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 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.
Without the financial support that many white families can provide, minority young people have to continually make sacrifices that set them back.
The year after my father died, I graduated from grad school, got a new job, and looked forward to saving for a down payment on my first home, a dream I had always had, but found lofty. I pulled up a blank spreadsheet and made a line item called “House Fund.”
That same week I got a call from my mom—she was struggling to pay off my dad’s funeral expenses. I looked at my “House Fund” and sighed. Then I deleted it and typed the words “Funeral Fund” instead.
My father’s passing was unexpected. And so was the financial burden that came with it.
For many Millennials of color, these sorts of trade-offs aren’t an anomaly. During key times in their lives when they should be building assets, they’re spending money on basic necessities and often helping out family. Their financial future is a rocky one, and much of it comes down to how much—or how little—assistance they receive.
Maya Arulpragasam is a famous rapper, singer, designer, producer, and refugee. When she was 9, her mother and siblings fled violence in Sri Lanka and came to London, and the experience was formative for her art. As she explained to The Guardian in 2005 after the release of her debut Arular, “I was a refugee because of war and now I have a voice in a time when war is the most invested thing on the planet. What I thought I should do with this record is make every refugee kid that came over after me have something to feel good about. Take everybody’s bad bits and say, ‘Actually, they’re good bits. Now whatcha gonna do?’”
That goal—to glorify people and practices that the developed world marginalizes—has been a constant in her career. Her new music video tackles it in a particularly literal and urgent way, not only by showing solidarity with refugees at a moment when they’re extremely controversial in the West, but also by posing a simple question to listeners: Whose lives do you value?
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.
Jeb Bush, John Kasich, and other presidential contenders appease Donald Trump at their own peril.
Give Donald Trump this: He has taught Americans something about the candidates he’s running against. He has exposed many of them as political cowards.
In August, after Trump called undocumented Mexican immigrants “rapists” and vowed to build a wall along America’s southern border, Jeb Bush traveled to South Texas to respond. Bush’s wife is Mexican American; he has said he’s “immersed in the immigrant experience”; he has even claimed to be Hispanic himself. Yet he didn’t call Trump’s proposals immoral or bigoted, since that might offend Trump’s nativist base. Instead, Bush declared: “Mr. Trump’s plans are not grounded in conservative principles. His proposal is unrealistic. It would cost hundreds of billions of dollars.” In other words, demonizing and rounding up undocumented Mexican immigrants is fine, so long as it’s done cheap.
To solve climate change, we need to reimagine our entire relationship to the nonhuman world.
Humans were once a fairly average species of large mammals, living off the land with little effect on it. But in recent millennia, our relationship with the natural world has changed as dramatically as our perception of it.
There are now more than 7 billion people on this planet, drinking its water, eating its plants and animals, and mining its raw materials to build and power our tools. These everyday activities might seem trivial from the perspective of any one individual, but aggregated together they promise to leave lasting imprints on the Earth. Human power is now geological in scope—and if we are to avoid making a mess of this, our only home, our politics must catch up.
Making this shift will require a radical change in how we think about our relationship to the natural world. That may sound like cause for despair. After all, many people refuse to admit that environmental crises like climate change exist at all. But as Jedediah Purdy reminds us in his dazzling new book, After Nature, our relationship with the nonhuman world has proved flexible over time. People have imagined nature in a great many ways across history.
Why are so many kids with bright prospects killing themselves in Palo Alto?
The air shrieks, and life stops. First, from far away, comes a high whine like angry insects swarming, and then a trampling, like a herd moving through. The kids on their bikes who pass by the Caltrain crossing are eager to get home from school, but they know the drill. Brake. Wait for the train to pass. Five cars, double-decker, tearing past at 50 miles an hour. Too fast to see the faces of the Silicon Valley commuters on board, only a long silver thing with black teeth. A Caltrain coming into a station slows, invites you in. But a Caltrain at a crossing registers more like an ambulance, warning you fiercely out of its way.
The kids wait until the passing train forces a gust you can feel on your skin. The alarms ring and the red lights flash for a few seconds more, just in case. Then the gate lifts up, signaling that it’s safe to cross. All at once life revives: a rush of bikes, skateboards, helmets, backpacks, basketball shorts, boisterous conversation. “Ew, how old is that gum?” “The quiz is next week, dipshit.” On the road, a minivan makes a left a little too fast—nothing ominous, just a mom late for pickup. The air is again still, like it usually is in spring in Palo Alto. A woodpecker does its work nearby. A bee goes in search of jasmine, stinging no one.
What I learned from attending a town-hall meeting and listening to students’ concerns
Sometimes it takes a group of young people to set you straight.
For months now, I’ve been reading about college students who’ve been seeking “safe spaces.” They’ve often been met by derision—even the highest ranked Urban Dictionary definition is mired in sarcasm, describing them as having “pillows” and “soothing music” that “allows them to recover from the trauma... of exposure to ideas that conflict with their leftist professors.”
I also had some mid-life skepticism about teenage hyperbole, that is, until I attended a town hall meeting at Duke University (my alma mater) earlier this month. The “community conversation,” as it was called, had been hastily convened to discuss the rash of racist and homophobic incidents on campus. Listening to those students—and watching their expressions—I realized that what’s been happening at Duke is serious, and no amount of sarcasm can disguise the pain and anger on campus, or cover up the real dangers lurking there.
Places like St. Louis and New York City were once similarly prosperous. Then, 30 years ago, the United States turned its back on the policies that had been encouraging parity.
Despite all the attention focused these days on the fortunes of the “1 percent,” debates over inequality still tend to ignore one of its most politically destabilizing and economically destructive forms. This is the growing, and historically unprecedented, economic divide that has emerged in recent decades among the different regions of the United States.
Until the early 1980s, a long-running feature of American history was the gradual convergence of income across regions. The trend goes back to at least the 1840s, but grew particularly strong during the middle decades of the 20th century. This was, in part, a result of the South catching up with the North in its economic development. As late as 1940, per-capita income in Mississippi, for example, was still less than one-quarter that of Connecticut. Over the next 40 years, Mississippians saw their incomes rise much faster than did residents of Connecticut, until by 1980 the gap in income had shrunk to 58 percent.
The generation has been called lazy, entitled, and narcissistic. Their bosses beg to differ.
Yes, many Millennials are still crashing on their parent’s couches. And there’s data to support the claim that they generally want more perks but less face time, and that they hope to rise quickly but don’t stick around for very long. Millennials have also been pretty vocal about their desire to have more flexible jobs and more leave time.
But does all of this mean that all Millennials are actually worse workers?
Laura Olin, a digital campaigner who ran social-media strategy for President Obama’s 2012 campaign, says that’s not been her experience. “You always hear about Millennials supposedly being entitled and needing coddling, but the ones I’ve encountered have been incredibly hard-working and recognize that they need to pay their dues.”