Friday, September 30, 2011

This Week in Bank Failures

The trend toward higher fees for banking services could be economically beneficial if as a result, customers move their accounts to the banks that have lower cost of operations and banks look for ways to lower their operating costs. It is one of the curiosities of the U.S. and European banking systems that more than half of banking customers do business with the banks that have the highest transaction processing costs. That is a situation that banks have had little incentive to correct for the past half century, but those changes may be on the way as customers balk at some of the new fees and switch to less expensive forms of banking.

There was a bank failure in Texas tonight: First International Bank, with $209 million in deposits and 7 locations, based in Plano. Deposits are being transferred to and assets are being purchased by Houston-based American First National Bank.

The failed bank was itself the successor to a failed bank, formed in 1991 to purchase the assets of the failed First National Bank of Bedford. It had sought to grow aggressively starting around 2005. This strategy proved as disastrous here as elsewhere, though the scale of the resulting financial problems didn’t become obvious until late in 2009.

Thursday, September 29, 2011

Clearing the Clouds

Now that we have scanners and email, you no longer have to keep documents in physical form. Cloud computing promises the next step in this progression: you no longer have to store your own digital documents. But, as with any area of your life that you turn over to a faceless, anonymous business operation, there are privacy and security issues. Alexis Madrigal wrote last week about “The Cloud’s My-Mom-Cleaned-My-Room Problem”:

We’ve always been dependent on software providers to create the digital spaces we inhabit, but when your email and documents and music are in the cloud, you’re giving up the lock on the door and allowing changes to be made on the schedule of the parent. He or she may clean up or buy you a new desk. He or she may take away the car or decide you can’t do something you think you should be able to.

Of course, there are other problems too. Among many others, there is the problem that having your life in other people’s hands makes it all too easy for them to find out your tendencies and use those tendencies to manipulate you, as I wrote in May.

If cloud computing creates the digital equivalent of mom cleaning your room, and if it puts you at the mercy of hidden forces that see you as a resource to be exploited, that just means that cloud computing is not as inexpensive as it appears on the surface. Given the risks involved, you will still likely make some use of cloud computing, but you will want to be careful not to be using it frivolously.

In a nutshell, that means putting documents in the cloud when there is a reason to, and removing them when there is no longer a reason to have them there. It is the second part that is sometimes counterintuitive. Cloud services make it the easiest thing in the world to keep everything indefinitely. That’s a boon for published documents, like this blog, but eventually becomes a problem for almost anything else. Almost everything — photos, manuscripts, spreadsheets, playlists, notes, messages, wish lists — should eventually be deleted, or at least removed from the cloud. Some things, because they are more sensitive, should be deleted faster. If you realize you have a wish list online that you had forgotten about for a couple of years, delete it right now before someone innocently gives you something they selected from the list. For any document or message, though, the ideal time to delete is at least some time before you have completely forgotten what it was about.

I know, it’s not like any of us needs another chore, and clearing the clouds is just that, a chore. But the ease of ownership that cloud computing offers doesn’t take away the responsibilities that go with owning something. It should become an every-few-weeks habit to check some part of what you have online and delete the things you find that no longer belong there.

Wednesday, September 28, 2011

Cautious Christmas-Season Hiring

U.S. retailers are hiring fewer Christmas-season workers this year. Looking at all employers that permit seasonal hiring, only half expect to do so. Among those, one tenth expect to hire more than last year and one fourth expect to hire less. That’s according to a new Challenger Gray & Christmas survey.

It is about the same story when you ask shoppers what they will spend. About one sixth expect to spend more than last year, while one fourth expect to spend less.

Cutbacks announced so far are substantial. Toys “R” Us announced on Thursday it is hiring 40,000 seasonal workers, 5,000 fewer than last year — though most observers would agree that the toy retailer overdid it last year with its temporary stores and kiosks. This morning we learned that Best Buy will hire 15,000 seasonal workers. That’s a lot of workers, but only half as many as in 2010. Macy’s, on the other hand, says it will hire 3,000 more workers than last year.

Last year, retail stores started to let seasonal workers go as early as the first week of December, and they hope to avoid a repeat of that by hiring fewer extra workers this year. These are other reasons for employers to hire less this Christmas season:

  • Many shoppers did much of their Christmas shopping at the Borders liquidation.
  • In the future, health insurance mandates will make hiring more expensive, especially for temporary workers, so businesses want to get away from that pattern.
  • Many retailers have been overstaffed all year long, and want to give their regular staff a chance at the extra work.
  • There are some indications that the extended holiday shopping season of the last five years will repeat this year, with most purchases made before Black Friday. As shoppers adjust to avoid the rush, retailers need to follow.

There is, of course, a downside to the lighter staffing. With fewer workers, sales are lighter also, as customers can’t find what they are looking for or balk at waiting in the checkout lines.

If retailers are hiring fewer workers this fall, they are also hiring earlier than usual. “Act now if you want a seasonal holiday job,” advises the headline in the Sun Sentinel.

Online stores and warehouses cannot afford the risk of cutting back on their Christmas-season hiring, as merchandise has to get out to purchasers and stores in a timely manner. Those jobs, though, don’t require the same level of skill as a retail-store job, and may last just a few weeks.

Tuesday, September 27, 2011

Greece Is the Word

Twitter tonight is loaded with jokes about advice and support for Greece. Banks in Ireland with advice for the government in Greece. The well-meaning advice from Wall Street. The U.S. Treasury giving advice to its counterparts in Germany about what to do about Greece. Charity fundraisers for Greece that fall short after the U.S. House of Representatives withdraws funding for the United States’ own disaster emergency fund.

It is easy to joke about any problem so complex, but put them all together, and there is a serious point. No one comes to the table with clean hands. If Greece cannot take strategic advice from the bankers in Ireland after what the banking system there has been through, they also cannot take advice from any bankers anywhere, not even in Athens. If the major national governments in the Euro zone are suspect, having seemingly done everything they could two years ago to precipitate a crisis in Greece and now more worried with saving the European banking system than with what happens to people in Greece, countries outside the Euro zone are in some ways even more suspect. Virtually everyone you can think of has some involvement in the problems in Greece or the same problems occurring elsewhere.

If the euro falls in November, we are warned that other world currencies could have problems too. The truth is that we have all become too dependent on money, the banking system, and the financial web that ties all of our work together. We need a financial system, of course, but we lean on it too much. It is not that we should go back to a system where work is controlled by tradition and superstition, but we have gone too far in the direction of anonymous borrowing and anonymous buying, from businesses with reputations built from anonymous online reviews. One sign of leaning too much toward the financial side of everything is that more people know the price of their lunch than know its ingredients. The problems in Greece’s financial arrangements can’t be solved by more financial arrangements, and it is a warning to us all to come to an understanding of the way we work and live that is not merely financial, lest we get drawn into the same mess. Greece is one of the oldest nations in the world, obviously not easily overcome by problems, so if it can come up with a solution here, as I suspect it will, it will be one that we will all want to copy in varying degrees.

Monday, September 26, 2011

Time Is Running Out — And the Situation Is Not Normal

Time is running out. To keep the U.S. government from shutting down, a surprisingly arcane series of five to ten legislative actions need to take place between now and Thursday or maybe Friday, and at this point, leaders only think they agree on what to do. In Europe, several large banks will fail and one or two national governments could also be insolvent in the first half of November if a workaround is not implemented beforehand, and political observers say they are not sure there is enough time to work out even the details that are required this week. Oh, I know, we have heard these stories before. But these are not the situations that come up when things are going well. It is the households that get comfortable with living paycheck to paycheck that are almost guaranteed to experience a cash crisis several times a year, and now the same thing is happening globally. Time is running out again — and as familiar as it might have become, this is not a normal situation for the world to be in.

Sunday, September 25, 2011

After the Borders Liquidation

The Borders Books liquidation might have gone on longer. There was talk in July about some stores staying open. Another bookstore chain might buy 10 or even 30 of the stores, it was thought, even without the ability to buy the merchandise. Or, in places where building owners made extraordinary concessions, a few stores might carry on their liquidation into December to draw Christmas shoppers into shopping centers. But none of that happened. From everything I am hearing, the last Borders stores in the United States closed one week ago. And they were effectively cleared out long before the discounts reached 90 percent in the final days. A friend wrote of finding “novels and manga” at mid-month in the last local Borders store to remain open. There was no hiding the fact that less than 10 percent of the merchandise remained. Christmas shoppers and bargain-hunters were more than willing to show up in August at Borders, so there was no need to extend the clearance sale for another quarter to try to move more of the merchandise.

If anyone still has a Borders gift card, hurry over to for your last chance to buy anything with it. The Borders trademark and web site will be sold, probably tomorrow, to Barnes & Noble, which bid $14 million at an auction last week and only needs to clarify its privacy policy to close the deal in bankruptcy court.

Other bookstores that survived the Borders liquidation will start to see their revenue recover. Customer traffic won’t pick up right away, but by March, many readers will have exhausted their liquidation purchases and will go looking for more books to read. Another six months is a long time to ask an already suffering bookseller to wait, and when customers return to the local bookstores in the spring, they will find a few more of them closed.

About 11,000 U.S. Borders employees lost their jobs this month. That is a barely noticeable fraction, half a percent, of the more than 2 million U.S. workers losing their jobs during the month. When a book is sold, the retailer, its employees, and the building owner get the lion’s share of the money, but cutbacks are also needed in banking, transportation, and publishing to cover the lost revenue from Borders. Many of those cuts have already taken place; it was after last year’s disastrous Christmas season that Borders could no longer be counted on to pay its suppliers.

Book-lovers might be saddened by the Borders closing, but was it avoidable? Hardly. Borders’ former CEO was trying to work out a plan in December, as he told The Detroit News in August:

If only we had three or four years to restructure, and a patient investor, and the publishers were willing to cooperate, it could have been done.

In other words, by that point, it would have take a series of five or ten miracles to save Borders. Management sought valiantly but failed to come up with even one.

Saturday, September 24, 2011

Hot Neutrinos and Embarrassing Science Reporting

For years, cellular biologists have been telling us that it is basically impossible for humans to live more than 115 years. But this week, a man died at the age of 115 years, one day — a day over this theoretical age limit. In the news media, scientists debated the significance of this event. “This raises the very real possibility that we can live forever,” some said. “We’ll be able to get younger just as easily as we get older.” But others wondered about the degree of certainty surrounding the man’s exact time of birth, and cast doubt on other aspects of the story. Most top scientists, when reached, simply refused to comment, not wanting to risk saying anything at all about such a sensational story.

That’s not a true story. I made it up just now. But it gives you an idea of how far off scientists and journalists were when they responded to a major scientific event that did take place this week.

The actual story had to do with neutrinos. Nuclear scientists recorded neutrinos traveling from Switzerland to Italy faster than anyone would have thought possible. Neutrinos are tiny, lightweight particles that speed through solid objects the same way they stream through empty space. In this experiment, neutrinos went right through the rocks that lie under the Italian Alps. They arrived at a laboratory in Italy 60 nanoseconds early. That is, according to all our current theories, they went a tiny bit faster than light would take to travel the distance we think is involved.

The catch is, and this is where it becomes embarrassing, the way we know about distance is by measuring it using light. But light can’t travel through solid rocks, so the distance involved is only theoretical. It is fair enough for headlines to blare about neutrinos that moved “faster than light,” if the stories themselves had clarified that the “light” involved was only theoretical.

But there was no mention of this. Instead, journalists quoted physicists going on about the possibility of repealing the Special Theory of Relativity that originally established the speed of light as a universal constant. If neutrinos could go from Switzerland to Italy, then we could travel across the universe in the blink of an eye. We would soon be traveling backward in time. Everything that was impossible would now be possible. Other reporting, shamefully, set out to debunk the findings, as if the world’s top nuclear scientists were suddenly high school physics students who couldn’t read a ruler accurately.

The actual significance of the unexpectedly fast neutrinos is not as sensational as what you will read in the New York Times, but the implications are no less disturbing. The simplest explanation is that space and time are not as simple and linear as we imagine. We know that space and time are distorted by stars and black holes. Supposedly nothing on Earth is massive enough to disturb our comfortable assumption of flat Euclidean space or fast enough to prevent time from being measured in a simple linear fashion by carefully synchronized clocks. But this result raises the possibility that right under our feet, space and time are not so flat as we have imagined. Another possibility, nearly as disturbing, is that some kind of spooky quantum weirdness that occurs when neutrinos move through rocks allows them to hop from point to point far more often than we ever could have imagined. The actual explanation might be something more fantastic than either of these, but it makes sense to start with the obvious explanations before resorting to something off the wall.

Or, for that matter, before repealing the physical laws of the universe. It bears repeating that we use light to measure distance, so any distance computed in the absence of light is only a theory. You cannot use one theory to repeal another theory. Rather, in hard science, theories are taken away only by contrary observations. It is distressing and embarrassing to see how eager even respected scientific news outlets and experienced scientists have been to abandon hard science when confronted by strange behavior from neutrinos. But when something unexpected has been seen, that is when a scientific approach is needed more than ever.

Friday, September 23, 2011

This Week in Bank Failures

Moody’s downgraded three major banks, saying it was less likely the U.S. government would come to their rescue in the event of a new problem in the financial system. Worries about banks, their fading political support, and their potential exposure to sovereign debt helped drag world stock markets lower this week.

Bank of America is taking a page from the FDIC’s playbook in the way it is packaging and selling a portfolio of troubled loans. With its market capitalization having fallen below $64 billion, the bank says issuing new stock is not an option, so it has no choice but to continue to sell assets to raise capital.

A billion-dollar bank failed tonight in Virginia, and a quarter billion-dollar bank in California. The Virginia bank closed by state regulators was Bank of the Commonwealth, based in Norfolk, with 21 branches. North Carolina-based Southern Bank and Trust Company is assuming the deposits and purchasing 94 percent of the assets. Bank of the Commonwealth had been listed as critically undercapitalized by the Fed since July. The SEC and a federal grand jury had been investigating the bank after the abrupt departure of its president in December. The bank had lost $100 million to bad loans since 2008.

In California, state regulators closed Citizens Bank of Northern California, with 7 branches. Its deposits and assets are going to Tri Counties Bank.

The NCUA placed Chetco Federal Credit Union, of Oregon and California, into conservatorship. In conservatorship, a credit union continues to operate with management support from the NCUA. The credit union has 32,435 members.

Thursday, September 22, 2011

HP’s Paranoid Streak Resurfaces

Hewlett-Packard, goodbye.

Well, that’s an exaggeration, but I want to make sure I make the point: companies whose leadership is as dysfunctional as we are seeing at HP rarely survive for long.

HP, a few years ago, was so worried about what people might be saying to the press that it hired detectives to spy on its own employees and directors and the reporters who were writing about it. When details of this became public, the scandal gave the company little choice but to fire its CEO.

Roughly around the same time, also in Silicon Valley, another company, eBay, became convinced that its customers were out to get it. It launched investigations into a huge number of its best customers. Millions of users had their accounts frozen or were banned from the site. New users found it suddenly much harder to get started. EBay the company has more or less recovered from that episode, but eBay the web site has not. It went from being an iconic brand to being an Internet shopping destination that competes with Walmart.

And eBay’s CEO at that time is the new CEO at HP. That was HP’s big announcement after the close of the stock market this afternoon. It is the first real full-time job Meg Whitman has held since she was forced out at eBay.

This confluence of paranoid dysfunction could be just a coincidence, until you look at the circumstances surrounding Whitman’s appointment. The story as a whole has people in Silicon Valley and Wall Street alike scratching their heads in disbelief. Daily Ticker’s headline, “HP’s Implosion Continues: Hapless Board Prepares To Fire CEO, Hire Meg Whitman” might be more outspoken than most news outlets, but it’s positively restrained compared to what people are saying on Twitter.

It is a big risk that HP is taking, and that is putting it mildly. EBay had so many customers, it could scare millions of them away and survive. HP draws most of its revenue from a mere one thousand customers. If it loses even one big customer, layoffs follow. And HP, despite its leading position in the computer business, has competitors that are more than capable. If customers lose confidence in the company, they can disappear in the time it takes to make a phone call.

It is not too late for HP to pull itself together, but to do that, it needs to take a realistic look at where it is and what it is trying to do. Based on their track records, there is no reason to hope that either HP’s directors or its new CEO are capable of doing that.

With Twist, Fed Takes Knife to Pension Funds

It is people saving for their retirement who are ruining the economy.

That, in drastically simplified form, is the theory behind monetary policy. In a recession, the central bank takes steps to lower interest rates, so that you can no longer put your money in the bank and earn interest. The hope is that you will withdraw your savings and spend it on something useful, and that will get the economy moving again.

Individual savers in the United States have not been earning real interest in three years. And now pension funds may face the same predicament, as the result of the Fed’s new Twist strategy to lower long-term interest rates.

The result is that, as of today, every pension fund in the United States is underfunded. Pension funds count on earning interest, mostly on long-term bonds, to provide most of the money for the pensions they have to pay. If the interest isn’t there, the sponsors have to put in more money up front, or the pensions have to be reduced.

Economic theory suggests that lower interest rates make people more eager to take risks, but most people don’t like the idea of taking those kinds of risks with their retirement funds, and pensions in the United States are no longer permitted to take the kinds of risks they routinely took a generation ago.

Nor are pension funds permitted to remain underfunded for long. By next year, employers and governments will be obliged to put more money into their pension funds as a consequence of the Fed’s new initiative. At the same time, individual savers who are paying attention may realize that they need to put more money aside too, to compensate for the risk that their pension payments will be smaller than planned.

Of course, if employers must put more money into pensions, they will have no money for raises or hiring, making it that much harder for individual workers to save.

In other words, by forcing individuals and pension funds to save more, the Fed’s latest initiative will create a drag on the economy that will last at least for two or three years and will not be quick to reverse after the Fed changes its mind.

Retirement savings, including pension funds, were already so large that they were a risk to swamp the financial system. Now, with the financial system in retreat from problems of its own making, and the Fed’s new policy forcing retirement savings to grow still larger, retirement savings have become a threat not just to the financial system, but to the economy as a whole. It is just what the monetary theory says. But the theory, in this circumstance, is acting as something of a self-fulfilling prophecy.

Wednesday, September 21, 2011

Hard-to-Fill Jobs As a Management Trick

Howard Adamsky sheds more light on the “hard-to-fill job”, from a recruiter’s point of view, in a post from yesterday:

The laundry list of bulleted requirements for this position is 22 — and I can assure you that these are not easy-to-find requirements. They’re all action words and full of responsibility for everything under the sun. (Yes, advanced degree required.) Perhaps God can do this job but in terms of mere human beings, I do not see it happening.

Looking at probabilities and the way job requirements are usually written, any list of more than six independent requirements is likely to rule out everyone in the history of work. I’ve written previously about how employers create unrealistic expectations by combining jobs that don’t go together, like the factory assembly job that requires computer programming ability. In a recession, a desperate factory worker would learn computer programming just to qualify for that job, but it’s becoming more clear that employers, and especially hiring managers, aren’t always writing job requirements in good faith.

Often, employers and hiring managers are intentionally posting job openings that are impossible for any available worker to qualify for. A job opening with eight separate requirements might be explained as an excess of exuberance in writing the job description, but if there are 10 or more, you can be pretty sure the employer has no intention of filling the position. And some job positions have 15 or 20. I have seen these myself.

The hard-to-fill job could be a budget gambit by a hiring manager, trying to protect a budget item without actually spending the money during the current quarter, or creating an excuse to hire a contractor where company policy requires in-house staff. Some job descriptions are custom-tailored for a specific candidate, and this can easily be written tightly enough to make sure that no one else fits. (That position you saw that requires an economics degree, entertainment industry experience, and data warehousing skills was likely written specifically for me.) Or the job description could just be a portrait of the last person to hold the position (and good luck hiring that person back!). Sometimes two jobs are thrown together without any planning or thought.

Regardless of the details, it’s a sign of lazy senior management if hiring managers get away with any of this. If the executives in a business can’t be bothered to notice the tricks their managers are pulling behind their backs by posting hard-to-fill job positions, they could at least give the human resources department the discretion to veto any job opening with more than five separate requirements.

Tuesday, September 20, 2011

Online Gambling As a Ponzi Scheme

Full Tilt Poker was a Ponzi scheme all along.

That, at least, is what U.S. authorities are saying in papers filed with a federal court today. The allegation simply means that the company took money that belonged to customers and used it to pay for operations — and perhaps $1 billion in executive salaries. A business would do that, of course, only if it wasn’t actually making a profit from operations.

If the allegations are unfounded, that will be established in a matter of a few days by a proper accounting of the company’s assets. But if the bank accounts are not there, the company and its managers and associates will be in legal trouble not just in the United States, where its online gambling and money laundering are illegal, but in every country — Ponzi schemes are not an accepted business practice anywhere.

It would not be the first time that morally shady operations were used as a cover for serious crimes. A criminal business might get involved in something controversial such as smuggling or pornography as a front, just to have a base of supporters and sympathizers. Meanwhile, its real profits come from something much worse, something very few people would support such as theft, slavery, or assassination. That appears to have been the idea behind Full Tilt Poker, where the online gambling was never the purpose of the business, but apparently just an excuse for the Ponzi scheme and money laundering operation.

Monday, September 19, 2011

Netflix vs. Free Internet Movies

About 2 million people are canceling their Netflix accounts this month or next, or have canceled already, as part of the video-subscription company’s restructuring. Millions more are thinking about canceling. For those who think $8 a month is a lot to pay for a very limited selection of streaming Internet movies, it’s worth pointing out that a huge amount of movie content, millions of hours of it, is available free online.

I’ll concede that the average movie fan will find most free Internet movie content lacking in both story and star power, but given the price — free — it’s a low-risk proposition.

Sunday, September 18, 2011

A Busy Weekend at Retail

I have seen heavy automotive traffic this weekend and heavy foot traffic in the stores. Part of the reason is that it is the first relatively non-rainy weekend in a month, but I imagine there is more to it than that.

Traffic doesn’t mean that shoppers are spending freely, though. The two busiest stores I saw were Starbucks and Goodwill, places where people wouldn’t plan on spending a lot of money. There was a wait in line at the dressing rooms at Goodwill, something I’m not sure I’ve seen before.

It may be that people are in a shopping mood again, but don’t feel they really have the money to spend. My own spending was less than $40 for a set of sheets, a saucepan, and a batter pitcher at Home Goods and 4 music CDs at Goodwill. It’s the kind of shopping trip that isn’t quite enough to keep the retailers in business.

Saturday, September 17, 2011

An LED Light Bulb

There may be a lot of fuss about the general availability of 60-watt replacement LED light bulbs, but LEDs are still more efficient for lower power levels. Today I went searching for a replacement for a burned-out 25-watt light bulb in a hallway. The replacement is a 3.5-watt LED bulb made by Philips and sold at Home Depot for $12. Given the power savings, this seemed a better choice than the $3 option of another incandescent bulb. Saving 21.5 watts, the difference between the 25-watt incandescent and the 3.5-watt LED, translates to saving about 1¢ every 3 hours the light is on.

I was skeptical of the LED bulb’s claim of replacing a 25-watt incandescent bulb. It generates only half of the light output, so what kind of replacement is that? But it was easy to see why it works after I installed the LED bulb. Hardly any light from the LEDs goes onto the ceiling. Most light sources waste most of the light they generate by radiating it indiscriminately in all directions. LEDs, being smaller, can more easily direct light where it’s needed. The result: a hallway lit with an LED light bulb using one seventh of the power of an incandescent light bulb, but producing light that is nearly as bright.

Friday, September 16, 2011

This Week in Bank Failures

Erroneous and possibly unauthorized trades by one trader at UBS cost the Swiss bank $2 billion. The story has analysts worried about the bank’s lax financial controls — the problematic assets came to light only when the trader himself reported them — and also wondering about the extent to which the bank might be encouraging high-risk trading. There have been new calls for UBS to audit, spin off, or close its trading operations.

There is increasing concern in general about the solvency of the large banks in Europe. The situation has deteriorated so much that U.S. Treasury Secretary Tim Geithner is attending meetings of finance ministers there, promoting the idea of a European version of the Wall Street bailout of 2008.

Citibank announced new fees that are not as onerous as those implemented by its largest competitors. Customers can avoid the $10 monthly charge by maintaining a combined $1,500 balance in savings and checking accounts, or by paying at least one bill online per month while having regular direct deposits. Notably, Citi will not be charging account holders for debit card transactions. The new Citibank account maintenance fee takes effect in December.

Thursday, September 15, 2011

Feeling Poor

In a wealthy country like the United States, you don’t have to be poor to feel poor. Public opinion surveys consistently bear this out. Even among households with an income of $200,000 — meaning every five years, they bring home another million — it is not hard to find people who feel poor. Of course, if you look at households whose incomes are slightly below average, the proportion who feel poor is much higher.

The large number of people who think themselves poor creates a skewed view of what poverty really is. Having to put off replacing the carpets for a year or having to vacuum them yourself is not a problem of poverty. Deciding whether to cancel a Netflix subscription is not a problem of poverty. Real poverty involves uncertainty about the basic materials of life and work: food, heat, transportation, medical care, education, and things like that.

The skewed view of poverty creates a skewed view of policy questions. To hear some conservative politicians talk, you would think that when people don’t have access to food every day, it gives them a greater incentive to work, and as a result, they work harder. The reality is mostly the opposite. Food gives people the energy to do better work. Workers who are more comfortable are more able to focus and think systematically, and as a result, they solve problems better. 

With more U.S. households seeing their income decline than advance, more people are poor than before, but the number of people who feel poor is increasing faster. This feeling of poverty and the accompanying scarcity mentality affects people’s decisions, especially when it comes to “Can I afford it?” questions. People who feel poor are more likely to look for ways to stay where they are than to move forward. When life is about paying the bills, other possibilities and opportunities go unnoticed.

In the aggregate, when large numbers of middle-income and high-income consumers feel poor, the result is a sluggish economy. It is one of a number of factors slowing down the U.S. economy this year.

Wednesday, September 14, 2011

The United States as a Large Poor Country

With most people’s incomes falling and poverty expanding, it is no longer so hard to view the United States as a third world country. That is what you see if you focus your attention on the Americans living in poverty.

This group, nearly 50 million people, could form one of the larger countries in the world, roughly comparable to Colombia or South Africa — but with only half the income of either of those countries.

You could form a much larger country if you added in the Americans who are above the poverty line only because of assistance from family members, such as parents, children, or siblings. That imaginary country would be comparable in population and income to Vietnam or the Philippines.

There are limitations in this kind of mental exercise, but it does help to demonstrate how easy it is to exaggerate the economic differences between one country and another. The problem of poverty in the United States is not so different from what you find in most of the countries of the world.

Tuesday, September 13, 2011

Another Ruling on the Health Insurance Mandate

Another federal court ruled the health insurance mandate unconstitutional. The significant thing about today’s ruling is that it comes from Pennsylvania, a state with a long history of mandatory insurance coverage in other contexts. The health insurance mandate is nevertheless seen as something alien.

District courts overturn federal laws on constitutional grounds only with considerable reluctance. They usually prefer to leave that job to higher courts. The fact that so many decisions have gone against the health insurance mandate shows that it is something new and problematic in legal terms.

Monday, September 12, 2011

Sixth Time’s the Charm

Today I’m releasing the 6th edition of a book (Professional SAS Programmer’s Pocket Reference). You might think that by the sixth time through for something as big as a book release, you might have all the kinks worked out, all the more so when you consider that my participation in the book publishing process goes back 20 years. But no. There are several new twists every time.

Some of this is because the world changes. That’s obvious enough in a book about computers, and indeed explains why so many editions are needed, but I am also affected by trends that are not so related to computer technology. One of these is the increasing cost of energy, which affects postage rates and the way people travel. That made it important to make the new edition weigh less. With the lighter weight, the book can go along on the airplane more easily and will cost less to send through the mail.

It’s a reminder of how long it takes to become highly skilled at anything. Even if the world were not changing, it can take years to master a process as complex as book publishing. But the world is changing all the time. As a result, achieving mastery takes even longer.

Sunday, September 11, 2011

A New Low for Arctic Ice

Arctic sea ice is setting new records this month. According to some measures, the ice extent is already the lowest ever recorded, and there are two more weeks of decline ahead. At the same time, the ice is more broken up than we have seen in the past, with satellite pictures showing most of the ice forming 1- and 2-kilometer pieces, the ocean water melting away the edges to form channels between them.

If the extent of ice is matching the previous record low of 2007, the ice area is the least we have ever seen. Ice thickness is harder to measure, but all indications are that it too is unusually low. Ice volume, then, is also the lowest ever, and that is the most important thing. The less ice there is, the less time it will take to melt it all away.

Svalbard provides another measure of the decline of the Arctic ice. Almost always, the northeast corner of the island group is connected to the North Pole by a near-continuous sheet of ice, even in summer. Today there is 180 kilometers of open water north of Svalbard. Farther east, the central Arctic shipping route appears to be open for the first time. That is, a cargo ship could traverse the Arctic Ocean by a route north of all of the islands. Ships are, of course, traveling the safer route closer to the Siberian coast instead, and more ships than ever are making the trip this season. The Northwest Passage through the Canadian islands has also been open since early August and is almost completely clear of ice this month, based on the satellite pictures.

As another way to look at the changes in the Arctic region, you could follow up on the ice island that broke off the Petermann glacier in northern Greenland one year ago. At the time, experts warned that such a large ice island could be a threat to Atlantic shipping for a decade or longer. Instead, it started to break up immediately and has melted rapidly. One third of the original ice island, a piece dubbed PII-B, is stuck in Baffin Bay, where it has shrunk by 13 percent since March. One fragment broke loose and is the one large piece of ice to be found in the Northwest Passage at this point. The rest of the ice island, though, has made its way south to the area of Newfoundland, where only about five pieces are still large enough to track. The two largest are still a formidable 14 square kilometers as of August 25, an obstacle to steer around for now, but sure to melt away by next year. All in all, it’s a surprisingly rapid decline for such a large block of fresh-water ice. In the meantime ice scientists are waiting for the same glacier to shed another ice island half as large, an event that is likely to happen next summer, if not sooner. That will be the last such event from that glacier, as the once ice-filled fjord that provides its outlet to the sea is now filled with sea water.

An important thing to note is that the summer of 2011 is essentially repeating the ice coverage pattern of 2007, but it is happening this time without any of the strange weather events of that summer. If Arctic ice can set a new record low during a summer of ordinary weather in the region, then we can expect it to decline further in future summers when ordinary weather occurs. It is also useful to note how far off the climate models have been in predicting this summer’s ice. None of the major climate models predicted a new record low this summer, and several predicted 50 percent more ice than there has turned out to be. My suspicion is that the climate models are not accurately reflecting the effects of declining ice thickness. These are the same climate models that predict the Arctic could be ice-free toward the end of the century. Simple extrapolations of recent ice thickness measurements suggest that it will happen much sooner than that.

Saturday, September 10, 2011

How to Shorten Your Mortgage By One Month

Most people know that you can shorten the duration of an ordinary home mortgage by making extra payments, paying more than the minimum that the mortgage requires. But how much shorter is the loan getting as a result? This doesn’t require any mysterious financial mathematics to figure out if your bank provides online statements for your mortgage account.

A mortgage account statement tells you what part of each payment goes to pay interest. The rest of the payment is the principal payment. This is the part of the payment that reduces the loan balance.

For example, for my latest monthly mortgage payment of $491, the bank shows that I paid $331 in interest and $160 in principal.

To shorten my mortgage by one month, I just have to pay that same principal amount again as an extra payment. That is, if I pay an extra $160 now, I can skip the final payment of $491. I’ll do the fancy financial mathematics for you: that’s a 67 percent discount as a reward for paying early.

It’s as simple as that when you are making your first extra payment. To shorten your mortgage by a second month, you‘ll have to pay slightly more, because you’re getting closer to the new final payment. For example, I would pay about $161 to shorten my mortgage by another month. This amount increases gradually until, when you have only three months of payments left, it’s almost as much as your scheduled monthly payment.

If you are just starting out on a 30-year mortgage, though, it can be surprising how easy it is to shorten the mortgage by a month at a time. That amount is just the principal amount of the regularly scheduled payment.

Friday, September 9, 2011

This Week in Bank Failures

At Bank of America, the board of directors has started to review its consultants’ advice on ways to shrink the bank to help make it financially viable. The bank is not expected to do anything drastic, but instead will be making incremental steps. One widely reported plan involves cutting 10 to 14 percent of the bank’s staff in the next few months, followed by 500 to 1,000 branch closings next year, but nothing so specific has actually been decided yet. Wall Street worried about its largest bank this week, and this, along with continuing worries about Europe, was the main thing that pulled the U.S. stock market lower.

A bank failure at closing time tonight: The First National Bank of Florida, with 8 locations in the Florida panhandle and $280 million in deposits. Georgia-based Charter Bank is taking over the deposits and purchasing the assets.

Thursday, September 8, 2011

Two Economic Speeches

Tonight on the Fear of Nothing blog: a reaction to today’s Obama and Bernanke speeches. Patience and hope might be favorable qualities, but just waiting for things to get better is not what those two virtues imply.

Wednesday, September 7, 2011

Thinner Magazines, Fewer Paper Mills

Another sign of the decline of magazines, perhaps: a company that makes paper for magazines, NewPage Corp, filed for bankruptcy. It is the largest Chapter 11 filing so far this year.

The pace of magazine closings and mergers may have slowed since last winter, but both magazines and catalogs have been getting thinner as publishers try to make their products less of an intrusion in readers’ lives, while also cutting back on mailing costs. The reduced page count, of course, also means a smaller demand for paper. NewPage had already announced plans to idle its one paper mill in Canada, which made newsprint mostly for U.S. newspapers, and its eight remaining U.S. mills are operating at less than full capacity.

Tuesday, September 6, 2011

Cost-Cutting Wasn’t Enough at Yahoo

Yahoo fired CEO Carol Bartz today. The company was happy enough with Bartz’s aggressive cost-cutting which saw her shut down more than half of the company in just two years, but not so happy with the accompanying decline in revenue. It worried too about the loss of its identity as Bartz attempted to turn the web site into AOL Lite. It was a curious strategy that the company is just starting to recover from. The story shows that cost-cutting by itself, even if done with a high degree of skill, can turn into a kind of quagmire.

Monday, September 5, 2011

Sovereign Debt and Bank Worries

Stock traders tonight are worried about bank liquidity and sovereign debt. These are the kinds of worries that make it hard for stock markets to stay at the elevated levels they have been at this year.

The specific worries at this hour are about banks in Europe, the government budget in Italy, political gridlock in the U.S. Congress, and a hint of a slowdown in transportation activity in China, but it would not be much different if we were worried again instead about a hurricane in the Gulf of Mexico, instability on the Arabian Peninsula, radioactive food in Japan, and a drought in grain-producing regions. The point is, there is a long list of problems and weak points that the world has not had the wherewithal to address, and these runs of bad news will continue for some time to come. It is only if we decide that fingers crossed and chewing gum are not enough to hold everything together that things will start to settle down.

As to the specific worries about the banks, it is a good time to remind everyone that there are plenty of banks in most countries, and that even if all the banks in one region or country were to fail, it does not take much to put together a replacement transaction clearinghouse. There is no risk of running out of banks, no matter what happens to sovereign debt or the other issues financial traders are worried about tonight.

Sunday, September 4, 2011

Cash Again

I got more cash than usual on my visit to the bank yesterday. This month, I have resolved to pay for most of my in-person purchases in cash.

Two years ago, in June 2009, I spent a month where I tried to pay for everything in cash. It didn’t entirely work. Some of the things I wanted to purchase weren’t easily available in local stores. Paying for gasoline purchases in cash was far more work than paying at the pump with a card. Paying in cash requires a higher level of mindfulness and record-keeping that I couldn’t always manage.

My objective then was to see how someone might do without a credit card. Credit cards, which had dominated the American commercial landscape since the early 1980s, were just beginning to lose their luster in 2009. In the two years since, the average consumer has switched from credit cards to debit cards. Now with banks imposing new fees on debit cards, some consumers are making the switch to cash. I never got a debit card myself, but I can see the point in the switch to cash.

When you pay for a purchase in cash, the entire amount you pay goes to the seller. By contrast, when you pay with a card, the bank keeps a transaction fee and pays only perhaps 98 percent of the purchase to the merchant. This isn’t a pure financial gain for the retailer — when you pay in cash, the retailer has to pay a cashier to count the money, which is itself a form of work and an expense for the retailer. A cash transaction is still a smaller expense than an electronic clearinghouse transaction. When people pay in cash, the result is more jobs for cashiers and fewer retail stores closing. At this point, both effects would be good for the economy.

The gains from paying in cash are negated if you have to drive to the bank more often. Paying ATM fees to make cash withdrawals also largely defeats the purpose of paying in cash. It takes a kind of planning — you can call it cash management — to use cash efficiently. Before about 1972, this was a skill that was second nature to everyone in a cash-oriented commercial culture. It is a skill that I now want to relearn.

Saturday, September 3, 2011

Television Subscriptions Decline

People are canceling their TV subscriptions. There were more than half a million U.S. households who pulled the plug on cable in the second quarter, according to a new research report. The 0.5 percent decline in viewers won’t alarm the TV industry, especially as the lost customers tend to be some of the least dedicated viewers, but the lost revenue will heighten the financial distress of an industry that seems to be perpetually in distress.

More importantly, the United States is turning into a TV-optional culture, where asking people to tell you about last weekend’s MTV Video Music Awards broadcast is as socially acceptable as watching it yourself. In a time-pressured society, that is no small matter. When it really sinks in that you don’t have to have a TV subscription, half of TV households may think about canceling.

Friday, September 2, 2011

This Week in Bank Failures

With the major banks in August pulling out of settlement talks over mortgage fraud, enforcement actions are on the way from regulators, and the first shoe dropped tonight with lawsuits by the Federal Housing Finance Agency (FHFA). The suits reportedly seek tens of billions of dollars for losses from improperly documented mortgages, mortgage-backed securities that were incorrectly described, and securities that included mortgages that the issuers didn’t hold.

Defendants in today’s suits include Bank of America, Barclays, Citigroup, and more than a dozen others. The FHFA could file more suits in the coming weeks. However, the more serious enforcement actions will come from the Fed, other bank regulators, and the SEC, and these may take a few more months to prepare. Banks involved in mortgages and securities fraud may face additional lawsuits from pension funds and investors. Individual officers at banks who signed off on fraudulent transactions could face criminal indictments.

In terms of legal strategy, banks are probably correct in refusing to settle the claims against them, since no counterparty, not even the government, has the authority to offer the blanket immunity they are seeking as part of a settlement. But the result will be that the major banks will be defending these cases for the next 10 to 15 years or the rest of their corporate lives and paying legal judgements that could easily exceed $80 billion.

The NCUA is looking for new ideas after two of its plans fell through. Plans for a new corporate credit union to replace the temporary Western Bridge Corporate Federal Credit Union are on hold after it didn’t reach its capital goal by the end of the month. For now, the NCUA will continue to operate Western Bridge Corporate Federal Credit Union and look for another transition plan. Similarly, the PayNet plan, which would have launched a new correspondent credit union to replace some services provided by U.S. Central Bridge Corporate Federal Credit Union, was called off today by its board. The NCUA will have to keep U.S. Central Bridge going for now. In a statement today, it asked the affected credit unions to look for another approach.

In an unusual personnel move, Bank of New York Mellon fired its CEO for his abrasive style. The board of directors feared the pattern of drama, blame, and denial would drive away top employees, including executives. Journalists who looked into the series of events said, expressing some surprise, that there didn’t appear to be anything more to the story than what was seen on the surface.

Georgia state banking regulators closed two banks tonight, Patriot Bank of Georgia and CreekSide Bank, each located north of Atlanta with about $100 million in deposits. The deposits and assets were acquired by Georgia Commerce Bank. With the purchase, Georgia Commerce Bank is doubling in size. The two failed banks had unusually high levels of troubled assets.

Blaming the Press As a Sign of Decline

When a business or political group blames its operational problems on the news media, it is almost always suffering from internal friction that is worse than it appears on the surface.

Two current examples are Groupon and the government of Syria. Groupon is planning an IPO even as its business collapses. It was forced to amend its prospectus after news reports pointed out it was relying on a misleading accounting metric. Subsequently, the company’s CEO lashed out at the news media, blaming news reports for its “Ponzi scheme” reputation, a reputation that seems to be more likely to be the result of its own business plan and public statements. The government of Syria yesterday blamed its problems on news channel al-Jazeera, which it claimed had fabricated stories about mass murders, torture, and a top official’s resignation. The Syrian regime, though, has been spinning stories about battles with armed gangs for months. No one else has yet seen any of these armed gangs, though, and that, not the news media, is the main reason why people are asking the government about the thousands of dead and missing people. In either case, there is enormous internal stress that hasn’t publicly surfaced yet, but that we know of because of the statements pointing the finger at the media.