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.
Defining common cultural literacy for an increasingly diverse nation.
Is the culture war over?
That seems an absurd question. This is an age when Confederate monuments still stand; when white-privilege denialism is surging on social media; when legislators and educators in Arizona and Texas propose banning ethnic studies in public schools and assign textbooks euphemizing the slave trade; when fear of Hispanic and Asian immigrants remains strong enough to prevent immigration reform in Congress; when the simple assertion that #BlackLivesMatter cannot be accepted by all but is instead contested petulantly by many non-blacks as divisive, even discriminatory.
And that’s looking only at race. Add gender, guns, gays, and God to the mix and the culture war seems to be raging along quite nicely.
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.
In 1992, the neuroscientist Richard Davidson got a challenge from the Dalai Lama. By that point, he’d spent his career asking why people respond to, in his words, “life’s slings and arrows” in different ways. Why are some people more resilient than others in the face of tragedy? And is resilience something you can gain through practice?
The Dalai Lama had a different question for Davidson when he visited the Tibetan Buddhist spiritual leader at his residence in Dharamsala, India. “He said: ‘You’ve been using the tools of modern neuroscience to study depression, and anxiety, and fear. Why can’t you use those same tools to study kindness and compassion?’ … I did not have a very good answer. I said it was hard.”
As the world frets over Greece, a separate crisis looms in China.
This summer has not been calm for the global economy. In Europe, a Greek referendum this Sunday may determine whether the country will remain in the eurozone. In North America, meanwhile, the governor of Puerto Rico claimed last week that the island would be unable to pay off its debts, raising unsettling questions about the health of American municipal bonds.
But the season’s biggest economic crisis may be occurring in Asia, where shares in China’s two major stock exchanges have nosedived in the past three weeks. Since June 12, the Shanghai stock exchange has lost 24 percent of its value, while the damage in the southern city of Shenzhen has been even greater at 30 percent. The tumble has already wiped out more than $2.4 trillion in wealth—a figure roughly 10 times the size of Greece’s economy.
A new book by the evolutionary biologist Jerry Coyne tackles arguments that the two institutions are compatible.
In May 1988, a 13-year-old girl named Ashley King was admitted to Phoenix Children’s Hospital by court order. She had a tumor on her leg—an osteogenic sarcoma—that, writes Jerry Coyne in his book Faith Versus Fact, was “larger than a basketball,” and was causing her leg to decay while her body started to shut down. Ashley’s Christian Scientist parents, however, refused to allow doctors permission to amputate, and instead moved their daughter to a Christian Science sanatorium, where, in accordance with the tenets of their faith, “there was no medical care, not even pain medication.” Ashley’s mother and father arranged a collective pray-in to help her recover—to no avail. Three weeks later, she died.
Former Senator Jim Webb is the fifth Democrat to enter the race—and by far the most conservative one.
In a different era’s Democratic Party, Jim Webb might be a serious contender for the presidential nomination. He’s a war hero and former Navy secretary, but he has been an outspoken opponent of recent military interventions. He’s a former senator from Virginia, a purple state. He has a strong populist streak, could appeal to working-class white voters, and might even have crossover appeal from his days as a member of the Reagan administration.
In today’s leftward drifting Democratic Party, however, it’s hard to see Webb—who declared his candidacy Thursday—getting very far. As surprising as Bernie Sanders’s rise in the polls has been, he looks more like the Democratic base than Webb does. The Virginian is progressive on a few major issues, including the military and campaign spending, but he’s far to the center or even right on others: He's against affirmative action, supports gun rights, and is a defender of coal. During the George W. Bush administration, Democrats loved to have him as a foil to the White House. It’s hard to imagine the national electorate will cotton to him in the same way. Webb’s statement essentially saying he had no problem with the Confederate battle flag flying in places like the grounds of the South Carolina capitol may have been the final straw. (At 69, he’s also older than Hillary Clinton, whose age has been a topic of debate, though still younger than Bernie Sanders or Joe Biden.)
The Fourth of July—a time we Americans set aside to celebrate our independence and mark the war we waged to achieve it, along with the battles that followed. There was the War of 1812, the War of 1833, the First Ohio-Virginia War, the Three States' War, the First Black Insurrection, the Great War, the Second Black Insurrection, the Atlantic War, the Florida Intervention.
Confused? These are actually conflicts invented for the novel The Disunited States of Americaby Harry Turtledove, a prolific (and sometimes-pseudonymous) author of alternate histories with a Ph.D. in Byzantine history. The book is set in the 2090s in an alternate United States that is far from united. In fact, the states, having failed to ratify a constitution following the American Revolution, are separate countries that oscillate between cooperating and warring with one another, as in Europe.
Be kind, show understanding, do good—but, some scientists say, don’t try to feel others’ pain.
In 2006, then-senator Barack Obama gave a commencement speech offering what seemed like very sensible advice. “There’s a lot of talk in this country about the federal deficit,” he told Northwestern’s graduating class. “But I think we should talk more about our empathy deficit—the ability to put ourselves in someone else’s shoes; to see the world through those who are different from us—the child who’s hungry, the laid-off steelworker, the immigrant woman cleaning your dorm room.”
In the years since then, the country has followed Obama’s counsel, at least when it comes to talking about empathy. It’s become a buzzword, extolled by Arianna Huffington, taught to doctors and cops, and used as a test for politicians. "We are on the cusp of an epic shift,” according to Jeremy Rifkin’s 2010 book The Empathetic Civilization. “The Age of Reason is being eclipsed by the Age of Empathy."
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
“Here is what I would like for you to know: In America, it is traditional to destroy the black body—it is heritage.”
Last Sunday the host of a popular news show asked me what it meant to lose my body. The host was broadcasting from Washington, D.C., and I was seated in a remote studio on the far west side of Manhattan. A satellite closed the miles between us, but no machinery could close the gap between her world and the world for which I had been summoned to speak. When the host asked me about my body, her face faded from the screen, and was replaced by a scroll of words, written by me earlier that week.
The host read these words for the audience, and when she finished she turned to the subject of my body, although she did not mention it specifically. But by now I am accustomed to intelligent people asking about the condition of my body without realizing the nature of their request. Specifically, the host wished to know why I felt that white America’s progress, or rather the progress of those Americans who believe that they are white, was built on looting and violence. Hearing this, I felt an old and indistinct sadness well up in me. The answer to this question is the record of the believers themselves. The answer is American history.