Monday, June 30, 2014

In B&N Report, Print Books Declining Gradually

I predicted a 30 percent decline in sales of print books this year, but sales are not declining nearly that fast. I looked at the latest report from Barnes & Noble to try to pick out the trends. The report showed a same-store sales decline of 6 percent year over year. That isn’t exactly the rate of decline in printed books, but it must be close. There was a 12 percent increase in toy sales, a decline in Nook hardware sales in-store, and 3 percent of stores closed. Sales declined faster at the web site, but slower at the college bookstores. Putting it all together, my guess is this translates to a one-year 8 percent decline in sales of printed books and magazines. The financial results are worse than the sales numbers suggest, though. Every Barnes & Noble division lost money, suggesting that the current level of operations couldn’t be sustained even if demand were to stabilize.

But of course, demand for print will continue to decline, and if you extrapolate a trend of -8%, that is an industry declining by half in nine years. It is easy to see that readers intend to buy fewer printed books, and they certainly can do so, if you look at the perennial studies that show that readers read only a small fraction of the books they buy. The best answer I can suggest is that publishers must find ways to make printed books more physically appealing, especially for the Christmas shopping season, so that shoppers who pick up a book will not think of it as just an ordinary book.

Sunday, June 29, 2014

After Aereo, a Time to Give Up TV

Aereo has shut down its television antenna streaming service. The key points in a letter posted on its web site overnight:

A little over three years ago, our team embarked on a journey to improve the consumer television experience, using technology to create a smart, cloud-based television antenna consumers could use to access live over the air broadcast television.

On Wednesday, June 25, the United States Supreme Court reversed a lower court decision in favor of Aereo, dealing a massive setback to consumers.

As a result of that decision, our case has been returned to the lower Court. We have decided to pause our operations temporarily as we consult with the court and map out our next steps.

The Supreme Court apparently decided that Aereo’s complicated network of television antennas and Internet links meant that the CATV exemption did not apply in its case. It was not a highly confident ruling by the court, drafted in such a way that it would never hold much weight in a case involving any other defendant, so I wouldn’t take it as an indication of the future direction of telecommunications.

Today, with Aereo gone dark, is an especially opportune moment to give up the TV habit. TV viewers are not particularly happy with what TV programming has become or with the time they spend watching, but they need a push to change their habits and routine. Most often, the disruption comes in the form of a move from one home to another. That was my own experience 8 years ago, and it is easy to see how it works. When you move, it is easy to postpone a television subscription for a month, then another month, then another, until television is forgotten. A shock price increase, a job loss, and the cancellation of a favorite show are other disruptions that can lead people to stop watching television at home. A court decision that says your low-cost television service is illegal will tend to bring out people’s defiant streak. “They can’t force me to pay an extra one hundred dollars a month,” people will say, and taking that stance may be easier than actually finding $100 (or $200) in the monthly household budget. I will be surprised if more than a small fraction of Aereo viewers turn up as subscribers to the TV offerings that remain. As for Aereo, it will likely stay dark for two years or longer while its legal case and new business plan are sorted out. By the time it returns, many of its recent customers will be former television viewers. It will essentially have to start all over.

Friday, June 27, 2014

This Week in Bank Failures

The Bank of England did not take long to use its new power to limit mortgage lending. The new rules on October 1 allow a lender no more than 15 percent of its mortgage portfolio in loans with a loan-to-income ratio (LTI) of more than 4.5 years. It is a flexible rule, applying to the portfolio rather than any one loan, and it should not have much immediate impact in a market where the average LTI on a new mortgage is around 3.5 and where barely 10 percent exceed 4.5. Nevertheless, the rule will prevent any sudden decline in underwriting standards at banks. It is hoped that this will limit the scale of a predicted housing bubble, particularly in London.

U.S. law prevents Argentina from making payments to U.S. creditors on its restructured debt, a court decided, making a sovereign default all but assured. The country has notified the United Nations that a default is likely in the coming days.

Accused: Barclays, of intentionally misrouting trades in its dark pool to maximize its transaction fees. There are reports of major banks and investment funds withdrawing from the dark pool after yesterday’s fraud lawsuit filed by New York State.

Update: The FDIC reports one very small bank failure tonight: The Freedom State Bank, with its office in Freedom, Oklahoma. The bank had $21 million in deposits. Alva State Bank & Trust Company is assuming the deposits and purchasing most of the assets.

Thursday, June 26, 2014

Was YouTube Pushed?

I don’t believe it’s a coincidence that word of a retreat at YouTube — a new strategy that has been characterized as a partial shutdown — comes just weeks after the end of net neutrality. Most people surely don’t realize how vulnerable YouTube is on the Internet and how easily your Internet provider can interfere with the streaming video just enough to make it an unbearable experience. That becomes all the more of a concern now that it is perfectly legal for ISPs to throttle YouTube videos as much as they like. For YouTube in the post-neutrality era, it makes especially good sense to pursue a strategy of few viewers, less bandwidth, more downloads, and more money to grease the palms of the Internet’s gatekeepers so that the video playback can get in the building when you request a video.

With the protections of net neutrality gone, video streaming of all kinds might run into problems. It is live streaming of political events that faces the greatest peril. The corporate owners of Internet pathways don’t have to let those video streams go through intact if they don’t want to, and it’s pretty clear that most political events are talking about policies that wouldn’t be supported by the average big communications conglomerate.

But most streaming isn’t done to broadcast a live event, but to theoretically protect the ownership of music videos and similar content. If you can download a video, you’ve made a copy of it, and with a copy in your hands, you can watch it over and over if you want to, which is not necessarily what the publisher of the video had in mind. Also, with a copy being made, someone might have to pay rights holders a royalty for that copy. Streaming somewhat sidesteps these issues, but it is important to note that these are very artificial distinctions.

The new YouTube will charge for access and pay much of the money from subscription fees out to record companies. The royalty amount is shockingly low, though — a floating amount, but apparently about 1/4 cent per music video play or download, hardly anything when you think about what people pay to buy a song or an album. Of course, the estimated 1/4 cent is the payment to the record company, not what the recording artist gets. Under the terms of the typical record deal, the money won’t reach the recording artist at all. The record company will keep half and use the other half to cover the cost of producing the video. Or try to — it takes a mountain of farthings to pay for even a low-budget video. Even on Old YouTube, no recording artist can plan on getting that many views, and with the lower view counts of New YouTube, it may never happen again.

If we hadn’t repealed net neutrality, I don’t know if we would be debating the future of YouTube right now. With net neutrality YouTube would have more alternatives and would be able to present a more attractive proposition to its viewers. But with net neutrality in the past, you can’t really fault YouTube for trying something that most of its viewers aren’t going to like. The Internet isn’t exactly a civilized place, and it’s not a huge surprise if advertising revenue is not enough to chase away the wolves at the gate.

Wednesday, June 25, 2014

Weather and Health Care Efficiencies

The key factors in the first quarter GDP revision appear to be the severe winter weather of the period and larger than expected cost savings in health care. Neither factor represents a trend. Winter is over, and the severe winter weather ended before the first quarter did. The January 1 and March 31 dates for health care policy won’t recur. There are more dates to come as more provisions go into effect, but those are smaller and their effects probably won’t be seen in economic aggregate measures. Not that I expected to see such a large downward move in health care. It is worth noting that the amount of health care actually delivered jumped up in January with millions more people covered, but the efficiencies outweighed the added work.

Tuesday, June 24, 2014

Paper Use and Recycling

I can see for myself that people in offices and at home are printing fewer pages of computer documents, and it’s easy to see that the print magazine and newspaper industries are in decline. But computer printers account for only a small fraction of paper use, and newspapers and magazines aren’t the dominant categories that they once were. So is paper declining in total?

According to paper industry statistics, total North American paper consumption is down 25 percent from a 2004 peak. It is a similar story in Europe and South America, though the peak years were more recent there. Only China is showing a strong increase in paper consumption in recent years.

Besides using less paper, the paper industry is recycling more. This is especially true in North America, where almost 2/3 of paper is collected for recycling.

Monday, June 23, 2014

I Don’t Know What’s Going On

I really don’t understand what’s going on — at least, not the way it might appear. As a blogger, I am not as smart as my blog is. That’s because I can pick the topics I write about and skip over the topics where I know I’m confused. This makes it look like I know a lot about a lot of subjects, more so than is really the case. Of course, sometimes I will make mistakes and write about something where maybe I shouldn’t have, but in general, my ability to pick the topics I write about is an advantage.

This principle applies to work in general. If you can get to the degree of work autonomy where you can often pick the work you do and, obviously, pick things you’re especially good at while delegating all other work, it makes you look more successful, hardworking, and expert than you really are. Not that there is fakery involved in this — there really is more work getting done when more people can specialize in the things that they are highly productive at, so long as other essential work isn’t being completely neglected. But there are people of high skill in every area of work, so this kind of specialization doesn’t necessarily imply that there is work that isn’t getting done.

Still, it is a way in which skill differences are exaggerated. A low-level worker will tend to be assigned a wide range of responsibilities. Where these tasks match the worker’s skill they’ll get done quickly, but the result is that the worker spends more time on the other tasks, the ones where the match between skill and requirement is poor. This is one of the main reasons low-level jobs are so stressful. A high-level worker has more ability to negotiate for responsibilities that match skills, and so will spend more time working productively and will tend to produce more, quite apart from any generally higher level of skill.

At any level of work, then, it is important to recognize what you are good at and try to position yourself accordingly. As an employee, you want to do your best to take jobs and assignments where you have an advantage of skill or experience. As a manager or entrepreneur, you want to get to the point where you can delegate the tasks you aren’t especially good at — but this only adds to productivity if you can delegate them to someone who is better at them than you are. Otherwise, you are just passing the same work stress along to someone else. Delegation isn’t always an option for a one-person business, but gets easier as revenue grows. Often small businesses reach a point at which they break through after they grow to a size of about 20 workers — beyond that point effective specialization becomes practical and no one has spend much time working on things they aren’t so good at. The resulting productivity gains let the business deliver in a way that it couldn’t at a slightly smaller size.

Saturday, June 21, 2014

Anger and Sadness at YouTube Shutdown

If the reports are true, YouTube is about to go the way of eBay, becoming a legendary Internet name that is no longer of much use to very many people. In stages over the course of the rest of the year, the current YouTube video viewing site will be taken down, replaced by the new YouTube, which will primarily be a music subscription site. Obviously, YouTube will be a shadow of its former self, but its executives don’t care. With subscription fees pouring in the site will be newly profitable. Nothing has changed yet, but already YouTube viewers and musicians are angry, and I will explain why this is the appropriate reaction.

I said nothing has changed yet, but in a way, that isn’t really true. Starting soon, in a matter of days according to a statement from an executive, YouTube will begin deleting the vast majority of music on the site — everything that isn’t part of the new paid subscription service. Just knowing this change is on the way, even if the exact date and other details of the process are unknown, has a chilling effect. As a musician, supposing I had just finished producing a new music video, why would I want to promote it on YouTube, knowing that it could be deleted from that site without warning tomorrow, next week, or next month? It isn’t a favorable promotional experience if I hand out links to fans that work right now, but that tomorrow might lead to a YouTube error page, or worse, an advertisement for the new YouTube service. The safer approach, given that doubt, is not to provide that link at all. And so, already, music that might have been added to YouTube is not there for viewers to discover.

If this sounds vaguely familiar, it is because parent company Google has been through this before. Indeed, I can’t hear the phrase “chilling effect” without thinking of Google+, a social networking site that launched to great expectations, only to crash and burn about two months in as the site aggressively booted out celebrities. For a period of a few weeks, anyone could report that a Google+ user was a phony or using an alias, and Google+ would respond by freezing that user’s account, not just on Google+, but on other Google sites too. After I signed up for Google+, I was terrified to post anything, lest I too be reported and have my Gmail account frozen. That’s a textbook case of a chilling effect. Needless to say, Google+ never recovered.

Something like that is now happening to YouTube. We don’t yet know what YouTube’s new policies will be, but the mere fact that we don’t know adds to the chilling effect. Based on Google’s history, it’s likely that enforcement of the new rules will be sloppy and inconsistent. Quite possibly, as a musician, you can delay having your existing YouTube videos deleted for some period of time if you lay low — if you avoid doing anything to call attention to yourself. That means not adding any new videos, but more than that, it means trying not to have thousands of new views on your existing videos, and most of all, it means not giving the appearance of success on YouTube. But what is online promotion if getting to the point of looking successful can get you deleted from the Internet? Obviously, the whole music industry, from the teenager with a guitar in the garage to the major record labels, has to already be looking for a different way to put their music videos online.

YouTube, then, will become essentially just a paid subscription site for its most loyal viewers, while the mass audience will go off somewhere else. Almost everyone in music who knows about YouTube’s plans seems to see this result as already inevitable, and there is no question that YouTube is doing it to itself.

And this explains viewers’ emphatic reaction — among the few viewers who know of this news — even before the changes are visible on the site. By sweeping away the old YouTube to make room for the new YouTube, YouTube is essentially saying to the viewers of the old YouTube, “We don’t think you’re important enough to keep doing what we’ve been doing.” No one with an ego likes to hear, “We don’t think you’re important enough,” so obviously people are angry. The sadness that people feel is correct also. It is not that people really believe they will never see their favorite Delbert McClinton or Midge Ure videos again, but not knowing when or where is the same sadness one feels in saying goodbye.

Friday, June 20, 2014

This Week in Bank Failures

Turmoil at two of Europe’s giant banks became serious enough today to lead stock markets to suspend trading in the banks’ respective stocks.

At CorpBank in Bulgaria, the problems surfaced with media reports that linked the bank to an official scandal. This led to a run on the bank. After several days the bank ran out of cash. It closed its doors, no longer able to pay depositors. The Bulgarian National Bank put CorpBank into receivership for a stated period of three months. The central bank says that CorpBank remains financially sound, though it is auditing the books to make sure, and it says it hopes to restore the bank to normal operation in September. For now, though, there are stiff limits on withdrawals and the bank is prohibited from making public statements. CorpBank is the country’s fourth largest bank and its troubles prompted a general decline in the stock market today and added new pressure to the government’s financial troubles.

Financial trouble has been evident since last year at Portugal’s largest bank, Banco Espirito Santo (BES). As the name suggests, the bank has long been controlled by the Espirito Santo family, but that changed last week. Five quarters of losses totaling €600 million led to a new stock issue to raise capital, reducing the family’s combined shares below 50 percent for the first time. There have also been concerns about accounting irregularities that may have understated losses. Facing the shift in ownership, the accounting questions, and rumors of his departure, the bank’s CEO said today he would resign after a stockholders’ meeting July 31. The imminent loss of the CEO made the bank’s stock more volatile than it was already, leading to a stock trading suspension that is expected to last for a few days.

Accused: A mortgage-backed securities fraud case against Bank of America will go forward after a federal court ruled that the government’s case was strong enough. The bank offered few arguments against the government’s allegations and evidence, leaving the court with no rationale to dismiss. The ruling comes at an awkward time for the bank, which flatly rejected a Justice Department settlement offer last week. Now the bank is trying to restart settlement negotiations, but it is embarrassing itself by requesting a meeting with the Attorney General, something that is not likely to happen quickly.

Cuts: Halfway across the country, Bank of America is preparing a list of branches to close or sell in Kansas. The bank plans to keep just under half of its branches in the state.

Paying up: GE Capital Retail Bank, which is in the middle of changing its name to Synchrony Bank, is paying $174 in penalties and $56 million in restitution. This will settle a case of deceptive marketing tactics and racial discrimination in its credit card operations.

Failed: Two banks named Valley Bank were closed by state regulators tonight. Both were operating subsidiaries of Iowa-based River Valley Bancorp, and the problems at the new bank in Florida may have doomed the older, larger, and more sensibly named bank in the Mississippi River valley in Illinois.

In Broward County, Florida, Valley Bank, with four locations, was closed by state regulators. The failed bank had essentially run out of capital around the end of the first quarter. The Seminole Tribe of Florida was looking into buying and restoring the bank a month ago, but that transaction fell through. Tonight, it was a local competing bank, Landmark Bank, that assumed the deposits and purchased the assets of the failed bank, accelerating a planned expansion in the county.

In northwestern Illinois, state regulators closed the Valley Bank there. Its 13 locations and $360 million in deposits are being transferred to Missouri-based Great Southern Bank, which is also purchasing most of the assets.

River Valley Bancorp had sold off its other banking subsidiary, Freedom Bank, based in Sterling, Illinois, in November. The buyer was Heartland Financial USA, Inc. The Fed had ordered River Valley Bancorp to undertake capital conservation measures at the end of 2009 because of loan losses at its banking subsidiaries. More recently, regulators had complained that the holding company executives trying to manage banks in two widely separated states were not paying enough attention to operations at either bank.

River Valley Bancorp is not to be confused with a similarly-named holding company and bank in Indiana, nor is it associated with a similarly-named bank in Wisconsin and Michigan.

Thursday, June 19, 2014

New Solar Records in Germany

Germany set several new solar electric records this month, including peak power generation and the highest proportion of the country’s electricity use. The latter was 50.6 percent near midday on June 9. That day was a holiday, but the electric generation is still an impressive achievement for a country that gets relatively little sunlight. New records are easier to set in June, the month of the summer solstice. The improving solar results show that Germany’s solar capacity continues to increase faster than its electric use in spite of the removal of most subsidies.

Wednesday, June 18, 2014

Today’s Redskins Ruling Changes Things

The trademark registration for the Redskins football team was struck down today, a hearing board concluding that the name was, at heart, a racial slur.

To be eligible for U.S. registration, a trademark has to meet a number of rules. Among them, the name cannot merely be a slur or derogatory term. The Redskins name has an obvious problem in this area, so it was the right decision.

Some have suggested that today’s ruling won’t change anything. It is true that the football team continues to use the same name tonight. But for a couple of reasons, today’s ruling changes everything.

First there is the symbolic effect. A business that is ruled ineligible for the legal protections that other businesses enjoy is one step farther from being part of the community, one step closer to being part of the underground. That’s not necessarily a good thing for an entertainment business, where the business depends on being known and remembered.

Second, there is the merchandise. Without the trademark registration, it probably won’t be practical for the team or the league to prevent discount stores or street merchants from printing their own team T-shirts and other knockoff merchandise. For a league that brings in more from merchandise than it does from tickets, that is a distressing prospect. If one team’s knockoff merchandise gains a foothold in the marketplace, it is a problem the NFL and every team will be chasing down for the next two decades. To prevent this, the NFL urgently needs to get the Redskins team name changed. When a conflict pits one renegade team against the NFL’s profits, there can’t be much doubt about which side will prevail.

This is one of those moments of cultural change, when an error that has been out in the open for generations can suddenly change when a correct decision is made one day. The problem with the Redskins name has been considered before, but through tortured logic that is hard to explain today, the name was allowed to stand. Today’s decision is much simpler. The simpler answer, and its broad acceptance, is a sign of collective spiritual evolution.

Sunday, June 15, 2014

The #WorldCup Twitter App

There is a new version of the Twitter app specifically for the #WorldCup.

Srsly? Well, why not? Twitter releases new app versions at least once every month anyway. In that context, it isn’t so extravagant to create a version that highlights a sports tournament that is expected to be the biggest event yet in the history of Twitter.

This is the kind of change Alvin Toffler said was coming in his 1970 book Future Shock. Product designs — previously something thought to be permanent — now can change from week to week based on the whims of popular culture. In principle this is a good thing, so long as the pace of change doesn’t throw you off balance.

Of course, when the World Cup ends, there will be another new version of the Twitter app. People like me who can’t seem to find the time to follow the World Cup can slow the pace of change ever so slightly by skipping the World Cup version of Twitter and waiting for the version that follows.

Friday, June 13, 2014

This Week in Bank Failures

Under investigation: BNP Paribas executives knew in 2006 that the bank was clearing transactions for Iranian banks in a way that violated U.S. law, according to a report in Le Monde. However, the bank did not correct its internal controls until last month. The bank is suspected of keeping false records of wire transfers to disguise its money-laundering transactions.

Raising capital: Bank of America is selling branches in inland areas of Virginia, six to HomeTrust Bank and six more to First Community Bank.

The Bank of England is expecting to raise interest rates before the year is over. In addition, so that it does not have to raise interest rates just to cut off a real estate bubble, it is gaining new powers to restrict real estate lending. It could, for example, limit the size of a loan in relation to the property being purchased or the borrower’s income. Real estate values in London especially have risen far enough above their post-crash lows that talk of a bubble is hard to avoid.

A CNNMoney poll found that opinions of the auto bailout have not changed much with the passage of time. Just 38 percent of respondents thought that rescuing the Detroit automakers was a good idea.

Thursday, June 12, 2014

A Failed State, Then the Spread of War

We avoid war at all costs in part because the best way to minimize the chances of war in the future is for everyone to avoid the experience of war now. But the spread of war from the failed state in Syria to two more or less functioning countries, first Lebanon and now Iraq, shows that this idea of avoiding war is not nearly as simple as it seems in happier times. Iraq will not fall to a ragtag foreign army bent on destroying it, but this is a war that it does not appear to have the option of avoiding. While it is never easy to answer the challenge of a failed state, one point to consider is that the cost of intervening in the problems of a failed state can be tiny compared to the costs of a heavily armed fight to the death. It has been three years since the old regime of Syria controlled any substantial part of that country. It is easy to imagine that there was time to do something constructive in Syria during the intervening time — though, as I said, it is a little harder to say specifically what might have been done.

Wednesday, June 11, 2014

In Cantor Loss, All the Polls Were Wrong

If word of Eric Cantor’s lopsided election loss last night caught the world off guard, it was because the polls were wrong. This was not just a few polls a little bit off, but every poll predicting an easy victory for the incumbent. The predicted margin of victory was about 8 points in the closest poll, or 24 in the most generous. Only the Cantor campaign seemed to believe the latter poll, but observers were equally skeptical of the former, looking for a result somewhere in between. The polling was so one-sided that CNN virtually called the race for Cantor in the early afternoon of election day. We have seen this before. Political polling (exit polls excluded) has had difficulties reaching active voters ever since the beginning of the cell phone era. This is a case that shows that these problems continue.

Tuesday, June 10, 2014

Cantor’s Ultimate Shutdown

More than anyone else, it was Eric Cantor’s idea to shut down the federal government last year. His thought was to keep the government shut through this fall’s election so that the country would fall into a depression, but instead it was closed only for part of October and did not quite cause a recession. In today’s election he lost his bid for a new term. The view of the House Republicans as intentionally sabotaging the country by shutting everything down must have had a part in the loss — especially when you consider that the winner was an economist, and the incumbent outspent the challenger by more than 10 to 1. The election was not even close — at the latest report, only 44 percent of Republican primary voters voted for Cantor.

Sunday, June 8, 2014

Looking for the Central Arctic Route

This will not be the year of the great Arctic melt-out. I can predict that because of how solid the ice in the Beaufort Sea, north of Alaska and Yukon, still is. It is barely two weeks before the summer solstice, and for a melt-out to occur, the ice here should be starting to fall apart, allowing time for the ocean to warm so that warm water can hasten the melt of some of the thicker ice further north. With that not happening this early, the melt-out will have to wait for another year. There is a fair chance, though, of the Central Arctic shipping lane opening up. The ice on the Asian side of the North Pole is already looking very weak, and it seems plausible that it could substantially all melt away by September. Then cargo ships could travel between Norway and the Bering Strait by way of the North Pole, or at least north of all the Asian islands in the Arctic Ocean. The scientific consensus view is that the Central Arctic route will be open essentially every summer by 2050, so could 2014 be the first year? It is too soon to say.

Saturday, June 7, 2014

Weather in Q1 and Q2

Much of the economic commentary has clearly underestimated the effect of severe weather on the United States’ first quarter economic measures, and I am afraid the effect of the comparatively benign weather in the second quarter will also be underestimated. It does seem a little strange to be talking about benign weather when one corner of the country is still locked in a long-term drought, meteorologists just recorded the strongest May hurricane ever, and the betting money is on a “super El Niño” event starting any week now. Yet Hurricane Amanda and its 155 mph winds were not a threat to land, El Niño effects probably will not be felt until July, and the drought, though no less severe, is affecting a smaller area than before. Separately, the United States has had less than its share of tornadoes, wildfires, and floods this spring — and the near-misses tell us the favorable weather was essentially just a matter of luck.

Luck is as good as hard work when it comes to economic matters, and with such favorable weather, the second quarter will look stronger than it really was, just as the first quarter looked weaker than it really was. Compare the two and there will be a sense of a growth trend that isn’t entirely there. The improvement is real in an economic sense, but the part of it that results from the random fluctuations of the weather shouldn’t be taken as a trend.

Friday, June 6, 2014

This Week in Bank Failures

Economic theory generally holds that negative interest rates are impossible: if you charge people for letting you use their money, they will hold on to the money themselves. Of course, we know that view is a bit simplistic, and in the real world this week, The European Central Bank announced a cut in its deposit interest rate from 0 to -0.10 percent, proving that interest rates can go slightly negative. The European Central Bank also cut its lending rate from 0.25 to 0.15, along with other steps, trying to boost economic activity and to keep inflation in the positive range.

In the United States, there are hopeful signs for the economy’s continued expansion, despite the various statistics that indicate a slowdown between September and February on the government shutdown and severe winter weather. Most notably, the labor market continues to improve steadily. The gross U.S. job count has recovered approximately to its pre-crash peak, which according to the popular understanding of such things means that the depression is over.

A bill to allow student loan refinancing could get a Senate vote as soon as next week.

Charged: Liquidnet, a dark pool operator, for selling customers’ confidential financial information. The company is paying $2 million to settle the charges without admitting guilt, but acknowledging that its internal controls were inadequate. High-speed broker Wedbush, for helping customers circumvent market controls for three years, ending last year. Two executives were named but not charged.

Guilty: A director of the failed Montgomery Bank & Trust in Georgia, whose high-risk securities trading and embezzlement of $21 million contributed to the bank’s insolvency. Aubrey Lee Price pleaded guilty to a series of fraud charges to avoid prosecution on the most serious charges. He had been on the run for a year before police caught him on December 31.

Tuesday, June 3, 2014

Can Encryption Save Email?

Could encryption save Internet email?

Email encryption is something I am thinking about today because of a Google announcement: it is working on a security protocol for sending and receiving email that makes the text inaccessible to anyone else. This announcement comes with the caution that this feature won’t be immediately available — it has just today gone into its formal security review, and will likely need a revision or two before it is ready for the public to try it out.

Already, encryption has quietly been creeping into email over the last two years. If you have a web-based email account, you have probably seen the web pages switch over from HTTP to HTTPS, which means the transfer of messages between your web browser and the email server are protected from snooping. Behind the scenes, there is also “backbone” encryption that protects email messages going from one email server to another. Backbone encryption is relatively new, so at this point it probably covers something like one sixth of legitimate Internet email messages. Probably by the end of this year it will be closer to one half.

Here is what intrigues me, though: the combination of endpoint encryption and backbone encryption may also provide some protection against email spam. Email spam, to be effective, has to be sent without disclosing who the sender is. Because of that, I think it would be very hard for email spam to be encrypted. And remember that roughly 99 percent of Internet email is spam — if you see less than 99 percent spam in your inbox, it is mainly because email servers tend to filter out the most repetitive messages along the way. Legitimate messages increasingly tend to be encrypted; spam messages, not so much. So encryption may shortly come to be a sign of legitimate, non-spam communication.

That, of course, is quite a turnaround from last year, when merely sending and receiving encrypted email was enough to get some American companies shut down by the government or hauled into court. The White House said at the time that it thought all this encryption was a sign of international espionage. But the government is not about to shut down Google. Meanwhile, if everyone is sending encrypted email — and you will be too, if you have an email account with Google, AOL, Microsoft, Facebook, and the like — it can no longer be taken as a sign of anything unusual.

Google’s suggestion for end-to-end email encryption puzzles some people, as it also defeats a part of Google’s text mining that it depends on for its advertising business. With end-to-end encryption, even Google will not know what words you are using in your email messages. But the greater threat to Google is if people decide it is too risky to be on the Internet — and making encryption broadly available is a way to reverse some of that risk.

That people feel threatened by problems on the Internet is not merely a hypothetical concern. A survey found that 1/4 of Americans had stopped their online buying entirely for at least a week after the data-loss fiascoes at Target and eBay, and only about 1/3 felt they had been unaffected by those events. There is other evidence that people’s email habits have been significantly shaped by both the NSA and spam.

So if a level of security can be added to email, that too will change the way people communicate. It is not as if we are about to start revealing our deepest thoughts in email, but perhaps we will start to exchange ideas more freely again. That result seems entirely possible if email can be made more secure over the next year or two.