Tuesday, January 31, 2012

Gingrich Forgets to Show Up

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

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

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

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

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

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

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

Monday, January 30, 2012

Bank Transfer Day Was Big

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

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

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

Sunday, January 29, 2012

Incremental Advances in Musical Equipment

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

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

Friday, January 27, 2012

This Week in Bank Failures

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

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

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

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

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

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

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

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

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

Thursday, January 26, 2012

Buying Small Screens Instead of Desktop Computers

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

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

Wednesday, January 25, 2012

Obama’s New View of Law

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

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

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

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

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

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

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

Google+ Opens Its Doors

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

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

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

Tuesday, January 24, 2012

Germany’s Karma

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

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

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

Monday, January 23, 2012

If Hiring Is Hard, the Business Model Is Broken

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

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

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

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

Saturday, January 21, 2012

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

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

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

Friday, January 20, 2012

This Week in Bank Failures

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

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

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

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

Thursday, January 19, 2012

5 Signs of Change

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

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

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

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

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

Pipeline Still in Limbo

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

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

Wednesday, January 18, 2012

What the Blackout Means

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

Tuesday, January 17, 2012

After Store Closings, Books Holding Their Own

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

Monday, January 16, 2012

Spontaneous Production

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

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

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

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

Sunday, January 15, 2012

Mild Winter, a Lucky Break for the Economy

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

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

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

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

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

Saturday, January 14, 2012

The Android-Compatible Strategy

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

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

Friday, January 13, 2012

This Week in Bank Failures

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

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

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

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

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

Confiscating the Dividends of Crime

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

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

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

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

Thursday, January 12, 2012

Losing Track of Customers Because of Email Changes

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

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

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

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

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

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

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

Wednesday, January 11, 2012

Electronics Lull Hits Video Games Too

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

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

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

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

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

Tuesday, January 10, 2012

With Electronics Fading, What Happens to China?

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

Monday, January 9, 2012

A Move Away From Electronics?

Could people be getting tired of electronics?

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

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

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

Sunday, January 8, 2012

“Don’t Text Me, Ever”

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

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

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

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

Saturday, January 7, 2012

Discouraged Workers and the Return of Flow

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

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

Friday, January 6, 2012

This Week in Bank Failures

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

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

Thursday, January 5, 2012

Money Is a Potent Distractor

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

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

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

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

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

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

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

Wednesday, January 4, 2012

Gasoline Prices and Auto Sales

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

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

Tuesday, January 3, 2012

Oil Prices Recover

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

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

Monday, January 2, 2012

Beyond the Cliches of Personal Change

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

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

Sunday, January 1, 2012

A Fluid Year

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

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