Tuesday, July 31, 2012

High-Risk Corn and Government Bailouts

The weather is dry enough in Iowa that I am told TV news crews are there to do stand-ups in corn fields. The fact that you can do a stand-up in a corn field on the last day of July is, all by itself, a sign that something has gone wrong. The corn should be too tall for that by now. But the situation with the corn is not the natural disaster that the news stories try to make it appear. Some corn fields in the same areas will be harvested with half of a normal crop, or more.

One thing the newscasters surely will not mention is that they are almost certainly standing in a field of genetically modified corn. When grain crops are genetically modified, the objective is to boost yields in ideal weather. That’s the selling point that the seed companies brag about. When a seed is optimized in this way, though, it is at the expense of other plant properties that allow the crop to withstand variations in weather. If you had planted an heirloom corn variety, you wouldn’t be worried about this year’s weather. Rainfall has, after all, been about half of what it should be. That ought to be good enough for any natural native plant. Traditional commercial corn varieties are not as durable as heirloom varieties, but they may do well enough in a year like this.

Farmers who plant genetically modified grains are taking a risk on the understanding that the federal government will bail them out in years when the weather is bad. In years of favorable weather, of course, they get to keep their oversize profits. It is the same problem we complain about in the banking industry: privatized profits and socialized losses. This becomes a bigger issue in agriculture as climate change makes our weather more variable. There will be more very good and very bad years than in the past.

There ought to be a better approach to this issue that rewards prudence instead of reckless risk-taking in farming. As a start, though, agricultural “disaster relief” programs should exclude fields of genetically modified crops. Farmers would think differently about the risks they were taking if they knew the taxpayers would not be there to bail them out.

Monday, July 30, 2012

Surface Ice Melt in Greenland

It has been an extraordinary month of ice melt on the ice sheet in Greenland, with 97 percent of the ice surface area melting on July 12, and melting continuing over a wide area until July 22. Sitting two miles above sea level, the ice surface at the top of Greenland remains frozen almost all the time, with the last large-scale melt occurring in 1889.

The standard climate models assume this state of things will continue, and until recently it was assumed that it would take at least until 3400 for the ice sheet to melt away from below. If weather becomes more variable so that spring-like surface melt events occur in summer, surface melt could become a significant part of the disappearance of the Greenland ice sheet.

Melting on the Greenland ice sheet creates less than 1 millimeter of sea-level rise per year. This month’s surface melt could have added an extra 0.1 millimeter to sea levels. This is not alarming in itself, but could become a problem if it repeats — every millimeter of sea level rise translates to more areas subject to street flooding in coastal towns. The top of Greenland is not cooling off quickly, though. The conditions there currently are barely below freezing (–3°C) and foggy, indicating more melting is occurring (though surely not at a significant pace).

Jeff Masters comments on the weather data:


More context and the month in infrared (surface temperature) satellite images at arctic.io:


Friday, July 27, 2012

This Week in Bank Failures

One of the biggest transaction processing disasters ever hit U.K. consumers when Nationwide building society mistakenly debited customer accounts twice for debit card purchases on Tuesday. The bank correctly debited the transactions on Tuesday, then processed the same transactions again on Wednesday. About a million customers were affected, and 50,000 customers’ accounts were wiped out, giving them no access to their money until accounts were corrected last night. In a statement, the bank blamed the problems on “human error” without elaborating. “Human error” may be an accurate description of the cause, but the bigger question is about the security lapses that allowed millions of false transactions to be processed and then to go undetected for hours. A security hole that large is a sign of a bank that is not being actively managed all day long.

A management reorganization at JPMorgan could be paving the way for the eventual departure of its CEO and other top executives. Separately, JPMorgan will pay $100 million to customers who say they were tricked into transferring credit card balances to the bank just before it raised its minimum monthly payment from 2 percent to 5 percent. Under the terms of the proposed settlement, the bank will refund almost half of the balance transfer fees it earned in those transactions.

Public bailouts of giant banks in Greece are consistent on the surface with antitrust rules, a European regulator decided today. This is only a tentative ruling, and a more detailed probe could lead to changes in the structure of the bailout. Regulators said it might be necessary to wind down Nea Proton Bank, if it is able to operate only because of state support.

Bank profits in Spain are down by more than half because of the real estate slump and slowing economy. Real estate values could fall much farther in Spain; it is one of at least eight large Western economies where the ratio of real estate values to household incomes is higher than any sustained historical pattern.

The U.K. Serious Fraud Office (SFO) has opened a formal investigation into Libor fraud, promising criminal indictments if it can come up with solid enough evidence.

With the news hole surrounding the Olympics, low-profile bank failures may go all but unnoticed for the next few weeks. There was one bank failure at closing time tonight, Jasper Banking Company in Georgia. It had three locations and $213 million in deposits. Minnesota-based Stearns Bank is taking over the deposits and purchasing the assets.

State regulators in Colorado placed Trinity Credit Union into conservatorship. The NCUA will manage the credit union temporarily in the hope of restoring it to sound financial condition. The credit union serves 1,100 members in Las Animas County.

Thursday, July 26, 2012

Beyond Escapism in Game-Playing

The surprisingly downcast report from online game service Zynga, which showed an unexpected loss and declining user involvement, is not just another indication of the declining hold of video games on the public. It shows that games in general are losing some of their novelty value.

When the purpose of games is pure escapism, the content of a game scarcely matters. Essentially anything will do, so long as it is understandable, consistent, and engaging. If people are starting to demand more than this from games, it shows that game-players are progressing beyond mere escapism. This is progress in a sense, but it is not good news for traditional game-makers like Zynga or most of the video game industry.

Wednesday, July 25, 2012

Online Courses Arrive

This week I took the final exam for an online course in computer algorithms, completing the second of two online courses I have taken this year at Coursera. The college courses behind me, it now feels like summer vacation — never mind that my regular daily work continues.

By coincidence, my final exam came at the same time that edX was announcing its launch and fall courses. EdX is the biggest initiative yet in creating free, automated online versions of college courses.

EdX may be starting cautiously, with just a few course offerings, but it is sure to be big from the beginning.  It could have more than one million students this fall, and while that might not be huge in Internet terms, it is big by educational standards. After all, how many universities have one million students?

There are still big questions about where the online courses fit in. Today I was wondering about the right way to list the courses on my resume, but as online education becomes more common, employers will have to decide how students who take a succession of online courses compare to those who earn a traditional degree.

These questions are sure to be difficult and controversial, but they can’t be postponed for long. The free online courses might have been below the radar till now because of the small amount of money changing hands, but their educational impact, measured in terms of the number of students and how much they learn, could be greater than that of traditional on-campus college education within just a few years.

Tuesday, July 24, 2012

Hot Dogs on the 4th of July

This is a story about a co-worker of a friend of a friend. She went to a party on July 4, the one big summer holiday in the United States, and felt slightly ill by the time the fireworks rolled around. She woke up the next morning feeling very queasy. She missed work that day, and the next day too.

The cause of illness, everyone suspects, was the hot dogs. It was not that the hot dogs were improperly made or improperly cooked. It was that she was no longer used to eating them.

Hot dogs are still considered an all-American food, but they aren’t seen nearly as often as in the past. Five or ten years ago, they started on the transition from an everyday food to a festival food. By now, most people don’t eat them at all on any other day of the year except the 4th of July.

That can be a problem if your memory says you eat hot dogs all the time, but your gut protests that you haven’t eaten them since the last 4th of July. When foods make the transition from regular to occasional to festival, it’s to be expected that you might lose some of your digestive tolerance for them — and this is especially likely for a food whose origins are as unspeakable as those of hot dogs. When you get a hot dog at a summer festival, you don’t know and wouldn’t want to ask what parts of what animals are included. The contents of that pink tube could be any combination of virtually any parts of cattle, pigs, turkeys, chickens, texturized soy protein, and factory-processed soft cheese. It’s a food you can learn to tolerate, but it’s not obvious that you’ll get along with it if you’re eating for the first time, or the first time in ages.

When you adjust your eating habits, it can take some time for your thinking to catch up. I first found this out with mayonnaise, a food I was forced to give up because of a soybean oil allergy. A couple of years later when soy-free versions of mayonnaise became available I found that I could take them only in very small amounts. I had fallen out of the mayonnaise habit. I used so little of it I ended up throwing most of it away, and eventually I realized I should stop buying it. Other people in recent years have had similar experiences with factory beer. They used to drink it almost every day, so it’s hard to imagine that they’ve lost their stomach for it, but then when they try it again, perhaps on the 4th of July, they find it a hard brew to swallow.

There is a broad movement in the United States, particularly in the coastal regions, toward better food. This also means that lesser food items are being left behind, one by one, often fading away without anyone noticing. If you realize you are facing a food that you haven’t eaten in a year or more, it is only prudent to be as skeptical of it as you would be of a food you have never eaten. Try it in moderation and see how you do. Or, if it is one of those foods that comes with a story you wouldn’t want to hear, perhaps you might skip it entirely.

Monday, July 23, 2012

A Sunny Season for Golf

Interest in golf is still declining across the United States, and golf courses continue to close, but not nearly at the pace of the last four years. The main reason, apparently, is that the weather has been good for business at golf courses this year.

It is not that it has been ideal golfing weather. Far from it — the weather in most of the center of the country has been unusually dry, so the grass is not in the best condition. At the same time, heat waves have surely kept many golfers indoors.

Yet dry weather also means there have been not been many rainy days to keep customers away. Courses in much of the country also got the benefit of unusually warm weather in March. That effectively added a month to the summer season.

An extra month of revenue can make up for a lot of problems in a seasonal business, but no one expects that good luck to continue. There are hundreds of golf courses whose owners are eager to sell, but there are few buyers. Many owners are doing something previously unthinkable: shrinking their underused courses to 9 holes. The result is no longer a full regulation golf course, but the smaller course costs only half as much to maintain and might not feel quite so empty.

Friday, July 20, 2012

This Week in Bank Failures

The outline of a European bailout for banks in Spain has been agreed to. The specific sums of money are not yet determined and will depend on the results of a subsequent examination of each bank.

The city of Baltimore figures to be the lead plaintiff in municipalities’ claims against banks for manipulating Libor. Baltimore filed its suit against the banks a year ago, imagining at the time that it would be a small and highly technical case. With the recent revelations, the Libor class action is turning into something much larger that will hinge on subpoenas and the credibility of testimony from bank employees, many of whom, given the prevailing rate of turnover in banking, no longer work for the banks in question.

One of the big questions in Libor litigation is whether banks’ actions meet the definition of a conspiracy to fix prices. This is not a terribly difficult legal standard to meet. The facts would have to show agreement among employees of multiple businesses on actions taken in recognition of a particular pricing outcome, which might involve interest rates or the prices of securities. If this is shown, plaintiffs might be entitled to triple damages under U.S. law. This law would appear to apply even to parties that are located outside the United States, if they were operating in concert with people in the United States. This possibility may make it particularly important for banks to settle these cases out of court. Talks of settlement are premature, however, until it becomes more clear how many plaintiffs and defendants there might be.

Capital One will pay $210 million in fines and restitution to settle charges of deceptive and fraudulent credit card marketing tactics. The bank fraudulently enrolled some customers in add-on subscriptions such as “credit monitoring” for new credit card accounts, and improperly pressured or misled other customers to enroll in these services. The bank will refund $150 million to customers and pay $60 million in fines to regulators to settle the case. It must also stop offering the add-ons in question until it changes its marketing practices and adds internal controls.

The city of San Bernardino, California, has declared a fiscal emergency, a preparatory step required for a California municipality that will be declaring bankruptcy in less than 60 days. San Bernardino’s bankruptcy filing will probably come early next month. Also in California, Compton is expected to be insolvent and could file for bankruptcy within the next two months.

Student loans have a great deal in common with subprime mortgages, according to a report released this week. In both cases, the securitization market led lenders to lower underwriting standards and employ deceptive marketing practices to issue huge numbers of loans that borrowers could not possibly repay.

HSBC, already facing U.S. fines and a Congressional investigation for money laundering lapses, now also faces fines and possible criminal prosecutions in Mexico for similar offenses there.

There were five small bank failures tonight, each involving banks with deposits of $200 million or less.

  • First Cherokee State Bank, 3 locations, Woodstock, Georgia, and Georgia Trust Bank, 2 locations, Buford, Georgia. Community & Southern Bank is paying a 1/2 percent premium for the deposits of both failed banks and is also purchasing the assets.
  • Second Federal Savings and Loan Association of Chicago, 3 locations. Hinsdale Bank & Trust Company is paying a $10 million premium for the deposits, but will not be purchasing the assets.
  • Two banks owned by Mercantile Bancorp. One is Heartland Bank, 2 locations, Leawood, Kansas. Missouri-based Metcalf Bank is paying a 1.1 percent premium for the deposits and is also purchasing the assets. The other is The Royal Palm Bank of Florida, 3 locations, Naples. First National Bank of the Gulf Coast is assuming the deposits and purchasing the assets. Mercantile Bancorp had purchased both failed banks within the last decade, and had sold other banks it owned to raise capital to keep the two banks operating. The bank holding company says its local operations in the Quincy, Illinois, area will not be affected.

Thursday, July 19, 2012

Syria: Collapsing From Within

From today’s reports, the government of Syria has gone into hiding. There are no police on the streets of Damascus. The military is reduced to guerrilla tactics. They fire a few shots and run. They don’t firmly control any territory anywhere.

The government was already collapsing from within before yesterday’s bombing assassination of two or more cabinet-level figures at a strategy meeting. That must have been an inside job, if the bomb was too small to produce any visible damage to the building. The government account of the event lacks credibility, so no one really knows who did it. Was it the president himself, a government assistant, or one of the guards? The answer scarcely matters to those still on the inside. The important thing is that no one can trust anyone anymore. The president was seen on television tonight, but one has to wonder how much of the government is still operating.

And even it if were, what could it do? Its main strategy at this point is the use of random gunfire to keep citizens off the streets. But this also means that people can’t work. When people can’t work, eventually they can’t eat either, so it is a strategy that can’t be maintained for more than a matter of days.

The government can’t expect any help from outside. Having spent a lifetime destabilizing its neighbors, it now lacks any routes to resupply itself. Perhaps its one remaining ally, Russia, might like to intervene, but there is no credible route in. People have been overstating the parallels between Syria and countries like Libya and Iraq, but there is one lesson from history that seems to apply equally well here: when a government goes into hiding, it is in its last days.

Wednesday, July 18, 2012

Weather Hits Meat Prices

Globally, the weather is more favorable for agriculture than it has been in years. There is no major country whose heartland is on fire or under water.

The location of this year’s hot weather and drought, though, right in the center of the United States, will make it more noticeable to U.S. consumers. The drought-stricken areas grow mostly feedstocks fed to cattle, pigs, and chickens. The production of these products can only decline with the shortage of feed, resulting in higher prices across North America. Regionally, milk prices will go up also, as some milk will have to be trucked in from other states. Prices may not go up much right away, but beef prices could easily be up 10 percent from last year at the end of this year, and prices will continue to go up next year as herd sizes shrink to match the availability of feed.

Corn crops fit for human consumption are more resistant to the effects of dry weather, and increases in grain prices in general will not be noticeable in the prices of manufactured food products. So while you might see economists generalize about food prices being affected by the weather, it will mainly be the prices of meat that go up.

Tuesday, July 17, 2012

Not Counting on Cable

Viacom is just the latest in a series of cable TV content owners to pull their channels from a major TV subscription service. While the middlemen in the cable business point fingers at each other, the experience of a few weeks without Comedy Central and MTV (or whatever channels it will be in next month’s blackout) gives viewers a chance to see how optional cable really is. It is something viewers will remember, perhaps later this year or next, when their circumstances change or their current discount period expires and they have to decide whether to keep their television service or let it drop. Price changes also take away from the perception of television as having a lasting or permanent place in a person’s lifestyle. The more television comes across as fitful and haphazard, the easier it is for subscribers to change their minds too.

Monday, July 16, 2012

A Small Fraction of Trillions

From what we know so far, it is easy to speculate that the Libor base rate was manipulated by at least 0.02 percent, though probably not often more than 0.12 percent, over a period of at least five years. These might seem like small numbers, a small fraction of a percent. If you are thinking of something like a home mortgage, such an interest rate discrepancy could amount to a $1 per month difference in interest charges — enough to care about, but hardly enough to get excited about.

But Libor and other base rates are bigger than any one loan or transaction. They are important because of the trillions of dollars in instruments that are valued and interest payments that are computed from base rates. When the amounts of money are larger than most national economies, it doesn’t take a very large slice to add up to something huge. If a bank intentionally falsified its reports to manipulate Libor or another base rate, and then benefited financially from that action, it might very well owe refunds that total billions of dollars. And if banks got together to take control of Libor using false data, it is easy to imagine that they might collectively be liable for the consequences. With billions of dollars at stake, the legal investigations that sprang up in several countries and states last week aren’t likely to fade away quietly.

Friday, July 13, 2012

This Week in Bank Failures

It was a tough week for the banking business, with an air of scandal growing over the whole financial sector. “Banksters” screamed the cover of The Economist, as media outlets as staid as the Washington Post predicted widespread prosecutions within high finance. And much of the news in banking was worse than that.

A derivatives broker collapsed. There was a suicide note from the founder of Peregrine Financial Group, and he was in a coma after inhaling carbon monoxide on Monday. The Commodity Futures Trading Commission (CFTC) then filed suit against the company, claiming it had been routinely forging bank account certifications, probably for many years. A bank account that supposedly held $225 million in customer funds has only $5 million, and no one seems to know where the other $220 million went. This uncertainty is reflected in Peregrine Financial’s bankruptcy liquidation filing that followed soon after. The filing claimed between $500 million and $1 billion in assets. A public company is supposed to know the exact amount of its assets at a point in the recent past, so a self-assessment as vague as this suggests that officers do not feel they can rely on the financial statements. On the other hand, the vagueness of the filing also holds out the faint hope that the bankruptcy court may somehow find enough assets to cover all of the broker’s past obligations. Today the founder, partially recovered from the effects of carbon monoxide, was arrested and charged with making false statements to regulators.

JPMorgan says it did not pay any severance to managers fired for their involvement in its huge derivatives losses and may recover some bonuses it paid, but that is almost the only good news on that subject to come out in the bank’s report today. The losses from its outsized derivatives gambles were initially estimated at $2 billion, but the bank acknowledged today that it had already lost nearly that much in the first quarter of this year, before the extent of the problems became evident, and nearly $6 billion through midyear. The bank is still holding most of the problematic derivatives portfolio, so it will experience further gains and losses, but mostly losses, over at least the next five quarters. Internal documents were falsified, the bank says, forcing it to revise financial statements for the previous quarter, and this is also what prevents the bank from making severance payments to the fired managers. The bank says all new derivatives trading has been moved out of the Chief Investment Office, where the losses occurred, to other departments in the bank. Federal officials have begun a broad-ranging criminal investigation into cover-up or misreporting of derivative trades at JPMorgan.

The base rate fraud scandal is mushrooming, with some observers characterizing it as the biggest banking scandal ever. The level of official interest in the problem this week almost looks like piling on when you compare it to official disinterest in similar crimes of high finance. But there may be a reason why the base rate problem draws so much attention. Rumors, suspicions, and allegations this week suggest that the Bank of England and the Fed may have been in on the Libor fraud, and had been working to correct the problems over the past five years while simultaneously taking steps to hush it up out of fear that the whole international banking system could collapse if the story came out. In a letter to Congress, the New York Fed seemed to acknowledge that it knew of problems with Libor in 2007 but took no action until April of this year. The letter is silent on the reason for the nearly five-year delay. Dozens of other banks and brokers must have been involved in Libor and Euribor manipulation, and questions are coming up at earnings conference calls, but so far are being met with a stony silence. Analysts at Morgan Stanley are guessing ten other banks will pay higher fines than Barclays, which was quick to cooperate and settle its case.

Among its many other purposes, Libor is used in pricing derivatives. One consequence of that is that mark-to-market accounting rules for the value of securities will have to be revisited. Mark-to-market rules don’t live up to the principles of accounting when the market itself is rigged.

HSBC might pay $1 billion in fines to U.S. authorities for offenses related to money laundering. Banks are required to investigate and report transactions that give the appearance of drug smuggling and other crimes, and regulators ordered HSBC years ago to put tighter controls in place in that area, but the bank has given little indication that it has followed through on that order. Estimates of HSBC’s forthcoming fines are based on past money laundering fines paid by ING and others.

Visa, Mastercard, and banks may have reached a settlement in cases brought by merchants seven years ago when Visa and Mastercard imposed new restrictions on credit cards as they tried to corner the debit card business. Papers filed in court today propose $7 billion in compensation to merchants, along with many changes in rules of credit and debit card transactions. Under the proposed changes, merchants can add surcharges for card purchases to cover the transaction fees for the purchases. Merchants can also explicitly encourage customers to pay with less expensive transaction methods, such as cash. The proposed changes will result in lower revenue for banks and higher prices for card users at retail, and could mark the beginning of the end for the credit card era.

Analysts belatedly agree that U.S. municipalities are in trouble. In my state of Pennsylvania, it is embarrassment enough that the state capital, Harrisburg, is insolvent and is kept out of bankruptcy only by a temporary legislative fiction, but now a much larger city, Scranton, is in that situation too. Scranton is not a replay of Harrisburg’s incinerator failure, but is more similar to the situation in Greece, as administrative lapses left the city unable to borrow the kind of money it had taken for granted in the past. The city will be doubling property taxes and has temporarily cut all city wages to the minimum wage, but as with Greece, it will take much more than that to make ends meet. Only after an extraordinary austerity program and a transitional period of many years will things get back to normal. Hundreds of cities and counties are facing financial pressure on a similar scale, and this will become an obstacle for banks that have the wrong mix of municipal debt on their balance sheets. Financial pressure cuts both ways: the financial pressure on banks makes them especially unwilling to step forward to help cities like Scranton.

A transitional corporate credit union was wound down last weekend. Western Bridge Corporate Federal Credit Union closed its doors as planned after the transition of services to Catalyst Corporate Federal Credit Union was completed.

There was one very small bank failure tonight. In Missouri, state regulators closed Glasgow Savings Bank. The office and deposits have been transferred to Regional Missouri Bank, which is also purchasing the assets. This failure brings the count of bank failures in the United States this year to 33.

Thursday, July 12, 2012

Wall Street’s New Drug

The public,  increasingly, sees Wall Street behavior as an illness, and the new CNBC story about Wall Street traders shooting up with testosterone will only add to that perception. Various life-shortening drugs, legal and otherwise, are an everyday part of the picture in the world of high finance, but testosterone is something different. The rationale for artificially high testosterone levels is that it may prompt a trader to make wilder, more aggressive, less responsible decisions with the large sums of money they are responsible for.

Considering the various financial disasters that Wall Street has been responsible for already, the addition of a not-entirely-legal drug known to lead to crazier and more aggressive decision-making doesn’t sound like it could possibly end well.

Wednesday, July 11, 2012

Temporary Jobs Lead To . . .

One of the curiosities in the latest jobs report is the sharp increase in temporary jobs. Employers worried about being understaffed but also fearful of the possible need for cuts in the first half of next year are hiring people temporarily for jobs that otherwise ought to be permanent positions. If the economy is booming by January, many of these temporary hires could become permanent. But if the economy still looks pale when we get to that point, and particularly if Congress can’t fix the fiscal drag on the economy, the latest temporary hires could form the beginning of a new round of mass layoffs.

Layoffs in the hundreds of thousands are on the way even in the more favorable scenario. Every week at least one major employer announces new layoffs, and major industries are overbuilt and will need to cut back somehow.

Tuesday, July 10, 2012

Window Washing

Window washing isn’t what it used to be.

I’m referring specifically to the large office buildings that are mostly covered with glass on the outside. Until about a decade ago, business made sure to get those windows cleaned, usually by a small crew on a hanging platform, close to once a year. Often building owners would insist on this, writing the requirement for annual window cleaning into office leases.

It just occurred to me that I have seen only one of those window cleaning crews on an office building in the last four years. I can’t say how much or how abruptly window cleaning declined, but you can see at a glance that the windows on many office buildings haven’t been touched in the last five years.

Street-level retail stores, which depend in a more immediate way on the sparkling image that clean windows provide, are still getting windows cleaned often enough to maintain a semblance of that look, though it is not necessarily as often as before. Sparkling office windows, though, are no longer a requirement.

This change makes good financial sense given the squeeze on business budgets and the lackluster state of the commercial real estate market of the last six years. But it is just another way in which the corporate world is losing its shine.

Monday, July 9, 2012

Apple Peels vs. Metabolic Syndrome

It has been known for years that ursolic acid, a plant substance especially found in apple peels, protects against the diseases of metabolic syndrome, particularly heart disease and breast cancer. A new study has found that these are not just hypothetical benefits. Ursolic acid has measurable effects in amounts that you could come easily across in food. Researchers tested an amount of ursolic acid equivalent to 1 or 2 apples per day and found that this provided a degree of metabolic protection against the effects of a high-fat diet. Apparently this was the result of promoting the growth of muscle cells and fat-burning tissues so that more kinds of fat could be burned for energy the same day they were eaten. This protected against the increased body fat that could otherwise result from a high-fat diet.

Ursolic acid is a waxy substance found most prominently in apple peels, but also in lower concentrations in a wide range of foods, including prunes and peppermint.

A separate study this year found that peaches, nectarines, and plums are also effective against metabolic syndrome. The interesting thing about the stone fruits (called this because of the large pits they contain as seeds) is that they contain four different groups of substances that work separately on four cell types involved in metabolic syndrome. The stone fruits were particularly effective against diabetes and heart attacks.

Both apples and stone fruits appear to work against the weight gain associated with a bad diet. This is consistent with what health experts have been saying in recent years: weight loss strategies may work better if you focus on adding in good food first, and avoiding bad food second.

Friday, July 6, 2012

This Week in Bank Failures

The three top executives at Barclays have resigned in the aftermath of the bank’s involvement in manipulating base rates. Staff at Barclays believed that officials at Bank of England were encouraging the bank to misuse the base rate mechanisms, so investigators are trying to find who among the bank’s management might have spread that information, or misinformation, within the company. Some of the email messages that implicate Barclays have been released to the public, and they paint a picture of an organization in which base rate manipulation was a routinely discussed strategy. Investigations of base rate fixing have popped up left and right. The Barclays board of directors, the Bank of England, and the British Parliament have each started their own separate investigations.

Base rate fraud is obviously not limited to Barclays. This week, Royal Bank of Scotland fired several traders who were tied to the scheme to manipulate base rates.

The European Commission proposed tighter rules for custodians of investment funds. The new rules, if ratified, will make it difficult for a large-scale ponzi scheme to sell investment plans in the European market.

Finland has floated the possibility of exiting the euro zone to avoid the high costs of bailing out banks in Spain and elsewhere.

In the United States, we shouldn’t expect bank failures to be prominent or frequent during the next seven months because of the risk of political wrangling over bank regulation during the political season. The one bank failure reported tonight was small but costly.

State regulators closed Montgomery Bank & Trust, based in Ailey, Georgia. It had two branches, $164 million in deposits, and $174 million in assets. Ameris Bank is taking over the deposits but will not be purchasing the assets, aside from $12 million in cash and other highly liquid assets. The FDIC estimates costs of $75 million from the closing, an extraordinarily high cost compared to the amount of insured deposits.

One member of the bank’s board of directors has been charged with fraud and embezzlement of $17 million in bank funds and $40 million in funds from more than 100 investors. The director has been missing for several days and it is speculated that he may be in Venezuela.

Montgomery Bank & Trust attempted to expand into the shore town of St. Simon’s Island about seven years ago around the peak of the real estate boom in Georgia. It was an ill-conceived and ill-timed plan that the bank never recovered from.

Thursday, July 5, 2012

Cultural Factors and Nuclear Dangers

Japan’s parliamentary inquiry into the causes of the Fukushima nuclear disaster has produced a report that blames a wide range of factors, including several that could apply just as easily to the United States.

Japan’s nuclear plants are regulated by the same government agency charged with promoting nuclear power. There is a culture of secrecy and collusion between the industry and the government that allows real dangers to be covered up. Essentially the same setup found in the United States.

And broadly in Japan, the report said, there is a cultural resistance to questioning authority. This is similar in effect to the American resistance to question convention and tradition. In both countries, these cultural norms, applied to nuclear power, allow unsafe practices to carry on for generations.

Wednesday, July 4, 2012

Seeking Sympathy in Strange Times

Everyone I know, it seems, has been through a series of strange and unlikely events in the last few weeks. I have not escaped this trend myself. As I write this, I am sitting with a dog who is recovering from surgery. The sequence of events that brought about the dog’s illness is hard to explain and hard to believe. By itself, this would be just one of the random events in life, but it comes on top of unexpected turns in other areas of my life leaving me in doubt about which way things will go next around my home, in the printing of my next book, and in other areas of my life that are too important to ignore.

Yet I cannot expect too much immediate sympathy from my friends about the sudden uncertainties in my life. At least ten of my closest friends have even stranger and more vexing stories to tell from the same time period. When one friend has a medical emergency, another works for a company whose future is suddenly in doubt, and two others may unexpectedly have to move this month, the uncertainties of my own life are not so serious. For example, if the current problems prevent my latest book from being printed this month, then most likely that just means it will be printed next month. This is the kind of uncertainty that could form the subject of a group discussion in normal times, but it won’t rise to that level of attention right now.

Based on my unscientific read of headlines and Twitter, this trend is not limited to my immediate social circle. A lot of strange things are happening in a lot of different places. Quite possibly, these are strange times in some general sense.

Everyone has a different set of strategies for seeking social recognition, and times like these hit some people harder than others. Surely for some people, the level of sympathy and attention they get from the people around them when strange things happen is their key gauge of their personal social value. Surely somewhere in the world this week there is an author whose new e-book is a big hit on an e-book site and is then withdrawn by the site without explanation. That anguished moment for the author may become twice as anguishing when friends and family members are not able to offer much immediate sympathy because someone’s airplane flight was canceled leaving them stuck in Mexico City and someone else’s irrigation system is broken, putting the whole year of crops at risk. And this is a story that may be repeated a million times in a million different forms. If the unbelievable things that are happening to you don’t seem to rate much attention right now, it’s not you. It’s the times.

Tuesday, July 3, 2012

The $3 Billion Footnote

Three billion dollars is a lot of money. But it depends.

You get an idea of how big big pharma is by looking at the reaction to yesterday’s report of a $3 billion settlement between GlaxoSmithKline and U.S. prosecutors.

Last month, JPMorgan was staggered by the news that it had lost $2 billion, or probably more, in a bad trading bet. Wall Street is big, but not big enough to just absorb a $2 billion hit.

But big pharma is big enough that a $3 billion settlement is all in a day’s work. News of the settlement didn’t weigh on GlaxoSmithKline’s stock. Instead, the stock was up 2 percent, near its 52-week high, during a mostly blah day in the stock market.

In other words, if the stock market reacted to the $3 billion settlement at all, its reaction was that GlaxoSmithKline got off easy.

The $3 billion settlement is being described as the largest pharma settlement ever, but it depends on how you look it. GlaxoSmithKline was settling three separate infractions, related to three separate products, all at once. This included pushing one drug to children, hiding data about the dangers of a second drug, and selling a third drug as a rapid weight loss scheme. And this is along with a laundry list of “minor” legal issues such as a pattern of illegally overcharging states for drugs. In its deal with prosecutors, it will plead guilty to three lesser infractions and pay $3 billion in a combination of penalties and restitution, so that’s less than $1 billion each. Looked at that way, it is perhaps not the largest pharma settlement ever.

Large corporations are eager to settle cases such as these so they can remove the corresponding footnotes from their financial statements. Every potential penalty or liability has to be noted in the fine print following the tables of financial results. With this settlement, GlaxoSmithKline can surely erase a dozen such footnotes.

A dozen footnotes. Three billion dollars. And that’s cheap, according to the stock market. How big is big pharma? Yeah. It’s that big.

Monday, July 2, 2012

Facebook Email and the Built-In Spoofing

When I wrote that social networking could be used to make email more secure, I wasn’t thinking of the man-in-the-middle attack over the weekend that has Facebook users cringing this morning. For those who missed the story, the latest change at Facebook makes it hard to find users’ email addresses (going so far as to delete address books on some users’ phones) and impossible to determine the true origin of an email message sent to a Facebook account. This is the opposite of what I was talking about.

I am not on Facebook myself, but based on what I am hearing, it is now ludicrously easy to send an email message to a Facebook user’s account and have it appear to be from one of the user’s friends. You do this by spoofing a return email address the friend has registered with Facebook. The new Facebook email system, installed in stages since Friday, strips out both the actual origin of the message and its spoofed return address and presents the message to the recipient as if it had been sent by the friend from inside Facebook. I have not heard any stories of criminal organizations actually exploiting this feature of the Facebook email system yet, but surely it is just a matter of a day or two before that starts happening. Facebook has literally built spoofing into its new email system, and by doing so, Facebook is making spoofing an unavoidable part of the user experience. From now on, whenever you get any message on Facebook, you will have to stop to ask whether it really comes from your friend, or whether it might be from a criminal organization instead.

Meanwhile, users say real email messages have gone missing. The objective of social network email done correctly is not to make email more open than Internet email, but to make it more of a closed system, so that recipients can have greater confidence in the origin of messages. Facebook is doing it all wrong.