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.
Defining common cultural literacy for an increasingly diverse nation.
Is the culture war over?
That seems an absurd question. This is an age when Confederate monuments still stand; when white-privilege denialism is surging on social media; when legislators and educators in Arizona and Texas propose banning ethnic studies in public schools and assign textbooks euphemizing the slave trade; when fear of Hispanic and Asian immigrants remains strong enough to prevent immigration reform in Congress; when the simple assertion that #BlackLivesMatter cannot be accepted by all but is instead contested petulantly by many non-blacks as divisive, even discriminatory.
And that’s looking only at race. Add gender, guns, gays, and God to the mix and the culture war seems to be raging along quite nicely.
As the world frets over Greece, a separate crisis looms in China.
This summer has not been calm for the global economy. In Europe, a Greek referendum this Sunday may determine whether the country will remain in the eurozone. In North America, meanwhile, the governor of Puerto Rico claimed last week that the island would be unable to pay off its debts, raising unsettling questions about the health of American municipal bonds.
But the season’s biggest economic crisis may be occurring in Asia, where shares in China’s two major stock exchanges have nosedived in the past three weeks. Since June 12, the Shanghai stock exchange has lost 24 percent of its value, while the damage in the southern city of Shenzhen has been even greater at 30 percent. The tumble has already wiped out more than $2.4 trillion in wealth—a figure roughly 10 times the size of Greece’s economy.
A new book by the evolutionary biologist Jerry Coyne tackles arguments that the two institutions are compatible.
In May 1988, a 13-year-old girl named Ashley King was admitted to Phoenix Children’s Hospital by court order. She had a tumor on her leg—an osteogenic sarcoma—that, writes Jerry Coyne in his book Faith Versus Fact, was “larger than a basketball,” and was causing her leg to decay while her body started to shut down. Ashley’s Christian Scientist parents, however, refused to allow doctors permission to amputate, and instead moved their daughter to a Christian Science sanatorium, where, in accordance with the tenets of their faith, “there was no medical care, not even pain medication.” Ashley’s mother and father arranged a collective pray-in to help her recover—to no avail. Three weeks later, she died.
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.
In 1992, the neuroscientist Richard Davidson got a challenge from the Dalai Lama. By that point, he’d spent his career asking why people respond to, in his words, “life’s slings and arrows” in different ways. Why are some people more resilient than others in the face of tragedy? And is resilience something you can gain through practice?
The Dalai Lama had a different question for Davidson when he visited the Tibetan Buddhist spiritual leader at his residence in Dharamsala, India. “He said: ‘You’ve been using the tools of modern neuroscience to study depression, and anxiety, and fear. Why can’t you use those same tools to study kindness and compassion?’ … I did not have a very good answer. I said it was hard.”
Former Senator Jim Webb is the fifth Democrat to enter the race—and by far the most conservative one.
In a different era’s Democratic Party, Jim Webb might be a serious contender for the presidential nomination. He’s a war hero and former Navy secretary, but he has been an outspoken opponent of recent military interventions. He’s a former senator from Virginia, a purple state. He has a strong populist streak, could appeal to working-class white voters, and might even have crossover appeal from his days as a member of the Reagan administration.
In today’s leftward drifting Democratic Party, however, it’s hard to see Webb—who declared his candidacy Thursday—getting very far. As surprising as Bernie Sanders’s rise in the polls has been, he looks more like the Democratic base than Webb does. The Virginian is progressive on a few major issues, including the military and campaign spending, but he’s far to the center or even right on others: He's against affirmative action, supports gun rights, and is a defender of coal. During the George W. Bush administration, Democrats loved to have him as a foil to the White House. It’s hard to imagine the national electorate will cotton to him in the same way. Webb’s statement essentially saying he had no problem with the Confederate battle flag flying in places like the grounds of the South Carolina capitol may have been the final straw. (At 69, he’s also older than Hillary Clinton, whose age has been a topic of debate, though still younger than Bernie Sanders or Joe Biden.)
The Fourth of July—a time we Americans set aside to celebrate our independence and mark the war we waged to achieve it, along with the battles that followed. There was the War of 1812, the War of 1833, the First Ohio-Virginia War, the Three States' War, the First Black Insurrection, the Great War, the Second Black Insurrection, the Atlantic War, the Florida Intervention.
Confused? These are actually conflicts invented for the novel The Disunited States of Americaby Harry Turtledove, a prolific (and sometimes-pseudonymous) author of alternate histories with a Ph.D. in Byzantine history. The book is set in the 2090s in an alternate United States that is far from united. In fact, the states, having failed to ratify a constitution following the American Revolution, are separate countries that oscillate between cooperating and warring with one another, as in Europe.
The executive producer of Masterpiece says Jane Austen works a lot better on screen than Hemingway does.
For 44 years, PBS’s Masterpiece franchise has brought high-end Britain TV programs to American audiences. While the ultra-successful Downton Abbey comes from an original screenplay, many of Masterpiece’s shows over the years have been adapted from great works of literature. And the vast majority of those great works of literature, unsurprisingly, have been British.
But every so often, an American novel—like James Agee’s A Death in the Family or Willa Cather’s The Song of the Lark—has been turned into a Masterpiece. On Friday at the Aspen Ideas Festival, Rebecca Eaton, the longtime executive producer of Masterpiece, said she wished that the program had tackled more U.S. authors over the years. “The reasons that we haven't are twofold,” she said. “One is money, the second is money. And the third is money. Also, the dark nature of American literature, which is something to think about for a moment."
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
Brian Grazer has some rules for success. He hasn’t always followed them.
There’s no secret formula to making a hit, according to Brian Grazer, the producer of film and TV successes like 24, Splash, Apollo 13, A Beautiful Mind, Empire, and Friday Night Lights. But there are some guidelines. “In television I don't ever want to try and reinvent the wheel,” he said on stage at the Aspen Ideas Festival on Friday. “But changing the spokes within the wheel is a good thing.”
Take Jack Bauer, the terrorist-fighting hero of 24. “He does thing that are very wish-fulfillment oriented,” Grazer said. “That makes people very excited, because wish fulfillment almost always works. You have to root for the character, and rooting for the character is rooting for what they want. It's easier to root for what somebody wants if what they want is noble.”