Yesterday I argued that Irish austerity doesn't really tell us much about what the US should do. Today it's worth talking about why, exactly, the Irish experience is such a poor model for the problems of the US. Luckily, fledgling think tank e21 has done the hardest part of the job for me: explaining the depth of the problems that Ireland faces.
For the U.S., there was never any question about whether the federal government had the capacity to arrest the panic. At its peak, the liabilities of the U.S. financial system were $17.1 trillion (D.3), or about 118% of GDP. Even if one assumed that assets were worth 20% less than liabilities - a highly aggressive and unlikely assumption - the cost of guaranteeing all of the financial system's liabilities would only be 23% of GDP, or equal to a one-time 50% increase in the debt-to-GDP ratio. Therefore, the implied guarantee of all financial system liabilities after TARP was highly credible.
For other countries with larger (relative) financial sectors, the arithmetic was much different. The most obvious example was Iceland, whose banking system's liabilities reached nearly 1,100% of GDP in 2007. When its banks could not access wholesale funding markets, the government lacked the fiscal capacity to intervene credibly. The result was economic collapse. For other nations, it was less cut and dry whether the government could backstop its banking system's liabilities without incident (see chart above). The United Kingdom and Switzerland's banking system liabilities exceeded 400% of GDP. Both nations took actions to recapitalize banks and provide implicit guarantees of their liabilities - TARP-like programs to stand behind banks and assuage concerns of creditors without legally obligating the government to ensure no bank creditor suffered any loss. Conversely, Ireland, whose banking system's liabilities were also near 400% of GDP, decided to formally guarantee its banking system's liabilities.
While the Swiss and UK guarantees seem to have succeeded thanks to their banking system's international activity and broad diversification, the Irish guarantee has not been as successful, largely because of its banks concentrated exposure to a bursting domestic real estate bubble. The result has been a deeply insolvent banking system that some believe will ultimately push the Irish government itself bankruptcy. Barclays was the latest to warn that the government will likely have to renege on its guarantee and seek concessions from bank creditors if it is to avoid sovereign bankruptcy. As of August, the Irish banking system owed €95 billion to the European Central Bank (ECB), which means about 12% of all Irish bank assets are now financed through official liquidity facilities. This is only slightly below the 17% of Greek assets funded through official channels and a sign that the private sector is no longer willing to fund Irish banks.
The problem for Ireland is that the tax revenue that could otherwise be pledged to cover its banks' debts has plunged for the same reason its banks are in such trouble: the collapse of the real estate bubble. Irish house prices have fallen by 34% from the peak and have yet to stabilize. Irish wealth fell by about €150 billion in 2009, which would be roughly equivalent to an $8 trillion decline for U.S. households. Unemployment has spiked in the very sectors most responsible for growth in the recent past - real estate construction and finance. The same factors driving the banks' insolvency are simultaneously depressing employment, household spending, and tax revenue. The deficit stands at 14% of GDP, due largely to an economic contraction that sliced 10% off of the size of the Irish economy since 2008. The government's gross debt has nearly tripled as a share of GDP, rising from 25.8% in 2006 to 64% at the end of last year and could exceed 75% by the end of the fiscal year.
There are no signs that any of this is temporary or that adjustments made to date are sufficient to maintain access to credit. The initial austerity measures taken by the Irish government - tax increases and large cuts to public employee wages - seemed ambitious, but they turned out to be a drop in the bucket relative to the cost of the bank rescue. The Irish government created the National Asset Management Agency (NAMA) to acquire property development and commercial real estate assets from banks at a sizeable discount to par. As with similar schemes, this government-sponsored fund faces a catch-22: overpay for assets and transfer losses directly to taxpayers or drive a tough bargain and further expose the banks' insolvency. To date, NAMA has recorded €30 billion of losses, or more than 10% of GDP. S&P estimates that ultimate losses will be between 29% and 32% of GDP. To put this figure in perspective, this would be equivalent to U.S. taxpayer losses on Fannie Mae and Freddie Mac of $4.2 trillion, or about 11-times the CBO estimate of $380 billion.
While some think Ireland could be saved through export growth given the number of international corporations that moved to Ireland to take advantage of the low corporate tax rate, the potential for export growth is limited by what the IMF suggests was a bubble in wages similar to the one in property prices. At the end of 2007, Ireland was proudly boasting that it had more Mercedes Benz per capita than Germany. The rise in wages brought about by a booming economy reduced competitiveness. Deflation has set in with prices falling by nearly 2% last year. Export growth will likely first require a period of prolonged deflation, which would result in a dramatic increase in the real cost of the large amounts of newly incurred debt. In short, the Irish economy is still reeling from a financial collapse that is several times worse than that of the U.S. Even the Spanish problems are mild by comparison, as only 4% of Spanish banking system assets are funded by the ECB and Spanish banks are more diversified and better capitalized.
Using Irish austerity as a dire warning to us relies on what I think are oversimplified comparisons. Folks point out that despite austerity, Ireland's tax revenues have collapsed, and their debt is trading at a huge premium to Germany's--much bigger than the premium paid by Spain, which hasn't tried such draconian measures. But Ireland's problems are really rather special. For various reasons, including favorable corporate tax rates and an educated, English-speaking population, capital poured into the country for more than a decade, leading to a banking sector that was grossly inflated compared to the underlying economy. The US banking sector is rather tame by comparison to most European nations--bank leverage at the beginning of the crisis was about equal to GDP, rather than the three to five times GDP found in many European nations. But Ireland is almost in a class by itself.
That meant that when the financial crisis hit, Ireland's contraction was much worse--and much less amenable to government interventions that worked in other countries. It's not surprising that their fiscal crisis is dire, their credit spreads rising.
In order to say that Irish austerity offers a grim lesson for us, you need to know the counterfactual: how bad would growth, tax revenues, credit spreads have been without the austerity? And because of the magnitude of their problems, it is far from clear that austerity has made things worse.
Now, even if austerity had made things better, that wouldn't necessarily be a guide for US policy--again, because their crisis is so much deeper. Attempting to borrow and spend their way out of the crisis might have led to total collapse, but that wouldn't mean that it would have the same effect here, where our fiscal issues are more manageable.
That's why I think it's just not useful to bring it up in the context of the American debate.
The Warriors star is the embodiment of basketball’s analytics revolution.
The Golden State Warriors are now some 15 months in to their turn as one of the best teams in basketball history. Last season, they won 67 games, the most in the NBA in eight years, and secured a championship in June against LeBron James and the Cleveland Cavaliers. This season’s Warriors make last season’s Warriors look like a team that hadn’t yet gotten loose. They started the year winning their first 24 games in a row, a record opening, and as of now have won 46 of 50.
Golden State’s brilliance is more than just statistical. The Warriors are a basketball idyll, a paradise of skill and collaboration. Their offense runs on nifty ballhandling, willing passing, and sublime shooting, with their point guard and reigning NBA Most Valuable Player acting as ringleader. A slim 6’3” and 185 pounds, with a bouncy jog and a barely post-pubescent tuft of beard at his chin, Stephen Curry dribbles with the intentional abandon of a card hustler, flings one-handed passes to all sectors of the court, and shoots better than anyone ever has.
It was the apotheosis of the outsiders—two candidates, written off when their campaigns began, recovering from defeat in Iowa to deliver resounding victories in the Granite State.
In a year of outsider success, Tuesday’s New Hampshire primary was the apotheosis of the outsiders. On the Democratic side, Senator Bernie Sanders coasted to a huge victory over Hillary Clinton. And for the Republicans, Donald Trump regained his footing after a letdown in Iowa, winning about a third of the vote and notching a huge victory over the rest of the GOP field.
The results for the rest of the field threatened to remake the race, too. Ohio Governor John Kasich, a moderate technocrat who had seemed to lack traction throughout the campaign, saw his decision to bet all his marbles on New Hampshire pay off, as he came in second. Meanwhile, Senator Marco Rubio had a painful night, falling to an apparent fifth-place finish with the vote mostly tallied—a major stumbling block to his momentum. Chris Christie, whose demolition of Rubio during Saturday night’s debate helped knock Rubio down, didn’t get much of a boost and seemed headed for the exits. Jeb Bush and Ted Cruz battled for the third and fourth spots, while Carly Fiorina and Ben Carson lagged far behind.
The number of American teens who excel at advanced math has surged. Why?
On a sultry evening last July, a tall, soft-spoken 17-year-old named David Stoner and nearly 600 other math whizzes from all over the world sat huddled in small groups around wicker bistro tables, talking in low voices and obsessively refreshing the browsers on their laptops. The air in the cavernous lobby of the Lotus Hotel Pang Suan Kaew in Chiang Mai, Thailand, was humid, recalls Stoner, whose light South Carolina accent warms his carefully chosen words. The tension in the room made it seem especially heavy, like the atmosphere at a high-stakes poker tournament.
Stoner and five teammates were representing the United States in the 56th International Mathematical Olympiad. They figured they’d done pretty well over the two days of competition. God knows, they’d trained hard. Stoner, like his teammates, had endured a grueling regime for more than a year—practicing tricky problems over breakfast before school and taking on more problems late into the evening after he completed the homework for his college-level math classes. Sometimes, he sketched out proofs on the large dry-erase board his dad had installed in his bedroom. Most nights, he put himself to sleep reading books like New Problems in Euclidean Geometry and An Introduction to Diophantine Equations.
He’s made the once-impossible seem possible—and now all bets are off.
CONCORD, New Hampshire—“Thank you, New Hampshire!” a somber but clearly gratified Bernie Sanders said to a crowd of thrilled supporters in a high-school gymnasium. The 74-year-old democratic socialist from Vermont had just resoundingly won the New Hampshire Democratic primary, dealing an astonishing blow to the Hillary Clinton juggernaut, casting the race into turmoil, and dramatically highlighting the dissatisfaction of the party base with its establishment.
Sanders’s win, he said, had sent a message to the country: “That the government of our great country belongs to all of the people, and not just a handful of wealthy campaign contributors and their super PACs!” The contest, he noted, had inspired record turnout, powered by a force that he implied would make him a better general-election candidate than his rival—“the energy and the excitement that the Democratic Party will need to succeed in November.”
Sanders’s youth movement is powered by the energy of the new campus left. What does it believe?
RINDGE, New Hampshire—Twenty-three minutes into his typically rambling, hourlong stump speech in the arena here, at a private liberal-arts college on the Massachusetts border—after he had decried the Koch brothers and the prescription-drug companies, after he had accused Wall Street of bribing its way to deregulation, after he had called out the corporate media and the political establishment—Bernie Sanders turned to the bleachers behind him, which were filled with college students waving blue signs and chanting his name.
A sly, unusual smile crossed his face. “I feel like a rock-n-roll star!” he exclaimed, taking off his jacket and tossing it to a startled youth behind him. He pantomimed tearing off his sweater, too, prompting a fresh chant of “Ber-nie! Ber-nie!” Then he grinned sheepishly. “All right, nothing else is coming off,” he said, and continued to the next topic—the sins of Walmart.
After getting shut down late last year, a website that allows free access to paywalled academic papers has sprung back up in a shadowy corner of the Internet.
There’s a battle raging over whether academic research should be free, and it’s overflowing into the dark web.
Most modern scholarly work remains locked behind paywalls, and unless your computer is on the network of a university with an expensive subscription, you have to pay a fee, often around 30 dollars, to access each paper.
Many scholars say this system makes publishers rich—Elsevier, a company that controls access to more than 2,000 journals, has a market capitalization about equal to that of Delta Airlines—but does not benefit the academics that conducted the research, or the public at large. Others worry that free academic journals would have a hard time upholding the rigorous standards and peer reviews that the most prestigious paid journals are famous for.
Black poverty is fundamentally distinct from white poverty—and so cannot be addressed without grappling with racism.
There have been a number of useful entries in the weeks since Senator Bernie Sanders declared himself against reparations. Perhaps the most clarifying comes from Cedric Johnson in a piece entitled, “An Open Letter To Ta-Nehisi Coates And The Liberals Who Love Him.” Johnson’s essay offers those of us interested in the problem of white supremacy and the question of economic class the chance to tease out how, and where, these two problems intersect. In Johnson’s rendition, racism, in and of itself, holds limited explanatory power when looking at the socio-economic problems which beset African Americans. “We continue to reach for old modes of analysis in the face of a changed world,” writes Johnson. “One where blackness is still derogated but anti-black racism is not the principal determinant of material conditions and economic mobility for many African Americans.”
The Wall Street Journal’s eyebrow-raising story of how the presidential candidate and her husband accepted cash from UBS without any regard for the appearance of impropriety that it created.
The Swiss bank UBS is one of the biggest, most powerful financial institutions in the world. As secretary of state, Hillary Clinton intervened to help it out with the IRS. And after that, the Swiss bank paid Bill Clinton $1.5 million for speaking gigs. TheWall Street Journal reported all that and more Thursday in an article that highlights huge conflicts of interest that the Clintons have created in the recent past.
The piece begins by detailing how Clinton helped the global bank.
“A few weeks after Hillary Clinton was sworn in as secretary of state in early 2009, she was summoned to Geneva by her Swiss counterpart to discuss an urgent matter. The Internal Revenue Service was suing UBS AG to get the identities of Americans with secret accounts,” the newspaper reports. “If the case proceeded, Switzerland’s largest bank would face an impossible choice: Violate Swiss secrecy laws by handing over the names, or refuse and face criminal charges in U.S. federal court. Within months, Mrs. Clinton announced a tentative legal settlement—an unusual intervention by the top U.S. diplomat. UBS ultimately turned over information on 4,450 accounts, a fraction of the 52,000 sought by the IRS.”
For decades the Man of Steel has failed to find his groove, thanks to a continual misunderstanding of his strengths.
Superman should be invincible. Since his car-smashing debut in 1938, he’s starred in at least one regular monthly comic, three blockbuster films, and four television shows. His crest is recognized across the globe, his supporting cast is legendary, and anybody even vaguely familiar with comics can recount the broad strokes of his origin. (The writer Grant Morrison and the artist Frank Quitely accomplished it in eight words and four panels: “Doomed Planet. Desperate Scientists. Last Hope. Kindly Couple.”) He’s the first of the superheroes, a genre that’s grown into a modern mass-media juggernaut.
And yet, for a character who gains his power from the light of the sun, Superman is curiously eclipsed by other heroes. According to numbers provided by Diamond Distributors, the long-running Superman comic sold only 55,000 copies a month in 2015, down from around 70,000 in 2010—a mediocre showing even for the famously anemic comic-book market. That’s significantly less than his colleague Batman, who last year moved issues at a comparatively brisk 150,000 a month. Mass media hasn’t been much kinder: The longest-running Superman television show, 2001’s Smallville, kept him out of his iconic suit for a decade. Superman Returns recouped its budget at the box office, but proved mostly forgettable.2013’s Man of Steel drew sharp criticism from critics and audiences alike for its bleak tone and rampaging finale. Trailers for the sequel, Batman v Superman: Dawn of Justice, have shifted the focus (and top billing) to the Dark Knight. Worst of all, conventional wisdom puts the blame on Superman himself. He’s boring, people say; he’s unrelatable, nothing like the Marvel characters dominating the sales charts and the box office. More than anything, he seems embarrassing. Look at him. Truth? Justice? He wears his underwear on the outside.
The New Jersey governor’s less-than-stellar showing in the New Hampshire primary will make it hard for him to carry on.
Updated on February 9 at 10:51 p.m. ET
For Chris Christie, the 2016 race has been leading up to New Hampshire.
The New Jersey governor, and increasingly long-shot Republican presidential hopeful, had pinned his hopes on a strong showing in the New Hampshire primary. But on Tuesday evening, the results were disappointing for the governor. Donald Trump was declared the winner of the GOP primary shortly after the polls closed, a blow to Christie, who warned that a victory for the real-estate mogul could jeopardize the state’s first-in-the-nation primary status. (Bernie Sanders, meanwhile, was named the winner of the Democratic primary.) In fact, Christie won’t even finish in the top five. An as-yet-incomplete vote tally shows him trailing Trump, John Kasich, Ted Cruz, Jeb Bush, and Marco Rubio.