This Week in Bank Failures

Bitcoin is quite possibly dead after a criminal group nullified the largest bitcoin exchange and drove it into bankruptcy. Analysts who talk about this event as one of the growing pains for bitcoin are mistaken, I believe. If the technical flaws in bitcoin are large enough that criminals can wipe out arguably the most sophisticated bitcoin operation in the world, then ordinary bitcoin holders don’t stand a very good chance of success with bitcoin transactions either. Possibly bitcoin could be recalled and reissued, but it is hard to understand how that could happen, and even if the technical and legal hurdles could be overcome, the replacement currency would not be the old bitcoin but something new.

And if bitcoin is so easily targeted, then another cryptocurrency of sorts, the card transaction network, is equally at risk. Though highly sophisticated, it has many of the same weaknesses, and has many more players and more weak points for criminals to exploit. No one should be shocked if one evening a major card processing operation is wiped out in a few hours in similar fashion.

The former president of Ukraine, who abandoned his post under mysterious circumstances last weekend and is now considered a fugitive, is being investigated for money laundering among other offenses. Viktor Yanukovych and his son Aleksander Yanukovych have had assets frozen in several countries and prosecutors in Geneva seized documents from a company owned by Aleksander Yanukovych.

A U.S. Senate report describes a startling degree of subterfuge used by Credit Suisse to help U.S. taxpayers hide money from the IRS, including a secret elevator and hidden offices in an airport. The bank says it put a stop to these practices and is exercising more vigorous oversight over its employees. So far the U.S. Justice Department has indicted 108 employees and customers at Credit Suisse, and more indictments are expected.

A coordinated “boiler room” sweep has yielded 110 arrests in Europe and the United States today. Equipment, money, and luxury items were seized by police at more than 30 locations. The criminal organizations involved are said to have sold fake and nonexistent securities by telephone. They also are said to have laundered money and smuggled guns and narcotics. Relatively few specifics have been released as the police operation is apparently continuing at this hour.

February almost went by without any U.S. bank failures, but there were two as the month draws to a close. These were small, and came in states that haven’t seen a lot of bank failures.

• Sterling, Virginia (near Dulles Airport): Millennium Bank, NA, 2 branches, $122 million in deposits. Successor WashingtonFirst Bank plans to eventually close the Sterling branch, but will keep the branch in Herndon. The failed bank opened in 1999.
• Horsham, Pennsylvania (a suburb north of Philadelphia): Vantage Point Bank, $63 million in deposits. Successor is New Jersey-based First Choice Bank. The failed bank opened in December 2007 and had problem real estate loans from day one.

In both cases the acquiring banks paid a premium to the FDIC for the deposits.

Seeing and Doing in the Withdrawal From Afghanistan

Officially the Pentagon is only preparing a plan for a U.S. troop withdrawal from Afghanistan. There isn’t anything that says it has to carry out the plan in the second half of this year. Some policy analysts are referring to it as a bluff on President Obama’s part. Yet as the military sees itself moving out in all the specific operational detail that such a move requires, the act of seeing it gives the action an impetus that soon becomes hard to avoid. Already military groups in Afghanistan are changing their tactics based on the expectation of a U.S. move within the next year. If later it turns out that the withdrawal is delayed by more than the few months of slack that everyone assumes in such a large plan, there will be resistance to the delay. Bluffing on your own behalf is one thing, if this move is indeed a bluff. Having thousands of people bluff in a coordinated fashion is not such a realistic plan. Bluffing requires a kind of active timing, the ability to change direction quickly, that isn’t easy to pull off when so many people are involved.

Electric Car Is “Best Overall”

Tesla Motors’ all-electric sedan was picked best overall car by Consumer Reports today. The Model S was praised for design, quality of construction, and ease of use. The selection is a measure of how quickly electric cars could spread once there is an engineering solution for the price of batteries. For now, with a price tag above $80,000, mostly a reflection of the cost of the battery, the Model S is no more than a nice idea as far as the average driver is concerned.

Songwriting Slows for Weather

FAWM is going slower this year — especially in Pennsylvania.

FAWM is an online challenge to songwriters to write 14 new songs in the month of February. So far this year, participants have written 7,434 songs, an impressive tally, but a little short of last year’s pace when you consider that all four of the month’s weekends have gone by. Song production is especially down in the Pennsylvania region. I have written 6 songs, half of what I should have at this point in the month, and that is better than most Pennsylvania “fawmers” have fared.

It is severe weather, I think, that has slowed us down. Power at my house was out for four days, and that was a typical experience for the Philadelphia suburbs and neighboring counties that hold about half of the state’s residents. I spent days clearing snow and attending to the tree clearing and electrical and plumbing repairs that were needed after this month’s two epic storms. And I didn’t miss a day of work or any assignments in the online courses I am taking. If other songwriters’ experience of this month is similar, it is understandable if they haven’t written their usual number of songs.

If songwriters fall short of the ambitious 14-song pace FAWM sets for this month, or for that matter, if my blog is missing a few days of posts, there is little lasting consequence. But the same effect surely slowed people working on things that matter in the bigger picture. It was just as difficult a month to write a business plan as it was to write an album’s worth of songs. In my case, income tax forms have been delayed, and now may have to be completed next month in place of whatever else I might have done then. I’m sure you get the idea — there was real work that didn’t get done because the weather threw people off.

In Pennsylvania, we can’t expect better weather to finish off the month in more productive fashion. Rather, the forecast indicates a new cold snap and possibly two more days of snow before the month is over. When circumstances are unfavorable, you may have to do what you can, even if it is less than you planned for, and go on from there.

Too Big to Jail

Sometimes it pays to be the owner. The owner of a Philadelphia restaurant chain was routinely taking more than one fifth of employees’ tips, totaling $4.5 million over three years. The story at Philly.com:

Chickie's & Pete's to pay $8.5M in short-tipping case

An employee who got caught embezzling that kind of money would be behind bars before the day was over, but in the settlement with the U.S. Department of Labor, the restaurant owner won’t face a criminal indictment. He also got caught paying less than the $2.13/hour federal minimum wage, but he won’t bear any real punishment for that either. Why? Because the laws and the justice system are designed to protect the powerful.

If you run the numbers and adjust for realistic interest rates, it looks like the restaurant owner took a profit of half a million dollars in tip money, so you might say he broke the law and got away with it. But looking at it another way, he probably did take a loss on this illegal scheme. The half-million might not be enough to pay his lawyers for the legal cases, and if the reputation of the restaurant also took a hit from the story, he might be starting all over in a few years, as happens so often in the restaurant business. But that remains to be seen. For now, this is a story of someone in a position of power thumbing his nose at the law, and the law winking in response.