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.
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.”
According to Franklin, what mattered in business was humility, restraint, and discipline. But today’s Type-A MBAs would find him qualified for little more than a career in middle management.
When he retired from the printing business at the age of 42, Benjamin Franklin set his sights on becoming what he called a “Man of Leisure.” To modern ears, that title might suggest Franklin aimed to spend his autumn years sleeping in or stopping by the tavern, but to colonial contemporaries, it would have intimated aristocratic pretension. A “Man of Leisure” was typically a member of the landed elite, someone who spent his days fox hunting and affecting boredom. He didn’t have to work for a living, and, frankly, he wouldn’t dream of doing so.
Having worked as a successful shopkeeper with a keen eye for investments, Franklin had earned his leisure, but rather than cultivate the fine arts of indolence, retirement, he said, was “time for doing something useful.” Hence, the many activities of Franklin’s retirement: scientist, statesman, and sage, as well as one-man civic society for the city of Philadelphia. His post-employment accomplishments earned him the sobriquet of “The First American” in his own lifetime, and yet, for succeeding generations, the endeavor that was considered his most “useful” was the working life he left behind when he embarked on a life of leisure.
Climate change means the end of our world, but the beginning of another—one with a new set of species and ecosystems.
A few years ago in a lab in Panama, Klaus Winter tried to conjure the future. A plant physiologist at the Smithsonian Tropical Research Institute, he planted seedlings of 10 tropical tree species in small, geodesic greenhouses. Some he allowed to grow in the kind of environment they were used to out in the forest, around 79 degrees Fahrenheit. Others, he subjected to uncomfortably high temperatures. Still others, unbearably high temperatures—up to a daily average temperature of 95 degrees and a peak of 102 degrees. That’s about as hot as Earth has ever been.
It’s also the kind of environment tropical trees have a good chance of living in by the end of this century, thanks to climate change. Winter wanted to see how they would do.
Massive hurricanes striking Miami or Houston. Earthquakes leveling Los Angeles or Seattle. Deadly epidemics. Meet the “maximums of maximums” that keep emergency planners up at night.
For years before Hurricane Katrina, storm experts warned that a big hurricane would inundate the Big Easy. Reporters noted that the levees were unstable and could fail. Yet hardly anyone paid attention to these Cassandras until after the levees had broken, the Gulf Coast had been blown to pieces, and New Orleans sat beneath feet of water.
The wall-to-wall coverage afforded to the anniversary of Hurricane Katrina reveals the sway that a deadly act of God or man can hold on people, even 10 years later. But it also raises uncomfortable questions about how effectively the nation is prepared for the next catastrophe, whether that be a hurricane or something else. There are plenty of people warning about the dangers that lie ahead, but that doesn’t mean that the average citizen or most levels of the government are anywhere near ready for them.
The tension between religious liberty and same-sex marriage may eventually come to a head in the courts, but probably not through the Kentucky clerk’s case.
As Rowan County clerk Kim Davis crawls further and further out on a limb, Supreme Court experts agree that she has little chance of prevailing. District Judge David Bunning, on August 12 ordered Davis, in her capacity as county clerk, to issue marriage licenses to all couples who meet the statutory criteria for marriage in Kentucky—a definition that, since the Court’s landmark decision in Obergefell v. Hodges, includes same-sex couples.
Davis has refused, citing “the authority of God.” The U.S. Supreme Court, without comment, denied her emergency request for a stay. This throws the case back to the Sixth Circuit, which will hear the appeal of Judge Bunning’s order. Assuming she loses in the Sixth Circuit—a fairly good assumption—she would then have the alternative of petitioning the Supreme Court to hear her religious freedom claim. The Court will eventually hear a case about religious freedom and same-sex marriage, but I don’t think it will be this one.
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.
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.
The past is beautiful until you’re reminded it’s ugly.
Taylor Swift’s music video for “Wildest Dreams” isn’t about the world as it exists; it’s about the world as seen through the filter of nostalgia and the magic of entertainment. In the song, Swift sings that she wants to live on in an ex’s memory as an idealized image of glamour—“standing in a nice dress, staring at the sunset.” In the video, her character, an actress, falls in love with her already-coupled costar, for whom she’ll live on as an idealized image of glamour—standing in a nice dress, staring at a giant fan that’s making the fabric swirl in the wind.
The setting for the most part is Africa, but, again, the video isn’t about Africa as it exists, but as it’s seen through the filter of nostalgia and the magic of entertainment—a very particular nostalgia and kind of entertainment. Though set in 1950, the video is in the literary and cinematic tradition of white savannah romances, the most important recent incarnation of which might be the 1985 Meryl Streep film Out of Africa, whose story begins in 1913. Its familiarity is part of its appeal, and also part of why it’s now drawing flack for being insensitive. As James Kassaga Arinaitwe and Viviane Rutabingwa write at NPR:
Understanding social norms for the phone means accepting the fact that the things we call "phones" are actually computers.
When the telephone was new, it was a sensation. And not an altogether positive one. Sure, it was a machine that enabled a person to speak—as if by magic—to another person in another place in real time. But also, what if ghosts were sneaking through the line? This was a real concern.
Another panic point: What if the telephone created an entire “race of left-eared people,” as The New York Timesreported in 1904. “Watch a telephone for half a day, and it will be seen that almost every person that uses the instrument will place the receiver to the left ear.”
Along with questions about the physical and supernatural effects of the telephone came deliberations about etiquette. What was the proper greeting? (“Ahoy hoy,” was Alexander Graham Bell’s pick. Thomas Edison preferred “Hello.”)
Attempts to remedy America’s dauntingly long history of racial and gender inequity can, at times, feel slow and incremental. That’s why when it comes to narrowing the economic disparities between certain groups, it’s important to celebrate progress—more minorities graduating from college, more female executives, a shrinking gender-wage gap. Those are all certainly good things, but sometimes, dwelling on these achievements means missing the underlying failures that allow inequity and division to persist, and grow.
For instance, recent data released by the U.S. Census showed that small business ownership growth between 2007 and 2012 was highest for women, particularly businesses owned by minority women. On the surface, that sounds great, but the figures can be deceptive. In 2012, women were the owners of about 36 percent of the country’s small businesses, and men, about 54 percent, according to data from Pew Research. (The ownership of the remaining 10 percent of businesses in Pew’s count were either jointly owned by men and women or were owned by large, diverse groups.) And the growth of minority women as business owners increased by 215 percent between 1997 and 2014. That’s impressive, but it belies the fact that the group has historically made up such a small share of the industry, that just about any growth would look astronomical.