Friday, August 31, 2012

The Party of Almost Inevitable Decline

Taken as a whole, the Republican convention had an air of decline. It did not help that the convention had to start a day late, in part because of the party’s own efforts to cut funding for disaster response, or that the natural disaster that brushed past the site of the convention caused damage on a massive scale elsewhere for the duration of the convention. But the feeling of an institution in decline that was so in evidence at the convention was not merely the result of bad luck. It was an expression of the people at the convention, most especially the delegates.

One of the bigger stories to come out of the convention was the expulsion of a group of delegates for harassing a television news employee. The delegates shouted derogatory remarks and threw food. This is not a scene we would have seen in any of the Republican conventions of the previous 40 years. The Republican party is not capable of the level of performance we have expected of it in the past.

The more obvious self-inflicted wound was best symbolized by the cowboy hats, a reference to the last Republican president, George W. Bush. He liked to be seen in a cowboy hat even though he was not a cowboy and did not actually do anything outdoors except when the new cameras were there to see it. Bush wore a cowboy hat to represent his approach to foreign policy, which came to be known as “cowboy diplomacy.” So the cowboy hats that were very much in evidence at the convention were asking for a return to cowboy diplomacy. It is not that cowboy diplomacy was a success. Among its other failings, it got the United States into an inconclusive war that was perhaps as expensive in military terms as World War II. No one at the convention was claiming that cowboy diplomacy was a success. If delegates were celebrating it, it was just because they had nothing newer or better to offer. That is the kind of thing you expect to see in an institution in decline.

Decline characterizes not merely the Republican party organization itself, but also its view of the United States as a country. Big parts of the Republican agenda, which I wrote about yesterday, might be seen as residual anger from the fight against Bill Clinton, president until 12 years ago, who made a point of saying that success was the result of everyone working and that we could not afford to leave anyone behind. The Republican agenda, if you read between the lines, is based on the opposite idea: that we cannot afford to take everyone along; that if we do not start throwing people over the side now, we will all go down together. The rhetoric in the convention speeches returned again and again to the feeling that the less successful people in the country — poor people, those who are unemployed or who fall ill, retirees, soldiers wounded in battle, students, and so on — are dragging down the whole country. That is not the image of a country progressing and expanding, but of one that faces too many burdens to make real progress. This sense of almost unavoidable national decline is not necessarily the view of Republican voters, but it is certainly the current view that comes across from the Republican party as an organization.

The same attitude is reflected in the uglier actions of the delegates at the convention. Their crude behavior and outbursts were not mere racism, as they might have appeared on the surface. The vast majority of people at the convention, obviously not all aging white men, were treated in a polite and civil manner. Republican delegates reserved their threats and abuse for those who they saw as working ineffectively. This was not the view of the whole Republican party, obviously, but there is a faction in the party that believes that the solution to most problems is to get rid of the people whose performance is below average. It is the strategy that corresponds to the military order “Every man for himself,” which in the military is reserved for situations so disastrous that any attempt to coordinate is likely to lead to delay that compounds the disaster. The rest of us in the United States must come to understand that a significant fraction of Republicans see the current condition of the country as one that rises to that level of despair.

This Week in Bank Failures will return next week.

Thursday, August 30, 2012

How the Republican Risk-Shifting Agenda Would Cause a Recession

With the national convention winding down, there is a lot of talk about the way the Republican party’s agenda revolves around sex. Initiatives in criminal law, science, health care, culture, and elsewhere seem to have been engineered together with the hidden purpose of making sex more of a problem for the ordinary person. But the Republican agenda is not purely about sex. Sweeping all the sex-related initiatives aside for the moment, you are likely to notice that much of what remains is about shifting risk — specifically, reducing the risks that government and big business take on by transferring most of that risk to ordinary middle-class families and individuals.

The need to reduce the burden of government is perhaps a credible rationale, but it is clear that the whole range of consequences have not been considered. Key among them is that risk-shifting to workers and consumers is recessionary in nature. If Republicans do away with unemployment compensation, for example, this reduces both consumption spending and work force participation. Unemployment compensation covers much of the risk of losing one’s job, and without it, a significant number of people — millions — would be moved to decide that taking a job and joining the work force is too risky. At the same time, everyone who has a job would feel the need to keep additional savings to guard against future income loss. Saving means spending less than you earn, and this reduction in consumer spending translates almost directly to a slower economy.

It is a similar story with the phase-out of Medicare, new restrictions on access to health insurance, repeal of workplace safety rules, eliminating food safety inspections, and dozens of similar proposals in the Republican agenda. In general, forcing workers and consumers to take on new risks leads them to seek ways to reduce their risks in other areas. The perception of excessive risk leads a person to become more reluctant to take or continue with risks. People try to stay in or near their comfort zone or their idea of how risky and chaotic they think their lives ought to be. So how do you reduce risk, once you have decided to do so? People reduce the risks associated with the commercial system mainly by participating less in the commercial system: borrowing less, working less, spending less. Any form of reduced participation tends to lead to reduced economic activity, and reduced economic activity in the aggregate is exactly the defining quality of a recession. Any abrupt shift of risk onto workers or consumers, then, is likely to cause a recession. Attempted on the scale that the Republicans are talking about, it could trigger a depression.

This effect will happen especially easily during the current period of deleveraging, when people are trying to reduce their exposure to risk by reducing their debts. Deleveraging shows that people already worry that their personal risk levels are too high. Load more risk onto them at this point, and the macroeconomic consequences could be severe.

The result is the opposite of what the Republicans are promising. They say they want to expand the economy by turning free enterprise loose. Yet expansion is not the result when you turn free enterprise loose into the teeth of a recession. The “free” in “free enterprise” very much implies the freedom to fire workers, close locations, and move jobs to other countries. Indeed, if the current wave of deleveraging were to be compounded by massive risk-shifting from government and big business to individuals, the resulting economic calamity would give businesses few choices other than to cut back wherever they could, or to shut down wherever they could not cut back.

Wednesday, August 29, 2012

Post-Traumatic Associations in Hurricane Isaac

Hurricane Isaac is passing just south of New Orleans this morning. There is still a chance that the hurricane could make a direct hit on the city, but there is reason to hope that the worst weather will stay five miles away. Even without a direct hit on the city itself, there is extensive damage in the area, and power will be out and low areas flooded for days.

Isaac arrived on the same day of the year as Hurricane Katrina in 2005, which also narrowly missed New Orleans, though on the other side of the city. That was a hurricane with ten times as much energy, with winds strong enough to knock down buildings. Like today, the area of worst damage was barely five miles away from New Orleans.

Katrina was one of the worst natural disasters in recent memory, and whatever post-traumatic or other associations people have with Katrina will be strongest right now because it is exactly that time of year again. As long as it is another hurricane at the same place on the same day of the year as Katrina, much of what people think of Isaac will be colored by their recollections of Katrina.

This applies also to the speculators who, since yesterday, have driven up the prices of oil and especially gasoline. Some of the worries about supplies are well-founded, but part of the price movement is simply the vague worry that we are seeing another Katrina-like event.

Hurricane Isaac is classified as a Category 1 hurricane because of its wind speed, but it is a larger and stronger storm than that category suggests, and this is reflected especially at the shoreline with waves and surge. From what I am hearing, people are taking the appropriate level of precautions, so I am hopeful that everyone is safe. In spite of people’s worries that the current disaster will turn into a repeat of a past disaster, there are many things to indicate that today’s events will come out differently.

Tuesday, August 28, 2012

Up On the Ikea Roof

It is one of the most obvious places to put a solar array: on the otherwise bare roof of a large commercial building. Furniture retailer Ikea is two years into a plan to take advantage of its roof space with solar installations on top of most of its U.S. stores. It has just completed a solar array on the roof of the Twin Cities Ikea store in Bloomington, Minnesota store. The rooftop array will generate an amount of electricity comparable to the electricity used to operate the store. (The exact amount, as with any solar installation, depends on each day’s weather.) Last month it was the same story at the Ikea store in Canton, Michigan.

At both Ikea stores, the rooftop array is the largest solar array in the state. The mere fact that Ikea can make this claim in multiple states tells you how much untapped rooftop potential there is. It would make more sense if the U.S. government was doing this kind of proof-of-concept project on its own rooftops, as I have proposed previously, but we can hope that other businesses with large buildings will look to duplicate Ikea’s success.

Monday, August 27, 2012

Arctic Sea Ice Is Dying

There is an exclamation point on today’s NSIDC Arctic sea ice extent map.

It is not just that the ice extent has reached a shocking all-time record low three weeks before the usual end of the ice melting season. You can see the shape of an exclamation point at the top of the ice pack on the map.

The exclamation point is formed by two polynyas, areas of water surrounded by ice. The dot, making its first appearance on the map today, is a new polynya that formed at 86° north latitude. This is an event that is remarkable in itself. Polynyas don’t form easily so far north. If ice is not safe in this spot, 400 kilometers from the North Pole, it is not safe anywhere in the Arctic.

Polynyas also do not usually form this late in August, with the sun so low in the sky, but then, for Arctic sea ice, this is no ordinary August. In the past, we would expect to see rapid ice melt in June and July. Then in August, melt slows, coming almost to a stop by the end of the month. Not so this year. Melt has continued at a July-like pace right through August.

This year is also not a repeat of 2007, the previous record low year. That summer had the kind of sunny weather you would see once in 8 years to promote rapid melting. This summer’s weather was more average and should have protected the ice better. Yet the extent graph shows almost a straight-line descent from the beginning of June to the present.

The ice is thinner than ever, and this is a special irony. This year, we thought we would finally get good data on ice thickness. Alas, the ice is too thin for the radar models to work.

At the beginning of the summer I said that this would not be the year when the Arctic ice would melt out completely, because there was not enough open water in the Arctic Ocean to soak up the sun in May. Open water is key to ice melt because the sun is high in the sky in May (into July) and water, being darker, absorbs at least five times as much solar heat as ice does. I was expecting the ice extent data to follow along the lines of 2007 and 2010, and until July, it did. But it’s easy to see that something new is happening now.

We have reached the turning point where a warmer ocean surface is rejecting the ice. The Arctic sea ice is dying.

The warmer ocean also means a weak fall re-freeze, with perhaps only 11 weeks from January to March for new ice to build up. Some observers believe the volume of ice at the peak in March or April 2013 could be no larger than what has melted already this year. If they are correct, then all the ice could easily melt away next summer, and every summer from then on. And the ice that forms in winter will be more like the ice in the Atlantic Ocean than what we are used to seeing in the Arctic.

Ice takes heat away when it melts, so the loss of Arctic sea ice will affect weather all over the Northern Hemisphere. Of special concern to me:

  • Greenland: without sea ice to keep things cool, the entire Greenland ice sheet could melt away in 150 years. This will result in a sea level rise that will swamp most of the world’s coastal cities. There will be thousands of earthquakes along the East Coast of North America.
  • The heartland: areas in central North America far from the coasts are likely to get less regular rain, and will likely no longer be suitable for growing crops like corn.

These future consequences are speculative. We don’t have enough historical data to guide us on the specifics. Alas, what the latest sea ice data says is these changes are upon us now, whether we understand them or not.

Friday, August 24, 2012

This Week in Bank Failures

The New York Fed cashed out its last AIG investment this week, selling off the rest of a portfolio of mortgage-backed securities. It made a respectable profit, with an annual rate of return around 8 percent. AIG is still majority-owned by the U.S. Treasury.

Credit card banks are repeating many of the same mistakes of the mortgage crisis as they go to court to collect credit card debts. These include robo-signing, suing for debts that have been paid off, errors in the amount owed, errors in identifying the borrower and the debt holder, and missing or incorrect documents.

In Europe, the spotlight was on Spain and Greece this week. After a joint statement from the heads of France and Germany, there was speculation that Greece might be forced out of the euro zone, possibly before the end of the year. Today the European Commission asked Spain to delay its planned bad bank for another week to allow for further review. The European Commission also said it will have proposals for new European banking regulation ready on September 11.

There was a run on Asia Commercial Bank in Vietnam after its founder was arrested Monday and charged with securities violations. The central bank intervened and had stabilized matters by today. Yesterday a second former executive at the bank was arrested and charged, and the mysterious investigation continues.

U.S. money laundering rules are evidently hard for international banks to follow, with Royal Bank of Scotland, Deutsche Bank, Wells Fargo and others being newly implicated in money laundering violations. It is a problem not limited to banks; industrial companies have also disguised transactions when their customers were criminal organizations.

Separately, Wells Fargo will pay $6 million to settle SEC charges of selling mortgage-backed securities to its customers without understanding or disclosing the risks. The SEC says the bank should have considered more than the credit ratings of the securities when selecting them.

The court-appointed trustee for Bernard Madoff’s bankrupt Ponzi scheme has recovered about 46 percent of the money owed to account holders. A small fraction of this money has come from insurance. Most is money that has been recovered from other account holders and employees.

The FDIC is going to court to try to reclaim $2 billion in losses from Wall Street companies that sold mortgage-backed securities to the now-defunct Guaranty Bank. The securities lost more than a third of their value on average, and the FDIC says the sellers made false statements about the value of the mortgages represented in the securities.

The Democratic National Committee is the latest large depositor to move its accounts out of the Wall Street banks. DNC’s new bank is Amalgamated Bank, which bills itself as the country’s only large union-owned bank.

Student loans aside, U.S. consumers continue to pay down debt. Total debt is increasing, but at a pace smaller than the combined effects of price increases and population growth, so that the average person owes less in real terms as time goes on. Total household debts are now 7 percent below their 2008 peak. Consumers are reacting to the perceived risks of owing money, and other factors are also important. Consumers who defaulted on mortgages have lost most of their access to credit. Many consumers have seen their income fall, or expect this to happen, making them less willing to take on debt. At the same time, consumers with an increase in income may use the free cash to pay off loans.

There were no early East Coast bank closings tonight, and I am not expecting any so close to a major political event. I will update if any banks are closed later.

Thursday, August 23, 2012

The New Home Computer

If the PC doesn’t make much sense for business anymore, it makes even less sense at home. One of the ironies of the home PC is that people would often intentionally select computers to be compatible with their computers at work, at the same time that their employers were, in the name of security, doing everything they could to make the work computers incompatible with everything else in the world.

In the last five years, the attempt to make the home PC compatible with the work PC has become a losing battle.

  • Work may use a decade-old operating system version that is no longer sold or officially supported.
  • Even if work uses a current operating system version, the “home” edition of the operating system may be utterly incompatible with the “pro” edition at work.
  • If you want to pay for the “pro” edition of the operating system anyway, it may cost more than the whole computer.
  • Besides, how do you get files past the firewall at work?

As long as the computer at home and the one at work are in two different worlds, the computer you use the most at home is likely to be a tablet computer, or something designed for a style of use more casual than a PC suggests. But you still need a first-class computer at home — to plug the printer into, if for nothing else.

Actually, you will probably want two first-class computers at home — one plugged into the television or other large video screen for entertainment purposes, and another one in a separate room for anyone who isn’t watching television to use. These home computers need to serve as a hub, to collect ebooks, songs, movies, software, and messages from the world outside and distribute them to the tablets, phones, and other personal devices people use. It may also retrieve important files from everywhere and store them in a fixed location, or archive them on optical disks. The primary home computer might as well have the home’s wireless router built in for ease of connecting and operating everything. It ideally should not have a built-in video display, since it might be plugged into a $2,000 television.

A central home computer is more like a server than a PC, though it must also function as a PC. As with the enterprise desktop, this is a product that computer manufacturers have not been quick to build. Yet I am convinced that it is a category whose time has come.

Wednesday, August 22, 2012

Replacing the Enterprise PC

“Enterprise PC” is an oxymoron to begin with. “PC,” after all, stands for “personal computer,” and whenever you put the words “enterprise” and “personal” together, something has to give. In the case of the enterprise PC, there is nothing very personal about it. As I wrote yesterday, the typical large business goes to a great deal of trouble to nullify most of the powers of a PC, crippling its workers’ desktop and portable computers on the theory that a fully capable PC would represent a security threat.

It is a lot of extra work to build capabilities into a PC, then to negate those capabilities through a combination of add-on hardware and software when the PC is installed in the enterprise. A far more efficient solution for the enterprise desktop would be a device that never had full PC capabilities built into it in the first place. A better enterprise desktop would be a second-class device, dependent on its connection to another computer to do much of anything. This would be a device, in other words, more similar to an entry-level iPad.

The iPad can have a keyboard plugged into it, but not much more than that. For anything else, even printing, it depends on being able to connect to a first-class computer. Meanwhile, built-in restrictions on applications and files make it unlikely for the iPad to be the focal point of the kind of disruptive software that is so easily installed on a PC.

The iPad itself is not the answer. It is not easily bolted down. Its screen is a little too small, its price a little too high. A built-in camera would have corporate managers and workers alike worrying about spying. But imagine a stripped-down, low-budget desktop version of an iPad. The entire device could cost less than corporations pay for just the operating system of a desktop PC. With its limited capabilities it would require hardly any configuration or maintenance, and even that could be done automatically and remotely.

Mind you, this is all a pipe dream at this point. As far as I know, no computer company has anything like a desktop iPad under development. Inevitably, though, sooner or later something of the kind will come along, and it may take over the corporate desktop before anyone knows what has happened. And then, we really will be able to talk about the death of the PC, at least as far as the enterprise is concerned.

Tuesday, August 21, 2012

What’s So Personal About a Personal Computer?

There is a lot of buzz in the computer business about the “death of the PC.” In a sense, this talk is an overreaction. The product category as a whole is still selling at a pace within 10 percent of its all-time high. In another sense, though, it is a conversation whose time has come. The concept of the personal computer has been stretched in so many directions that there is not much left.

The way we use personal computers has changed so much I am not sure either the term or the design concept still fits. Consider these changes that have come along since 1998:

  • Logging in. Regardless of where your operating system software is from, you can’t start using a personal computer in 2012 until you create an account for yourself. This also means you need to assign yourself a user ID and password.
  • Sharing. The user account feature of operating systems makes it easy to share a computer with other people in your household or office.
  • Remote backup. If you choose, you can have your computer files automatically copied to a remote server. This allows you to recover the files even if the computer itself is completely lost.
  • Lockdown. Since about 2000 most personal computers used in business settings have been locked down, to prevent the user from installing or removing software or changing settings.
  • Spyware. Businesses routinely install security software, including spyware, to keep track of what users are doing on computers.
  • USB Lockout. Some more security-conscious businesses may install software to prevent users from connecting any hardware more consequential than a keyboard or mouse. Part of the idea is to make it impossible to copy files to USB flash drives.
  • Automatic updates. A personal computer may automatically check a central server for changes in software. Or, especially in a business setting, the server may install and delete software on the personal computer, whether the user likes it or not.
  • Television. You can now watch television programs on a personal computer, almost as if you were watching cable. Similarly, you can watch video programming on DVD.
  • IMAP. In the past, using the POP3 standard, email was delivered to your personal computer. Now most of us use the IMAP standard that stores the email content on a server.
  • Hub. The desktop computer increasingly serves as a hub to connect mobile devices such as portable computers, phones, music players, and cameras, along with traditional computer peripherals such as scanners and printers. In this role, the computer acts as a server.

What’s so “personal” about any of this? For most of us, our use of personal computers is not nearly so personal as it was in the 1990s and 1980s, at least when it comes to the hardware itself. What is the real difference, then, between a personal computer and any other computer? How much difference does it make if you share a “personal” computer? Is it perhaps time to stop thinking of the PC as a personal device?

Monday, August 20, 2012

Wishing Away the Unemployment Problem

Steven Hill, writing in Project Syndicate, thinks unemployment rates are too high. Unemployment, he says, is largely a “mirage,” created by misleading and unsupportable statistics. And he has a suggestion to get the unemployment rate down.

His suggestion is to count students as employed.

Yes, you read that right. Hill wants to count students who don’t have and can’t get jobs as if they did have jobs.

If you’re a student without a job, you should be outraged at Hill’s point of view. It is bad enough that you can’t get a job, you’re not getting paid a dime, and you’re forced to spend money you probably don’t have to get trained so that you can eventually, after several years, qualify for the kind of job you’re hoping for, but with no guarantees even then. Now some crazy economist wants to count you as if you already had that job you dream of having someday. As if all of your problems have already been solved. Or as if you’re just some kind of freeloader puffing up the unemployment numbers by not holding a job already.

It is not just students who should should be outraged by Hill’s suggestion. This kind of thinking is part of a larger pattern, in which academics and policy wonks view workers as an obstacle in their efforts to manage the economy — as if there could be an economy in any meaningful sense without someone doing some kind of work. This is not the first time someone has tried to obscure real people’s real problems by distorting economic statistics, and it won’t be the last.

If we really wanted a proper measure of the job market, labor market measures wouldn’t even consider whether a person is a student. If you have a job and are getting paid, you should be counted as employed, whether you are taking courses or not. If you are seeking a job and do not have one, you should count as unemployed, whether you are a full-time student or are sitting at home watching television most of the day. And, if you are not currently seeking a job even though you want one, you should count as a discouraged worker, whether you have simply given up on your career, are taking classes in the hope of eventually qualifying for a job, or are stuck in an unpaid internship trying to add some experience to your resume.

Current economic statistics distort the picture of the labor market by excluding some students from the counts of unemployed and discouraged workers, making the job market look a good deal better than it is.

This should be corrected by counting the job market the way it really is, not by indulging in fantasy. It does no good to further distort the view of the job market by creating a fantasy statistic in which people are counted as something other than what they really are.

Friday, August 17, 2012

This Week in Bank Failures

There was a collective sigh of relief on Wall Street this week as Standard Chartered Bank reached a settlement with New York state regulators. The bank will pay a fine of $340 million to settle claims of keeping false records in connection with the laundering of an estimated $250 billion in international transactions. In the Wall Street way of measuring things, that works out to a rate of 0.14 percent, or something banks can live with as part of the cost of doing business in areas of business that may sometimes require money laundering and keeping false records. If Standard Chartered had had to forfeit its banking license, that would have been a different matter.

Standard Chartered surely now regrets the hostile stance it took with U.S. regulators for at least four years leading up to this week, which culminated in a threat to sue the state of New York. The bank thought it could avoid large fines and public embarrassment through tough behind-the-scenes negotiation. Obviously, that strategy had its limits. The foot-dragging is over, executives say, as they hope to reach a quick settlement with the Fed, Treasury, and other federal regulators and put the bank’s money-laundering days behind it.

Besides the regulatory hurdles ahead of it, Standard Chartered may also face civil litigation from U.S. plaintiffs who have won judgements in court against defendants in Iran. Courts will eventually decide how much liability the bank faces for keeping false account records that may have prevented plaintiffs from collecting funds they were entitled to.

With the decline in real estate in Spain, non-performing loans at Spanish banks edged up toward 10 percent for the first time ever, in June data released this week.

Finland is preparing for the breakup of the euro zone. Public comments from cabinet-level officials suggest they believe such a scenario is almost as likely as not.

A criminal probe into the collapse of MF Global continues, but indications so far are that risky investments, compounded by management confusion in the final months and weeks, led to the large losses at the brokerage. Observers are not expecting criminal charges.

Fannie Mae and Freddie Mac are not ever expected to return to steady profitability, and Treasury has changed their bailout terms accordingly. The two businesses will use all future profits, whenever they are fortunate enough to earn any, to repay Treasury. Both companies are also required to reduce their portfolios by a minimum of 15 percent a year. Realistically, stockholders and bondholders should not be expecting much. Fannie Mae and Freddie Mac will have to go into wind-down mode eventually, and that transition presumably will come around January.

For their part, Fannie Mae and Freddie Mac are forcing banks to buy back more bad loans that were not properly documented in the first place. This is a trend that will result in more loan losses on the books at banks.

Details of subpoenas issued to giant banks in the United States show that law enforcement authorities are looking for evidence of coordinated planning of Libor manipulation. If collusion between banks can be shown in court, then the banks’ liability is larger and more automatic.

As the glow of the Olympics faded, lawmakers in London voiced discontent over the problems with Libor and Barclays this week. In the United States, the political season is well underway, and without the Olympics to distract the public on a Friday night, I do not expect to see more than a few token bank closings over the next nine weeks.

Fault Lines in Pussy Riot Verdict

With the Pussy Riot show trial, Putin meant to issue a warning to protestors, but he didn’t mean for it to become the signature action of his third presidential term. That is what is has become, though, particularly after the conviction and two-year prison sentence announced today. Politics is not a controllable process, and though the fabricated charges and harsh sentence might quiet a certain kind of political discussion in Russia, the Pussy Riot trial has had the opposite effect. The trial itself has become the focal point of the discussion. It is a discussion that reveals a cultural breakdown in Russia.

The show trial reveals Putin as a tyrant, and his government as a Russian version of the Chinese approach to government, in which the country is ruled, and the economy dragged down, by corrupt and aging bureaucrats who are removed only when they die. This, then, is where a generational disconnect occurs. Older employed workers, over about 50 years of age, are far more likely to accept the government’s account of the trial. They tend to believe that the convicted musicians must have done something violent. They tend to think that the trial is not of any great significance. They are, that is, identifying and aligning themselves with the nihilism and inertia of their corrupt government.

This is almost the opposite of the view of everyone else. And if tyranny and repression just lead to a bigger explosion later, as many are reminding us today, then when that transition arrives, the older contingent of Russians who see themselves as part of the old corrupt system may fare poorly.

This culture gap between generations is not limited to Russia. Broadly similar demographic divisions may be seen in other countries with institutional failings and economic stress: Spain, to be sure, but also Iran, the United States, Egypt, and elsewhere. Science fiction has showed us how revolution can be a worldwide event. Now for the first time in real life, we can start to see how such an event might take place.

Wednesday, August 15, 2012

We Are Never Ever Ever Getting Back to Normal

I couldn’t count the number of headlines in the last five years that have promised the return of normal economic times. Hundreds, at least. Ten times, the U.S. real estate market “bottomed,” that is, experts said that prices had reached their lowest point and started upward again. Supposedly this was a turning point: “Now real estate can get back to normal, the construction business can get going again, and then the whole economy will get back into the swing of things.” If only it were true. Five times, the report of a real estate bottom was just a mistake. The other five times, prices really did inch upward for a season, only to fall still lower in the next season. It was the same story in jobs, energy, budgets, food, the euro zone, or anything else you might look at. If you were desperate to believe that things would soon return to normal, there was always a positive report you could latch on to, but the promises never turned into anything real.

Imagine you’re someone who had always believed the twentieth-century wisdom that a period of economic trouble could never last for more than a couple of years before things got back to normal. The current situation would be positively traumatic. “It can’t be this bad,” you would say. And almost every week, there would be news to convince you that things couldn’t really be as bad as they look. Except that, on most other days, there would be news to persuade you that things really are at least as bad as they look. “When will I wake up from this economic nightmare?” you ask.

Eventually, you have to say, “Enough! I don’t believe things are ever going to go back to normal!”

Or, wait. The way to phrase this, if you really want to say it with conviction, is, “We are never ever ever getting back to normal. Like, ever.”

Uh, well, okay, you caught me. That’s the chorus of the new Taylor Swift single “We Are Never Ever Getting Back Together,” and I have changed just two words to make it sound like it could be talking about the economy.

But I did it because it fits. Like, if you think things should go back to the way they used to be, what are you really trying to go back to? Were the good times really as healthy, as functional, as you remember?

Does “back to normal” mean going back to 2005? The last “good” year of an anxious deficit-fueled acid trip, when the federal government had spent its way literally to the edge of bankruptcy?

Or maybe the 1990s? It is easy to feel romantic about the 1990s when you look at where we are now, but the fact is, the first four years of that decade were a wretched process of dragging our way out of the doldrums, and the last two years were a caffeine-fueled “New Economy” dot-com dream that was hard to believe in even before we saw it come crashing down.

That means there were really only four good years in the “boom” economy of the 1990s. And looking back, those four years were a transitional period, in which the expansion of wealth was abrupt enough that it managed to find its way out to ordinary people before all the hired geniuses on Wall Street figured out new ways to walk off with a larger share.

The 1980s? The era of “downsizing,” when the layoffs were bigger than anything before or since?

No, there is no “normal” to go back to. And even if there were, it is gone now. Five years have gone by since 2007, the last year the job market showed any semblance of normalcy. It has been a crazy five years. The world has changed. You have changed. We have come too far to try to go back.

There is no reason to think we can go back to the past. There is no reason to look back. We have to carry on from here, and find out what we can do based on who we are.

Nor is the current situation the “new normal” that some pundits will try to persuade us it is. There is nothing “normal” about it, it certainly won’t last, and you can’t rely on it working. Some of the most basic things in your daily life, from communications to food distribution, are virtually guaranteed to break down without warning at least once a year. This year, more than half of the counties in the United States are officially disaster areas because of extreme weather events. Some of the largest retailers, hospitals, banks, even auto manufacturers are one bad month away from a financial collapse. It would be a mistake to think of any of this as normal.

In 20 years we will look back on this period not as any kind of “normal,” but as a turbulent and unpredictable transition period. It will not seem so awkward from that point of view because we will know where things were heading. That is something we can’t possibly guess from where we are now.

There is a reason why “We Are Never Ever Getting Back Together,” which has been heard only since midnight Monday night, is one of the biggest first-day single releases in history. It is a song that picks up on the spirit of the times. How many people just keep trying to patch together and carry on with something that has obviously failed, whether it is a bad job, an underwater mortgage, a horrifically expensive cell phone contract — or a drama-heavy romantic relationship? In difficult times, you have to try to keep things working — but only up to a point. How many people are ready, or wish they were ready, to draw a line under at least one of the failures of the past and start fresh from here?

Yes, you caught me again. I am, quite possibly, talking about you. Because, let’s face it — it was so bad that when you try to describe how it worked, it sounds positively funny. You can’t talk about it with a straight face anymore. And you’ve decided: you are not going to try to make it work again. Never ever ever ever.

Tuesday, August 14, 2012

Goldman Sachs Gets Its Show Trial

After reading yesterday’s post someone might imagine that show trials were invented in Moscow, but of course, that’s not the case. There may be one coming up in New York. There, Sergey Aleynikov was employed by Goldman Sachs as a computer programmer. He then quit his job at Goldman Sachs and went to work for a competitor. Ever since, his former employer has been trying to get him put in jail, with an alarming degree of success.

Aleynikov was actually convicted of “stealing” the computer programs he was working on at Goldman Sachs. That conviction was overturned when a federal court realized the charge never made sense in the first place. You can’t give someone a computer program to work on, then later claim they broke into your computers and stole it.

Now Aleynikov has been indicted again. The original charges were overturned, so new charges had to be fabricated. This time, Aleynikov has been charged with industrial espionage. These charges may ultimately fail for the same reasons that the previous charges failed. There is neither evidence nor allegation that Aleynikov made copies of anything or used any information from Goldman Sachs after he left his job there. In reality, Aleynikov is being prosecuted just for going to work for a competitor. And Goldman Sachs is serving notice that it owns the criminal justice system in New York just as surely as criminal enterprises in Moscow own the criminal justice system there.

Monday, August 13, 2012

A Show Trial for Pussy Riot

In Russia, it was supposed to be a show trial for the punk band Pussy Riot, but it has turned into a big mess. The whole world can tell by now that there was no hooliganism — nothing was broken, no one was so much as pushed — so the original charges against the three defendants were obviously fabricated. The obvious reason for charges against the punk musicians is that they were colorful and witty in their political commentary. After keeping three women in jail for months, the regime in Moscow can scarcely afford a not guilty verdict. Yet a guilty verdict will not serve either — it would be obviously false, and would show that Russia has abandoned most of its pretense of freedom, democracy, and a functioning society.

A show trial of innocent performing artists adds to other recent events that cast doubt on Russia’s future. The government’s support for Syria in its brutal repression that borders on genocide earned it a rebuke from the United Nations General Assembly and sets it apart from the point of the view of the more successful parts of the world. At the same time, there are problems with endemic corruption in Moscow and an economy that seems to be returning to a Soviet-era pattern of decay. The Putin government, then, is seen as ushering Russia into an era of long-term decline and withdrawal from the world.

So it falls to a group of punk musicians to stand for progress and civilized sensibilities. It is not just the irony of punk musicians so firmly occupying the moral high ground that we see in the Pussy Riot trial. The punk band also stands for culture, eloquence, and political sensibilities. This is easy to see in the closing statement of Yekaterina Samutsevich, which has been read by millions of people worldwide. It reviews the corrupt relationship between the Kremlin and the Orthodox Church and the political motivations for the show trial, then closes:

On the other hand, we have won. The whole world now sees that the criminal case against us has been fabricated. The system cannot conceal the repressive nature of this trial. Once again, the world sees Russia differently from the way Putin tries to present it at his daily international meetings. Clearly, none of the steps Putin promised to take toward instituting the rule of law have been taken. And his statement that this court will be objective and hand down a fair verdict is yet another deception of the entire country and the international community. That is all. Thank you.

It is a risk to put people from show business into a show trial. Musicians understand better than most political prisoners how to talk to an audience and, more importantly, how to know who the real audience is. The government thought it could contain this risk by keeping the defendants in a cage in the courtroom, but it did not work. Putin is obviously not prepared to debate this particular punk band and does not seem to understand what is at stake. To appreciate the significance of the moment, consider this question: who is more likely to die in a jail cell, Pussy Riot, or Putin? Before you answer, consider that it is a question that the Russian people may ultimately get to decide.

Sunday, August 12, 2012

Roundup: Warming Trends

More evidence of warming climates in the news:

  • U.S. weather is the hottest ever recorded. From NOAA: “July 2012: hottest month on record for contiguous United States; Drought expands to cover nearly 63% of the Lower 48; wildfires consume 2 million acres”. “The average temperature for the contiguous U.S. during July was 77.6°F, 3.3°F above the 20th century average, marking the hottest July and the hottest month on record for the nation. The previous warmest July for the nation was July 1936 when the average U.S. temperature was 77.4°F. . . . The January-July period was the warmest first seven months of any year on record for the contiguous United States. . . . The August 2011-July 2012 period was the warmest 12-month period of any 12-months on record for the contiguous U.S. . . .”
  • Whole populations of fish have been cooked to death in abnormally hot U.S. rivers this month. From ThinkProgress: Mass Fish Die-Offs Increasing In Warming U.S. Rivers. “Thousands of fish are dying in the Midwest as the hot, arid summer dries up rivers and causes water temperatures to climb in some spots to nearly 100 degrees.”
  • New satellite measurements confirm that ice on the Arctic Ocean is thinning rapidly. From Guardian: “Rate of arctic summer sea ice loss is 50% higher than predicted; New satellite images show polar ice coverage dwindling in extent and thickness”. “Sea ice in the Arctic is disappearing at a far greater rate than previously expected, according to data from the first purpose-built satellite launched to study the thickness of the Earth's polar caps. Preliminary results from the European Space Agency's CryoSat-2 probe indicate that 900 cubic kilometres of summer sea ice has disappeared from the Arctic ocean over the past year.” “In winter 2004, the volume of sea ice in the central Arctic was approximately 17,000 cubic kilometres. This winter it was 14,000, according to CryoSat. However, the summer figures provide the real shock. In 2004 there was about 13,000 cubic kilometres of sea ice in the Arctic. In 2012, there is 7,000 cubic kilometres . . .”
  • Arctic ice extent is setting new daily record lows. From “NSIDC Extent Sees 2012 Five Days ahead of 2007”. Arctic sea ice could set a new all-time record low. We may know in about two weeks.

Friday, August 10, 2012

This Week in Bank Failures

Reuters reports that U.S. banking regulators have directed five giant banks to draw up emergency liquidity plans. These “recovery” plans are different from the liquidation plans that a larger number of banks are required to have, though there is some overlap. If a bank loses access to its usual sources of liquidity, it might sell assets, such as its branch network. The emergency liquidity plans are similar in nature to the alternate financing plans all large, well-run businesses have, but are more detailed, running to several hundred pages that describe strategies for selling “non-core” assets. They are also more dynamic. Banks have been directed to draw up plans that will work within three to six months. Few non-financial business would need to plan within such a short financial planning horizon.

Libor must carry on, a review panel in London has concluded, but not in its current form. Libor is the base rate for trillions of dollars in long-term loans, so it cannot easily be discontinued. Yet Libor in its past forms and in its current interim form is too much based on opinions and guesses to properly serve its purpose as a base rate. A revised Libor must be based more on actual transaction reports, and will probably have to be supervised more directly by the Financial Services Authority (FSA). U.K. banks will likely be required to report certain transactions, such as overnight loans between banks, so that the data can be used to compute the new Libor. Parliament is expected to collect ideas and draft new legislation on the subject next year.

The U.S. Justice Department has abandoned its criminal probe of the marketing of subprime mortgage derivatives at Goldman Sachs. The broker survived the financial squeeze in 2007–2008 by selling subprime mortgage securities in enormous volumes to its clients, while at the same tine secretly betting against the entire subprime mortgage market. Criminal charges are not on the way, the Justice Department said yesterday, unless stronger evidence emerges. However, various other investigations and court cases on Goldman’s subprime dealings continue.

Standard Chartered Bank acknowledges a history of misconduct at its New York subsidiary, but says New York banking regulators have hurt its reputation by claiming that it stripped codes from wire transfers when the codes could have identified its illicit customers. The bank has seen its stock decline by a fourth and is hinting at a lawsuit against the regulators whose complaint sparked the decline. Banking regulators have suggested canceling the U.K.-based bank’s banking license in New York for keeping false records in connection with its money-laundering business. A hearing is scheduled for Wednesday.

Knight Capital will survive its high-speed trading debacle, at least for now. It lost $440 million in less than an hour with ill-timed trades when the stock market opened last Wednesday. Spooked customers abandoned it. Over the weekend, though, it lined up $400 million in new capital and reassured its largest customers. It opened for business as usual on Monday. The new capital, though, dilutes previous stockholders by about two thirds. The transaction clearinghouse says it still does not know what caused its trading overload last week. The SEC said it will look into the technology issues involved (next month — it is hard to get anything done on Wall Street in August), and in the meantime, admonished all high-speed traders to be sure their trading programs “are operating properly.”

A credit union failed this week. State regulators in Michigan determined that United Catholic Credit Union was insolvent and closed it yesterday. It had 200 members and less than $1 million in member accounts. The NCUA will issue checks to members for their deposits.

Thursday, August 9, 2012

Economic Costs of the Hottest Year Ever

With a mild winter, summer in March, and an all-summer-long series of heat waves, 2012 could easily turn into the hottest year ever in North America. Weather this summer has also been dry. Last year’s epic floods in the middle of the continent are all but forgotten. Looking back at the floods, though, it is easy to say that some of the blame placed on water management authorities was misplaced. The late suggestion from elected officials and others that the reservoirs should have been emptied out in March would have been extremely costly had it been carried out this year. As it is, parts of the Mississippi River are so low that a few cargo ships have had to stay docked, and most are having to operate with lighter loads.

The hot weather has other economic costs. Most obviously, the added cost of cooling buildings on hot afternoons has more than erased the savings we got from heating the same buildings less during the mild winter. Sadly, weather-related deaths have taken some workers away from us. Those merely made dizzy by the heat may recover quickly with medical attention, but the medical care alone costs billions. And even those of us who think we are handling the weather just fine may be slowed down more than we realize. Heat accelerates muscle fatigue and can produce a hint of brain fog that may reduce productivity by a third on many vaguely defined but nevertheless important tasks. This effect includes shopping, and surely millions of people are simply forgetting to do some of the seasonal shopping they would otherwise be doing this week.

The unusual heat is doing material damage. A series of water main breaks in Philadelphia are believed to be heat-related. Railroad tracks in the United Kingdom are engineered to handle temperatures up to 45°C, and some have had to be rebuilt this summer, at considerable inconvenience, because of excessive heat. It is inconvenience enough when, on hot afternoons, trains operate at lower speeds as a precaution.

Of course, trains that arrive late may be carrying produce that does not have quite the same food value it might have had, delivered on time. Separately, hot, dry weather has negated at least 10 percent of U.S. corn and soybean crops. Of course, many crops have had to be irrigated more than usual, at an energy cost of billions of dollars. And I haven’t even mentioned the lost productivity from power failures. Power failures have, fortunately, have not been especially frequent this summer in North America, but the potential for an extended failure or rolling blackouts remains a worry as long as the heat waves continue.

None of this is huge by itself, but combined, these effects sap some of the energy from the economy. It will take a few weeks after a cooling trend finally hits before the economy gets its momentum back. In the meantime, economists will worry about the sluggish economy. Worry, of course, has economic consequences of its own.

Wednesday, August 8, 2012

The Health Insurance Refund

I got a refund from my health insurance company.

This was no small refund. It was close to two months of last year’s premiums.

Of course, it was not just me. Millions of people are getting refunds or credits from insurance companies. It’s one result of the health care reform law.

The nature of the refunds would be a great embarrassment to the insurance industry if consumers understood them better. The new law requires insurance companies to spend 80 percent of health insurance premiums, state by state, on health care and prevention costs. To put it another way, it limits them to a markup of 25 percent.

This has to come as something of a shock to an industry where some of the most successful companies tried to set aside as much as 30 percent of revenue for bonuses, most of which went to executives. They won’t be able to do that when markup is limited to 25 percent.

My insurance company last year took a markup near 50 percent in my state. I was personally part of the reason for their profitability; the lifetime total of my health insurance claims is less than $1,000, and last year, I had no claims at all.

In spite of my favorable history and my insurance company’s embarrassingly high profit margin, it decided I was a high-risk customer and went to some trouble to get rid of me last year. Among other tactics, it started to refuse payments on my insurance policy. This happened after my birthday, so I have to imagine it was because the insurer noticed I was getting older.

It’s easy to imagine an insurance executive telling a mid-level manager to “find a way to reduce the customer count” in a particular state. And obviously, they didn’t come to that decision based on financial stress. They were making a 50 percent markup! Somehow, even that was not profitable enough for them to stomach the level of risk involved.

Health insurance is so expensive that the United States could provide the same level of care to everyone in the country for less than the country pays now in insurance premiums. And get this: the insurance system covers only half of the people. An all-inclusive health care system is politically infeasible right now, so instead, public policy will be pushing insurance companies to act more like a public service. We might hope that this would mean more jobs for health care providers and fewer jobs for insurance marketing specialists who know how to make customers go away. But no. The refund checks mandated by the new law seem to be all we will get right now.

A Wind Energy Record

A few months ago, Germany set a record for solar power generation by generating, for a few sunny hours, more than half the that country’s electricity from solar power.

A similar record was set a few weeks earlier by the largest utility in Colorado, not with solar power, but with wind. In the pre-dawn hours of April 15, Xcel Energy generated more than half of its electricity from windmills. The wind energy share declined, of course, as the day got going and the electric consumption increased.

Solar and wind energy can be unpredictable, providing far more energy on some days than on others. The experiences in Colorado and Germany, though, show that these more fickle energy sources can provide most of an electric supply at their peak.

Tuesday, August 7, 2012

Standard Chartered’s “Surprise” at Enforcement Action

What does a bank have to do to lose its banking license?

It’s the obvious question after New York banking regulators proposed revoking the banking license of Standard Chartered PLC’s U.S. subsidiary. According to regulators, money laundering is so routine at this bank that it has standard operating procedures for it. They estimate it has laundered a quarter of a trillion dollars for customers in Iran, going to great lengths to disguise the parties to the transactions in order to mislead regulators and law enforcement authorities. And so yesterday, regulators ordered the bank to explain why it should be allowed to keep operating.

Standard Chartered issued a response that contains the phrase “strongly rejects the position and portrayal” in its headline. In the text of the statement, though, Standard Chartered indirectly acknowledges the gist of the facts in the complaint against it. It did actively conduct business in Iran in spite of U.S. sanctions. It did carry out transactions that didn’t meet legal standards. Yet the bank is “surprised” that this should be the subject of an enforcement action. That is probably the reaction of many others on Wall Street as well. If you are a banker and break the law, aren’t regulators just supposed to order you to stop breaking the law, and then leave you alone? Regulators can’t revoke a bank’s charter just because it has operated outside the law and appears to have lost its moral compass, can they?

Or can they?

Monday, August 6, 2012

More Binary Transaction Thinking, This Time at Southwest Airlines

In the last two weeks I have written about two transaction-processing glitches that turned what were supposed to be single transactions into multiple transactions. This happened first in banking, at Nationwide building society. It accidentally debited an entire day’s worth of debit card transactions again the next morning. Then something similar, if more damaging, happened in stock trading, as Knight Capital fired off a rapid series of mistaken stock orders that left it broke in just 45 minutes. And over the weekend, it happened again. This time the subject was airline reservations and it was Southwest Airlines that reported the problem.

It was supposed to be a short-term promotion on Friday, 50 percent off on airplane tickets with a long list of limitations and restrictions. But with heavy volume on the web servers, requests often didn’t go through on the first try, so the order-processing software tried again. Worse, requests that appeared to have been dropped had in many cases actually been filled. The result was that customers requesting one reservation often got two, or as many as 20, and were charged that many times.

Southwest recognized the failure almost right away. It didn’t have a simple solution because sometimes customers really do enter multiple reservations, but with just thousands of suspect transactions, it would be quick enough to review them one by one, a process it said could be mostly completed by this morning.

Southwest’s quick response, which included the expense of extra people working through the weekend, helped limit the cascade of problems that followed, such as flights reported as full that actually had dozens of empty seats. The root cause of the problem, though, was the same software failure as in the previous two incidents, with binary logic in transaction-forwarding routines. It is natural enough to code these routines with two cases, one for a successful request and another for a request that failed. These three recent stories illustrate the high cost of this kind of design. If the outcome of a request is unknown and the software just guesses that it is a failure, the results can be quite different from what is intended.

When the weekend started, Knight Capital had to line up a minimum of $50 million in working capital just to open for business today. The latest reports are that it was successful in a preferred stock issue. It got the funding it needed, but at a high price; its previous shareholders may own just 30 percent of the company after the announcement that may come later this morning.

Friday, August 3, 2012

This Week in Bank Failures

A man who fell to his death at a London art gallery last week has been identified as a senior manager at HSBC. Police are treating the incident as a suicide.

Multiple large banks are setting aside billions of dollars to pay anticipated fines and restitution for lapses in areas such as marketing, money laundering, and Libor.

Out-of-control software at Knight Capital at the opening of the stock market on Wednesday flooded the New York Stock Exchange with orders for 148 mostly relatively obscure stocks. It took 45 minutes before the market maker could figure out what was going on, and by then, it had purchased billions of dollars in unwanted stocks. It unwound those positions at the end of the day, but the resulting $440 million loss wiped away its working capital. The accompanying market gyrations rattled customers such as TD Ameritrade and Scottrade, which reacted within minutes to send orders elsewhere. The best news for Knight Capital is that these two large customers have come back, as of the end of the trading day today. But Knight Capital must still line up millions of dollars in new capital and try to restore the confidence of a few more of its larger customers before the end of this weekend so that it can resume normal operations. Otherwise, it may be wound down starting next week.

A glitch in order-generating software on Wall Street is an everyday occurrence, but most such errors generate only small losses because of financial controls that prevent them from doing more damage. No such controls existed here. Even without specific controls, though, the scale of the disaster is a mystery. The question no one has been able to answer is why the mistaken orders continued for so long and in such large volumes. Real-time financial monitoring should have prompted the company, a few minutes after the market opening, to stop trading until it could find out what had gone wrong. (Similarly, the stock exchange might have halted trading in some of the affected stocks.) This would only require the same kind of monitoring that TD Ameritrade and others employed in the situation. For whatever reason, Knight Capital tried to carry on operating until its unintended trading had run through its available cash.

The story echoes last week’s story at Nationwide building society. That bank debited an entire day’s worth of debit card transactions two times over, then took half a day to discover the scope of the error.

Mad magazine warned us 40 years ago that if we allowed computers to handle our finances for us, we would soon all be penniless. A generation before that, Isaac Asimov wrote a series of science fiction stories about the dangers inherent in robots that were “logical but not reasonable,” a description that is just as apt for an order-processing algorithm that spins out of control. This is a warning that some of the operational managers in banks and clearinghouses may be too young to have heard. From the outside, we take for granted that in every transaction-processing operation, there is someone on the inside who has their eye on the money. Unfortunately, after years of cost-cutting and with a generation of managers who may be a little too comfortable with advanced technology, that may no longer be the case. As one reader put it, “In the Hollywood version, there would be a control room with 15 big monitors and few bored experts keeping an eye on things.” It is disconcerting to learn that some of the financial institutions we rely on for transaction processing don’t have even that degree of real-time monitoring. In the Hollywood version, they are patting each other on the back in the hallway at 4 o’clock as they go off to the golf course.

It is the financial pressure on Wall Street that prompts executives to accept risks, such as that of running a clearinghouse without real-time financial controls, that most of us would consider unacceptable. This financial pressure is not going away anytime soon, so directors, regulators, and legislators will have to step in and rein in some of the biggest risks.

Wall Street marketers worry that this week’s market gyrations, caused by Knight Capital and an unrelated hedge fund liquidation, might discourage individual investors. Sales of life insurance are up sharply in the United Kingdom, in part because consumers mistakenly believe that life insurance is a safer investment than the stock market. If the life insurance trend expands, that could become another bubble and bust on the way.

U.S. customers of MF Global will end up getting between 80 and 90 percent of their money back. At this point, all but $1.6 billion in customer funds has been recovered. Customers in the United Kingdom may get much less. So far, they have recovered just 5 percent. An additional problem is that there are ownership disputes for many of the U.K. accounts.

ING, which sold its U.S. online bank last year, is now considering the sale of its online banks in Canada and the United Kingdom. ING is raising capital to pay back a Dutch government bailout.

The city of San Bernardino, California, filed for bankruptcy as expected. The city was essentially out of cash at the start of the week. Its bankruptcy filing showed $256 million in unfunded retirement benefits and more than $1 billion in liabilities in total.

State regulators closed a small bank in Illinois tonight. Waukegan Savings Bank had two locations and less than $100 million in deposits. First Midwest Bank is assuming the deposits and purchasing the assets.

Thursday, August 2, 2012

Arctic Shipping 2012: Making It Look Easy

The Arctic shipping season is open early this year.

Freight has already passed through the Northern Sea Route along the coast of Siberia. It was accompanied by a Russian icebreaker, a sensible precaution, though it’s not clear that the icebreaker was really called into action along the way. Meanwhile, according to yesterday’s satellite map, the Northwest Passage is clear from end to end, along all its various alternate routes. More savvy satellite watchers say the Northwest Passage was clear a week ago, though there are some dicey spots, ironically along the Alaska coast where some of last winter’s multi-year ice is still holding on. It was an early and brutal winter in the region of Alaska and Chukotka resulting in an unusual concentration of ice, but the map now shows a strip of open water along the coast. The shipping routes will get more clear as the melt season continues through August and into September.

The NSIDC Arctic ice extent graph is showing a new record low for this time of year. The ice loss is one day ahead of the record pace of 2007, and there is little on the maps to indicate a slowdown ahead. On the contrary, the fact that a big chunk of the central multi-year ice mass moved to the southwest suggests that the rapid melt will continue through August. The pattern of recent years has been that all ice in the southern Arctic Ocean melts away in summer no matter how thick or concentrated it is. The early melt-out in the Northwest Passage also suggests that ice coverage could retreat to the edges of the now smaller central multi-year ice that sits locked to the northern shorelines of Greenland and Ellesmere Island. Notably, the North Pole is at the edge of the landlocked ice and is again this year at risk of melting out.

Wednesday, August 1, 2012

Too Big To Fail, in Electricity

The electricity was out in most of India for the last two days in the largest power failure in history. Three of the five regional grids were down completely, affecting 20 of the 28 states and at least 600 million people. There will be a search for the technical causes of the outage, but the fundamental problem is a supply of electricity not large enough to meet the demand.

The idea behind regional power grids is essentially the “too big to fail” concept. With electricity flowing onto the grid from so many different sources, the regional grid can never run out of power. Yet this advantage becomes a fatal flaw at times of peak power demand. The high levels of power consumption on a peak day can cause the entire region to shut down. Then power can’t be restored until some of the biggest users are unplugged.

Similar electric failures have been seen on a smaller scale on every continent. The most likely way to strengthen the power grid is to rely less on it — that is, to use less electricity and to generate more of the electricity we use close to where we use it. This reduces the stress on the electric grid in the same way that buying local and having a short commute reduce the jam-ups on the road network.