Time for Plan B. The Spanish bank bailout didn't even work for one day.
Apparently, $125 billion billion doesn't buy much these days. Not even six hours of relief.
Over the weekend, Europe announced a bailout of Spain's ailing banks. It wasn't quite financial shock-and-awe, but €100 billion ($125 billion) seemed like an impressive enough sum to buy at least a few weeks -- or at worst a few days, right? -- of calm in the markets. It wasn't. If anything, things are getting worse faster in Europe. What's going on?
First, a quick recap. As Paul Krugman put it, Spain was Europe's Florida. It had a prodigious housing bubble. And now its cajas saving banks have a prodigious amount of bad real estate loans on their books. But the Spanish government can't afford to bail its banks out. It can't print euros, and it can't borrow euros, except at punitive rates. We have a word for this. That word is "broke".
But Spain resisted going to Germany for a bailout. Spain feared the austere terms Germany would likely impose as part of any deal. So Spain played a game of chicken. First, it tried to get the European Central Bank (ECB) to bail out its banks instead. Germany balked. Then, it threatened eurogeddon -- memorably saying that they would not be bullied because "Spain is not Uganda" -- if it didn't at least get better terms on its bailout.
At first, it looked like Spain had won. Europe announced that the €100 billion aid package for Spain's banks would come without any further conditionality. Translation: Spain would get the money without having to do any more austerity than it had already promised to do. But then things unraveled. And fast.
The chart below from Bloomberg shows Spain's 10-year borrowing costs. Remember, the point of the Spanish bank bailout is, in large part, to reduce yields on Spanish bonds to break up the doom loop between weak sovereigns and weak banks. About that....
After briefly retreating, Spanish borrowing costs surged above 6.5 percent. That's the market giving a vote of no-confidence for the bank bailout. But the bad news hasn't stopped there. The Spanish IBEX stock index gave away a 5.9 percent increase, and finished down on the day. Italian bonds got hammered too. So did the Italian FTSE MIB stock index.
Why did markets turn so quickly from gloom to doom? The short answer: Investors are worried the Spanish bank bailout might make things worse -- and with good reason. The devil is in the details, and the Europeans have been embarrassingly short on those. Here are the four big questions that remain to be answered.
1) What's the interest rate on the €100 billion loan to Spain?
This being Europe, the term "bailout" is a bit misleading. Germany isn't cutting a check for Spain. It's a loan. European officials have promised that the interest rate on this loan is well below what Spain can borrow in the markets -- it'd better be, or what would be the point? -- but they haven't said what that rate is. It's hard to judge how good a deal Spain is getting without knowing this.
2) How much will the bailout add to Spain's debt?
This being Europe, Spain's bank bailout has a slightly Byzantine structure. The bailout funds will go to Spain's so-called Fund for Orderly Recapitalization of Banks (FROB) -- a government agency that will then inject the money into struggling banks. The Spanish government, however, backstops the FROB.
But this being Europe, this financial legerdemain doesn't really matter. The Spanish government is ultimately on the hook, full stop. So the bank "bailout" will add roughly 10 percentage points to Spain's public debt-to-GDP ratio, assuming growth doesn't collapse further. That's a big assumption.
3) Will the bailout loan be senior to other debt?
This being Europe, there are two bailout funds. There's the soon-to-be defunct European Financial Stability Facility (EFSF) and the soon-to-be online European Stability Mechanism (ESM). Spoiler alert: They're supposed to increase ... stability. They haven't exactly succeeded.
This being Europe, it actually matters a great deal whether the EFSF or the ESM loans the money to Spain. The ESM is senior to all other creditors, after the IMF. The EFSF isn't. In plain English, an ESM loan increases the odds that private bondholders will take a loss if Spain ever restructures its debt. An EFSF loan doesn't. So private investors will demand higher interest rates on Spanish bonds to compensate for the higher risk of losses if the money comes from the ESM. That's precisely what happened on Monday after European officials announced that it would indeed be the ESM making the loans.
But this being Europe, they subsequently reversed themselves. They said that the money might come from the EFSF instead -- at least at first. In the long run, it's unclear how much this would even matter. In the short run, Spain is still on the hook as a partial guarantor of EFSF loans. Um, what? The EFSF works by issuing bonds backstopped by Europe's healthy economies. But Spain can't get out of its commitment as a guarantor because its government technically isn't getting bailed out. Its banks are. So Spain would be guaranteeing a loan it's taking out. That makes even less sense than you think.
4) Will the bank bailout come with new strings attached?
This being Europe, it's not too surprising that the initial headlines that Spain was getting this money unconditionally might not be true. On Monday, German officials said that the so-called Troika of the EC, ECB, and IMF would "supervise" the bailout -- which is eurospeak for imposing more austere austerity. Still, it's unclear what this means. It's possible the Germans were talking about a previously announced agreement where European officials will reform Spain's sclerotic financial sector. But it's also possible that they were talking about further spending cuts and tax hikes.
This being Europe, it's almost impossible to say. But it's another reason for markets to worry. Troika reforms in Greece, Portugal and Ireland have knee-capped growth. And a country that can't print its own money can't pay back its debts when it's not growing. It creates self-fulfilling doubts about its solvency. It's just another reason for investors to push up the yields on Spanish debt.
There's a simple way to tell if the Spanish bank bailout is working. Look at Spanish borrowing costs. If they're falling, it's working. If they're not, it's not. By that metric, the 48-hour old bailout is already a clear failure.
It's easy to understand why. The bailout will increase Spain's debt. It will make Spanish debt riskier for private investors. And it might make it harder for Spain to pay back its debts. It kicks the can at the expense of zombifying Spain's economy.
Here's the worst part. It's not even clear that the Eurocrats understand the mistakes they're making. If they did, they wouldn't keep repeating them, from Greece to Ireland to Portugal, and now Spain. They're running out of time. So are we.
The American republic was long safeguarded by settled norms, now shattered by the rise of Donald Trump.
A long time ago, more than 20 years in fact, the Wall Street Journal published a powerful, eloquent editorial, simply headlined: “No Guardrails.”
In our time, the United States suffers every day of the week because there are now so many marginalized people among us who don't understand the rules, who don't think that rules of personal or civil conduct apply to them, who have no notion of self-control.
Twenty years later, that same newspaper is edging toward open advocacy in favor of Donald Trump, the least self-controlled major-party candidate for high office in the history of the republic. And as he forged his path to the nomination, he snapped through seven different guardrails, revealing how brittle the norms that safeguard the American republic had grown.
Outrage over transgender bathroom use is just the beginning of a long conflict over what it means to be men and women.
In April, the state of Mississippi did something unusual. It made the definition of man and woman a matter of law: “Male (man) or female (woman) refer to an individual’s immutable biological sex as objectively determined by anatomy and genetics at time of birth.”
The Magnolia state is not alone in grappling with the meaning of gender and sex. This spring, after North Carolina’s legislature ordered public agencies and local school boards to allow people to use only public bathrooms that correspond to their biological sex at birth, the U.S. Department of Justice announced it is suing the state. A similar bathroom bill was passed and vetoed earlier this spring in South Dakota. And the people of Washington will vote on a bathrooms ballot initiative in November.
A new report estimates nearly 46 million people live in contemporary slavery, more than half of them in five countries.
This year, researchers surveyed residents of 15 states in India and asked them what it is like to live in conditions of contemporary slavery—the term used to describe human trafficking, forced labor, sexual exploitation, and other forms of illegal enslavement in the 21st century.
“I was physically and sexually assaulted when I was working in the field. I had also threat on my life and on my family,” said one unnamed person who was in bonded labor, a type of exploitation in which people are forced to work to repay debt, real or assumed. Another person, who was made a street beggar, said: “Though I am begging I am not paid a single amount. I have to deposit all to them. I am deprived of food and good sleep.”
Science says lasting relationships come down to—you guessed it—kindness and generosity.
Every day in June, the most popular wedding month of the year, about 13,000 American couples will say “I do,” committing to a lifelong relationship that will be full of friendship, joy, and love that will carry them forward to their final days on this earth.
Except, of course, it doesn’t work out that way for most people. The majority of marriages fail, either ending in divorce and separation or devolving into bitterness and dysfunction. Of all the people who get married, only three in ten remain in healthy, happy marriages, as psychologist Ty Tashiro points out in his book The Science of Happily Ever After, which was published earlier this year.
Social scientists first started studying marriages by observing them in action in the 1970s in response to a crisis: Married couples were divorcing at unprecedented rates. Worried about the impact these divorces would have on the children of the broken marriages, psychologists decided to cast their scientific net on couples, bringing them into the lab to observe them and determine what the ingredients of a healthy, lasting relationship were. Was each unhappy family unhappy in its own way, as Tolstoy claimed, or did the miserable marriages all share something toxic in common?
Oregon, one of the whitest states in the union, also has one of the most generous safety nets. Is that a coincidence or something more troubling?
SALEM, Oregon—In much of the country, poor people are finding that there are fewer and fewer government benefits available to help them stay afloat. But here in this progressive corner of the Northwest, the poor can access an extensive system of state-sponsored supports and services.
In Oregon, a higher share of poor families is on welfare (now called TANF, or Temporary Aid to Needy Families) than in most states. The state has some of the highest food-stamp uptake in the country. It subsidizes childcare for working parents, asking the poorest of them to contribute as little as $27 a month. It helps people get off of welfare by linking them to employment and paying their wages for up to six months, and then allows them to continue to receive food stamps as they transition to higher wages. Families can be on welfare for up to 60 months, as opposed to 24 months in many other states, and once the parents are cut off due to time limits, their children can still continue to receive aid.
For 50 years, Bassick High School in Bridgeport, Connecticut has been neglected and underfunded—despite being just a few miles from extreme wealth.
BRIDGEPORT, Conn.—The inequalities that afflict Connecticut’s largest city have been evident since 1961, when the veteran journalist Nancy Hendrick wrote a blistering column in the Bridgeport Sunday Herald.
“[F]or quite a few years now not enough people in Washington have cared what's happening here—and in a hundred other Bridgeports across the country,” she wrote. “What frustrates us is that in this crowded, unplanned, unlovely city, there is so much to be done that no one can tell where to start.”
Later that week, The Connecticut Post reported that when state educators came to Bridgeport to evaluate Bassick High School, they praised the teachers but balked at the city’s lack of financial support—noting that students were forced to pay for their own books, science equipment, globes, and maps.
He lives near San Francisco, makes more than $50,000 per year, and is voting for the billionaire to fight against political correctness.
For several days, I’ve been corresponding with a 22-year-old Donald Trump supporter. He is white, has a bachelor’s degree, and earns $50,000 to $60,000 per year.
He lives near San Francisco.
“I recently became engaged to my Asian fiancée who is making roughly 3 times what I make, and I am completely supportive of her and proud she is doing so well,” he wrote. “We’ve both benefitted a lot from globalization. We are young, urban, and have a happy future planned. We seem molded to be perfect young Hillary supporters,” he observed, “but we're not. In 2016, we're both going for Trump.”
At first, we discussed Bill Clinton.
Last week, I wrote an article asking why Trump supporters aren’t bothered that their candidate called Clinton a shameful abuser of women who may well be a rapist. After all, Trump used to insist that Clinton was a victim of unfair treatment during his sex scandals. Either Trump spent years defending a man that he believed to be a sexual predator, even welcoming him as a guest at his wedding, or Trump is now cynically exploiting a rape allegation that he believes to be false.
A real-time chronicle of Donald Trump’s unpresidential statements.
People will look back on this era in our history, to see what was known about Donald Trump while Americans were deciding whether to choose him as president. Here’s a running chronicle from James Fallows on the ways in which Trump has been unpresidential in an unprecedented way, and of the evidence available to voters as they make their choice. (If you’d like to flag examples to include, please let us know.)
After a 4-year-old climbed into a gorilla’s pen, the internet unleashed its fury at his mother, showing a profound lack of empathy.
I remember losing my daughter at a park. I remember losing her sister at a restaurant. I remember losing their brother at a mall. “Losing” might be too strong: I lost sight of them briefly, and for a few horrifying moments wondered whether I would see them again. How could I be so stupid?
The answer is that I am human and I accepted the most important job of my life absolutely unprepared. No parent is perfect.
Here’s proof: A mother in Cincinnati allowed her 4-year-old boy to slip her attention and wander into a gorilla exhibit Saturday. After the 400-pound lowland silverback named Harambe dragged the boy roughly through in the exhibit’s moat, Cincinnati Zoo officials shot and killed the animal.
The Star Wars franchise has a long history of mixed pre-release reviews and complicated post-production.
“The reports have been so gratuitous that I have tended to take them with a grain of salt,” wrote Peter S. Myers, an executive at 20th Century Fox, in a 1976 memo to his bosses about the buzz on a movie in production called Star Wars. One studio head had seen a cut with no music or special effects and “just flipped, claiming it is the best movie he has ever seen.” Some other early viewers, according to Myers, raved “that the picture has a look never seen on the screen before.” His conclusion: “Opinion makers and the public will be electrified and it is quite possible Star Wars will emerge the all time box-office champion.”
This prescient document about the 1977 space opera that did end up smashing box-office records comes to mind when reading about the recent rumors surrounding Rogue One, the Star Wars film scheduled for release in December 2016. Page Sixreports that an early cut of the film isn’t testing well, and Disney has ordered four weeks of reshoots in July. Headlines with the words “crisis,” “bad,” and “panic” have ensued.