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.
What would the American culture wars look like if they were less about “values” and more about Jesus?
Evangelical Christianity has long had a stranglehold on how Americans imagine public faith. Vague invocations of “religion”—whether it’s “religion vs. science” or “religious freedom”—usually really mean “conservative, Protestant, evangelical Christianity,” and this assumption inevitably frames debates about American belief. For the other three-quarters of the population—Catholics, Jews, other Protestants, Muslims, Hindus, secular Americans, Buddhists, Wiccans, etc.—this can be infuriating. For some evangelicals, it’s a sign of success, a linguistic triumph of the culture wars.
But not for Russell Moore. In 2013, the 43-year-old theologian became the head of the Ethics and Religious Liberty Commission, the political nerve center of the Southern Baptist Convention. His predecessor, Richard Land, prayed with George W. Bush, played hardball with Democrats, and helped make evangelicals a quintessentially Republican voting bloc.
Many psychiatrists believe that a new approach to diagnosing and treating depression—linking individual symptoms to their underlying mechanisms—is needed for research to move forward.
In his Aphorisms, Hippocrates defined melancholia, an early understanding of depression, as a state of “fears and despondencies, if they last a long time.” It was caused, he believed, by an excess of bile in the body (the word “melancholia” is ancient Greek for “black bile”).
Ever since then, doctors have struggled to create a more precise and accurate definition of the illness that still isn’t well understood. In the 1920s, the German psychiatrist Kurt Schneider argued that depression could be divided into two separate conditions, each requiring a different form of treatment: depression that resulted from changes in mood, which he called “endogenous depression,” and depression resulting from reactions to outside events, or “reactive depression.” His theory was challenged in 1926, when the British psychologist Edward Mapother argued in the British Medical Journal that there was no evidence for two distinct types of depression, and that the apparent differences between depression patients were just differences in the severity of the condition.
The winners of the 27th annual National Geographic Traveler Photo Contest have just been announced.
The winners of the 27th annual National Geographic Traveler Photo Contest have just been announced. Winning first prize, Anuar Patjane Floriuk of Tehuacán, Mexico, will receive an eight-day photo expedition for two to Costa Rica and the Panama Canal for a photograph of divers swimming near a humpback whale off the western coast of Mexico. Here, National Geographic has shared all of this year’s winners, gathered from four categories: Travel Portraits, Outdoor Scenes, Sense of Place, and Spontaneous Moments. Captions by the photographers.
Paul faced danger, Ani and Ray faced each other, and Frank faced some career decisions.
This is what happens when you devote two-thirds of a season to scene after scene after scene of Frank and Jordan’s Baby Problems, and Frank Shaking Guys Down, and Look How Fucked Up Ray and Ani Are, and Melancholy Singer in the Dive Bar Yet Again—and then you suddenly realize that with only a couple episodes left you haven’t offered even a rudimentary outline of the central plot.
What if Joe Biden is going to run for the Democratic nomination after all?
Most Democrats seem ready for Hillary Clinton—or at least appear content with her candidacy. But what about the ones who who were bidin’ for Biden? There are new signs the vice president might consider running for president after all.
Biden has given little indication he was exploring a run: There’s no super PAC, no cultivation of a network of fundraisers or grassroots organizers, few visits to early-primary states. While his boss hasn’t endorsed Clinton—and says he won’t endorse in the primary—many members of the Obama administration have gone to work for Clinton, including some close to Biden.
But Biden also hasn’t given any clear indication that he isn’t running, and a column by Maureen Dowd in Saturday’s New York Times has set off new speculation. One reason Biden didn’t get into the race was that his son Beau was dying of cancer, and the vice president was focused on being with his son. But before he died in May, Dowd reported, Beau Biden tried to get his father to promise to run. Now Joe Biden is considering the idea.
The jobs that are least vulnerable to automation tend to be held by women.
Many economists and technologists believe the world is on the brink of a new industrial revolution, in which advances in the field of artificial intelligence will obsolete human labor at an unforgiving pace. Two Oxford researchers recently analyzed the skills required for more than 700 different occupations to determine how many of them would be susceptible to automation in the near future, and the news was not good: They concluded that machines are likely to take over 47 percent of today’s jobs within a few decades.
This is a dire prediction, but one whose consequences will not fall upon society evenly. A close look at the data reveals a surprising pattern: The jobs performed primarily by women are relatively safe, while those typically performed by men are at risk.
Exceptional nonfiction stories from 2014 that are still worth encountering today
Each year, I keep a running list of exceptional nonfiction that I encounter as I publish The Best ofJournalism, an email newsletter that I send out once or twice a week. This is my annual attempt to bring some of those stories to a wider audience. I could not read or note every worthy article that was published last calendar year and I haven't included any paywalled articles or anything published at The Atlantic. But everything that follows is worthy of wider attention and engagement.
An activist group is trying to discredit Planned Parenthood with covertly recorded videos even as contraception advocates are touting a method that sharply reduces unwanted pregnancies.
Abortion is back at the fore of U.S. politics due to an activist group’s attempt to discredit Planned Parenthood, one of the most polarizing organizations in the country. Supporters laud its substantial efforts to provide healthcare for women and children. For critics, nothing that the organization does excuses its role in performing millions of abortions––a procedure that they regard as literal murder––and its monstrous character is only confirmed, in their view, by covertly recorded video footage of staffers cavalierly discussing what to do with fetal body parts.
If nothing else, that recently released footage has galvanized Americans who oppose abortion, media outlets that share their views, and politicians who seek their votes. “Defunding Planned Parenthood is now a centerpiece of the Republican agenda going into the summer congressional recess,” TheWashington Postreports, “and some hard-liners have said they are willing to force a government shutdown in October if federal support to the group is not curtailed.”
Why the obsession with our kids’ happiness may be dooming them to unhappy adulthoods. A therapist and mother reports.
If there’s one thing I learned in graduate school, it’s that the poet Philip Larkin was right. (“They fuck you up, your mum and dad, / They may not mean to, but they do.”) At the time, I was a new mom with an infant son, and I’d decided to go back to school for a degree in clinical psychology. With baby on the brain and term papers to write, I couldn’t ignore the barrage of research showing how easy it is to screw up your kids. Of course, everyone knows that growing up with “Mommy Dearest” produces a very different child from one raised by, say, a loving PTA president who has milk and homemade cookies waiting after school. But in that space between Joan Crawford and June Cleaver, where most of us fall, it seemed like a lot could go wrong in the kid-raising department.
It’s impossible to “solve” the Iranian nuclear threat. This agreement is the next best thing.
Having carefully reviewed the lengthy and complex agreement negotiated by the United States and its international partners with Iran, I have reached the following conclusion: If I were a member of Congress, I would vote yes on the deal. Here are nine reasons why.
1. No one has identified a better feasible alternative. Before negotiations halted its nuclear advance, Iran had marched relentlessly down the field from 10 years away from a bomb to two months from that goal line. In response, the United States and its partners imposed a series of sanctions that have had a significant impact on Iran’s economy, driving it to negotiate. That strategy worked, and resulted in a deal. In the absence of this agreement, the most likely outcome would be that the parties resume doing what they were doing before the freeze began: Iran installing more centrifuges, accumulating a larger stockpile of bomb-usable material, shrinking the time required to build a bomb; the U.S. resuming an effort to impose more severe sanctions on Iran. Alternatively, Israel or the United States could conduct military strikes on Iran’s nuclear facilities, setting back the Iranian program by two years, or perhaps even three. But that option risks wider war in the Middle East, an Iran even more determined to acquire a bomb, and the collapse of consensus among American allies.