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 number of American teens who excel at advanced math has surged. Why?
On a sultry evening last July, a tall, soft-spoken 17-year-old named David Stoner and nearly 600 other math whizzes from all over the world sat huddled in small groups around wicker bistro tables, talking in low voices and obsessively refreshing the browsers on their laptops. The air in the cavernous lobby of the Lotus Hotel Pang Suan Kaew in Chiang Mai, Thailand, was humid, recalls Stoner, whose light South Carolina accent warms his carefully chosen words. The tension in the room made it seem especially heavy, like the atmosphere at a high-stakes poker tournament.
Stoner and five teammates were representing the United States in the 56th International Mathematical Olympiad. They figured they’d done pretty well over the two days of competition. God knows, they’d trained hard. Stoner, like his teammates, had endured a grueling regime for more than a year—practicing tricky problems over breakfast before school and taking on more problems late into the evening after he completed the homework for his college-level math classes. Sometimes, he sketched out proofs on the large dry-erase board his dad had installed in his bedroom. Most nights, he put himself to sleep reading books like New Problems in Euclidean Geometry and An Introduction to Diophantine Equations.
This wasn’t terribly surprising. When Streep was asked, last year, in the course of promoting her extremely feminist film Suffragette, whether she is herself a feminist, the actor replied that, no, she isn’t. Instead: “I am a humanist,” she said. “I am for nice, easy balance.”
And why stopping it requires that governments get out of the way
As it stands, the international coalition is far from winning the information war against the Islamic State. Its air strikes may be squeezing the group in Iraq and Syria and killing many of its leaders, but that has not halted the self-proclaimed caliphate’s ideological momentum. Indeed, at the end of 2015, it was estimated that the number of foreigners travelling to join militant groups in Iraq and Syria—predominantly the Islamic State—had more than doubled in the course of just 18 months. What’s more, while these figures may be striking, sheer numbers are less important than intent when it comes to the organization’s actual threat to the world. As we have already seen, it takes a very small number of people to unleash great terror, whether in Iraq, Syria, or elsewhere.
Women in their 20s are told they're too young to settle down. Then, seemingly overnight, they start hearing they're spinsters. What gives?
Women in their 20s are told they're too young to settle down. Then, seemingly overnight, they start hearing they're spinsters. What gives?
Heterosexual women today, in certain milieus, find themselves placed into one of two categories: too young to settle down, and too old to find a man. There is a window of opportunity to get married, but it is ephemeral almost to the point of non-existence. It falls at a different age according to region, or the idiosyncratic biases of one's circle, but hovers around 27. "Too young" refers not to teen marriage, but to any commitment entered into by a grown woman deemed still a child by those around her.
Here's how it works: A young woman hears from friends and family that she needs to focus on her career or education, not some guy. She is warned of certain dangers: unsolicited male attention; unintended pregnancy, as if intended pregnancy were also a thing; and the desire hardwired into all straight men to turn their girlfriends into 1950s housewives. To entertain the possibility of it being difficult to find a husband, to even utter the expression "find a husband," is to regress to another era. And this advice is incredibly appealing, a rejection of the quaint notion that female heterosexuality is the desire not for men, but for a white picket fence.
Today’s empires are born on the web, and exert tremendous power in the material world.
Mark Zuckerberg hasn’t had the best week.
First, Facebook’s Free Basics platform was effectively banned in India. Then, a high-profile member of Facebook’s board of directors, the venture capitalist Marc Andreessen, sounded off about the decision to his nearly half-a-million Twitter followers with a stunning comment.
“Anti-colonialism has been economically catastrophic for the Indian people for decades,” Andreessen wrote. “Why stop now?”
After that, the Internet went nuts.
Andreessen deleted his tweet, apologized, and underscored that he is “100 percent opposed to colonialism” and “100 percent in favor of independence and freedom.” Zuckerberg, Facebook’s CEO, followed up with his own Facebook post to say Andreessen’s comment was “deeply upsetting” to him, and not representative of the way he thinks “at all.”
How those three little words sound around the world
I love saying “I love you.” I’ll say “love ya” to my parents when I’m about to get off the phone with them, and “love you!!” to my wife as she’s heading out the door for work (“love you???” on Gchat means I’ve gotten myself into trouble with her and I’m searching for a way out). I tell my son I love him, and he doesn’t even get it—he’s an infant. I’ve been known to proclaim that I love sushi and football and Benjamin Franklin (I mean, how could you not love Ben?).
Many people in this world would find my behavior rather strange. That’s because Americans are exceptionally promiscuous when it comes to professing their love. In the United States, “I love you” is at once exalted and devalued. It can mean everything ... or nothing at all. This is not universally the case.
Einstein’s gravitational waves rest on a genuinely radical idea.
After decades of anticipation, we have directly detected gravitational waves—ripples in spacetime traveling at the speed of light through the universe. Scientists at LIGO (the Laser Interferometic Gravitational-wave Observatory) have announced that they have measured waves coming from the inspiral of two massive black holes, providing a spectacular confirmation of Albert Einstein’s general theory of relativity, whose hundredth anniversary was celebrated just last year.
Finding gravitational waves indicates that Einstein was (once again) right, and opens a new window onto energetic events occurring around the universe. But there’s a deeper lesson, as well: a reminder of the central importance of locality, an idea that underlies much of modern physics.
The drug modafinil was recently found to enhance cognition in healthy people. Should you take it to get a raise?
If you could take a pill that will make you better at your job, with few or no negative consequences, would you do it?
In a meta-analysis recently published in European Neuropsychopharmacology, researchers from the University of Oxford and Harvard Medical School concluded that a drug called modafinil, which is typically used to treat sleep disorders, is a cognitive enhancer. Essentially, it can help normal people think better.
Out of all cognitive processes, modafinil was found to improve decision-making and planning the most in the 24 studies the authors reviewed. Some of the studies also showed gains in flexible thinking, combining information, or coping with novelty. The drug didn’t seem to influence creativity either way.
Two hundred fifty years of slavery. Ninety years of Jim Crow. Sixty years of separate but equal. Thirty-five years of racist housing policy. Until we reckon with our compounding moral debts, America will never be whole.
And if thy brother, a Hebrew man, or a Hebrew woman, be sold unto thee, and serve thee six years; then in the seventh year thou shalt let him go free from thee. And when thou sendest him out free from thee, thou shalt not let him go away empty: thou shalt furnish him liberally out of thy flock, and out of thy floor, and out of thy winepress: of that wherewith the LORD thy God hath blessed thee thou shalt give unto him. And thou shalt remember that thou wast a bondman in the land of Egypt, and the LORD thy God redeemed thee: therefore I command thee this thing today.
— Deuteronomy 15: 12–15
Besides the crime which consists in violating the law, and varying from the right rule of reason, whereby a man so far becomes degenerate, and declares himself to quit the principles of human nature, and to be a noxious creature, there is commonly injury done to some person or other, and some other man receives damage by his transgression: in which case he who hath received any damage, has, besides the right of punishment common to him with other men, a particular right to seek reparation.
African American parents are increasingly taking their kids' education into their own hands—and in many cases, it's to protect them from institutional racism and stereotyping.
Marvell Robinson was in kindergarten when a classmate reportedly poured an anthill on him at the playground. After that, the gibes reportedly became sharper: "Why are you that color?" one boy taunted at the swing set, leaving Marvell scared and speechless. The slow build of racial bullying would push his mother, Vanessa Robinson, to pull him from his public school and homeschool him instead.
Marvell is one of an estimated 220,000 African American children currently being homeschooled, according to the National Home Education Research Institute. Black families have become one of the fastest-growing demographics in homeschooling, with black students making up an estimated 10 percent of the homeschooling population. (For comparison’s sake, they make up 16 percent of all public-school students nationwide, according to the National Center for Education Statistics.)