Howzit Howard

Hawaii gets plenty of fiber(optic)

French Polynesia has announced it will pay more than $100 million (in euros) to commission a fiberoptic cable to connect it with the Internet backbone. The nearly 3,000-mile route will go, not to Australia or New Zealand or South America, but to Oahu, because Oahu has the best connections to the U.S. mainland, where the lion's share of English-language Web content is still based. Hawaii is just about the most cyber-connected place on the planet. There are numerous fiber paths from Asia to the U.S. West Coast -- with a new one now being laid that will also make landfall on Oahu. There is Southern Cross, a massive fiber matrix that includes two separate paths from the South Pacific to the West Coast -- one from Australia via Oahu and one from New Zealand via the Big Island, with an Oahu-Big Island crosslink that turns the loop into a figure 8. Fiber bandwidth is much cheaper than satellite connectivity, which is what Tahiti has today. Its new fiber network is scheduled for operation in 2010. Just because a fiberoptic cable makes landfall in Hawaii doesn't any there is any provision for bandwidth to be used here. But these networks go where the business is, and provisioning bandwidth for Hawaii happens when there is need for it. There is still plenty of spare capacity to accommodate Hawaii website growth, even though YouTube, streaming video on movie sites, and other video applications are ballooning global demand. Consider all the video you see on the KGMB9 site. You can view all the interviews from "Sunrise" later in the day, and it loads almost instantly. This was unthinkable just a few years ago. The average laptop today literally has more computing oomph than it took for NASA to put men on the moon. Fiberoptics are really long strands of glass. Laser beams are shot at them and data rides the light. Different data can be sent on different colors within the beam, and if you have the right equipment at both ends you can divide the spectrum ever more finely, like a bigger and bigger box of crayons. That's how many fiberoptic networks increase capacity, because it's cheaper than laying new cable. Fiberoptic networks are typically built as loops, so that if a backhoe or ship's anchor cuts the line, the data can reverse and go the long way around. At light speed, that's no big deal, even on a path of 3,000 miles. Hawaii is a busy spot on the Internet, for its size. The University of Hawaii, which manages networks for itself, the public school system, and the state libraries, is an active participant in the parallel Internet 2, where research univerities try out new ideas for Internet protocols. The Big Island telescopes transmit gigantic streams of astronomical data. The military has its own needs, and the Navy-Marine Corps Intranet has three major nerve centers: Norfolk, San Diego and Ford Island.

Countrywide story with local angle

The pending purchase of Countrywide Financial by Bank of America might do more to settle financial markets than anything the Federal Reserve Board could do, because Countrywide, more than any other company, was responsible for the credit crisis in the first place. The purchase could settle things a lot, and not incidentally it should protect the jobs of some perfectly good lenders who work for Countrywide in Hawaii, where it is one of the largest non-local lending powers. Countrywide is important for three reasons:

1. It is the nation's largest mortgage lender.
2. It has been the largest purchaser of mortgages that have been bundled into packages for investors to buy.
3. Its management included some of the principal apostles of subprime mortgages, the exotic mortgages that created the credit crisis.

Subprimes may most simply be described as higher interest loans for lower credit people. Most have been adjustables, with very low initial rates -- easy payments -- resetting later much higher. Mortgage defaults ballooned in 2007. Even Hawaii, with less subprime exposure than almost any other state, had hundreds of subprime foreclosures. Credit counselors have told me of cases where people entered into subprime loans that reset to payments greater than their entire paychecks. "When I asked them why they got into that," I was told, "the answer was, 'Well, I figured if I couldn't afford it, they wouldn't have lent it to me.'" The borrower was confusing his unscrupulous or inept or overeager or excessively optimistic lender with a legitimate banker. People were too quick to consider true the old joke that lenders won't lend unless you can prove you don't need it. Sometimes the borrower was somewhat unscrupulous, too, deliberately entering into subprime loans to buy second and third homes to rent out to others, figuring the rental income would cover the payments. It became unscrupulous if they snagged the loan by faking their income. (Note: in the world of real estate development, builders do this all the time, launching condo projects that will be paid for mainly by the money gained when people buy those condos. This is legal. But anyone who lends money to a developer knows what he is getting into. When you fib about your income on a mortgage application, the lender supposedly doesn't know you are defrauding him.) For others, the plan was to use the subprime to get into a house now, and refinance as a regular mortgage before the interest rate reset higher. (You and your spouse just relocated and only one of you has found work, but you figure the other will get a job later and then you'll have better credit and can get a regular loan.) For still others, a past problem spoiled their credit and they could now handle the payments. (Your ex abused the credit cards but that person is out of your life now.) There are people out there who were able to buy homes because of subprimes who could not have done it otherwise, and they are living happily ever after. But let's get back to the crisis caused by the people for whom the outcome was otherwise. Mortgage lenders no longer sit around waiting for your monthly check. They put a bunch of home loan notes into a box and sell the package to someone else. That someone else may do the same thing. Eventually, at the end of the process, there is someone who actually does accept your monthly check. But these days don't be surprised if you wind up sending the checks to three or four different addresses over the life of a mortgage. Countrywide Financial was not just a major lender to homebuyers but also a major buyer of mortgage packages. The money it lent out was obtaining by bundling and reselling its notes. The money OTHERS lent out was raised by bundling notes and reselling them to Countrywide. When subprime defaults multiplied, Countrywide's cash dried up and it stopped buying other lenders' bundles, which meant that their cash dried up, too. That's when the "credit crisis" began. The trading chief at Calyon Securities said the deal would give people confidence that maybe the financials aren't that toxic after all if Bank of America sees value there. On the other hand, Morgan Stanley is saying the $4.1 billion price tag is lower than it expected, and it figures that means there is more trouble than previous reported in Countrywide's mortgage book. In other words, more of its loans could go bad. Countrywide's subprime exposure is measured in many billions. This may have worried some investors, because this morning the Dow went south again and Bank of America stock (NYSE: BAC) lost 2% of its value while "Sunrise" was on the air. (Update, written after the close: the Dow lost 247 points Friday, Bank of America stock closed below $39 a share, still down 2%, while Countrywide Financial stock fell 18% to $6.33 a share.) In the long run, though, Charlotte-based Bank of America may have acquired a whole new division and product line for a bargain basement price. The $4.1 billion stock swap represents less than three times earnings, and 31% of Countrywide's stock value at the time the deal was announced. In Hawaii, Countrywide and Bank of America are the biggest mainland lenders. I should specify that none of this will change the fact that Countrywide is still in business and still lending. That would be the case even in bankruptcy and it will certainly be the case now. And if you have a mortgage that you got from Countrywide? Heck, someone else has probably bought it already.  One final note, added Friday afternoon: Countrywide wasn't the only reason stocks fell Friday. Investors are worried about additional billion-dollar writedowns by giant financial companies. No fewer than three of them have earnings reports due out next week: Merrill Lynch, Citicorp, and JPMorgan Chase.

Beard tour

Fred Long writes, "Is it true that on Fridays and special occasions, tour groups are ushered in the studio and allowed to briefly pet Howard Dicus' beard?"He then inquires if my beard is real, made from nutria, or made from mongoose."And finally, will any of this be covered during the tour?" he concludes.Since we do not have such a tour, I thought I'd better offer a virtual one.I have had a moustache since 1973, when I was 20, and a beard since 1976. The moustache is parted in the middle. I don't remember why I decided to do that. I do remember that I grew the beard during a bitterly cold winter in Washington, D.C., when my car broke down and I couldn't afford to fix it, so I walked to work (at 3 a.m.) from Glover Park (near the Georgetown section of D.C.) across a bridge over the Potomac River to Rosslyn, Va., where WAVA Newsradio had its studios. The beard helped keep me from freezing to death. When I arrived at work I had snow crystals on it, like Dr. Zhivago. I shaved off the beard a year later because I was applying for a job at the Mutual Broadcasting System and the network had a no-beards policy. I got the job, but when I started work in June 1977 I found the newsroom was full of bearded men. The news director explained that while Mutual News did indeed have a no-beards policy, it was illegal, so they didn't enforce it. So I grew my beard back and it has been there ever since. Because I also married in June 1977, however, my wedding pictures showed me sans beard. During the 1980s and 90s, when I rose through the ranks to become a manager at Mutual, then became a newscaster at UPI Radio and rose through the ranks to become a manager again, the beard helped me look like an adult. I was a reasonably good manager but only because being the eldest of six kids gives you certain instincts for looking out for others; I did not particularly enjoy management and never really looked the part even when I had a closetful of suits. But the beard helped, even before it began showing gray. I have never trimmed my beard at the edges. It stops where it stops. When you get up when I get up, not having to shave is important to well-being.  I also do not blow-dry my hair, but wash it and brush it straight back. It dries the way you see it. Why do you think people trim beards where they do, and not along other lines? Because some men have beards that look that way naturally, that's why. This has not prevented everyone who has ever done my hair from proposing to trim it, invariably convinced that once I see it trimmed I will like it so much that I will purchase an edger and devote a couple minutes every morning to prettifying my face. Nope. Once when I was at Pacific Business News and broadcasting on Brand X, a viewer left me a voicemail calling on me to lose the beard "so I can see your dimples. I know you have dimples." Actually, the last time I looked, I only had faint dimples that could be seen only in the broadest and most intense of grins, and then mainly on just one side. As my beard grew grayer, while my hair stayed mostly brown, I briefly considered losing the beard. My daughter Leina'ala vetoed the idea. "I wouldn't recognize you," she said. Don't work hard to change the way you look. It's easier to simply look the way you look and hang out with people who can stand it. Anyone who likes your looks only after you have tinkered with them for a long time is likely to be disappointed in the end.

What an interest rate cut means

The lower interest rates are, the cheaper it becomes for a company to borrow for expansion, renovation or replacement of aging infrastructure. Troubled companies are more likely to find financing to stay in business. Prosperous companies can finance new equipment. Economic activity increases. That's what you want if economic activity is slowing, which it is -- there was almost no job creation on the mainland in December. That, and the continuing mortgage default crisis with its effects on all housing activity, have caused stock prices to plummet since the start of the new year. That's why everybody was watching to see what Ben Bernanke, the head of the Federal Reserve Board, would say today. Bernanke delivered.  "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said. Wall Street and the White House read that as, "Yes, we'll cut interest rates again when we meet late this month."  The stock market rallied on the news.

Frazier on the brazier

June Jones decamped with a blaze of glory and a flame of Herman Frazier, who was scorched and fired as a result. The moment Jones quit -- actually, before that moment, when it only a rumor, and not yet a done-deal -- there was a campaign for Frazier's head. Countercritics defended him, sort of, by saying people in higher positions should have stepped in (they did, but not in time to change the outcome). Others are better able to judge Frazier from a sports perspective. I'll just offer the perspective of a business executive. The Advertiser reported that Jones offered in 2006 to take a salary cut to fund the hiring of some personnel who could help him improve the team and recruiting, but Frazier said no. It would be hard to find an outside observer who thinks "no" was the right answer, but it is possible that someone above him nixed it, or that he assumed it would never clear the regents. Frazier himself has admitted he did not negotiate with Jones during the season. He said Junes didn't want to negotiate during the season and he respected his wishes. That doesn't explain why he couldn't have called Jones or his agents and said, "I know I'm not supposed to negotiate during the season, but if there is a change of heart about it I want you to know we're ready, and if you want to supply the sort of general guidance that a budget guy like me could use, well, I'd appreciate it." Now, what about the future? Well, the future will be costly. The departure of June Jones added to the national exposure of UH's aging infrastructure, which means anyone who is chosen to succeed him will have conditions. What was never fixed for Jones will have to be fixed for his successor. The cost, therefore, will be (1) the successor's salary, (2) the cost of ejecting Frazier, and (3) the cost of doing repairs and upgrades that could have been done more cheaply in the past.

Will there be a recession?

Stock traders are worried about recession. There probably won't be one -- a recession is at least six months of the economy actually shrinking -- but growth will definitely slow, and in some circumstances maybe it will slow a lot. The first tea leaf still to come will be quarterly results Tuesday from the aluminum company Alcoa, the first of the Dow 30 Industrials to report results since the new year started. The National Association of Realtors will issue its latest home sales forecast Tuesday. Then on Wednesday we'll get the regular weekly report on the nation's oil stockpiles, which can affect the price of crude oil. The Fed, which has already cut interest rates three times to inject billions of dollars into the economy, meets next on the 29th -- that's four weeks from Tuesday. But two Fed governors have speeches scheduled Tuesday and two more on Thursday.

What $100 crude means to you

The price of crude oil, which made news by topping $40 a barrel a couple years ago, hit $100 a barrel this past week and stayed pretty close to that level even after some lousy U.S. economic reports exerted downward pressure on it. Dialing out inflation to get the cost of crude in what economists call "real dollars," even though real dollars don't ever, ever have inflation dialed out, we find that this means oil is back to the achingly high levels of the 1970s, in the days of the Arab oil embargo. We had gasoline rationing then. Believe me, high prices are better. The price of oil changes all the time, like stocks, as traders buy and sell contracts to deliver oil at a set price at a future date. These guys aren't really in the oil business; their fingernails are really clean because they pay someone else to change the oil in their car. They're in the worry business. When they consider how much oil will be worth in a few months when a future contract comes due, they think of all the things that could interrupt supplies and drive the price up: a strike in Nigeria, a terrorist attack in Iraq, a refinery fire in California. Some of these things happen, and do interrupt supplies; most don't. Traders worry prices upward on speculation about bad things most of which do not come to pass. This is what drives oil up most days. But it's not what's driving oil up over the longer term. The real problem is that world demand for oil is growing very rapidly, growing too much to be offset by settling a strike in Nigeria or stabilizing Iraq or putting out a fire in California. In fact, it could be argued that too much stability would postpone, and increase the size of, the inevitable crisis when we can't afford oil any more. Hint: your next car should be small enough to fit in Hawaii-sized parking spaces. I'm already seeing effects of $100 crude, even though the pass-through to the gasoline pump takes about 60 days:

• Major airlines, led by number two United, have hiked most domestic fares by $20 per roundtrip. (Less on some shorter hauls.)
• Matson is hiking the fuel surcharge to more than 31% effective next month. Horizon, which recently anounced 29%, will be raising again, I promise you.

At this pace, few people will get raises in 2008 big enough to cover inflation.

Sugar Bowl -- the aftertaste

It would be difficult to find someone less interested in collegiate or professional sports than I -- but all of Hawaii would watch the Sugar Bowl, so I figured I would, too. Maybe I thought I would be good luck since, on my recent visit to California to meet my new grandson, I watched the Washington Redskins come from behind to achieve a glorious victory. Well, that didn't work. The truth is that I did not expect Georgia to lose. It is a much larger university with a much deeper talent pool -- I'm speaking of sheer numbers -- and a longer tradition than Hawaii has of pouring resources into the football program. But because the Warriors had already won other games they were supposed to lose, it became possible to hope for another miraculous outcome. I'm over that now, and back to thinking what an excellent team it has been our pleasure to follow this past season. Is it just me, or did several UH players -- Colt Brennan, yes, but not only him -- come off as unusually mature and focused for young football players? The bitter aftertaste of the Sugar Bowl gives way to sweet memories of an exciting season and excitement at games of the future involving these same players. I guess I will be watching more football from now on.