Wednesday, July 31, 2013
Tuesday, July 30, 2013
This is a burned-out light bulb. It is notable not for having burned out, but for how long it lasted — 24 years from its original purchase until yesterday when it would no longer turn on.
I bought it, along with one other, as a second-generation compact fluorescent “light capsule,” a 27-watt bulb that would deliver the light of a 100-watt bulb while staying cooler than the 60-watt bulb it replaced. The two ceiling light fixtures in my living room at the time would each accept only one bulb with a 60-watt heat limit, and this was the brightest thing I could buy that would work within that limitation. At the time, compact fluorescent light bulbs were expected to last seven years. This one lost half its brightness after 15 years, but continued to function for nine years after that. The other one of the pair, more lightly used in recent years, continues to provide almost three fourths of its original brightness. The original purchase price, about $30 each, would not have seemed so steep if I had known both bulbs would last at least 24 years.
I am not telling this story to encourage anyone to go out and buy compact fluorescent light bulbs. I stopped buying them myself a decade ago, concerned about the health effects of fluorescent lighting after traditional fluorescent lights were conclusively linked to weight gain. Today fluorescent lights are legacy technology — I have some trouble understanding why they are still being made or why anyone would buy them. But they do not burn out quickly, and I still have several of them just because they are as durable as they are.
And that is really the point of the story. When one generation of technology is replaced by another that is several times more durable than you would expect, the consequences of purchasing decisions carry forward farther than you could imagine. Current-technology light bulbs are tipped as lasting 50 years but may end up lasting more than a lifetime, fading and yellowing somewhat along the way but nevertheless serving their purpose for a very long time. Would we buy light bulbs as casually as we do if we stopped to think that they might outlive us?
We are seeing similar transitions on shorter time scales in other areas of technology — cellular phones, laser printers, clothing, and cars, to name a few. You think you are buying just another replacement, but it might last just about forever. And this will come to other categories of products where we don’t expect it. What if a breakthrough in materials allowed running shoes to go for 5,000 miles instead of 500? Or if a video game were so fascinating and malleable that you could keep playing it for five years instead of five months? If a new bath towel promised to be “the last towel you will ever buy,” would you buy it?
Monday, July 29, 2013
Friday, July 26, 2013
SAC Capital has pleaded not guilty after being charged with a pervasive and continuing pattern of insider trading. Prosecutors will seek forfeiture of the hedge fund manager’s ill-gotten gains. The indictment did not specify the amount of money involved, but it is easy to imagine that it could be most of the assets of the company and its owner.
UBS has agreed to pay a fine close to $1 billion to settle securities charges in connection with its involvement in mortgage-backed securities. The bank had assured buyers the securities were safe investments. At least ten other megabanks are thought to be facing similar fines.
Five Europeans have been indicted for stealing card numbers and identifying information for 160 million U.S. credit and debit card accounts over a period of about 6 years.
Friday, July 19, 2013
Detroit is facing a messy bankruptcy process. The city filed for bankruptcy yesterday, a move that was widely expected after the state chose a bankruptcy lawyer as the city’s emergency manager. That emergency manager promised an orderly bankruptcy process in a late statement yesterday, but today we got a hint of the chaos to come when a judge ordered the bankruptcy withdrawn. That order did not come from the bankruptcy court and probably will not stand, but there are questions all around about who is really in charge. Michigan’s governor, whose anti-city program is the cornerstone of his administration, will try to tell you he is the one who pulls the strings in Detroit’s decline, but in truth, there is not much even he can do to control the sequence of events beyond this point.
There are no models to follow that can tell you where Detroit goes from here. How many cities have ever, in the history of civilization, faced a net loss of one million residents? This decline in Detroit’s fortunes occurred over decades, and in theory was gradual enough that it could have been managed. It reflects a failing in Western culture that there was nothing anyone could do. We so expect growth that decline looks like a mistake, and we waste time looking for a turnaround when what is really needed is to put things back in balance so that we can carry on on a smaller scale.
This is the problem still in Detroit, so much so that the current bankruptcy plans will not solve anything. Unlike a commercial bankruptcy, though, a city cannot liquidate — for the sake of its residents, it must keep operating no matter what. As it stumbles forward, Detroit will not be able to meet more than a token amount of its backward-looking obligations, and I am afraid this will come as a shock to many. Detroit’s obligations, estimated at roughly $20 billion, will go unmet as the city’s problems continue while its resources fade. My fear is that the bankruptcy plan is based on the assumption of a turnaround. If implemented as is, it could leave Detroit impoverished for two generations or drive it into an early repeat bankruptcy. A proper bankruptcy solution is one that eventually allows Detroit to replace its burned-out street lights. It remains to be seen whether that can happen.
Every municipal bankruptcy affects banks directly and indirectly, but at this point I would not dare to guess which banks will take a hit and which will find a way to get a piece of the action. I do feel safe in saying that Washington will go out of its way to avoid getting involved.
There are surely lessons the banking sector can take from Detroit. Banking as a whole is declining at a similar pace and too many in banking are making the same mistake of looking for the early turnaround, rather than looking for the balance that will allow them to weather the next crisis.
One credit union failed this week, Taupa Lithuanian Credit Union closed by state officials in Ohio. The NCUA will be contacting members, around 1,000, about their accounts. Credit unions this year have been failing at the rate of about one every three weeks.
Wednesday, July 17, 2013
Baseball is a game that changes only slowly. It has been years since I followed the sport, but I am assured it hasn’t changed much. The biggest change, everyone seems to agree, is pitch count. Coaches and leagues count every ball every pitcher throws. Starting pitchers at every level of play are regularly taken out of games, and on occasion may be rested for the rest of the season, just because of the statistical probability that the pitcher might do permanent damage to the joints of the arm and shoulder by throwing more pitches.
Fans grumble, but this change makes good sense if you look at it as a question of labor economics. You can easily find athletes qualified to play a valid game of baseball, so the ultimate impact of resting one athlete is minimal. Compare that to the predicament of a person whose arm stops working. That’s a long-term problem with no easy solution. This reluctance to take risks with workers’ health is part of a larger cultural shift that goes well beyond baseball. It is happening in baseball now because it reflects the consensus view of spectators. They are no longer so eager to see disproportionate risks taken for the sake of sport. As the saying goes, it is only a game.
Tuesday, July 16, 2013
Monday, July 15, 2013
Friday, July 12, 2013
The 1999 repeal of the Glass-Steagall Act, which had set up a wall between Wall Street and banking, was supposed to breathe new life into a dying banking industry. Instead, the new regime ushered in by the repeal sliced profit margins at the larger banks so thin that every one of them was at the edge of financial collapse even in a good year. The same changes also weakened Wall Street, paving the way for its 2008 collapse. There has been talk all along about reinstating Glass-Steagall, but now there is real momentum, with a new Senate bill that has four prominent sponsors and a credible five-year transition plan.
The Glass-Steagall repeal was supposed to set up fruitful combinations of banking and insurance, but that idea was a disaster. The guinea pigs in this experiment were Citibank and Travelers, which combined to form Citigroup — indeed, it was the prospect of this deal that persuaded Congress to act on the Glass-Steagall repeal. But the bank and the insurance company barely survived their marriage and subsequent divorce.
What we are left with, then, is a highly dysfunctional arrangement of banks owned by Wall Street. The high-stakes gambling mentality of Wall Street has filtered down into the banks to the point where even having a checking account is like a roll of the dice. Most banking customers don’t know what fees their banks will charge them from one month to the next because the fee schedules have become that complex — and because the banks themselves often don’t quite know what their own rules are. Account holders in the giant banks don’t know in advance when they will gain and when they will lose, but they continue to hope that this is will be one of the months when they get lucky.
This approach to banking has become so unpopular that I believe there is a real chance that Glass-Steagall could be reinstated next year. Along with it, there could be real reforms that take away big pieces of the shadow banking system — and people will start to remember what a real bank looks like. It was less than a generation ago that banks prided themselves on reliability, stability, and integrity — on handling transactions simply and correctly. That is the kind of banking that could come back with the new Glass-Steagall Act.
Thursday, July 11, 2013
The computer industry has been offering excuses for the weakness in PC sales for a long time. Five years ago, the finger of blame was pointed at recession-based cost-cutting by the big corporate customers. By last year, the story was that they were holding off, waiting for Microsoft to release Windows 8. When Windows 8 functioned awkwardly on release, it was that buyers were waiting for a patch to fix the worst flaws in Windows 8. Now the story is that when the Mighty Morphin Power Rangers become Windows 8-compatible that will turn the slide around. I exaggerate, but sales at Dell and Hewlett-Packard have slid so much that Lenovo has passed them in unit sales, so it is time for the most colorful excuse we can come up with.
The significant thing about Lenovo is that it is not particularly strong in corporate sales. That looked like a problem five years ago but now looks like a strategy. Having not invested so much in the corporate bubble, Lenovo now does not have to face the painful slide on the other side.
PCs are declining not just because corporations are declining, not just because of the new flaws introduced in Windows 8, but mainly because the capabilities of the PC are less than they were, or at least seemed, a decade ago. The current corporate PC is so locked down for security reasons that it can barely do anything anymore. Users can type and click buttons, but for security reasons have limited access to the Internet where documents can be typed and buttons can be clicked to actual effect. What this implies is that the corporate PC is at risk of being replaced by a suite of HTML 5 apps. And if this sounds like another joke, consider that Microsoft and Adobe have both already taken the precaution of moving their flagship applications online.
Some of the more forward-looking corporations are doing their part by replacing PCs with thin clients, modem-sized computers that do virtually everything a PC can do on a corporate network, but without adding in a lot of expensive extra capabilities that are only going to be locked down anyway. At the same time, about 20 of the bigger computer companies are angling to be in position to provide corporate cloud services, basically just NSA-compatible remote servers, as soon as the firewall problems can be worked out. Everyone is moving in the same direction, but these parts don’t go together to create a cart that can roll. We can’t be surprised if there is a crashing sound when we get to the end of the tunnel.
Monday, July 8, 2013
“If al-Qaeda is calling you, we want to know why.”
That, and I apologize if I am paraphrasing, was a previous president’s defense of the NSA spying program. I don’t know how many people believed that the NSA was actually focused on al-Qaeda when they heard that line, but if it strained credulity then, it becomes exceedingly unlikely with the revelation that after China, the NSA’s top overseas target has been Brazil.
China and Brazil are many things, but al-Qaeda bases? The emphasis on Brazil especially suggests that the NSA’s intentions have little to do with security, and are more commercial in nature. The scale of the NSA’s reported Brazil efforts implies that the NSA’s business there is not so much industrial espionage — you can steal business secrets by intercepting mere hundreds of telephone calls or email messages — but what might better be characterized as consumer research.
What else would you assume if you hear that an organization has been looking at messages among millions of Brazilians?
The one thing that is especially notable about Brazil is its limited dependence on international corporations, when compared to the other large economies of the world. Partly this is an accident of location, but partly too it is the result of political philosophies of past decades, as leaders looked for ways to make the country more self-sufficient.
Brazil has the potential to be economically more self-sufficient than most of the countries of the world. So is it this independent streak and can-do spirit that scares the NSA? Is a secret U.S. government program looking for avenues by which it might make Brazil more dependent on products the United States might sell?
It sounds far-fetched, I know. But compare it to the official story, that the NSA is looking for international terrorists on the back streets of Brasilia and the beaches of Rio, and it starts to sound possible. I suppose there are other possible explanations for the NSA’s special interest in Brazil, but the search for al-Qaeda is not one of them.
Friday, July 5, 2013
A preliminary EU report says 13 banks and others colluded to prevent Deutsche Börse and Chicago Mercantile Exchange from participating in credit derivatives markets between 2006 and 2009. A trade organization, effectively controlled by the banks, refused to license exchanges for derivatives trading because of worries that the new competition would erode the banks’ profits. Under monopoly laws, trade organizations cannot legally act to squelch competition the same way an individual business can, so the banks could face fines in the matter. European law allows for fines of up to 10 percent of revenue from monopolistic activities, which in theory could amount to trillions of euros in this case.
Spain’s banks do not need any new European capital at this point according to a leaked EU document.
Big changes are underway at the Vatican Bank, with a caretaker executive in charge and two senior executives dismissed this week. The Vatican is trying to get out ahead of a web of money laundering and corruption scandals surrounding the bank.
Faced with the prospect of its banks being indicted in U.S. courts for tax evasion, Switzerland says it has come up with a plan that will allow the IRS to collect information on possible tax evaders, but not the identities of account holders. There are holes in the plan, however, so it will surely have to be revisited. Switzerland has been wrestling with this problem for three years, and during the delay, a criminal tax evasion probe led to one of its banks, Wegelin, being shut down. Even if banks avoid indictments with the limited data releases that the new law authorizes, individual bankers’ careers could be ruined and some could face criminal indictments in Switzerland depending on the tale the data tells.
JPMorgan has settled with the trustee of MF Global, with the settlement getting final court approval on Wednesday. The bank had seized more than half a billion dollars in MF Global accounts when the brokerage went bankrupt, but it ultimately determined it wasn’t entitled to the money and turned it over to the bankruptcy court. With this settlement approved, more settlements by the bankruptcy trustee are on the way, which could lead to all of the brokerage customer money being returned to customers. About 90 percent of customer money has already been paid out, and the remaining 10 percent may be on its way by next year.
U.S. students are now paying higher interest rates than homeowners after Congress doubled student loan interest rates effective July 1. The action from Congress was intended to send a message, but it’s a heavily garbled message that comes across as, “Don’t think we haven’t noticed the way you students have been ripping us off all these years.” The U.S. Treasury was already making a respectable profit on student loans and now stands to make billions of dollars in windfall profits with the higher “subsidized” interest rates.
The NCUA liquidated one credit union last weekend and another this week. Last Friday, it closed Ochsner Clinic Federal Credit Union, which served 3,000 members, particularly medical workers and their families, in New Orleans. It had only $9 million in assets and its finances were not improving. Member accounts and loans were transferred to ASI Federal Credit Union. On Monday, the NCUA liquidated Ohio-based PEF Federal Credit Union, which had been in conservatorship for two weeks. It had 3,000 members. Many of its member accounts were transferred to Best Reward Credit Union. The NCUA will make payments to other account holders for their insured deposits.
Wednesday, July 3, 2013
The level of political turmoil in the world has shot up, not just in Egypt, but also in places like Turkey, Brazil, Portugal, France, and less obviously, the United States, United Kingdom, and Russia. Some of the greatest controversies center around questions of timing. It is the foot-dragging and obstruction of the president of Egypt that has people worried there that their country is turning into a totalitarian state, but timing is equally at fault in Portugal and Brazil where capricious timing turned consensus policy moves into political insults.
The political theories we work under were created in a period when timing was less critical. The year-long presidential campaign process in the United States might have been the appropriately cautious approach two centuries ago when it took a month for a letter to be delivered. Now the lags involved are a barrier to democracy.
Constitutions in particular are subject to problems of timing. A constitution throws together an operational system that can be agreed upon quickly with more abstract principles or problematic details that really ought to be agreed on multiple times over decades before they become permanent policy. This is especially evident in Egypt currently but is true everywhere. Consider the European Union as another example. The system in the EU has inadequate oversight for all decisions, but tries to make up for it by doing everything at a snail’s pace. It doesn’t quite work — many decisions are still badly taken, and when a crisis requires quick decisions, the careful decision-making framework must be bypassed entirely, allowing decisions that aren’t based on any semblance of democracy.
Tuesday, July 2, 2013
I have to write about Egypt, even though the political situation and the way forward are far from clear. The most important thing to note is the largest political demonstrations in human history. An estimated 15 million people participated. To put that number in perspective, Egypt did not even have 15 million people until 80 years ago.
The Muslim Brotherhood may have helped to organize the early demonstrations in Egypt two years ago, but it now has become the demonstrators’ target. It cannot escape their attention that the number of people demonstrating against them is larger than their entire membership — that indeed, some of their own members must be among the demonstrators objecting to their attempt to set up a totalitarian state. I wonder if this could be the fate of religious extremists in other places in the world, as they seize power in various ways and set themselves up as obstacles to freedom, prosperity, and democracy.