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.
Saturday’s unprecedented show of opposition punctured a core myth of the Trump presidency. Will it change his behavior? And can it be sustained?
George W. Bush campaigned as a uniter, not a divider, then presided for eight polarizing years, provoking protests like the one against the Iraq War on February 15, 2003, that sent hundreds of thousands of Americans into the streets of major cities. Those protests stopped neither the Iraq War nor the reelection of the president.
Months after Barack Obama was sworn in, on April 15, 2009, protesters associated with the Tea Party held rallies in 350 cities, attracting more than 300,000 Americans. They were angry about the financial crisis, the Bush administration’s response to it, and the progressive agenda of the polarizing new president and Congress. The following year, 84 Republican freshmen joined the House during the 2010 midterms. By 2012, the Tea Party had fueled victories for politicians including Rand Paul, Mike Lee, Marco Rubio, Ted Cruz, Scott Brown, and Nikki Haley. President Obama’s ability to advance a domestic agenda was all but finished, though he retained enough popularity to be reelected easily in the 2012 campaign.
With a penstroke, President Trump withdrew the U.S. from Trans-Pacific Partnership, imposed a federal hiring freeze, and reinstated the ‘Mexico City policy’ on defunding international abortion-related services.
President Trump marked his first full business day in office with three major executive orders, each one aimed at fulfilling campaign promises he made last year.
His most significant order immediately withdrew the U.S. from the Trans-Pacific Partnership, a multilateral free-trade agreement between the U.S. and eleven other Pacific Rim countries. The pact, aimed at counterbalancing China’s growing economic clout in east Asia, was among the Obama administration’s signature foreign policy achievements and a cornerstone of the pivot to Asia.
But the agreement also drew its share of domestic criticism on both sides of the campaign aisle. Both Democratic nominee Hillary Clinton, who initially supported it, and her primary rival Bernie Sanders criticized the pact for not doing enough to support American workers. Trump was among its most vociferous critics, at one point calling it “a continuing rape of our country.”
The president has reinstated a contentious policy that blocks funding to international family-planning organizations unless they agree not to promote abortion.
On Monday, just days after hundreds of thousands of women marched on Washington, as well as in hundreds of cities around the nation and the world, to call for, among other issues, the protection of women’s reproductive rights, President Donald Trump signed offon the first anti-abortion policy of his term.
It was expected: Almost immediately upon entering office, every new administration since 1984 has repealed or reinstated, according to its party’s position on abortion rights, a rule that prohibits foreign organizations that receive U.S. family-planning funds “from providing counseling or referrals for abortion or advocating for access to abortion services in their country.”
This rule, known as the Mexico City policy, blocks U.S. family-planning assistance to these groups, even if their abortion-related activities—including information, referrals, or services—are conducted with non-U.S. funds. Opponents to the restriction have dubbed it the “Global Gag Rule” because it hinders communication between health-care providers and patients.
If the president and his aides will tell easily disproven falsehoods about crowd sizes and speeches, what else will they be willing to dissemble about?
One of the many things that is remarkable about the Trump administration is its devotion, even in its first days, to a particular variety of pointless falsehood.
Mendacity among politicians and the spokespeople hired to spin for them runs across eras and aisles, though it is true that some are more honest than others, and Donald Trump was a historically dishonest presidential candidate. But the Trump administration has displayed a commitment to needlessly lying that is confounding to even the most cynical observers of American politics.
Narcissism, disagreeableness, grandiosity—a psychologist investigates how Trump’s extraordinary personality might shape his possible presidency.
In 2006, Donald Trump made plans to purchase the Menie Estate, near Aberdeen, Scotland, aiming to convert the dunes and grassland into a luxury golf resort. He and the estate’s owner, Tom Griffin, sat down to discuss the transaction at the Cock & Bull restaurant. Griffin recalls that Trump was a hard-nosed negotiator, reluctant to give in on even the tiniest details. But, as Michael D’Antonio writes in his recent biography of Trump, Never Enough, Griffin’s most vivid recollection of the evening pertains to the theatrics. It was as if the golden-haired guest sitting across the table were an actor playing a part on the London stage.
“It was Donald Trump playing Donald Trump,” Griffin observed. There was something unreal about it.
Popular demonstrations can bring change and topple governments. They can also spark retaliation from those in power.
The signs were so clever.
“We shall overcomb.”
“Viva la vulva.”
“I MAKE THE BEST SIGNS I REALLY DO EVERYONE SAYS SO THEY’RE TERRIFIC.”
Someone even made a papier-mâché vagina dentata.
The people were so cheerful and happy to be with one another, forgetting the cold and enjoying what often seemed less like a protest and more like a block party. There were families there, with grandmas in wheelchairs and babies in strollers. They were ecstatic and in disbelief at the number of people. TheWashington Post reported that the organizers put the attendance at up to half a million. They had hoped for less than half that.
It was surreal how similar this all felt, and my Russian friends on social media confirmed it: “Totally Bolotnaya,” one of them wrote. Bolotnaya is the square in the center of Moscow, right across the river from the Kremlin, where on December 10, 2011 around 50,000 people came out to protest fraudulent parliamentary elections. They had expected 3,000 and were stunned by their success. It was cold and gray that day, too, and the feeling of being in that joyous crowd was unforgettable, which is why I remembered it so vividly today. It is the giddiness of watching people vent their political frustrations with a sense of humor and good cheer, and the euphoria of observing people discover that they are not alone, that there are thousands and thousands of people just like them.
A history of the first African American White House—and of what came next
In the waning days of President Barack Obama’s administration, he and his wife, Michelle, hosted a farewell party, the full import of which no one could then grasp. It was late October, Friday the 21st, and the president had spent many of the previous weeks, as he would spend the two subsequent weeks, campaigning for the Democratic presidential nominee, Hillary Clinton. Things were looking up. Polls in the crucial states of Virginia and Pennsylvania showed Clinton with solid advantages. The formidable GOP strongholds of Georgia and Texas were said to be under threat. The moment seemed to buoy Obama. He had been light on his feet in these last few weeks, cracking jokes at the expense of Republican opponents and laughing off hecklers. At a rally in Orlando on October 28, he greeted a student who would be introducing him by dancing toward her and then noting that the song playing over the loudspeakers—the Gap Band’s “Outstanding”—was older than she was.
Driven by opportunism, pragmatism, or fear, many begin to forget that they used to think certain things were unacceptable.
In The Captive Mind, Czeslaw Milosz tells a story about a man who ventures out in the immediate aftermath of the fall of a regime. Papers full of state secrets lie in the streets, their knowledge less important for the moment than that of where to find something to eat. A little boy plays in a bombed-out street, whistling a song about the leader. “The song remains, but the leader of yesterday is already part of an extinct past.”
When authoritarians fall from power, even if they are secretly mourned, they must be publicly forgotten. Yet they remain as traces within the bodies of their people. The muscle memory to salute, to sing their songs, to fear their wrath, can be hard to shake. My years of studying Mussolini and his two-decade long regime have taught me not to underestimate the individual and collective work of disentanglement that comes with the ruler’s fall from power.
M. Night Shyamalan’s new film ends on a typically surprising note—and there’s a lot to unpack about its wider implications.
This article spoils the entire plot, and twist ending, of Split.
M. Night Shyamalan is a writer and director who is legendarily fond of the surprise twist ending. It was a stunt that made his career with his third film, The Sixth Sense, in 1999, turning a small-scale ghost story into a word-of-mouth smash hit that dominated the box office for an entire summer. He’s deployed it over and over throughout his career, to arguably diminishing returns, before dropping it entirely. But recently, as he’s dipped back into the horror genre that put his name on the map, he’s brought back his favorite gimmick, and his new film Split has a final reveal that is too bonkers not to discuss; one that redefines the overall thrust of the film, and that ends up referring back to his larger oeuvre in an unconventional way.