This Week in Bank Failures

A previously unknown defect in Microsoft Internet Explorer came to light last weekend as U.S. authorities found the browser was being used to systematically spy on U.S.-based banks, along with defense suppliers and probably also government targets that weren’t disclosed. The realization that they were specifically being targeted has made banks especially cautious about this browser bug, and some banks have urged their employees and customers to avoid using Internet Explorer for the time being. However, I have not heard of a bank actually banning Internet Explorer from its site or removing the browser from its own computers. The United States government and the government of Australia issued official cautions about Internet Explorer, quickly joined by several other countries.

The profile of attacks, based on what little has been revealed, seems consistent with the involvement of a major foreign power. We may tend to think of China first when it comes to state-sponsored Internet break-ins, but the cautious, low-key approach and selection of targets would not seem to point to China, but to a country affected by U.S. money-laundering rules. Attacks can potentially disclose information stored on a computer, install new software on a computer, or damage a computer.

All versions of Internet Explorer are affected. A fraction of attacks exploit a flaw in Adobe Flash Player to trigger the flaw in Internet Explorer, but others may be triggered just by loading a compromised web page.

Based on Microsoft’s history, it will likely release a partial fix within a month and a more complete fix within three months. One key question is whether a fix will be made available that works in Microsoft Windows XP, an old operating system that is no longer officially supported but nevertheless remains the standard desktop configuration inside many major banks. If Internet Explorer cannot be secured within Microsoft Windows XP, I wonder if the Fed will take the step of issuing guidance that finds that software combination not to be a secure platform for banking data. That would nearly be a ban on Microsoft Windows XP for banks, as that guidance would make banks liable for negligence in the event that banking data was disclosed as a result of using Microsoft Windows XP. That kind of guidance from the Fed would be an unusual step, but then, this particular browser flaw and its targeted exploits have been unusual from the beginning.

Google Mail and the Limits of Data Mining

Data mining has its limits, as Google decided today. At CNET:

Google halts scanning of Apps for Education accounts

Google has always stored abstracted linguistic summaries of the data in e-mail messages it hosts. It uses this information to help select the advertising that users see, mainly on other sites. It may also use it for other purposes we don’t know about. But the mere collection of this data, from people who have not individually signed up for the Gmail service, may violate California wiretapping law. And so today, Google decided it would stop collecting the text of email messages sent and received by students who use its Apps for Education suite. It will go on to make similar adjustments to commercial versions of Google Apps.

Data mining has limits when it involves data that you don’t quite have the right to read. Google had held that its process of abstracting the text of email messages and other messages from one person to another insulated it from its duty not to intrude on people’s private communication, but now has decided that view might have been pushing things a bit too far.

Solar Arrays on Building Sites

Here is a new trend: commercial building sites being used for solar arrays. I first saw this in an office park that was drawn up to have eight office buildings. The first was completed and opened in 2010, in spite of the recession, but the others are postponed indefinitely and may be built around 2030 at the rate things are going. So why not use the second building site, already wired for electricity, as a place for a solar array? The electricity generated can go almost entirely to power the office building next door, and the solar panels look more intentional than the bare gravel that was sitting there for the previous six years.

A solar array is a much smaller project than the office tower that was planned for the site, but it isn’t necessarily a sign of a builder in retreat. The building can still go ahead when the occupant and financing come along. If there is a change of plans and the site has to be used for an actual building at some point, perhaps next year, it isn’t so expensive to set the solar panels aside for two years and reinstall them on the roof of the new building. In the meantime, the solar array helps to pay the bills.

This Week in Bank Failures

Mt. Gox started the year as the largest bitcoin exchange ever, but then it closed, filed for bankruptcy, and this week began liquidation after a bankruptcy judge in Japan concluded it was unrealistic to hope that the exchange could be reopened. Mt. Gox has relatively few assets, so the liquidation is likely to go quickly.

Portugal held its first bond auction in four years and easily sold €750 million in bonds.

The United States got through March without a bank failure, and nearly April too. Tonight, though, South Carolina state regulators closed the five locations of Allendale County Bank. This was a very small bank with $51 million in deposits. Palmetto State Bank is assuming the deposits and purchasing the assets.

When Customers Are Rich Enough to Eat at Home

Being rich means you don’t have to go out to eat — and more and more people, it seems, are “rich” in that sense.

It’s a conundrum for U.S. restaurants, whose offerings are too expensive for the poorest 30 percent of the population while at the same time, representing a quality compromise that the richest 30 percent are reluctant to make — a pattern that is easier to make out in the under-50 demographic.

You see the extent of the problems if you look at the fastest-growing large restaurant chain, Chipotle, which has stumbled with its two latest initiatives. One is a speed-up in food production — this, in a restaurant that already threw together its custom-made items with such ferocity that nearly anything you might select would have a couple of mistakes in it. The other is a price increase averaging apparently around 10 percent. It was moves just like this a decade ago that killed Subway’s novelty effect and turned it from a Chipotle to a McDonald’s (where U.S. same-store sales were down 2 percent in the latest report). Before Subway abandoned its fresh-bread concept to try to move customers through quicker, it was the high-growth “healthy” alternative in fast food. Since, it has struggled like the rest of the industry just to keep sales level from one year to the next.

This kind of desperation in innovation is characteristic of the corporate restaurant sector. But when an industry employs so many bright people and still can’t find the right answers, you have to eventually conclude that there are no answers. It may be that the fundamental financial constraints of the restaurant cut too close to the edge. Consumers demand food that is prepared with attention to detail, and they may want a place to sit or stand while they eat. As long as that is the case, labor costs and real estate costs are heavy constraints a restaurant can never break free from.

And now, food preparation is becoming a leisure activity for the wealthy again. A semi-skilled cook with a home kitchen can spend ten times as much as a restaurant spends on ingredients to prepare a meal for the same price, and in about the same length of time. To win over these customers, restaurants will never be able to compete on quality, price, or convenience — it will have to be something else.