The country's slow-motion bank run could end the euro -- if the ECB lets it.
Bank runs usually have one speed: all-out-sprinting. But today, the Greeks are jogging.
There's been a quiet bank run in Greece the past three years. Since 2009, Greek banks have lost somewhere between 25 and 30 percent of their deposits. That's actually surprisingly low considering that a euro in a Greek bank doesn't look like it's worth as much as a euro in a German bank. The calculus is simple. Greece might turn its euros into cheaper drachmas and Germany won't. Why wouldn't more Greek people move their money to be safe?
Increasingly, they are. On Monday and Tuesday alone, Greeks withdrew over €1.2 billion ($1.53 billion). That's roughly 0.75 percent of remaining Greek deposits. This still-gradual bank run -- what FT Alphaville's Joseph Cotterill calls a "bank jog" -- is accelerating because Greek politics is making a Greek exit look more imminent.
It is a classic case of self-fulfilling economic expectations. Greeks are nervous about leaving the euro. The nervousness leads to a bank run. A bank run increases the chance that Greece will have to leave the euro. Which makes people more nervous. And around we go.
GOOD NIGHT, EURO
As Greek banks lose deposits, they need new sources of funding. But they can't raise money from markets. That leaves the ECB. The ECB has so far been a reluctant lender-of-last-resort, but it has been a lender-of-last-resort -- for banks, if not countries. The Cliff Notes version is that the ECB has kept Greek banks afloat by giving them money in exchange for collateral.* Warning bells might be going off. If Greek banks have good collateral, why can't they use it to get private loans? The answer is that they don't have good collateral. In other words, if Greece defaults and exits, the ECB will be stuck holding a bag of mostly worthless pieces of paper.
How big is the problem? Let's take a look under the hood of the ECB. The below chart courtesy of Scotty Barber shows so-called TARGET2 balances. It's a bit technical, but TARGET2 shows how much countries owe or are owed by the ECB. That's more or less a decent proxy for where deposits are moving from and to within the euro zone.
A Greek default would effectively cost the ECB roughly €100 billion ($127 billion), to be split between the remaining euro zone members.
Here's how this could push Greek out of the euro zone. Greek banks are running out of collateral. Even bad collateral. All they have is really bad collateral. As the bank jog speeds up, they need to get more and more money from the ECB. But they might not have good enough collateral to get it. The ECB can change its rules and accept dodgier collateral -- but that would open the ECB up to even bigger losses down the line, assuming a Greek exit is inevitable.
If the ECB says no, then the jig would be up for Greece. Its banks would run out of money. That's when the bank jog would turn into a full-fledged run and then a sprint -- if it hadn't already. Of course, when banks don't have money, nobody has money. The Greek government wouldn't have a choice: It would have to start printing new drachmas. Good night, euro.
AFTER GREECE ...
The damage won't stop there. Take a look at the TARGET2 balances again. Italian and Spanish banks are even more dependent on ECB funding than Greece. Already, there are signs of a bank racewalk going on among them. If the ECB cut the cord on Greece, Italian and Spanish depositors would frantically move their euros to German banks to protect themselves against the same fate. This deposit drain would eventually push them into the same collateral bind. The ECB would have to dramatically reverse itself to save the common currency.
Let's take a step back for a minute. The world of TARGET2 balances can be something of a rabbit hole, but there are two big takeaways here. First, the Greek bank jog will put more pressure on the ECB to do more. It will have to decide again whether or not to boot Greece from the euro zone. And second, a Greek exit would be a mess for Italy and Spain regardless of whether Greek politicians or the ECB makes the move.
It's hard to imagine the ECB pulling the plug on Greece anytime soon. Europe doesn't have anywhere near the bailout fund it needs ready, nor a consensus on euro bonds, nor on more aggressive ECB action. But the longer the ECB keeps Greek, Italian, and Spanish banks on life support, the greater the final cost if one of them exits -- and the greater the panic will hit the other countries in that event. The danger is that the ECB will lose its nerve -- that it will worry about potential future losses. That's what Bundesbank chief Jens Weidmann fretted over a few months back. That could become a self-fulfilling prophesy.
The biggest thing Europe has to fear is ECB fear of a euro breakup.
* It's a bit more complicated than that. There are two ways banks effectively get money from the ECB. They can either pledge collateral to the ECB directly, or pledge collateral to their national central banks. The benefit of the latter option -- so-called Emergency Liquidity Assistance (ELA) -- is that banks can use worse collateral. Still, the ECB has to okay the collateral. ELA are technically liabilities of each individual country, but if a country defaulted and left the euro zone, the ECB would be on the hook. Joseph Cotterill has a good summary of ECB versus ELA liquidity in Greece.
The American republic was long safeguarded by settled norms, now shattered by the rise of Donald Trump.
A long time ago, more than 20 years in fact, the Wall Street Journal published a powerful, eloquent editorial, simply headlined: “No Guardrails.”
In our time, the United States suffers every day of the week because there are now so many marginalized people among us who don't understand the rules, who don't think that rules of personal or civil conduct apply to them, who have no notion of self-control.
Twenty years later, that same newspaper is edging toward open advocacy in favor of Donald Trump, the least self-controlled major-party candidate for high office in the history of the republic. And as he forged his path to the nomination, he snapped through seven different guardrails, revealing how brittle the norms that safeguard the American republic had grown.
Outrage over transgender bathroom use is just the beginning of a long conflict over what it means to be men and women.
In April, the state of Mississippi did something unusual. It made the definition of man and woman a matter of law: “Male (man) or female (woman) refer to an individual’s immutable biological sex as objectively determined by anatomy and genetics at time of birth.”
The Magnolia state is not alone in grappling with the meaning of gender and sex. This spring, after North Carolina’s legislature ordered public agencies and local school boards to allow people to use only public bathrooms that correspond to their biological sex at birth, the U.S. Department of Justice announced it is suing the state. A similar bathroom bill was passed and vetoed earlier this spring in South Dakota. And the people of Washington will vote on a bathrooms ballot initiative in November.
Science says lasting relationships come down to—you guessed it—kindness and generosity.
Every day in June, the most popular wedding month of the year, about 13,000 American couples will say “I do,” committing to a lifelong relationship that will be full of friendship, joy, and love that will carry them forward to their final days on this earth.
Except, of course, it doesn’t work out that way for most people. The majority of marriages fail, either ending in divorce and separation or devolving into bitterness and dysfunction. Of all the people who get married, only three in ten remain in healthy, happy marriages, as psychologist Ty Tashiro points out in his book The Science of Happily Ever After, which was published earlier this year.
Social scientists first started studying marriages by observing them in action in the 1970s in response to a crisis: Married couples were divorcing at unprecedented rates. Worried about the impact these divorces would have on the children of the broken marriages, psychologists decided to cast their scientific net on couples, bringing them into the lab to observe them and determine what the ingredients of a healthy, lasting relationship were. Was each unhappy family unhappy in its own way, as Tolstoy claimed, or did the miserable marriages all share something toxic in common?
A new report estimates nearly 46 million people live in contemporary slavery, more than half of them in five countries.
This year, researchers surveyed residents of 15 states in India and asked them what it is like to live in conditions of contemporary slavery—the term used to describe human trafficking, forced labor, sexual exploitation, and other forms of illegal enslavement in the 21st century.
“I was physically and sexually assaulted when I was working in the field. I had also threat on my life and on my family,” said one unnamed person who was in bonded labor, a type of exploitation in which people are forced to work to repay debt, real or assumed. Another person, who was made a street beggar, said: “Though I am begging I am not paid a single amount. I have to deposit all to them. I am deprived of food and good sleep.”
Oregon, one of the whitest states in the union, also has one of the most generous safety nets. Is that a coincidence or something more troubling?
SALEM, Oregon—In much of the country, poor people are finding that there are fewer and fewer government benefits available to help them stay afloat. But here in this progressive corner of the Northwest, the poor can access an extensive system of state-sponsored supports and services.
In Oregon, a higher share of poor families is on welfare (now called TANF, or Temporary Aid to Needy Families) than in most states. The state has some of the highest food-stamp uptake in the country. It subsidizes childcare for working parents, asking the poorest of them to contribute as little as $27 a month. It helps people get off of welfare by linking them to employment and paying their wages for up to six months, and then allows them to continue to receive food stamps as they transition to higher wages. Families can be on welfare for up to 60 months, as opposed to 24 months in many other states, and once the parents are cut off due to time limits, their children can still continue to receive aid.
For 50 years, Bassick High School in Bridgeport, Connecticut has been neglected and underfunded—despite being just a few miles from extreme wealth.
BRIDGEPORT, Conn.—The inequalities that afflict Connecticut’s largest city have been evident since 1961, when the veteran journalist Nancy Hendrick wrote a blistering column in the Bridgeport Sunday Herald.
“[F]or quite a few years now not enough people in Washington have cared what's happening here—and in a hundred other Bridgeports across the country,” she wrote. “What frustrates us is that in this crowded, unplanned, unlovely city, there is so much to be done that no one can tell where to start.”
Later that week, The Connecticut Post reported that when state educators came to Bridgeport to evaluate Bassick High School, they praised the teachers but balked at the city’s lack of financial support—noting that students were forced to pay for their own books, science equipment, globes, and maps.
He lives near San Francisco, makes more than $50,000 per year, and is voting for the billionaire to fight against political correctness.
For several days, I’ve been corresponding with a 22-year-old Donald Trump supporter. He is white, has a bachelor’s degree, and earns $50,000 to $60,000 per year.
He lives near San Francisco.
“I recently became engaged to my Asian fiancée who is making roughly 3 times what I make, and I am completely supportive of her and proud she is doing so well,” he wrote. “We’ve both benefitted a lot from globalization. We are young, urban, and have a happy future planned. We seem molded to be perfect young Hillary supporters,” he observed, “but we're not. In 2016, we're both going for Trump.”
At first, we discussed Bill Clinton.
Last week, I wrote an article asking why Trump supporters aren’t bothered that their candidate called Clinton a shameful abuser of women who may well be a rapist. After all, Trump used to insist that Clinton was a victim of unfair treatment during his sex scandals. Either Trump spent years defending a man that he believed to be a sexual predator, even welcoming him as a guest at his wedding, or Trump is now cynically exploiting a rape allegation that he believes to be false.
The Star Wars franchise has a long history of mixed pre-release reviews and complicated post-production.
“The reports have been so gratuitous that I have tended to take them with a grain of salt,” wrote Peter S. Myers, an executive at 20th Century Fox, in a 1976 memo to his bosses about the buzz on a movie in production called Star Wars. One studio head had seen a cut with no music or special effects and “just flipped, claiming it is the best movie he has ever seen.” Some other early viewers, according to Myers, raved “that the picture has a look never seen on the screen before.” His conclusion: “Opinion makers and the public will be electrified and it is quite possible Star Wars will emerge the all time box-office champion.”
This prescient document about the 1977 space opera that did end up smashing box-office records comes to mind when reading about the recent rumors surrounding Rogue One, the Star Wars film scheduled for release in December 2016. Page Sixreports that an early cut of the film isn’t testing well, and Disney has ordered four weeks of reshoots in July. Headlines with the words “crisis,” “bad,” and “panic” have ensued.
This election will widen the distance between the class and racial composition of each party’s core of support.
One of the driving forces of modern American politics has been the kaleidoscopic reshaping of the electorate, as minorities have steadily increased their share of the vote while whites—particularly those without advanced education—have declined. But these trends have affected the two parties in strikingly different ways, likely to further diverge in 2016.
As the first chart shows, the change in the overall electorate has been steady—and profound. Since Ronald Reagan’s landslide reelection in 1984, working-class whites—defined as those whites without a college degree—have plummeted from around three-fifths of all voters in presidential elections to just over one-third in 2012. The share of the vote cast by whites with a college degree increased from just over one-fourth in 1984 to slightly more than one-third in the 1992 election (Bill Clinton’s first victory) and has largely stabilized there since.
A real-time chronicle of Donald Trump’s unpresidential statements.
People will look back on this era in our history, to see what was known about Donald Trump while Americans were deciding whether to choose him as president. Here’s a running chronicle from James Fallows on the ways in which Trump has been unpresidential in an unprecedented way, and of the evidence available to voters as they make their choice. (If you’d like to flag examples to include, please let us know.)