The Still-Icy Arctic Ocean

Years ago I predicted this would be the month that Arctic Ocean would have so little ice that ordinary cargo ships could pass through the middle of it. That didn’t happen, but this summer’s melting shows that favorable weather won’t save the sea ice from the effects of global warming.

Arctic sea ice is a fraction of what it was when detailed record-keeping started in 1979, and that is what led me to predict a substantially ice-free late summer. At the same time, it seemed there was reason to hope that a run of good luck with the weather might allow Arctic ice to hang on in a semblance of its current form for another decade. That would require quiet spring weather, clouds in June and July, and light winds so that there is hardly any outflow. That last point seemed the most important. Surely, with less and less ice as the years go by, it would get harder and harder for winds to push the ice out of the Arctic and into the Atlantic.

This year was a good test of that idea. April through mid-August provided almost the best weather patterns we could imagine for the ice. Outflow virtually stopped from April until the end of August. Ice nevertheless tracked near record lows all year long. It is now lower than the September lows of every year but 2012. The answer, then, is that near-ideal summer weather might prevent a new record low for Arctic ice, but it won’t stop the downward trend.

How is this possible? Global temperatures seem the most likely culprit. July was the warmest month on record globally, and for the last three years, more months than not have set new high temperature records for the world. Though we can’t pin down how it happens, it seems that some of the warmth is making its way from the Pacific Ocean to the Arctic Ocean. Some observers think the Atlantic Ocean must be warmer than before and transporting more heat into the areas where it borders on the Arctic Ocean. There aren’t thermometers all over the Arctic region, so these are just guesses, but they seem more likely than not.

The weaker, more fragmented Arctic ice is also a problem. So far this month, winds have been pushing ice not into the Atlantic, but into Canada. But instead of jamming up in the narrow straits as in past years, the ice is flowing through freely and melting before it reaches the mainland. In floes mostly smaller than a kilometer, the broken ice looks and acts like a fluid when observed from satellites. When the wind blows in other directions, ice may end up moving in the general direction of the Bering Strait and the Pacific Ocean. This area too used to be a safe haven where ice could survive for years, but on today’s map, only a few rapidly shrinking ice islands remain. As one observer put it, no matter which way the wind blows, it is bad for the ice.

The only weather that will save the ice in summer, it seems, is light winds and lots of clouds, but that’s a lot to ask for. Those are conditions that result from low pressure, but the pressure can’t get so low that it creates a storm and the winds start blowing. Persistent conditions of medium-low pressure don’t happen often. Nevertheless, those were the weather conditions of June and July this summer in the central Arctic, and the ice kept melting. Good weather is not enough. Only a cooler planet will save the Arctic sea ice from its downward spiral, and realistically, there are no plans to stop the current global warming trend.

If I were on an ordinary cargo ship crossing the Arctic Ocean, I wouldn’t want to see ice. I would want an ice-free passage 100 kilometers wide to travel through. But to a ship with a reinforced hull, thin ice is almost the same as open water. Early in the summer, two U.S. military ships on research missions approached the North Pole without any special difficulty — and that was when the ice was twice as thick as it is now. An Arctic-class cargo ship probably could pass through the weakest ice of the central Arctic, roughly along the 45° and 165° East meridians. I hope no ship is attempting this, though. The Northwest Passage and Northern Sea Route have both been open for cargo for the past month. Weeks ago, a large cruise ship traversed the Northwest Passage without incident, the first time that’s been attempted. With two routes offering logistical support, who would be the first to attempt a shortcut through an unsupported route that is almost 50 percent ice?

Still, this month is the first time that the phrase “probably possible” has been applied to the Central Arctic Route. That puts the Central Arctic Route barely a decade behind the Northern Sea Route, a route that the cargo industry now takes for granted. If the world keeps warming, it may take little more than a mild winter and a sunny summer to open the Central Arctic Route to shipping.

This Week in Bank Failures

For at least five years, Wells Fargo was quietly making off with customers’ money and using it to open new accounts in the customers’ names. The bank didn’t seek customers’ permission, and many customers had no access to the new accounts they supposedly owned. It was all a hare-brained scheme to create ghost accounts to make the bank look more successful than it is. An estimated 2 million unauthorized accounts were created, but the money involved was smaller than that makes it sound. Most accounts were created without balances, and some were funded for only one day, after which the money was returned. The bank has agreed to stop this practice and pay restitution to customers whose money was taken either for the new accounts or in subsequent fees. Based on the bank’s public statements, the restitution required could be around $5 million. The $5 million figure might be too low because of customers who were charged overdraft fees after money was taken from their checking accounts. The bank will also pay $185 million in fines, or close to $100 for each unauthorized account. The bank has fired 5,300 employees, or 2 percent of its total work force, but has not taken any action against the executives who set up this scheme. It will have to advise all consumer and small business customers to visit their local branches to review their accounts and close any unrecognized or unwanted accounts. Workers and managers will be retrained. Conspicuously absent from the settlement is the requirement of any specific change in the bank’s incentive program which requires aggressive cross-selling by customer-contact employees. The bank in its business plan set an impossible goal of eight accounts per customer and fired branch employees who did not meet monthly quotas. Those policies apparently remain in place as of this writing, and though the bank has promised to review them, it has not committed to changes. Few consumers have so many bank accounts, so that business goal will have to be reconsidered along with the incentive program that is based on it.

The previous story is reason enough to repeat the most important advice I can offer to banking customers, which is not to have all your accounts at one bank. It is easy enough to think of scenarios in which you might have 8 or more personal accounts, as suggested by Wells Fargo’s business plan — think of credit cards, a savings account, a checking account, CDs, and loans — but you put your financial future on the line in a completely unnecessary way by having all or nearly all of the accounts at the same bank. That would be a form of putting all your eggs in one basket, or to say it another way, concentration of risk. Concentration of risk is the same error you might remember seeing ten years ago in banks that put 90 percent or more of their portfolios in real estate loans. In case anyone has forgotten, when times got tough, most of those banks failed.

Monte dei Paschi, the oldest bank in Italy, saw its CEO resign. This might have been a cost-cutting move, or it might reflect a sense of desperation about finding buyers for the €5 billion in new stock needed to keep the bank going through next year. The bank hopes to announce a new CEO within days.

A lawsuit claims that Mastercard improperly charged international transaction fees on substantially all U.K. in-store purchases it processed over a 14-year period.

The FDIC’s Deposit Insurance Fund, the fund that guarantees U.S. bank deposits and pays the costs of bank failures, has nearly recovered to its statutory level after going negative for a few years. It passed a statutory threshold of 1.15 percent in June. This triggers a change in risk-based assessment levels, which means all but the most risky banks will be paying less for deposit insurance. Another change in rates will take place when the fund reaches its statutory minimum level of 1.35 percent.

The Water-Resistant iPhone

The iPhone 7 announced yesterday is water-resistant. This is a big deal. More mobile phones reach the end of their useful lives because of water than by exhausting the battery or being run over by a truck. A water-resistant iPhone means that the number of iPhones that have to be manufactured will be smaller by almost half. Looking at it this way, this is the biggest savings in manufacturing costs in the history of the smart phone. Apple itself will enjoy much of the savings — its protection plans often oblige it to replace a water-damaged phone. Apple customers will benefit too, saving hours of inconvenience and perhaps $500 every time an iPhone falls in a puddle and isn’t damaged.

This will look like a negative event for Apple. By making the iPhone more durable, it’s giving up the chance to sell 50 million replacement iPhones per year. To make a water-resistant product Apple had to streamline its design in ways that are sure to draw complaints at first. But that is the short-sighted way of looking at it. An iPhone that is not so easily damaged is a “stickier” product, staying with a customer for a longer period of time. That’s more of a negative for Apple’s competitors than for Apple itself. The phone manufacturer that sells its customers three phones in five years does not come out looking good if Apple customers need only one during that same period of time. Meanwhile, when customers are using an Apple phone for five years in a row, that will end up being an advantage for Apple in other ways that may prove to be just as important as the initial hardware sale.

When products are more durable without being harder to make, that is a boost for sustainability in some obvious ways. It is just one of many ways that manufacturing is become less central to the functioning of the world economy.

Another For-Profit College Runs Dry

ITT, considered one of the most stodgy and reliable of for-profit colleges, closed yesterday. The company apparently just ran out of money. If ITT generally lived up to the modest promises it made in the educational programs themselves, the same might not have been true in other parts of the company, with investigations ongoing related to the company’s marketing, lending, and securities disclosures. Most students at ITT will have to start their training all over again at a regular college, but those who took out loans will also have to spend the next few years working through the details of what happens to those debts. The case illustrates how much risk students take on when they attend for-profit schools, especially when seeking a four-year degree, which in practice may take five to eight years to complete. Students start out expecting the kind of institutional stability that a for-profit college may not be able to provide. In practical terms, the only way to reduce the risk of attending for-profit colleges to a responsible level would be to have lending terms that provide automatic loan forgiveness in the event that the college fails. Lenders would object, of course, but such an arrangement may not be as far-fetched as it sounds. As it is, anyone who invested in loans to ITT students will lose most of their capital, as there are few avenues to collect quickly on those debts. Even before ITT closed, the default rate on its student loans was alarmingly high. Requiring debt forgiveness when a college fails would not increase the risks to lenders by very much. The abrupt closure of ITT will make students a little more wary of all for-profit colleges. If ITT, which had been open for 50 years, was secretly on the edge of collapse, then how are the newer and smaller competitors doing? Smaller enrollment, in turn, could hasten the closure of most of the remaining for-profit colleges.

As Motorcycle Sales Slump, Layoffs at Harley-Davidson

More layoffs at Harley-Davidson are a sign that motorcycle sales continue to slump.

The Local 175 president told the York Daily Record the plant [near York, PA] now employs about 950 union members, down from 2,000 in 2009.

An additional 200 job cuts are planned for October, probably resulting in slightly more than 100 layoffs. Harley-Davidson expects to sell 10,000 fewer motorcycles than forecast as the year began. While sales of motorcycles as basic transportation are booming in parts of Asia, U.S. sales have been sagging for the last five years as motorcycles are increasingly seen as an extravagance.