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 man who made computers personal was a genius and a jerk. A new documentary wonders whether his legacy can accommodate both realities.
An iPhone is a machine much like any other: motherboard, modem, microphone, microchip, battery, wires of gold and silver and copper twisting and snaking, the whole assembly arranged under a piece of glass whose surface—coated with an oxide of indium and tin to make it electrically conductive—sparks to life at the touch of a warm-blooded finger. But an iPhone, too, is much more than a machine. The neat ecosystem that hums under its heat-activated glass holds grocery lists and photos and games and jokes and news and books and music and secrets and the voices of loved ones and, quite possibly, every text you’ve ever exchanged with your best friend. Thought, memory, empathy, the stuff we sometimes shorthand as “the soul”: There it all is, zapping through metal whose curves and coils were designed to be held in a human hand.
Fractured by internal conflict and foreign intervention for centuries, Afghanistan made several tentative steps toward modernization in the mid-20th century. In the 1950s and 1960s, some of the biggest strides were made toward a more liberal and westernized lifestyle, while trying to maintain a respect for more conservative factions. Though officially a neutral nation, Afghanistan was courted and influenced by the U.S. and Soviet Union during the Cold War, accepting Soviet machinery and weapons, and U.S. financial aid. This time was a brief, relatively peaceful era, when modern buildings were constructed in Kabul alongside older traditional mud structures, when burqas became optional for a time, and the country appeared to be on a path toward a more open, prosperous society. Progress was halted in the 1970s, as a series of bloody coups, invasions, and civil wars began, continuing to this day, reversing almost all of the steps toward modernization taken in the 50s and 60s. Keep in mind, when looking at these images, that the average life expectancy for Afghans born in 1960 was 31, so the vast majority of those pictured have likely passed on since.
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 continuing to tinker with the universe she built eight years after it ended, J.K. Rowling might be falling into the same trap as Star Wars’s George Lucas.
September 1st, 2015 marked a curious footnote in Harry Potter marginalia: According to the series’s elaborate timeline, rarely referenced in the books themselves, it was the day James S. Potter, Harry’s eldest son, started school at Hogwarts. It’s not an event directly written about in the books, nor one of particular importance, but their creator, J.K. Rowling, dutifully took to Twitter to announce what amounts to footnote details: that James was sorted into House Gryffindor, just like his father, to the disappointment of Teddy Lupin, Harry’s godson, apparently a Hufflepuff.
It’s not earth-shattering information that Harry’s kid would end up in the same house his father was in, and the Harry Potter series’s insistence on sorting all of its characters into four broad personality quadrants largely based on their family names has always struggled to stand up to scrutiny. Still, Rowling’s tweet prompted much garment-rending among the books’ devoted fans. Can a tweet really amount to a piece of canonical information for a book? There isn’t much harm in Rowling providing these little embellishments years after her books were published, but even idle tinkering can be a dangerous path to take, with the obvious example being the insistent tweaks wrought by George Lucas on his Star Wars series.
I traveled to every country on earth. In some cases, the adventure started before I could get there.
Last summer, my Royal Air Maroc flight from Casablanca landed at Malabo International Airport in Equatorial Guinea, and I completed a 50-year mission: I had officially, and legally, visited every recognized country on earth.
This means 196 countries: the 193 members of the United Nations, plus Taiwan, Vatican City, and Kosovo, which are not members but are, to varying degrees, recognized as independent countries by other international actors.
In five decades of traveling, I’ve crossed countries by rickshaw, pedicab, bus, car, minivan, and bush taxi; a handful by train (Italy, Switzerland, Moldova, Belarus, Ukraine, Romania, and Greece); two by riverboat (Gabon and Germany); Norway by coastal steamer; Gambia and the Amazonian parts of Peru and Ecuador by motorized canoe; and half of Burma by motor scooter. I rode completely around Jamaica on a motorcycle and Nauru on a bicycle. I’ve also crossed three small countries on foot (Vatican City, San Marino, and Liechtenstein), and parts of others by horse, camel, elephant, llama, and donkey. I confess that I have not visited every one of the 7,107 islands in the Philippine archipelago or most of the more than 17,000 islands constituting Indonesia, but I’ve made my share of risky voyages on the rickety inter-island rustbuckets you read about in the back pages of the Times under headlines like “Ship Sinks in Sulu Sea, 400 Presumed Lost.”
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
In Beijing, China marked the 70th anniversary of the end of World War II, and its role in defeating Japan, by holding an enormous military parade and declaring a new national holiday. The spectacle involved more than 12,000 troops, 500 pieces of military hardware, and 200 aircraft.
In Beijing, China marked the 70th anniversary of the end of World War II, and its role in defeating Japan, by holding an enormous military parade and declaring a new national holiday. The spectacle involved more than 12,000 troops, 500 pieces of military hardware, and 200 aircraft of various types, representing what military officials said were the Chinese military's most cutting-edge technology. While the entire event was a show of strength, Chinese officials insisted the message was about peace, with the logo displayed on posters featuring an image of a dove.
How the Islamic State uses economic persecution as a recruitment tactic
Before Islamic State militants overran her hometown of Mosul in June 2014, Fahima Omar ran a hairdressing salon. But ISIS gunmen made Omar close her business—and lose her only source of income. Salons like hers encouraged “debauchery,” the militants said.
Omar is one of many business owners—male and female—who say ISIS has forced them to shut up shop and lose their livelihoods in the process. The extremist group has also prevented those who refuse to join it from finding jobs, and has imposed heavy taxes on civilians.
“ISIS controls every detail of the economy,” says Abu Mujahed, who fled with his family from ISIS-controlled Deir al-Zor in eastern Syria. “Only their people or those who swear allegiance to them have a good life.” When they took over Deir al-Zor, ISIS gunmen systematically took control of the local economy, looting factories and confiscating properties, says Mujahed. Then they moved in, taking over local business networks.
What do Google's trippy neural network-generated images tell us about the human mind?
When a collection of artificial brains at Google began generating psychedelic images from otherwise ordinary photos, engineers compared what they saw to dreamscapes. They named their image-generation technique Inceptionism and called the code used to power it Deep Dream.
But many of the people who saw the images reacted the same way: These things didn’t come from a dream world. They came from an acid trip.
The computer-made images feature scrolls of color, swirling lines, stretched faces, floating eyeballs, and uneasy waves of shadow and light. The machines seemed to be hallucinating, and in a way that appeared uncannily human.
The idea behind the project was to test the extent to which a neural network had learned to recognize various animals and landscapes by asking the computer to describe what it saw. So, instead of just showing a computer a picture of a tree and saying, "tell me what this is," engineers would show the computer an image and say, "enhance whatever it is you see."
Some people see threats even when none are present. Strangely, it can make them more creative.
For much of his life, Isaac Newton seemed like he was on the verge of a nervous breakdown. In 1693, the collapse finally arrived: After not sleeping for five days straight, Newton sent letters accusing his friends of conspiring against him. He was refraining from publishing books, he said at one point that year, “for fear that disputes and controversies may be raised against me by ignoramuses.”
Newton was, by many accounts, highly neurotic. Brilliant, but neurotic nonetheless. He was prone to depressive jags, mistrust, and angry outbursts.
Unfortunately, his genius might have been rooted in his maladjustments. His mental state led him to brood over past mistakes, and eventually, a breakthrough would dawn. “I keep the subject constantly before me,” he once said, “and wait till the first dawnings open slowly, by little and little, into a full and clear light.”