Friday, May 29, 2015

This Week in Bank Failures

Outflows have picked up again at most banks in Greece as depositors withdraw more money than they deposit. Net outflows were estimated at €5.6 billion in April. Outflows then nearly stopped, but picked up again in the second half of May. Depositors worry about whether the European Central Bank can go any farther to maintain liquidity in Greece. Outflows for May could reach €3 billion. Total deposits have retreated to the levels of 2004. Banks will need to find ways to sell some assets.

Dozens of banks must have handled money transfers of a million dollars and up to deliver the bribes that influenced decisions at international football association FIFA. Law enforcement officials are looking at the conduct of banks in New York and Qatar especially. So far there is no indication that banks understood the purpose of the transactions involved. A bank could have committed a crime if employees knew of improper payments and the bank failed to report the transactions to regulators. Bank employees might be criminals themselves if they advised or participated in the process of disguising criminal transactions. It is a safe guess that at least 20 banks are conducting quiet internal investigations into these questions. New York became the main focus of the investigation after investigators in other countries uncovered evidence of FIFA corruption that pointed to meetings and payoffs conducted in the United States.

Regulators in Turkey took charge of Bank Asya tonight. It is a politically charged move in a country that has been cracking down on political and social reformers, but the bank has been in perilous financial condition since last year. Customers withdrew 20 percent of deposits last year and the bank posted a loss of $300 million. It reduced its staffing by a third and reported a first quarter profit, but was withholding documents from bank regulators and was facing a stock delisting warning. The bank will continue to operate and will be managed temporarily by the national deposit insurance fund.

Bank of America will pay a $30 million fine for preying on active duty military families in violation of federal consumer protections for military personnel. The bank will overhaul its debt collection processes and pay restitution to an estimated 73,000 customers. The settlement with the O.C.C. does not cover the bank’s mortgage business, which exhibited a similar pattern of misconduct.

Thursday, May 28, 2015

Moving Away From Chemical Food

Integrity in food ingredients is becoming a trend, with even Taco Bell saying the reliance on chemicals has gone too far. Taco Bell says it will remove artificial colors and some trans fats this year and will take out some other chemical ingredients over the next two years. Pizza Hut says it can make the same transition a little faster. These announcements follow similar announcements last month from processed-food manufacturers Nestlé and Kraft, which will remove artificial colors and flavors from high-profile products first. Hershey, Panera, and Dunkin’ Donuts are part of this trend too. For Hershey’s this is a change in direction after investing heavily in synthetic fat PGPR as a key ingredient in its chocolate during the last three years. Chipotle is already ahead of this entire pack, but now says it does not need to rely on ingredients from animals fed genetically modified food.

All these food names are trying to catch up with the changing tastes of the U.S. consumer, which started on a long-term move away from chemical-based foods a generation ago. We have seen this kind of trend before, with the low-fat fad that changed all of processed food in the 1980s, so it is easy to imagine that the move away from purified chemicals could sweep over the whole processed-food industry.

Tuesday, May 26, 2015

Saudi Arabia to Reduce Oil, Export Electricity

Saudi Arabia says it is ready to start phasing out fossil fuels. It is a surprising change in strategy from one of the world’s largest oil producers and consumers and the country with the most extreme oil subsidies. Those subsidies, though, will be phased out over the next 10 to 20 years, a key step in reducing carbon emissions to try to stabilize the global climate. By 2040 Saudi Arabia plans to replace most of its oil consumption with electricity. The country could easily generate from renewable sources more electricity than it uses. Its plan is to export electricity to neighboring countries, but that probably won’t work, with countries like Kuwait and Egypt also able to generate a surplus of electricity. Probably somehow the region’s electric output could be exported to cloudier places. Turkey and Europe will likely remain energy importers and would gain a measure of economic stability with the addition of a large-scale new source of energy. Another scenario is that a country with an excess of electricity could desalinate water and export it through pipelines. Water, of course, will become more scarce in many places over the next century.

Saudi Arabia must start to make plans for a post-oil economy, as its oil is becoming more expensive to find and extract. By starting now, it can make the transition gradually and smoothly.

Friday, May 22, 2015

This Week in Bank Failures

Five giant international banks agreed to U.S. guilty pleas for market manipulation in either interest rates or currency exchange rates. All were quickly granted waivers from the SEC to allow them to continue to operate in the securities business. Rules ordinarily ban criminals from issuing securities. The too-big-to-fail banks are exempt from this rule, but the exemption requires a formal SEC action for each criminal conviction. The banks will be looking for a similar exemption that covers the retirement funds they manage. In addition to the guilty pleas, the banks agreed to pay an average of $1 billion each in fines.

BNY Mellon will pay $180 million to settle charges of currency exchange transaction fraud. For years the bank retroactively assigned the least favorable currency exchange transactions of each trading day to managed funds, mostly retirement funds, in violation of its contracts with the funds.

Corporate credit unions ended up holding piles of bad assets after the real estate bust of 2008. It was the derivatives that did the most damage, but there was also actual real estate that served as collateral for failed loans. It was left to the NCUA to sell off that real estate, and it completed that process in the first quarter of 2015. That is a sign that the NCUA is done with the heavy lifting in the difficult process of rehabilitating the corporate credit unions.

Wednesday, May 20, 2015

Air Bags and Aging

The Takata air bag recall announced today is in some sense the largest product recall ever. The number of units recalled, 35 million, is not so large by itself, but these are cars, and the defective part is something that could blow up in your face.

An obvious problem in designing auto parts is making something that can last for the useful life of a car. How do you test the long-term strength and stability of a manufactured product, and then deliver it to market next year? Part of the answer is accelerated aging, a rubric that covers a wide range of testing techniques for making manufactured products break down faster than they would in actual use. The results are imprecise by nature, and it is hard to know how far you can rely on the conclusions. Unfortunately, this also means that business executives looking at accelerated aging test data can easily convince themselves that their latest designs are far more durable than they will turn out to be in practice.

Aging is a factor in the breakdown of the defective Takata air bags. It took years to discover the extent of the defects, and that was mainly because the air bags would develop the tendency to rupture spontaneously only after years of actual use. The aging of automobiles generally is also a factor. The expectation a generation ago that a car should run at least five years has stretched out to twenty, and as we go into the electric car era that number will only go up. As cars get older we continue to discover parts that we wish had been made a little tougher when the cars were first put together. Maybe the defective air bags fall into this category. I haven’t seen anything to indicate that Takata was designing products to last for just five years, but after the fact, some of the failure data looks like that of a five-year product. Most of the recalled cars are more than seven years old, a long enough time to discover that the air bag designs were not as physically stable and durable as they needed to be.

Consumer Mood in the Walmart Report

The quarterly report from Walmart reinforces the thought that U.S. consumers are not in a shopping mood so far this year. Same-store sales were up 1.1 percent from the year before, but groceries were flat and sales at Sam’s Club were down slightly. We would expect lower gasoline prices to make people more willing to drive to local and regional stores for shopping, but the effect is hard to find even after adjusting for unfavorable weather. Walmart CEO Doug McMillon said on the earnings call,

. . . many of our U.S. customers are using their tax refunds and the extra money from lower gas prices to pay down debt or put it into savings.

I have to imagine that part of the shift is that appliances are becoming more durable, so that the occasions that force people to go shopping occur less often. But there is more to it than that. My own Walmart purchase during the quarter, a lawnmower, put me in position to buy a cartload of merchandise while I was in the store already, but it felt simpler and safer to get my one purchase out to the car and drive away. While in the store, I saw more than a few customers carefully comparing items on the shelves but ultimately not selecting anything to purchase. I have to assume these were shoppers who could not find what they went in for and also did not come upon anything compelling to buy.

What if shoppers just stopped shopping? I have yet to make a grocery shopping trip this month. When I think of buying groceries I remember that local produce will be available a few weeks from now. I will get a better deal if I wait. That, of course, is a shopper’s mantra in a period of deflation. Time pressure, debt, and other factors are making shoppers postpone shopping almost the way they would if prices were falling. Retailers have to look for ways to remain relevant.

Monday, May 18, 2015

Pentagon Rolls Back Arms for Police

Under a new policy announced today by the White House, the Pentagon will no longer give some of its military-style weapons to police forces. Local police forces will no longer get tanks, missile launchers, grenade launchers, and some of the largest automatic rifles. Armed aircraft are also on the list of prohibited equipment, though I am not aware of the Pentagon giving a bomber or an attack helicopter to a city police department anywhere.

The policy officially comes from a cabinet committee, but the careful tactical wording suggests it must be the result of a study done at the Pentagon. It is important to note that the new policy does not control what local police do, and only limits the actions of the federal government. A police force could, in theory, buy an attack helicopter with its own money, but not from the Pentagon.

This policy change is sure to be controversial, with culture-war pundits moaning about “disarming the police” while libertarians applaud the news that your local police force will no longer look like an invading army. The ultimate effects won’t provoke much controversy, though. If we heard, for example, that the Philadelphia police were planning to use missile launchers at the next national political convention, almost anyone would respond by saying, “Surely that’s not really necessary” (and I know more than a few people who would say something stronger than that).

Very little will change immediately, but the announcement rolling back the militarization of local police is important symbolically. Since Nixon, every U.S. president has participated in and voiced support for the trend of turning the United States into a police state. Today’s policy change is the first substantial move in the opposite direction.

Sunday, May 17, 2015

Fire Your Student

The “fire your customer” idea has made its way to academia, in the sensational story this weekend of the University of Southern California driving out an entire class of graduate fine arts students along with faculty after the fine arts program became an obstacle to the university’s plans to make its name in commercial art. Such changes are rare in higher education because a customer will stay only a few years at most, so even when a program is being discontinued it is so easy to let the students complete their degrees. A transition period of two or three years is a short time by the standards of academia. It was just a matter of time, though, before an impatient university would not be willing to wait even this long, and here you have it: a university essentially firing its students, along with faculty, less than a year after the decision to kill off one of its programs to make room for something new.

At LA Weekly:

At LA Times:

Friday, May 15, 2015

This Week in Bank Failures

Banks might have invented the funny accounting that can make a moldy loan portfolio look fresh and healthy, but that doesn’t mean other lenders can’t do the same thing. The SEC charged for-profit college holding company ITT Educational Services Inc. with accounting fraud for hiding the deteriorating quality of its student loan portfolio and loan guarantees. ITT’s loan guarantees and related obligations look worryingly large, large enough to force it to restate its 2013 earnings, then large enough to eat up three fourths of its cash on hand in 2014. But more than that, loans are the lifeblood of a for-profit college. Without loans, there would be few new customers, but a college can find itself squeezed. The high tuition and low educational quality of for-profit colleges mean that many former students owe large amounts compared to their potential incomes, so that the loans are often beyond a former student’s ability to pay. At the same time, a college must show success with its old loans in order to write new loans. This squeeze can turn a for-profit college into something resembling a Ponzi scheme, in which a college spends huge sums to disguise the poor quality of its older loans, covering the costs with money that comes from new loans issued to new students. Like any top-heavy scheme, eventually it can all come crashing down, as in the case of Corinthian College, which ran out of cash and abruptly shut down last week after it got caught exaggerating its job placement results.

The SEC says there is reason to worry about ITT in a civil fraud case filed this week against the college and two executives. If you believe the SEC, ITT owes far more in loan guarantees than what it is telling investors. ITT failed to record the loans on the balance sheet it showed investors and failed to disclose money it set aside to cover loan defaults. Separately, ITT may have to pay up in a predatory bait-and-switch lending practice, in which it offered zero-interest loans to new customers. It canceled the loans after one year and steered customers toward high-interest replacement loans. New student enrollment at ITT is already down 16 percent from last year, a decline that analysts have said is rapid enough to put the college’s future in doubt, and that, of course, is a further deterrent to new customers.

Starbucks gift cards have become the new focus of organized transaction fraud. While not all the details are clear, criminal groups are obtaining the codes from existing cards and using this information to encode fake cards. It may also be that criminals are altering the value of legitimate Starbucks cards by generating false transactions in transaction networks. After creating fake card balances, the criminal groups then sell the cards at a steep discount online. Purchasers rush to take the fraudulent cards to a Starbucks location to transfer the balance to yet another new card before either Starbucks or the legitimate card owner figures out what’s going on. This scheme is spelled out almost openly in online forums that are easy to find in an Internet search.

In a related problem, more widely reported, criminal groups are guessing passwords for Starbucks card accounts and entering transactions on the Starbucks web site to transfer balances. For accounts with the auto-reload option, popular with Starbucks’ most frequent customers, this can result in draining the cardholders’ checking accounts. On the other hand, these are also the customers who are quickest to notice the problems with their accounts. Starbucks doesn’t seem to be aware of the scale of activity surrounding its gift cards, in part because many gift card holders have no idea what their card balances are on any given day. Based on the buzz surrounding online markets for hacked and forged Starbucks gift cards, though, the electronic thefts could easily exceed $1 million per day.

The U.K. government is taking longer than planned to liquidate its stake in bailed-out Lloyds Banking Group. It will not meet a self-imposed deadline of June 30. Instead, the stock sales may take until next year to complete, according to government sources cited by Reuters.

Argentina is considering punitive action against Citibank which could include withdrawing the bank’s license to operate in that country. Argentina has already barred one executive and revoked the bank’s authority to operate in capital markets. The moves do not come as a surprise and Citibank is presumably prepared to sell off or wind down its operations in Argentina. Separately, a national strike against all banks in Argentina is set for June, with bank workers asking for a 30 percent pay increase.

There were two actions on credit unions on April 30. The NCUA placed New Bethel Federal Credit Union into conservatorship. The church-related credit union in Portsmouth, Virginia has fewer than 200 members. The NCUA liquidated TLC Federal Credit Union of Tillamook, Oregon, which had 13,375 members, after finding that the credit union was insolvent. Member accounts were transferred to Washington-based Fibre Federal Credit Union. TLC Federal Credit Union was originally formed as a teacher’s credit union.

Wednesday, May 13, 2015

In the Shadow of Disasters

I have disasters on my mind today after two events that occurred late yesterday. In my town a shopping center fire burned for five hours and destroyed about six businesses. Two major streets had to be closed and in the traffic backups I was delayed 20 minutes in getting home. Obviously, others were far more inconvenienced than this, but fortunately, there were no major injuries.

Not long after and not far away, a train derailed injuring between 100 and 200 passengers. Some died. The busiest passenger rail line in the country remains closed 12 hours later, stranding thousands of travelers and forcing a much greater number to change their travel schedules or find alternate commuting routes. Authorities are so worried about the fragile condition of the broken train that news accounts are withholding the precise location of the crash. This was not even a high-speed train, but a train carries so many passengers that the human impact of this crash begins to compare to that of a plane crash.

I wasn’t directly affected by either disaster, unless a detour from roads closed as a safety precaution counts as a “direct” impact. They nevertheless affected my state of mind. The news of the fire kept me up an hour later than planned. Fortunately, I didn’t get the news of the train derailment until the morning, though that news then cast a shadow over my day today.

It seems to me that it is easy to underestimate the extent to which disasters can have a minor impact on a vast number of people, especially those nearby or for whom there is a personal connection. New York City was the destination of the train that crashed, and today anyone in New York can tell you about someone who had to change their plans because of the closed rail line. Rail travel between New York and Boston is running but the schedule has had to be reshuffled with no trains arriving from the south, and of course, it is the same story at Washington. Very few of us have the advanced Zen skills to allow us to return quickly to what we were doing after a disaster strikes close enough to affect the people around us.

The change in mood and schedule might be small but the number of people affected is enormous, making it a large effect in the aggregate. It is all the more reason to do what we can to prevent disasters like these. The secondary impact of the fire I mentioned did not reach so far as that of the train derailment, but in economic terms, it was nevertheless larger than the total value of the building involved. The comparison suggests that we could go farther to ensure that things go smoothly, so that we have more ordinary days in which disasters don’t happen.

Monday, May 11, 2015

A High Bar for Lumber Liquidators

CNBC reports that Lumber Liquidators’ insurance companies are refusing to cover its liability for the sale of toxic flooring materials:

Lumber Liquidators has filed suit, claiming that the insurance companies should pay the legal bills and liability claims for the laminate flooring it sold. It stopped selling the flooring in question last week because of concerns that the product has unreasonably high levels of formaldehyde, a potentially harmful poison. The specific legal questions about insurance coverage are difficult and technical and must be left for lawyers and judges to work out; however, I am skeptical of Lumber Liquidators’ legal position on this issue.

First, there is the question of coverage in general. Lumber Liquidators admits it never had a product liability policy, the insurance policy that would normally cover claims of harm from defective products. Instead, it had commercial general liability policies with several insurance companies. A general liability policy might or might not cover product liability, and if so, it is a limited form of coverage. It isn’t meant to cover a business acting in the capacity of a manufacturer or importer. That’s what the product liability policies are for. Lumber Liquidators is said to be the exclusive U.S. source of the Chinese-made flooring in question, and if that is so, it will be very difficult for it to establish that it wasn’t effectively involved in either manufacturing or importing the flooring. If it turns out that Lumber Liquidators was the importer in any practical sense, or if it had any say in the way the product was made, the insurance companies are correct in denying coverage, and they will be able to have the cases thrown out.

The second issue has to do with intentionality. Insurance does not cover damages resulting from the intentional sale of a bad product. If Lumber Liquidators was cutting costs by intentionally sourcing a product with bizarrely high levels of formaldehyde, that would be a criminal act, and insurance legally cannot cover criminal acts of any kind. Lumber Liquidators disclosed a week ago that federal agents searched two of its facilities in September as part of a criminal investigation, and more recently, it was notified that the company will face criminal charges. Unless the criminal charges turn out to be unrelated, courts might very well order insurance companies to withhold any payments to Lumber Liquidators until the criminal case is resolved.

The mere fact that Lumber Liquidators is filing suits against nine insurance companies is cause for skepticism. Why would it have nine liability insurance companies and not just one or two? When a business is piling up as much liability coverage as it can find, it may be a sign that it knows it has done something wrong.

It is the retailer that filed the suits against the insurance companies, so it is the retailer that has to prove its case. It will have to answer questions and turn over its internal documents, and they will have to demonstrate that the company reasonably believed that the flooring products in question were reasonably safe. That argument won’t stand up if documents show the kind of corporate thinking that tries to wish problems away. All in all, Lumber Liquidators has a difficult case to try to make.

Friday, May 8, 2015

This Week in Bank Failures

Officials in Moldova believe they know what happened to $1 billion in banking assets that went missing during a three-day period last November. The money was paid out in loans to shadowy limited partnerships that seemed to disappear almost as soon as they took the payments. There was no collateral, computer records were erased, and many of the paper documents were loaded into a van that was set on fire. Eventually much of the money was traced to bank accounts in Latvia. The owners listed for these accounts are foreign businesses that don’t have any other record of existing. The sudden loss of $1 billion left three of the largest banks in the country insolvent, leading to a government rescue. The amount of money suddenly swept out of the country was the equivalent of more than six weeks of GDP, so it was a difficult blow to the government and has been the subject of political unrest ever since the scale of the problem was discovered.

Who could have perpetrated such an intricate plan to steal so much money so quickly? A government report released this week says that several people must have been involved, but it specifically points to the CEO of one of the three banks, billionaire Ilan Shor. Shor has been indicted and placed under house arrest while the investigation continues. It could take another year of forensic accounting to work out all the details of the transactions, which span at least five countries.

The scale of the theft is so vast and the method so daring the story is sure to be turned into a Hollywood movie sooner or later. Most of all, it is the motive that captures the imagination. What would make a billionaire, already rich beyond the point of material wealth, decide to steal a billion more? The logistics are equally dizzying. Even if you are the CEO, how do you hire someone to erase the records of illicit transactions from the bank’s computers, including the offline backups and paper trail? How do you maintain the coverup after the bank is financially crippled from its massive losses?

As for the financial transactions themselves, they are startlingly mundane. It takes only two bank officers to approve a loan. A scheme like this can minimize scrutiny by issuing a large number of routine-looking “loans” of various sizes to hundreds of seemingly unrelated borrowers. Once the money is out of the bank’s hands, anything can happen to it. Making money disappear then is not much more than a shell game: move it around enough times, and the hope is that the forensic accountants won’t be able to follow. The techniques are obvious enough to anyone who has ever worked with an audit team: make the payments look routine, and they may not raise any red flags. Generally similar approaches were involved in Enron, CorpBank, AIG, Petrobras, the Espírito Santo empire, the “rogue trader” schemes we keep hearing about (which never really involve just a single trader), and the failures of several banks (smaller ones, of course) in the United States over the last few years.

What makes the Moldova case so singular, though, is the way it moved so much money in such a short time, apparently a period of just three business days — well, that and the burning van. Bank robbers who take a more subtle approach must get away with the money far more often than the cases we hear about.

There was a bank failure in Chicago tonight, the first U.S. bank failure in two months. State regulators in Illinois closed Edgebrook Bank, which had $90 million in deposits and about the same amount in assets. Republic Bank of Chicago is assuming the deposits and purchasing most of the assets. The failed bank was having such trouble with its loans that in March, the FDIC ordered it not to make any further loans without regulatory approval.

Wednesday, May 6, 2015

Hewlett-Packard Covers Its Tracks in Autonomy Case

Now that Hewlett-Packard has finally put together its case against Autonomy, it’s time again to assess how paranoid Hewlett-Packard’s management is. Autonomy is the software company Hewlett-Packard overpaid for a few years ago, and after a subsequent management shakeup at Hewlett-Packard, the new managers made wild allegations of accounting fraud at its new subsidiary. A good long time has gone by, and Hewlett-Packard has now added numbers to its allegations, but there is still no evidence. The gist of the report is the assertion that Autonomy was not entitled to recognize revenue from products sold to value added resellers. However, there aren’t any accounting rules or computer industry conventions to support that assertion. It is just a rule that Hewlett-Packard made up because its case against Autonomy was so empty.

Corporations make wild allegations often enough, but the more worrying thing about the case was that it seemed to reinforce signs of a paranoid streak in the board and management at Hewlett-Packard. The good news is that there is little sign of that paranoia in this latest report. It appears more a defensive action, perhaps drawn up by lawyers hoping to deflect the investor lawsuits that may be forthcoming against Hewlett-Packard for its conduct in the case. The company promised to deliver a report, here it is, maybe the whole case can go away quietly now.

It is almost impossible for a company in retreat to look good, and Hewlett-Packard’s plan to imitate IBM’s approach doesn’t look so smart now that IBM itself is mired in cutbacks and layoffs. On the other side, its former core business of printers and laptops is so weak it is preparing to spin off that unit. We can be sure that a new turnaround plan will come out after that spinoff. It may not look pretty, but the company is still standing.

Tuesday, May 5, 2015

McDonald’s Failed Turnaround

The good news for McDonald’s is that it has a turnaround plan. The bad news is that the plan doesn’t make sense and will never get anywhere. Realizing that U.S. consumers have taken to avoiding McDonald’s, the burger chain is trying to bring former customers back in. Unfortunately it isn’t willing to do what needs to be done. The two keys to McDonald’s plan are:

  • Cut costs
  • A marketing campaign to improve the public perception of the quality of its food

The misgivings with this plan should be obvious. The two areas where McDonald’s falls flat on its face are the quality of food and quality of service. Cutting costs can’t possibly improve either. If you weren’t willing to stand in line for 30 minutes to get food that is a step down from the supermarket freezer, then why would you be willing to wait in line for 35 minutes to get food that is two steps down in quality? Meanwhile, if the forthcoming ad campaign succeeds in getting former customers to return, it will only hurt the chain’s reputation all over again. Imagine hearing that a restaurant sells “real food” now, only to go in and find out that the food is the same tawdry fare as before, but with a few more corners cut in the preparation to save money. Do you think you might respond by saying, “I will never come here again, and this time I mean it”?

Why can’t McDonald’s improve its wretched food? There are two reasons. First, it has invested billions of dollars in the factories that churn out this stuff. An investment on that scale can’t be retooled at the drop of a hat. Second, McDonald’s really honestly doesn’t understand what’s wrong with its food. McDonald’s executives know they don’t eat their own food more than they have to, but they haven’t stopped to think about why that is. When they talk about the nutritional value of their products, it’s in the language of 1970, the dark ages of nutrition when we had barely learned that vitamins and minerals existed. We now know that there is a nutritional difference between fresh food and processed food. It stands to reason when you think about it that there might be a difference between meat in its pure form and meat that’s been smashed to bits with the processed-food equivalent of an air hammer. McDonald’s is living in a time warp in which this difference doesn’t exist, but the vast majority of its potential customers are becoming more food-conscious and have learned that food is not all the same.

McDonald’s also says it will start listening to its customers again. If they follow through on this promise, the message that should come through loud and clear is, “I know there’s something wrong here, I just don’t quite know what it is.” McDonald’s customers tend to be at this stage, because once they figure out what’s going on, they become former customers. McDonald’s reaction on hearing this should be, “We’re a huge, well-funded corporation. We can find out what’s wrong, and we can fix it!”

Okay, that doesn’t sound likely, but I can dream, can’t I?

Monday, May 4, 2015

The Password Problem

We all spend too much time typing in passwords. If you shop and pay bills online, you may spend 10 minutes a day just signing in to one site after another. Maybe you keep your cell phone locked, so that you have to enter a passcode every time you turn it on. The situation is worse for corporate information workers, who also have to sign in to computers, databases, printers, voice mail, and internal applications for messaging, timekeeping, goals, and training. With the tighter security rules found in corporations that have the more sensitive customer data, there can be as many as five levels of passwords (for example, desktop, soft token, gateway, server, and database). Sessions may expire after just 15 minutes, so that a worker has to sign in repeatedly over the course of the day. The cloud computing trend has increased the number of passwords, with workers signing in separately to a dozen disconnected services spread around the world. It is not an exaggeration to say that some workers spend one hour per day typing the same few dozen passwords over and over again.

Previous attempts to solve this problem by having a central database that holds all your passwords have failed with security gaps. Retina scans are effective for secure building access but don’t work for networks, which by nature are spread out. There nevertheless has to be an answer. There is inherently a tradeoff between productivity and security, but if workers are spending 100 million hours a day just signing in and signing out, that isn’t a sustainable pattern. There is a great deal of productivity to be gained by finding ways around the password problem.

Sunday, May 3, 2015

Curfew Lifted

A curfew is a measure of a culturally ruined city, so I greet the news of the lifting of the curfew in Baltimore with a sense of relief. No curfew is ever evenly enforced. It is people who think, speak, study, listen to music, attend games, or generally help hold society together who are targeted for enforcement. When there is a curfew, the police stop arresting drug dealers because they are too busy hauling poets off to jail. The damage to the structure of the community is not repaired quickly. I live near a town that has lived with a curfew for generations. It is a town with no poets and no real teachers, a place where musicians, athletes, and social workers are treated with disdain. Obviously that could never happen to Baltimore, but what has happened over the years is that a veil of fear and blame has darkened the city’s efforts to make a difference in the world. People are celebrating today in Baltimore, lifted in part by the hope that this situation can now change.

Friday, May 1, 2015

This Week in Bank Failures

Most large banks will still tell you they have more branches than they know what to do with, but the rush to pare down seems to be over. Looking at the first quarter, PNC Bank recorded the most branch closings, but this added up to just one percent of its branch network. Chase Bank also is moving ahead slowly with its branch closing program, but several other large banks seem to have put their branch closings on hold.

Espirito Santo Bank in Miami will be sold to a Venezuelan investment group, pending regulatory approval. The $10 million selling price will help fund the liquidation of the former owner, the bankrupt Banco Espírito Santo in Portugal.