 50, $.35
  • Candy, 200, $.35
  • Evening
  • Candy, 120, $.21
  • Total, 2380, $8.72

I listed the items, calories, and cost over the course of the day, then totaled calories and cost at the end of the day. Please don’t take this as an example of what to eat, but as an example of how to keep a food diary. You can have a long list because many of the things you eat are small. Resist the temptation to group unrelated foods together or to leave out things just because they are small. If you eat just one potato chip, go ahead and write that down. It’s easier to be accurate that way.

Monday, January 5, 2009

The Economic Diet

The new year brings with it the idea that things can be different. People set new year’s resolutions to tap into this energy of change. The most popular new year’s resolution, now that not so many people still smoke, seems to be a weight loss goal — at least the multibillion dollar diet and fitness industry says so. For those who are setting about losing weight, I want to tell you about the only weight loss strategy that I have seen work for everyone who has tried it, along with a twist that makes it even more effective.

The weight loss strategy that seems to work for everyone is keeping a food diary, in which you write down everything you eat or drink, along with an estimate of the food energy it contains (usually called “calories” here in the U.S.). You won’t remember everything at the end of the day, so you have to carry a book or notepad with you throughout the day. At the end of the day, you can see a list of everything you ate, and you can calculate the total food energy you took in.

This is a familiar technique, and I add an extra dimension that often makes it work better, especially this year as many people are trying to save money: also write down how much everything cost. Then, at the end of the day, you can add up the total cost of all the food you ate. The food diary you end up with is the cornerstone of the “economic diet” approach I recommend when people ask me how they can lose weight.

For this technique to work, you have to include everything.

  • Include all food items you eat: meals, snacks, refreshments, samples, everything.
  • Include drinks: soft drinks, coffee, juice, even bottled water. It’s not necessary to include tap water unless you also want to track your total water intake.
  • Include food and drinks no matter where you have them: at home, at work, in your car, at a party, at the movies, during a workout, or anywhere else you go.
  • Keep receipts when you buy food if that’s what it takes to know how much food cost you.
  • If someone else pays for your food, just guess what they might have paid.
  • When you throw away part of your food uneaten, write down the food energy of only the part you ate, but write down the complete cost, including both the part you ate and the part you didn’t eat.
  • Take at least a minute to look at the food record at the end of the day, and add in anything you might have forgotten to write down over the course of the day.

The food diary apparently works just by making you more conscious of what you eat and the money you spend. I’ve typically seen people lose one pound every two weeks, or one kilogram a month, using just a food diary. Of course, combine it with exercise and sensible nutritional planning, and it works even better.

Sunday, January 4, 2009

Uncharted Territory, Unknown Constraints

A week ago I wrote about planning for constraints. Constraints also apply to the economy as a whole. You might have heard recently that the economy or the financial markets are in uncharted territory. The current situation is not that much like any past situation, so we can only guess at the constraints we are facing.

The reason we are hearing so many divergent opinions on the economy, everything from “onward and upward” to “the end of an era,” is that there are many factors that may be constraining the economy in the short run, and most of the people observing the economy are focusing on just one or two of these constraints.

Washington’s response to the current situation has been so far off the mark because key policymakers are focusing exclusively on just one constraint, the lack of lending liquidity. By focusing on just this one problem, they are making other problems worse and doing the economy more harm than good. Predictions of an early recovery from the recession, which we have been hearing since before the recession started, have come from people focusing on just a single constraint, such as real estate prices, basically assuming that everything else in the economy would be doing fine.

In truth, there are multiple problems with the economy, some of which have not yet been clearly identified. The economy will not be helped by an all-out attack on any one problem, but by measured responses to a wide range of problems.

Saturday, January 3, 2009

Comparing Electricity and Oil for Home Heating

In June, when world oil prices were peaking, I did a study of the relative merits of electricity and oil for heating. In spite of those results, which favored oil, I tried heating my house with electricity in November. It worked better than I expected, so I tried it again in December.

To summarize my results, I use about $16 of electricity to heat my home on a cold winter day. That compares to about 8 gallons of heating oil. It appears that 1 gallon of oil is about as good as $2 of electricity — much less than the $5.454 I had calculated.

Why such a big difference? I know some of the reasons, and I can speculate at some others.

  • With electricity, I am leaving the dining room unheated. In principle, that ought to save more than 10 percent. The central heating system I use for oil doesn’t work so well if you start closing rooms off.
  • My price of electricity is now 13.9¢, 15 percent less than the 16.2¢ I was paying in the summer.
  • The high-efficiency oil heater might be less efficient than I thought. More of the heat it produces might be going up the chimney. A small part of the oil might be going up the chimney unburned.
  • The traditional heating system concentrates heat around the exterior walls of the house. This eliminates drafts, but maximizes heat loss through the windows. With electric heat, I can place the heat sources near the center of the house.
  • There is some variability in heating results because it is affected by weather factors that aren’t completely measured. For example, I think this December had less daytime cloud cover than usual, resulting in more solar heating.

If I stretch all of these factors, they might be enough to account for the differences I am seeing. But more likely, there are other factors I have not considered.

The drop in crude oil and natural gas prices, to half of what they were a year ago, means the heating crisis I was anticipating did not arrive this winter. At this point, oil is still a viable heating fuel. But the prospects for oil (if world oil prices fell because of the U.S. economy, they may roar right back as soon as the economy recovers) still argue against any more oil heat installations, and for a transition away from oil for heating.

Friday, January 2, 2009

The End of “Gotcha” Banking

The large banks that are struggling this year are hardly the innocent victims of an economic bubble. They were right in the thick of it. The focus of the bubble was financing for consumer discretionary spending. That sounds like something important when you put it that way, but what that really means is “people spending money they don’t have for things they don’t really need,” and when you say it that way, it doesn’t sound so valuable, and the people who were pushing it don’t sound so innocent.

The excesses of the bubble centered around credit cards. Banks typically spent $1,000 on average to acquire a credit card customer. After putting so much money in up front, there was a lot of pressure to make money from the credit cards, yet most credit cards were never used. A consumer who reluctantly accepted a credit card only to let it sit in a drawer for six years didn’t provide a profit opportunity for banks.

So the banks that were convinced that their profit depended on pushing their credit card business as far as it would go (that’s the way people think in a bubble) ended up relying on the most confused and disorganized cardholders. They must eventually have realized that was what they were doing — how else do you explain the $109 late fee? — but they never quite addressed the issues of ethics and business planning this raised.

Meanwhile, this approach was a marketing disaster. The customer who was assessed a $109 late fee on a $29 purchase just because the bank failed to send out the original billing statement was usually a customer who never wanted to deal with that bank again. That was part of the thinking behind the public opposition to the bailout of the banking industry. “Finally, we’re going to get rid of some of those bandits and crooks,” people were thinking. “Not so fast, suckers,” was the response as Paulson, Bush, and Congress kicked them in the teeth yet again.

But banks shouldn’t think they have won a big victory by just keeping their doors open. The pool of consumers that banks relied on for their highest profit margins — profit margins that turned out to be illusions — aren’t exactly eager to fall for the same tricks again. Meanwhile, federal regulators made an initial step toward cracking down on credit card fraud by banks with new regulations adopted late in December. More regulations are likely to follow, to prevent banks from profiting from identity theft, to cite just one example. The era of “gotcha” banking is ending, and as banks are asked to show that they can make an honest living, not all of them will prove to be up to the task.

This Week in Bank Failures returns next week.

Thursday, January 1, 2009

Ring In the New

For many of us, one new year’s resolution is not enough, and New Year’s Day is a chance to make a long list of things that we want to do better in the new year.

I hope you are not taking that approach. If you write a long list of things you are resolving to do better, it quickly turns into a long to-do list. That long to-do list will either fill up your time and keep you from doing the things you really want your life to be about, or make you feel bad about the many things you are not doing.

Besides the to-do list itself, clutter is the other thing that keeps you away from everything you dream about in life. That’s why this is my recommendation for the new year:

  1. No clutter.
  2. No list.

Don’t think of New Year’s Day as a chance to make big plans that you might take action on later. The things you want for the new year might give you a list of things to do, but don’t make the mistake so many people make of saying, “Well, I’ve got my list, so now I’m done.” Having a list to carry around with you all year isn’t really progress. If you must have a list, try to complete it and get rid of the list right away. In other words, can you make it happen by Monday? Take action right now, and change the direction of your life right now. Happy new year!

New today for the new year is a new blog, dedicated to the use of questions for self-discovery. Take a look at the Ten Thousand Questions blog at