This Week in Bank Failures

A parliament report says the economic troubles of 2007–2008 are not to blame for the collapse of HBOS in September 2008. The bank’s aggressive lending strategy led to losses large enough to sink the bank even in an ideal economy, the report says, while its executives were oblivious to the bank’s financial stress. The report recommends that three executives be banned from future work in banking.

A new plan for Libor would have to involve government regulation, and the first regulations went into effect this week. There will be fewer Libor rates, covering only five currencies. Banks’ reports to the Libor panel will be published for the first time, though with a three-month lag.

The abortive EU plan to turn most Cyprus bank depositors into stockholders had apparently been in the works for years. Worried economists this week latched onto documents published in December 2012 that spell out in surprising detail how such a process would work. The EU apparently intended to experiment with this process, and one wonders if officials might have pushed Cyprus’s banks into insolvency prematurely in order to test their new bank resolution theories. If that was the case, however, the EU experiment did not go as planned, as the scheme to replace deposits with illiquid and possibly worthless securities was rejected by the parliament in Cyprus.

A bankruptcy court today approved the liquidation of MF Global. The trustee said he believed all customer money would ultimately be returned. Unsecured creditors such as hedge funds, though, will get 34 percent or less on their claims.

U.S. regulators did such a sloppy job of foreclosure reviews that they were forced into an unfavorable settlement with the Wall Street banks on foreclosure procedures. That is the conclusion of a GAO inquiry released this week. The report noted that more than half of the foreclosures that auditors looked at were defective in some way.

The U.S. job market is suffering from the federal government’s austerity budget. An astonishing 500,000 workers are estimated to have dropped out of the labor market in March, in most cases because they decided not to look for a new job after being laid off. This reports bodes poorly for the U.S. economy and sent stock prices down today. Globally, banks are providing more than their share of job cuts, a trend that continues with new announcements this week.

State regulators closed a bank in Arizona. Gold Canyon Bank had $44 million in deposits. First Scottsdale Bank is taking over the deposits and purchasing the assets. It will continue to use the Gold Canyon Bank name for the two branches.

Berries and Job Stress: Heart Attack Risk Factors

Dr. Weil this week wrote about berries this week. A study found that blueberries and strawberries reduce the risk of a heart attack by 1/3. It is easy to imagine how this could happen if the berries were just crowding out lower-quality foods, but that’s not the effect being observed here. It’s an effect that seems to be independent of everything else. It could be the anthocyanins that berries contain — they are known to help keep blood vessels clean — but that is just a guess.

Separately, a recent study reported in Fortune found that job stress can increase the risk of a heart attack. The link between low job satisfaction and heart attack has been known since the 1980s at least, but the effect may be larger than previously thought. Workers who can’t stand their high-stress jobs get about twice the rate of heart attacks as less-stressed workers doing the same jobs.

The way I see it, if you must work in a high-stress job year after year, it becomes all the more important to take the time to eat berries. You can expect the berries to undo some of the damage.

Predicting Fires

I happened to pass two grass fires today, each almost certainly sparked by a discarded cigarette. The weather forecast for the day cautioned of fires. We can predict fires but we can’t prevent them. We can predict fires like these because people toss burning cigarettes in the grass every day, and weather models tell us which days these are likely to turn into a raging fire. We don’t really try to prevent fires like these. To do so, we would need a way to persuade people who have cigarettes that their actions have consequences on days like today. But if someone doesn’t believe in consequences on any other day — if a person has cigarettes at all it is obvious that their sense of cause and effect is weak at best — then why should today be different?

Bankruptcy in Trouble

The whole principle of bankruptcy is in danger.

We saw this again yesterday in a court action where wealthy creditors tried to force the city of Stockton, California, to pay money it quite palpably didn’t have. It is a vaguely similar situation in Detroit and Harrisburg, two other cities that have been effectively bankrupt for more than two years but are kept out of bankruptcy court by legal obstacles set up by state officials.

A little less than a decade ago, the United States virtually eliminated consumer bankruptcy in order to benefit Wall Street. There is also the problem of student loan debt, which by being exempt from bankruptcy can put a person in debt for a lifetime. The problem with this is that without the protection of bankruptcy, there is nothing to prevent wealthy people, billionaire-investors if you will, from forcing people who are broke into a form of slavery.

It is not so different when cities are involved. Residents of cities like Detroit and Harrisburg aren’t getting normal city services in exchange for their tax payments anymore. Taxes have become, instead, little more than a way to take money out of the city, and there is no sign of this changing. In the absence of a corrective mechanism, it is a situation that could persist for generations.

Bankruptcy is in even worse trouble in Europe, where the EU sued to force a half-century of poverty onto Iceland (but lost that case), then tried to force Cyprus into a similar arrangement just to keep the bond payments coming from a few of its banks (the EU lost that vote also).

It is not just the wealthy and elite rallying against the idea of bankruptcy. We have also seen consumer advocates and unions try to extract concessions from businesses that had already been liquidated, or were days away from being wound down, seeming not to understand what it meant that there was no money left.

It does not help that bankruptcy has become an option only for those wealthy enough to hire really good lawyers. Bondholders took Stockton to court on the theory that the city wouldn’t be able to hire lawyers good enough to uphold the law. The fact that the big-money people pressed their case with so much confidence shows how much trouble we are already in. But if bankruptcy is limited to those who have a lot of money, it makes bankruptcy seem like a money-shuffling trick. The barriers to bankruptcy should be lowered enough that ordinary people can have access to bankruptcy protection too when they are actually out of money. If we could see that it was not just a way to protect the rich, bankruptcy protection would have a better reputation.

Why Crops Must Change

It is absurdly easy to predict that we will be growing different crops a generation from now. Some people focus on the genetically modified crops — crops genetically engineered to withstand shockingly high levels of specific herbicides. Accordingly, these specific herbicides have become so overused that they are rapidly losing their effectiveness. When the herbicides that go with genetically modified crops are abandoned, as they inevitably must be, the crops will no longer have a purpose. Others point to the changing climate, which is creating greater weather variability in half of the world’s most important croplands. Our current crops have been selected and adjusted to thrive in a certain exact kind of weather. When the weather of a growing season can’t be predicted at the beginning of the season, this kind of optimization is the kind of gambling where you can be almost certain to lose. Heritage versions of some of the same grains we grow now will do better, on average, when the weather becomes more unpredictable, even if they yield only half as much in “ideal” weather.

But there is more to the coming crop turnover than this. Even where the climate and weeds are not factors, our current crops are optimized for 20th century consumer tastes and 20th century farming equipment. In both areas, the 20th century represented a shocking departure from what came before, and its innovations have not fared so well in the 21st century. Current trends do not support the idea of more white flour any more than they support the idea of more fuel-hungry heavy equipment in the fields. Future farming equipment will have to be more nimble — more like robots than tractors — in order to take care of fields while not using so much expensive fossil fuels. The cost of fuel is enough of a factor that it will lead to crops that are compatible with the new equipment that is not so expensive to operate.

Another reason to expect change is that scientists may eventually come to grips with the process of nutrition. Already the current ideas of nutrition are as far ahead of the 20th century vitamins-and-minerals model as that was ahead of the 19th century nutritional model of meat and cabbage. Even if you look at vitamins and minerals, we still don’t understand why such a small fraction of them are actually absorbed and used, so that nutritional labeling and recommendations must be understood as impressionistic at best. However, answers in this area are starting to trickle in, and when we really know, I am certain we will change our minds about what we want to eat. Likely we will find we don’t have to eat so much, and that alone will change our current pattern of crops beyond recognition.