Sunday, December 29, 2013

Three Rules for New Year’s Resolution Success

It is that time of year when people are picking new year’s resolutions, so I want to take this moment to repeat my advice on the subject. A new year’s resolution is a powerful way to focus your intent for an extended period of time, but you must avoid getting muddled along the way. Staying clear and focused is the biggest challenge, when you remember how long it takes for a year to go by. For best results:

  • Pick just one resolution. Think in terms of a change you want to make in your personal life — but a large change, something that may take a good part of a year, not something you could imagine completing in a couple of days. Pick something with a sense of importance about it. On the other hand, don’t pick a change that is so large that you can’t easily imagine completing it before the year is over. Maybe you have a whole list of changes that you are committed to. Great! Pick just one of them as your new year’s resolution. The one you choose doesn’t have to be the most important change you are working on. It is more important that it fits the format of a new year’s resolution, having to do with your own decisions and actions over the course of a calendar year.
  • Pick a new resolution. You don’t get the same sense of newness if you try to repeat a resolution you have ever used before. You can approach the same problem as before if you wish, but change the resolution and your plan of action just enough that it feels new.
  • State the resolution very clearly in terms of your own action and results. Memorize it. Be prepared to explain it to close friends in ten seconds or less.

If you look at resolutions that fail, most of them don’t follow this approach. Last year’s resolution to lose weight went nowhere, so people try it again, and they get the same results again. Some people accumulate resolutions as the years go by, things that they try and fail at year after year. You often see people writing a list of ten resolutions, then forgetting all of them. It is hard enough to remember just one! This is also why you need to tell people your resolution. There is a certain power in secret plans, but new year’s resolutions that you keep to yourself are more likely to be forgotten.

New year’s resolutions rely on a gimmick. It is a gimmick you can use every year, but only at the new year. The change of calendar on New Year’s Day is as emphatic and irreversible as any change you might want to make. Pick one area of your life that calls for a similar change, and make that change!

Saturday, December 28, 2013

CD Wallet vs. USB Flash Drive

Here is an interesting price comparison (from Micro Center):

Toshiba TransMemory 8GB USB 2.0 Flash Drive
Inland 32 Disc CD/DVD Wallet

The flash drive costs more than the CD wallet, but it is no longer such a big difference in price. Why do I make this comparison? Within a certain narrow niche, these are competing products. Either will hold about 400 songs, on music CDs or copied from CDs. Either will play the songs back on a middling car stereo of 2005–2010. The amount of music is, I would think, enough for a two-month vacation. If you are preparing for a road trip and have music on CDs that you want to listen to on the trip, you could choose either the CD wallet or the USB flash drive to contain your songs for the trip.

Most people would do well enough with either choice. I would recommend the USB flash drive just because it is easier to handle and takes up less space. Of course, if you already own a USB flash drive, this makes the choice easier. To the extent that people agree with this assessment, it argues for the functional obsolescence of the car CD player. If you don’t need the car CD player for a 2-month trip, then when do you need it? When you look at the added cost of including a CD player in a car stereo, it arguably makes better sense to leave it out and rely on USB flash memory for music playback.

Obviously, this is not a new idea; people have been buying and using car stereos with no CD player for a few years now. It’s the way to go if you don’t buy your music on CDs, as most people don’t these days. But what this comparison shows is that you now may prefer a car stereo without a CD player even if your entire music collection is on CDs. Even if you have the CDs, it is expensive and not particularly convenient to play them in the car. This, to my mind, is a sign that the music CD is well along the path from being a mainstream media format to being a specialty format, one that you wouldn’t expect everyone to be able to use.

Friday, December 27, 2013

This Week in Bank Failures

There were 24 failures of FDIC-insured banks in 2013, a much slower pace than we had seen in the previous five years. Bank profitability also improved this year, and real estate values increased. These effects are related. Speculators poured billions of dollars into U.S. real estate, and that speculative support took some of the financial pressure off of lenders and borrowers. A general improvement in the U.S. economy encouraged all of these trends. Credit union failures have not slowed down as much, but there were only 13 NCUA credit union liquidations in 2013.

U.S. bank regulators are considering adding another loophole in the Volcker rule, this one for collateralized debt obligations backed by trust preferred securities, which banks have routinely used to finance consumer loans along with other activities. Two bank holding companies claim they would have to write down these assets, even though the Volcker rule does not require them to sell the assets at this point. The banks could suddenly appear illiquid, even though no actual financial change took place, as a result of the accounting change that requires them to recognize the risks inherent in these securities.

A payment card data breach at Target is more serious than previously thought. Intruders intercepted PINs for the debit cards among 40 million payment cards that consumers used for purchases at Target between late November and the middle of December. Personal data was also intercepted. The affected debit cards and PINs should be replaced. The data breach occurred as criminals planted malware on many or most of the retailer’s point-of-sale terminals, though it is not clear how that took place. Some banks effectively froze affected debit cards last weekend, apologizing as the move prevented hundreds of account holders from traveling home for Christmas.

In Japan, the chairman of Mizuho will resign in March as part of a plan for change in corporate governance. The bank made hundreds of car loans to criminal enterprises and failed to respond for two years after learning of the problem, leading to a series of regulatory orders late this year.

Thursday, December 26, 2013

A Late White Christmas

Christmas arrived late. Fluffy snow arrived and coated the ground and the picture here was taken only after people had returned to work today. Meanwhile, packages projected to arrive before Christmas were shipped in such huge numbers on Sunday and Monday that not all will be delivered even today.

I know something about the latter. A package that an online store thought would arrive here between December 20 and December 24 did not roll into town until 9:04 a.m. on December 24, three hours too late to be sorted and put on a Christmas Eve delivery truck. Even if it had arrived at 6 a.m., the trucks were already filled with the flurry of two-day shipments. Now the unexpected snow can only slow down the remaining deliveries. Of course, delays are worse to the north where the ground has been ice-covered since the weekend.

We have more than enough excuses for the delays. Package volume, like light snow, is hard to forecast accurately even hours in advance. Bad weather in the first half of December pushed more shoppers than ever online late at night on December 22, after they realized that the last weekend was over and the shopping hadn’t been done. UPS did the right thing in sending most of its workers home before Santa arrived.

You can’t properly blame the retailer or delivery company when you ask them to send you a package with no time to spare, knowing that not all packages arrive on time. Fundamentally, this pattern of rushing, cutting things close, and arriving late is a sign of being overcommitted, or attempting more than time will allow. People were being unrealistic and unreasonable in their planning. We can decry the wishful thinking or celebrate the ambition that it represents, but the key to making it work is flexibility, to receive the things that seem to arrive out of sync. It is an enjoyable snowy scene this morning even if it seems to have arrived on the wrong day.

Tuesday, December 24, 2013

Every Kind of People

You can run across every kind of people on the day before Christmas. There are, of course, people rushing around with too much to do, but a few steps away you might find someone with all their preparations complete or with nothing to prepare. It is one of the busier travel days of the year, with millions of people traveling long distances, but there are also people who won’t set foot outside. More so than most days, it is a good time to be alert to the varying moods and circumstances of the people around you.

Monday, December 23, 2013

BLS Views Incremental Jobs Growth

Wow. The Bureau of Labor Statistics has come around to my view of the economic recovery, in substance if not in rhetoric. The precis from “The U.S. economy to 2022: settling into a new normal”:

No one could have predicted the length of time that the economy has required to recover. A variety of economic headwinds have battered the recovery, causing output growth to be somewhat slower than was expected in prior projections. Over the coming decade, growth is expected to be gradual but persistent, bringing the unemployment rate down and returning the macroeconomy to a more stable position.

“New normal” is wrong, of course, since incremental growth in the labor market is also the historical norm for the U.S. economy. There isn’t any historical precedent to support the abrupt jobs growth that the BLS and others were expecting five years ago. “No one could have predicted” is correct only if you discount the chorus of economists who were pointing at the historical record. But there is no need to quibble. The aggregate models at the BLS now agree with the historical view that it will take years for the U.S. labor market to return to something approximating a nice balance. It may happen around 2022, absent any intervening calamity, the new BLS forecast suggests.

Sunday, December 22, 2013

Ice and Water in Greenland

The Greenland ice sheet is not as frozen as it appears. There is liquid water within and beneath the ice. Scientists are still a long way from knowing how much liquid water there is among the ice, but a big step forward is published today and described at BBC News:

The significance of the aquifer described in the article depends on how effectively it drains into the ocean — if it does so at all. Perhaps the water drains out slowly somehow, through channels that haven’t been mapped, but another possibility is that it is not currently draining at all and may lead to an “abrupt” sea level rise of some millimeters upon some future melt event. Regardless of questions of flow, the presence of any liquid water in the Greenland ice sheet reduces the mass of ice that remains to melt.

Saturday, December 21, 2013

Christmas Shopping After the Rush

I went out shopping several times this week. By all appearances, the Christmas rush was long past. That observation clashes with U.S. retail statistics that show that today, the last Saturday before Christmas, is the biggest day of the year. If you are out shopping today, though, you might not see it. Today is probably the big day if the metric you look at is spending by shoppers in stores (this includes the big Christmas food purchases in supermarkets). It is not nearly so big if you are measuring retail traffic. There are lots of shoppers, but the mall parking lots will not fill up because people cannot afford to spend much time shopping. The car will be parked at the mall for an hour or less. There is no time left for indecision — it’s the day to grab whatever you need, pay whatever you have to pay, and get home in time to go out again to the Christmas parties. Today is the biggest day for Christmas parties, so most people who are shopping this morning have social obligations later. Did I mention that today is also Humbug Day? That’s a coincidence of the calendar this year, but all this rushing around, which for many of us reaches its peak today, is what leads people to say, “Bah! Humbug!” about the whole Christmas season.

Returning to the subject of retail, today is a “make-or-break” day for many retailers after dangerous or unpleasant weather conditions across half of the United States marred the previous two weekends. I think people will go out to buy what they need today, but when shoppers have to be quick about their errands, it minimizes the potential for the impulse purchases that ultimately make stores profitable. I can relate an example of this from a visit I made with another shopper to Bath & Body Works two days ago. We were looking for a hand lotion that would work as a gift but settled, in about two minutes, on a body lotion from a display at the front of the store, marked down by 67 percent. In my spare seconds I scanned the store for anything I might want for myself, but you can’t really pick out a personal care product from five meters away.

Along the way we took a few minutes to walk through the revamped JCPenney. The store space was transformed with very nice neutral white lighting, along with a brighter, cleaner floor and brighter walls that also reflected high-quality ambient light onto the merchandise. Unfortunately, the merchandise so accurately illuminated by all this nice white light was not obviously different from what you might have seen half a century ago. I looked at shirts, proudly featured on modern mannequins, that might as well have been left behind from the 1980s or 1960s. The same could be said for the other clothing and many of the housewares I happened to walk past. JCPenney’s great challenge these days is to get the shoppers who abandoned the department store five or ten years ago to return — but to what end, if we walk around for a few minutes and leave saying “They mopped the floor, but nothing’s really changed”? It almost doesn’t seem fair to be evaluating JCPenney right after shopping in more up-to-date stores like Victoria’s Secret, American Eagle Outfitters, and Macy’s, but then, this is the actual mall JCPenney chose to make its case to shoppers.

Speaking of the mall, remodeling has made the place look more lively. This particular mall recently demolished one anchor store to make room for surface parking, then eliminated a dozen stores adjacent to the abandoned anchor, apparently converting that space for use as storage. It also expanded many stores, most notably H&M, which grew to department-store size on two levels, occupying a space that was drawn up for 12 stores. The happy result is a mall more than 90 percent occupied. But fewer stores also means fewer shoppers, and the overflow parking, once required for the entire Christmas shopping season, was never pressed into service this season.

The tame shopping scenes this week and weekend tell us of a Christmas shopping season that peaked some time ago, and there are other indications. The jobs report for the week ending December 8 had almost the highest seasonally adjusted new jobless tally all year, suggesting that seasonal retail employees may have been pink-slipped right on Black Friday, or (I hope) over the three days that followed. When I asked around this week, I heard of stores where workers had used their extensive free time last week to take down the store’s Christmas decorations. Retail has to be forward-looking, and with the Christmas season behind them, it was time to start getting ready for spring. A generation ago, the Christmas shopping season ran from Black Friday to Christmas Eve, and most news reports still describe it that way, but this year, most of the actual shopping happened between the Saturday after Halloween and the Monday after Thanksgiving, fully three weeks earlier than the traditional schedule.

Friday, December 20, 2013

This Week in Bank Failures

A Senate bill would prohibit employers from checking credit reports when making hiring decisions. This would be good news for banks. Loan losses often occur after a consumer cannot work their way out of a financial squeeze because employment discrimination prevents them from getting a new job.

Janet Yellen was unofficially confirmed to be the new Fed chair. For procedural reasons, the U.S. Senate must repeat the vote on January 6.

The euro zone seems to be close to an agreement in principle on a banking union, though the all-important details of bank resolution remain elusive. Bank resolution has to be part of the plan because the European Union is not large enough to backstop all of the banks currently known to be in difficulty, should those banks continue to decline.

The Fed is carrying on with its “quantitative easing” asset-buying program, but is slowing its pace of purchases with an eye toward stopping them entirely a few years from now, around 2017 I guess. The Fed is not interested in pushing interest rates upward at this point, so it seems likely that rates will remain below 1 percent at least through 2016.

A court in Israel has sentenced a business tycoon to 1 year in jail for crimes committed as the head of a bank. Danny Dankner’s brief stint as chairman of Bank Hapoalim from 2007 to 2009 reads like a non-stop parade of shady dealings in which he used the bank as a vehicle for personal profit. One wonders whether he was briefed on the concept of fiduciary duty when he became a bank officer. Regulators persuaded him to step down in 2009, after which he was arrested and charged. There are anecdotes elsewhere that suggest that when tycoons bring their deal-making tendencies to banks it leads to turmoil. During his time in jail, Dankner will stand trial in an unrelated bribery case.

Thursday, December 19, 2013

Chilling Effects: Don’t Make the Robots Mad

Dave Eggers writing in The Guardian indirectly asks U.S. writers to say more about how we are being affected by NSA surveillance:

First, I must state what should be obvious. I limit what I write on the Internet and what I say on the phone, and you should too. We live in an era in which we must simply assume that every phone call is being transcribed by machine and the resulting garbled transcript analyzed for word frequencies to discern subject and mood, and electronic documents are analyzed in the same way. I may be specifically targeted because I am a writer, but as a reader, you are not much safer. The words you read are analyzed just as assuredly as the words I write are. You must arrange to live part of your life offline if only to create a smidgen of separation from the world of digital surveillance. A judge recently described the NSA’s surveillance net as unreasonable and indiscriminate, and that was based just on what was in the court record. Imagine what the judge might have said if the full scope of NSA surveillance had been disclosed. Then bear in mind that the NSA is just the most prominent in a mass surveillance game that has hundreds of players, many effectively unknown to us.

I see no reason to take at face value the assertion that the NSA’s digital obsession is the violence of terrorism. With the technology it has at its disposal, the temptation to commercial espionage is far too great to resist. My assumption is that at least 95 percent of the NSA’s work is of a commercial nature. If you want to know what the NSA is working on, then you probably just need to look at what people are spending their money on. In my view, the significance of the NSA is fundamentally no different from that of the spammers who study all of us for the same purposes. Indeed, some of the spam email you receive must surely originate in the NSA, as they use junk messages to feel out the weaknesses in your email service in preparation for breaking in. Part of the reason we can never win the war against spam email is that organizations like the NSA depend on it as a cover for their own activities. If the NSA is not actively trying to profit from the spam messages it sends, the Chinese military almost certainly is.

Eggers links to a report on self-censorship. Most U.S. writers, a survey found, limit their work because they assume they are being watched. The word “self-censorship” could be misleading. It implies that a writer like me must black out some of the words he has written because they are not safe to release to the public. That happens far less than you might imagine. I must assume that my unpublished drafts are being scrutinized just as indiscriminately as my posts. Any words I might have to black out, topics that get writers in trouble, I never write at all. But it goes beyond this. It is better if I do not even think deeply about these subjects. These are problems for other thinkers, problems that probably must be left for other decades when people gain more freedom of action to address them. But this scarcely matters now. The current decade gives us more than our share of problems to look into, and it will be enough if we address the ones that we can.

Prior to 2003, espionage was conducted by people looking for patterns, and so people mistakenly assume that the NSA must follow that pattern from the past. But the scale of the NSA’s activities is too great for them to possibly be done that way. When White House officials say that no one is listening to your phone calls or reading your email, the statement is as literally true as it is misleading. If there is a machine that knows what you are talking and writing about, and to whom, that is every bit as damaging as if people were collecting the same information in the traditional way. In a very real sense, it is more damaging, for two reasons: the NSA machine has this information on all of us, and it is a machine that is out of control. People work for the NSA, but the NSA no longer works for the benefit of people.

In the late 1980s I participated in a small way in a draft of a musical called Robots. In the story, the robots, often disguised as humans, do not reveal their plan to take over the world until the end, after it has already happened. Even then, most people pay no attention. This is the real threat from the kind of technological surveillance we now face. It is not the humans at the NSA that we fear. As writers, when we self-censor, it is because we don’t want to make the robots mad. A writer like me cannot stand up to the machine. But this means it is a war that the robots are already winning.

Tuesday, December 17, 2013

GSK Halts Some Incentive Payments to Doctors

Pharmaceutical companies routinely pay doctors to prescribe drugs to patients. To pharmaceutical companies, it is a way to promote a new product, but the obvious conflicts of interest, when drugs may be prescribed for the financial health of a doctor and drug maker rather than the health of the patient, have drawn criticism. Now one of the largest pharmaceutical companies, GSK, says it is stopping some programs by which it makes payments to doctors. The story at ThinkProgress:

Consumers’ view of popular prescription drugs will surely change next year when we get a glimpse of the money flows. A U.S. government database will let you look up your own doctor’s incentive payments from drug makers. Uncounted thousands of doctors make more money this way than the average worker makes in total, and when people see this, I believe it will help them to understand that commercial medicine is not nearly so scientific as it sometimes claims. GSK has apparently decided it does not want to be at the top of the money list when it comes out.

Saturday, December 14, 2013

A Snow Day at Retail

For the second Saturday in a row, a winter storm warning covers much of the Northeast. This will surely put a dent in Christmas shopping. “Another storm may have you shopping in your PJs,” CNBC says, its headline plugging both online shopping and pajamas, a traditional Christmas gift item. Deeper into the story, “Traffic the first week in December—generally a slower week—was down over 21 percent year over year [nationally].” And that was last week. Today’s storm affects a smaller area but with more severe driving conditions, compared to last Saturday. Based on the calendar, today would figure to be one of the year’s busiest shopping days, short of only Black Friday, Christmas Eve, and the Saturday before Christmas. The weather will wipe out much of the day’s shopping, though, with a snowstorm from Maine to Missouri and precipitation almost everywhere east of the Mississippi. Retailers can hope that the weather improves and people feel like shopping tomorrow.

Friday, December 13, 2013

This Week in Bank Failures

Wall Street thought it would never happen, but the Volcker Rule is now officially approved. The Volcker Rule largely prohibits banks from engaging in speculative securities trading. There are quite a few exceptions, but they are outlined narrowly enough that a bank cannot just trade first and look for an excuse later. Even this goes beyond what was expected on Wall Street, but it is the other provisions of the final rule that come as the biggest shock. Banks are prohibited from bonus arrangements that would give traders an incentive to give away the store. Trading is limited to 3 percent of a bank’s total value or its core capital — that provision alone will decimate Wall Street banks’ trading, which can no longer be large enough to make up for a bank’s losses in lending, branch operations, or real estate speculation, as it did for so many banks going back to 2005. This limit and others provision were tightened after the London Whale scandal, when it emerged that a bank had put more than its entire value at risk in a single speculative trade. And there is more. High-velocity trading appears to be banned completely for banks. Portfolio hedging is effectively prohibited, though it appears banks are still permitted limited short-term hedging related to the activities of a specific client.

There will surely be legal challenges to the Volcker Rule, but Wall Street banks aren’t betting on a sympathetic ear in the courts. Bank of America, for example, has already shut down its trading desks and says it substantially conforms already, though the new rule doesn’t fully take effect until 2015. The bank admits it is giving up $2 billion in annual revenue that it previously made from speculative trading. Goldman Sachs is the one Wall Street company that is seen as unprepared for the new rules, but its stock was down just 2 percent after the rules passed.

Ireland has climbed out from under its European bailout with a final payment made today. The country still faced excessive debt, but this will be financed on the private markets over the next three years while the country pays it down to manageable levels. Ireland’s government finances and economy are much stronger than they were on the crisis weekend when Ireland’s initial bailout was arranged. To this point, Ireland is the only country ever to exit a European bailout.

The central bank of Russia canceled the licenses of three banks, including the country’s 79th largest and two others of similar size. The moves are described as part of a crackdown on money laundering, but the three banks also had urgent problems with capital, liquidity, management, and operations that would be reason enough to shut them down. The banks had combined assets of just over $2 billion. Russia has shut down 3 percent of the country’s banks this year, but this has done little to stem the country’s capital outflow. This illegal money movement is driven by criminal enterprises seeking to place their illegal profits beyond the reach of law enforcement. It is a pattern that will continue as long the central government tolerates an economy largely run by criminal gangs, but many of them are the government’s political supporters.

The U.S. Treasury has sold off its General Motors portfolio, recording a $10 billion loss on the bailout. As often happens, the accounting measures underestimate the costs of action, but also neglect the comparative costs of inaction, which also would have been higher than $10 billion.

A federal court has allowed a Wells Fargo executive to be added to a mortgage fraud case against the bank. The bank certified thousands of defective loans, and the government claims the bank and its executive were both actively involved in covering up deficiencies in order to siphon off money from government programs.

A federal court approved a settlement between merchants and credit card processors intended to give merchants more control over transaction costs. The court approved the settlement even though thousands of merchants opted out.

The O.C.C. closed Texas Community Bank, N.A., with two branches in The Woodlands, Texas. It had $143 million in assets. Spirit of Texas Bank is taking over the deposits and purchasing most of the assets.

The NCUA placed one tiny credit union into conservatorship. Bagumbayan Credit Union has 44 members in Illinois and less than $1 million in assets. It has been operating since 1964. For now, the credit union will be operated by Great Lakes Credit Union.

Low-Efficiency Light Bulb Ban

The ban on low-efficiency light bulbs goes into effect on January 1. Here is the story at CNN Money:

Consumers mostly won’t notice the change, as most stores stopped stocking the low-efficiency bulbs last year. Consumers can still purchase traditional incandescent bulbs, with designs improved to meet the new efficiency standards, for less than $2 each. Or, shoppers may, perhaps without realizing it, buy LED light bulbs, which save about $5 a year in electricity and may last 50 years.

LED light bulbs will never dominate in retail unit sales. Lasting at least 20 times as long, they can become the majority of light bulbs installed with retail sales near current levels, around 4 percent of the total for light bulbs.

Wednesday, December 11, 2013

The Illusion of Diet Soda Fades

As soon as you see through the illusion, diet soda can seem terribly expensive. A dollar a liter for water with chemicals added? Perhaps people are no longer fooled, based on the latest reports of soda sales. From the CNN story “Soda sales are losing their fizz”:

Americans are on pace to drink 38.6 gallons of soda per person this year, but that's down 3.5 gallons from five years ago.
Year-over-year, consumers spent 7.2% less on diet cola and 7.8% less on diet lemon-lime drinks.

The decline extends a long-term trend that hit beer around 1997 and soda around 2002. In either case, it reflects consumers’ desire to simplify things, to save time and money, improve health, and lose body fat. The sudden drop in diet soda is something new, though, and it comes in spite of corrupt government initiatives, such as last year’s New York City aspartame law, intended to force people to drink diet soda in place of sugared soda and fruit juice. Word of the tendency of diet soda to make people fat and its apparent effects on brain function may be finally getting around. Yet even if diet soda were not harmful to health, how can you justify the price for a product that, in food quality terms, is inferior to tap water?

As a trained economist, of course I would like to give consumers credit for making a more rational decision, but television may be part of the change too. It is television advertising that created the illusion that diet soda is a real product, and the declining hold of diet soda may be related to the declining reach of television advertising, following on people’s switch from CRT to the less hypnotic flat-screen technology for TV viewing.

Tuesday, December 10, 2013

NSA’s Three Degrees of Phone Separation

I’ve been thinking about the NSA’s Three-Hop Rule. This is the law that allows it to monitor your phone calls without judicial review. It is not that it is so hard for the NSA to get a court’s approval to monitor someone’s phone calls. I have to assume, as a blogger who writes regularly about sensitive topics ranging from the health dangers of nuclear waste to the radio boycott of the Dixie Chicks, that the NSA has court approval to monitor my phone calls specifically. Of course, I don’t know that, and if I did know, it would be a felony for me to say it, but it seems a safe assumption. It is certainly not much of a stretch to imagine given the estimates that the NSA has obtained approval to monitor a few million specific individuals. Once it has court approval to monitor a person, the Three-Hop Rule allows the NSA to monitor all phone lines within three degrees of separation of that person’s phone lines, looking back apparently over a five-year period of phone records. This gives each court order — and remember, there are millions of such orders — a broad reach that includes almost everyone who talks on the phone.

Let’s start with me as a hypothetical case. There are several patterns in my phone calling that probably put you within two hops of me.

  • I have used several phones in recent years: cell phone, desk phone, etc.
  • I place calls to banks, insurance companies, and retail stores. If you have ever called the same banks, insurance companies, and retail stores, you are two hops away from me.
  • Occasionally other people use my phones, calling many more numbers that I would never call myself.
  • I place calls over the Skype network. Skype calls go out over a limited set of phone numbers, so if you have ever received a Skype phone call — and there would be no way for you to tell, since they are just ordinary phone calls — there is a strong chance that you are just one hop away from me, according to the NSA rules.
  • I receive calls from political pollsters and robo-calls from Republican political candidates. These calls originate from a mere handful of phone numbers, so if you are a registered U.S. voter, it is all but certain that you are two phone network degrees of separation from me.
  • Spam fax services place calls to my cell phone. If you have ever picked up the phone to hear fax tones, then you are two hops away from me.

Here we already have at least 300 million U.S. phone numbers, and remember, I am only talking about a single court order, and there are millions of secret court orders, and only two hops, when the rule allows three hops. When you go to three hops, to add in everyone who knows anyone in the two-hop group, it is hard to imagine how a phone number could be off limits to the NSA.

I used myself as a starting point for this analysis, but that is just a gimmick. The spam fax services are key to this analysis because they call, along with many other phone numbers, every business in the country. This means if you have ever called a business, or if a business has ever called you, you are two hops away from most of the country.

The Three-Hop Rule, then, means that the NSA has the legal authorization to monitor probably every phone in the United States and the vast majority of phones in the world. It is no wonder that some observers have suggested that the law that allows this broad collection of data is reaching too far.

Monday, December 9, 2013

Energy Savings and Security in Gmail’s Image Caching

With its latest change in Gmail, Google is caching most of the images contained in email messages sent to Gmail users. It is a technical change that makes email operations more energy-efficient, as the email servers do not have to retrieve an image every time a message is read. The energy savings may add up to a few cents if the same message with the same images is sent to thousands of Gmail users, and these savings are shared by the sending email servers too.

The real reason for the change, though, may be security. Bulk emailers use dedicated web servers to collect data on the way people interact with email messages by tracking the images embedded in the messages. Spammers routinely use this information to determine which of the email addresses they send to are still active. With image caching, such information is much harder to collect and analyze. This makes it harder for spammers to target you. But more importantly, it makes it harder for anonymous email senders to collect data on the way the Gmail system works. Such data has been used in the past not just by spammers, but by the Chinese military, the NSA, and other political and industrial espionage organizations in their efforts to break into people’s Gmail accounts. Images in email still represent something of a security hole, but Google is making that opening smaller.

Friday, December 6, 2013

This Week in Bank Failures

How is it that base interest rates such as Libor are legal in the first place? Interest rates are prices, after all, and whenever an entire industry works together to set prices that they use in common, it is never far removed from price-fixing.

The reason a base rate may be considered legitimate is that base rates are intended as a neutral, transparent economic measure that doesn’t reflect the business plans or management decisions of any one business organization. Of course, this is possible only if the banks that have input into the base rate aren’t getting together to negotiate ways to manipulate the process based on their business objectives. That would be considered collusion, and the resulting base rate would be illegal to use.

As we now know, there was a lot of that going on between 2005 and 2012. Essentially every day, bankers exchanged messages with colleagues at other banks to decide on trading strategies and agree on false data to feed into base rates. Many of these messages were recovered from the banks’ email systems and reviewed by investigators. There is little room left to imagine that industry base rates were being created in a way that lived up to the spirit of the antitrust laws, which prohibit collusion in setting prices.

The result, this week, is one of the largest antitrust assessments in EU history, €1.7 billion against Deutsche Bank and four other banks. The banks were cited mainly for operating a Euribor cartel between 2005 and 2007. UBS and Barclays also participated in the cartel and might have been fined €3.2 billion but for their early cooperation in the investigation. The fines cover other offenses that continued almost up to the present.

A bankruptcy court approved the bankruptcy of Detroit, dismissing various challenges to the filing. The court ruled that protections for creditors didn’t create an ability to pay on the part of the city.

Winning Over the Skeptics

As I look back over Mandela’s life, one of his qualities that I especially want to remember is his compassion for those who are skeptical of change. That is, after all, all of us at times, depending on the circumstances and what we have heard before. As Mandela reminded us, the sweeping changes that seem simple and obvious in retrospect may appear impossible beforehand. It is our task, if we are to lead a change, to win over the skeptics as well as we can.

When I remember how South Africa fared, I must remember that there was a time when I was one of the skeptics. I remember hearing the musical line “I (I) — I (I) — I ain’t gonna play Sun City,” referring to one of the segregated institutions that might be particularly visible to a musician visiting South Africa, and agreeing with its sentiment of togetherness but not with its sense of hope. It was only when de Klerk ordered the beaches opened that I realized that there was no turning back — and though on that day I might have recognized what was taking place, there were still people around me who remained convinced that nothing was changing in South Africa.

There are those who are equally skeptical of the changes taking place today. It can be tempting to rail against the skeptics, but the better course of action, when we can manage it, is to find a way to win them over.

Thursday, December 5, 2013

Justice for All — Landowners, That Is

People wonder why the courts work as slowly as they do, and such comments are often phrased in terms of “what’s wrong” with the justice system that it takes so long to decide some of the simplest things. The slow pace is designed into the system, though. In most of the world — essentially wherever the Roman and Cyrillic alphabets are used — we use versions of the post-Roman justice system. This is based on Roman law but adapted to the needs of Medieval Europe, when landowners were at the heart of society. The system was based on the assumption that the people involved in the disputes it settled would be landowners. It wasn’t a problem to take a long time deciding the disputes because a landowner wouldn’t be going anywhere.  But this system is adapted only with difficulty to a world run by workers, and this is especially evident when you look at corporations. When giant corporations are taken to task, the workers (mostly executives and officers) who got the company in trouble are likely to be long gone before the case comes to trial, never mind the five years of appeals that may follow. As for intentional criminal enterprises organized as corporations, they have rapid money movement written into their business plans, so they can arrange to be broke long before the prosecutors come around.

Wednesday, December 4, 2013

Heavier Shopping in First Two Weekends of November

With more retailers releasing data for November, it’s more clear that Christmas shopping is moving earlier in the month. The pre-Thanksgiving sales, mainly on the Tuesday and Wednesday of Thanksgiving week, had some impact. Store openings on Black Friday Eve, also known as Thanksgiving, might have been important to some shoppers, but remained tiny compared any other shopping day. 

It is the first two weekends of November that are getting the most buzz. Sales those weekends drew shoppers away from the Saturday and Sunday of Black Friday weekend, and that seems to be the big new trend this year. This is also something I observed in traffic patterns locally. The holiday shopping season is not over yet, and retail analysts are hoping for a strong December to make up for the shortfall in November.

Monday, December 2, 2013

Black Friday Weekend Pattern and the Declining Consumer Class

From my vantage point it looked like a robust Black Friday at retail, but Saturday and Sunday were a dud, with only a few places where retail traffic was stronger than a regular weekend. This also fits the early reports from the retail sector, which put Thanksgiving and Black Friday slightly above last year, but the next two days well below, looking at both sales volume and number of shoppers.

Another way of saying this is that by the time Black Friday was over, people had spent most of the money they had available to spend — and perhaps it goes without saying, shoppers are still not reaching for the credit card to finance their Black Friday deficits. This accounts for the largest drop ever between Black Friday and the day after. Part of the explanation for the revenue decline too is steeper discounting than last year. That especially hits after Black Friday. If someone is still shopping after Black Friday is over, it is to fill a specific gap in the Christmas list, not to spend a particular shopping budget. If they can get the same item for less money, that just means more money for next year.

You might ask, what’s the point of Black Friday, if the net effect is to get people to shop on Friday instead of Saturday and Sunday? But this makes perfect sense if you see the Christmas shopping season as a kind of auction, with many competing retailers and a limited number of shoppers. From the retailers’ point of view, they have to get shoppers’ money early in the season or risk not getting it at all. In a way, then, the early Christmas shopping season, which seems to get earlier every year, is a sign of the economic decline of the middle class, which no longer has the capacity to support its traditional place in the U.S. economy. The middle class has been in decline since the 1970s, the victim of tax policies that increasingly favor the billionaire-investor class. It is the latter who are financing so many retail stores, more stores than the middle-class shopper can possibly support.