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 Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
The paper of record’s inaccurate reporting on a nonexistent criminal investigation was a failure that should entail more serious consequences.
I have read The New York Times since I was a teenager as the newspaper to be trusted, the paper of record, the definitive account. But the huge embarrassment over the story claiming a criminal investigation of Hillary Clinton for her emails—leading the webpage, prominent on the front page, before being corrected in the usual, cringeworthy fashion of journalists who stonewall any alleged errors and then downplay the real ones—is a direct challenge to its fundamental credibility. And the paper’s response since the initial huge error was uncovered has not been adequate or acceptable.
This is not some minor mistake. Stories, once published, take on a life of their own. If they reinforce existing views or stereotypes, they fit perfectly into Mark Twain’s observation, “A lie can travel halfway around the world while the truth is putting on its shoes.” (Or perhaps Twain never said it, in which case the ubiquity of that attribution serves to validate the point.) And a distorted and inaccurate story about a prominent political figure running for president is especially damaging and unconscionable.
A newly discovered artifact buried with one of Jamestown’s most prominent leaders suggests he could have been a crypto-Catholic.
After 400 years in the Virginia dirt, the box came out of the ground looking like it had been plucked from the ocean. A tiny silver brick, now encrusted with a green patina and rough as sandpaper. Buried beneath it was a human skeleton. The remains would later be identified as those of Captain Gabriel Archer, one of the most prominent leaders at Jamestown, the first permanent English colony in America. But it was the box, which appeared to be an ancient Catholic reliquary, that had archaeologists bewildered and astonished.
“One of the major surprises was the discovery of this mysterious small silver box,” said James Horn, the president of the Jamestown Rediscovery Foundation. “I have to say, we’re still trying to figure this out. You have the very strange situation of a Catholic reliquary being found with the leader of the first Protestant church in the country.”
More on the F-16 and Cessna crash, and whether the collision of a military and a civilian aircraft was also a collision of cultures
Early this month an Air Force F-16, under the command of an experienced Air Force pilot, rammed into a small-civilian Cessna 150 propeller plane, not far from Charleston, South Carolina. The Air Force pilot ejected to safety; both people aboard the Cessna were killed.
The next three paragraphs are background for the pointed and interesting reader-messages I am about to quote. If you’re already up to speed with previous installments (one, two, three), you can skip ahead to the messages. They highlight an aspect of the modern military-civilian divide I had not considered before this episode.
In an original item on the crash, I noted some of the perils civilians could face when flying near designated military areas—even though this crash happened in ordinary uncontrolled airspace. That is, it occurred when neither plane was within a Military Operations Area (MOA), where civilian pilots are warned about risks from high-speed military aircraft, nor inside the controlled “Class C” airspace that surrounds Charleston’s airport. (Medium-sized commercial airports like Charleston’s typically are ringed by Class C airspace, so the controllers can sequence in the airline, cargo, civilian, military, and other traffic headed toward their runways. The very busiest airports, like LAX or JFK, are surrounded by larger zones of Class B airspace for their more complex traffic-control jobs. In case you’re wondering, Class A airspace is the realm above 18,000 feet where most jet travel occurs.)
U.S. officials are turning to Russia for help with Iran and Syria, even as the Ukrainian conflict persists.
If you believe all the talk out there lately, Vladimir Putin is not only duplicitous and hypocritical—the Russian president’s also been pretty damn busy recently. Busy cutting secret deals with the same Europeans and Americans he has been vilifying for years. And if you believe the rumors, the Europeans and Americans have also been busy selling out Ukraine to the Russians.
Not that any of this would be unusual or particularly surprising. Cynicism, duplicity, and hypocrisy are often the reserve currencies of politics, where interests tend to trump values.
There have long been suspicions that the United States and Europe might give Ukraine up in exchange for Russia’s support in securing a deal to curb Iran’s nuclear program. Additionally, Washington has been seeking Moscow’s backing in securing a managed, orderly, and negotiated exit for Syrian leader Bashar al-Assad, which would go a long way toward ending the conflict in that country.
The new version of Apple’s signature media software is a mess. What are people with large MP3 libraries to do?
When the developer Erik Kemp designed the first metadata system for MP3s in 1996, he provided only three options for attaching text to the music. Every audio file could be labeled with only an artist, song name, and album title.
Kemp’s system has since been augmented and improved upon, but never replaced. Which makes sense: Like the web itself, his schema was shipped, good enough,and an improvement on the vacuum which preceded it. Those three big tags, as they’re called, work well with pop and rock written between 1960 and 1995. This didn’t prevent rampant mislabeling in the early days of the web, though, as anyone who remembers Napster can tell you. His system stumbles even more, though, when it needs to capture hip hop’s tradition of guest MCs or jazz’s vibrant culture of studio musicianship.
Has the Obama administration’s pursuit of new beginnings blinded it to enduring enmities?
“The president said many times he’s willing to step out of the rut of history.” In this way Ben Rhodes of the White House, who over the years has broken new ground in the grandiosity of presidential apologetics, described the courage of Barack Obama in concluding the Joint Comprehensive Plan of Action with the Islamic Republic of Iran, otherwise known as the Iran deal. Once again Rhodes has, perhaps inadvertently, exposed the president’s premises more clearly than the president likes to do. The rut of history: It is a phrase worth pondering. It expresses a deep scorn for the past, a zeal for newness and rupture, an arrogance about old struggles and old accomplishments, a hastiness with inherited precedents and circumstances, a superstition about the magical powers of the present. It expresses also a generational view of history, which, like the view of history in terms of decades and centuries, is one of the shallowest views of all.
The agreement doesn’t guarantee that Tehran will never produce nuclear weapons—because no agreement could do so.
A week ago I volunteered my way into an Atlantic debate on the merits of the Iran nuclear agreement. The long version of the post is here; the summary is that the administration has both specific facts and longer-term historic patterns on its side in recommending the deal.
On the factual front, I argued that opponents had not then (and have not now) met President Obama’s challenge to propose a better real-world alternative to the negotiated terms. Better means one that would make it less attractive for Iran to pursue a bomb, over a longer period of time. Real world means not the standard “Obama should have been tougher” carping but a specific demand that the other countries on “our” side, notably including Russia and China, would have joined in insisting on, and that the Iranians would have accepted.
Orr: “Sometimes a thing happens. Splits your life. There’s a before and after. I got like five of them at this point.”
This was Frank offering a pep talk to the son of his murdered former henchman Stan in tonight’s episode. (More on this in a moment.) But it’s also a line that captures this season of True Detective so perfectly that it almost seems like a form of subliminal self-critique.
Remember when Ray got shot in episode two and appeared to be dead but came back with a renewed sense of purpose and stopped drinking. No? That’s okay. Neither does the show: It was essentially forgotten after the subsequent episode. Remember when half a dozen (or more) Vinci cops were killed in a bloody shootout along with dozen(s?) of civilians? No? Fine: True Detective’s left that behind, too. Unless I missed it, there was not a single mention of this nationally historic bloodbath tonight.