This Week in Bank Failures

Bank of America agreed to pay $137 million to settle a government case in which it was accused of bribing municipal employees to win business in connection with bond issues. In the settlement, the bank did not admit doing anything wrong. Separately, the bank is talking about a TARP exit as early as this month.

There may not have been any breakthroughs in the investigation into foreclosure error in recent weeks, but a steady stream of revelations and court decisions is eroding confidence in the paperwork side of the mortgage business. In particular, more cases are coming to light in which banks filed foreclosures against borrowers who were current in their payments, along with huge numbers of cases cases in which banks, apparently confused about the status of a mortgage, improperly refused payments from borrowers who were otherwise current in their payments.

Two small bank failures were reported tonight: Earthstar Bank in Pennsylvania and Paramount Bank in Michigan. In each case, the bulk of the deposits and assets were transferred to another local bank.

Solar Prices Fall, Bigger Investment Needed

Solar panel prices haven fallen by a fourth in the last two years. Solar panels compete with grid electricity. Electric prices are trending up in the long run, though they have held steady over the last two years. As solar panel prices fall and electric prices rise, it becomes easier to make the financial case for replacing grid electricity with solar electricity.

At the prices of two years ago, a home solar installation was already a good investment for some people. It worked best in the ideal case, for a household that doesn’t have to borrow the money and expects to live in the same house for the expected life of the solar installation. In other words, if you’re out of debt and saving for retirement, and you’ll be retiring in the same house where you live now, a solar installation is a better investment than adding money to your retirement account. This makes sense if you think of the payoff of lower electric bills throughout your retirement.

With solar prices falling, solar installations are easier to do in less than ideal cases — for example, for people who are not completely out of debt, and people who are likely to sell their houses after ten years. The falling prices don’t really mean you can spend less money on a small home solar installation. The cost of the other components, which synchronize the solar electricity with the grid electricity, haven’t moved much, so the price of a practical entry-level installation is about the same. However, it will generate more electricity than before, resulting in greater savings on the electric bill. As an example, a $3,000 installation in 2010 might generate $37 of electricity per month, instead of $29 per month from a comparable installation in 2008.

This kind of lump-sum investment won’t catch on quickly in a financial culture based on monthly payments, and as long as equipment costs are falling this rapidly, you don’t lose much by holding out and hoping for a lower price next year. Still, this year’s prices are low enough that, as a nation, the United States should be moving much faster with solar installations, in order to reduce the trade deficit caused by energy imports. Price are low enough now for homeowners and other building owners to take action without government subsidies. The U.S. government could well discontinue tax incentives for solar installations at this point and spend the money instead on solar installations for its own buildings.

Fragile Financial Networks

A series of events in the past two days serve as reminders that our financial communication networks are not as stable or reliable as we would hope. ATM failure in multiple countries hit at an inauspicious time, on the same day that a French group had called for a run on the banks. It wasn’t really a run on the banks — such things aren’t actually planned weeks in advance — but observers might have gotten that impression in Ireland as Bank of Ireland customers lined up down the street and around the corner to conduct routine banking business. That’s what happens when the ATMs aren’t working.

As I write this, the Mastercard web site is back online, after being down for most of the day. There have been reports of sporadic problems with the Visa web site. These problems could be related to a denial-of-service attack from Wikileaks supporters, but if such an attack exists, it would have to be an impromptu operation on a small scale, peanuts in comparison to what a criminal organization or government could put together.

If these minor episodes are causing spot outages, then we can expect that more significant disruptions in the world, which are bound to occur sooner or later, may take some of the financial networks offline for extended periods. The less stable financial networks will compound the problems that people already face in such a situation.

Skiing vs. Obesity

The European Union has released new obesity statistics. Europeans have been gaining weight, and the headline statistic is that more than one half of EU adults are overweight, the first time that has been reported. The obesity rates are between 7.9 and 24.5 percent, depending on the country, which is to say, they are not nearly as bad as the rates in the United States.

I looked through the statistics country by country and saw a correlation between downhill skiing and obesity rates. The six countries in Europe most strongly associated with downhill skiing are Andorra, Austria, France, Germany, Italy, and Switzerland. Five (all but Andorra) are EU member counties, and these five skiing countries of the EU all have obesity rates below the EU average. Switzerland is near the lowest in Europe with an obesity rate of 8.1 percent. Italy, France, Austria, and Germany have higher rates, between 9.9 and 13.6 percent, but still well below the EU average of 15.5 percent. I couldn’t find reliable obesity statistics for Andorra, but news reports suggest that it is near the average for Europe, which would make it something of an exception to the pattern.

This inverse connection between downhill skiing and obesity rates seems to hold elsewhere. I looked specifically at the Scandinavian countries. All four countries have obesity rates near or below the European average, but comparing them to each other, they rank in obesity according to the way they rank in the prevalence of downhill skiing, with Norway having the lowest obesity rate, and Finland, the highest.

The same pattern holds among U.S. states. Colorado is the state most associated with skiing, and is also the only U.S. state with a Europe-like obesity rate. Colorado’s obesity rate is 19.2 percent, and the other skiing states are generally below average in obesity, with the exceptions of West Virginia, Pennsylvania, and Alaska. The three southern Appalachian states known for skiing, Georgia and the Carolinas, are also exceptions. Low obesity rates are also found in the District of Columbia and Hawaii, and in general, political leanings are a better predictor of obesity among U.S. states than skiing is. But it’s worth noting that Utah, very much a skiing state, is the one relatively thin state among the strongly Republican states.

The suggestion that obesity and skiing don’t go together will hardly come as a surprise. Downhill skiing is one of the more physically demanding sports to begin with, and it is safer and more fun when done in a more vigorous style. It’s no secret that vigorous exercise can burn off extra body fat. My guess also is that it is important that skiing is at its peak during the coldest months of the year, when most people are at their most sedentary. If I’m right, going outside and exercising for hours on weekends in January and February may be enough for most people to fend off long-term weight gain. I hope someone eventually can pinpoint the specific fat-burning effects of skiing. For example, which makes a bigger difference: skiing for hours at a time, or in very cold weather? In the meantime, the data is strong enough that I can say that there definitely is some kind of connection between skiing and staying thin.

Retail and the Early December Lull

If Christmas shoppers seem more confident this year, there is good reason for it. Consumers are not as deep in debt as they were at the beginning of the year. Credit card debt, in particular, has fallen by about one eighth, according to one credit industry estimate.

The increased confidence doesn’t mean consumers can spend more, however. Part of the reason credit card debt is down is that so many people have stopped using their credit cards for purchases. Paying cash for Christmas gifts, they won’t be tempted to spend more money than they have.

This may be part of the reason Christmas shopping dropped off so drastically and so immediately after the Black Friday rush. Many workers will get two more paychecks between Black Friday and Christmas, however, so they could return to the stores on any given weekend. That effect was hard for me to see this past weekend, however. I saw plenty of traffic on the highways on Saturday and, especially, Sunday, but I never did figure out where all the cars were going. None of the retail parking lots I saw looked busy.

Retailers may be trying new strategies to counter the newly named “early December lull,” but they are also lowering their expectations. I didn’t see extended hours in any store this past weekend, and if there was extra staff in the store, it wasn’t obvious. It may be now that the Christmas rush consists only of Black Friday itself and the eight days before Christmas. If so, it will also be less wearing on retail workers, who will have two or perhaps three normal weeks to recover from Black Friday.

This also means that the December boost in employment will be disappointing this year, making the seasonally adjusted employment numbers for November look better than they really are and the numbers for December, worse than they really are. We must not be alarmed if the December employment report appears to show an economy in contraction. The trend to notice is not a change in direction for the economy, but a change in the meaning of the seasons.