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.
Mark Zuckerberg and Priscilla Chan on Tuesday announced the arrival of their daughter and pledged to give away 99 percent of their Facebook shares.
Mark Zuckerberg and Priscilla Chan announced the birth of their daughter Max on Tuesday in a long and heartfelt note on Facebook. The birth announcement was accompanied by something that quickly eclipsed news of their bundle of joy: A pledge to give away the majority of their fortune to a charitable initiative that will focus on “personalized learning, curing disease, connecting people and building strong communities.”
We will give 99% of our Facebook shares -- currently about $45 billion -- during our lives to advance this mission. We know this is a small contribution compared to all the resources and talents of those already working on these issues. But we want to do what we can, working alongside many others.
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.
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.
Scores of highly qualified students are failing to secure spots at the Golden State’s public universities.
Monday was the deadline to apply for a coveted spot as a University of California student. For certain UC hopefuls, that deadline marked the culmination of years of sleep deprivation and SAT prep, writing-center visits, new extracurriculars, and one last frenzied Thanksgiving break.
But a majority of this year’s UC applicants won’t be admitted. That’s true for both in- and out-of-state students; even some of the brightest and most qualified of the bunch won’t make the cut. The UC system famously ranks among the Ivies and other elite colleges when it comes to selectivity. California’s 1960 Master Plan for Higher Education built exclusivity into the university’s brand, guaranteeing tuition-free admission to the top 12.5 percent of California’s public high-school graduates. Today, even as California’s high-school population grows in size and in ability, the plan’s enrollment thresholds remain fixed in place. The Campaign for College Opportunity, a nonprofit that advocates for access to higher education for all Californians, released a report on Monday suggesting the state is far from providing every in-state student a chance to pursue such education. And according to Michele Siqueiros, the CCO’s president, that means “students need to be virtually perfect to get a spot at the University of California.”
Major Lazer's “Lean On” is the top-streamed song of the year, probably because it encapsulated a lot of its trends.
Today Spotify revealed that the most streamed song of 2015 is Major Lazer’s “Lean On,” featuring MØ and DJ Snake. With 540 million listens, it’s also the most streamed song of all time, a distinction that speaks to the newness of streaming itself. Next year, there may well be a new most-streamed song of all time. Or a few of them.
But there won’t be another “Lean On.” The Spotify data makes official that this is the 2015-est song of 2015, a bizarre little creation that would have sounded avant garde as of just a few years ago but now feels like collection of sounds on the cusp of tipping from trendy to tired. I bobbed my head a lot to “Lean On” this year; a big part of me hopes to never hear it again.
Critics of the HIV-prevention pill say it's not as good as safe sex. That's a false comparison, and a dangerous one.
On Monday, August 3, I tested positive for HIV.
That night, I sat on the sofa in my friend’s high-rise apartment in downtown Miami, peering down at the grainy, sodium-vapor-lit sprawl. I related the story of an older friend who’d tried to console me by saying HIV-positive people stay healthy. His words, while well-intentioned, only served to amplify the generational difference between us: Gay Millennials, when they think of HIV, think more about dating than about death. On my way over, I’d seen couples walking together and thought about how I’d likely never have that—so many people I might have coupled with, all lost opportunities now.
For men in America with access to health care, HIV isn’t usually fatal. But it’s stigmatizing, expensive, and permanent.
As the public’s fear and loathing surge, the frontrunner’s durable candidacy has taken a dark turn.
MYRTLE BEACH, South Carolina—All politicians, if they are any good at their craft, know the truth about human nature.
Donald Trump is very good, and he knows it better than most.
Trump stands alone on a long platform, surrounded by a rapturous throng. Below and behind him—sitting on bleachers and standing on the floor—they fill this city’s cavernous, yellow-beige convention center by the thousands. As Trump will shortly point out, there are a lot of other Republican presidential candidates, but none of them get crowds anything like this.
Trump raises an orange-pink hand like a waiter holding a tray. “They are not coming in from Syria,” he says. “We’re sending them back!” The crowd surges, whistles, cheers. “So many bad things are happening—they have sections of Paris where the police are afraid to go,” he continues. “Look at Belgium, the whole place is closed down! We can’t let it happen here, folks.”
Welfare reform has driven many low-income parents to depend more heavily on family and friends for food, childcare, and cash.
Pity the married working mom, who barely has time to do the dishes or go for a run at night, much less spend a nice evening playing Boggle with her husband and kids.
But if married working parents arestruggling with time management these days, imagine the struggles of low-income single parents. Single-parent households (which by and large are headed by women) have more than tripled as a share of American householdssince 1960. Now, 35 percent of children live in single-parent households.
But while the numbers are growing, the amount of help available to single mothers is not. Ever since the 1996 Personal Responsibility and Work Opportunity Law (generally referred to as welfare reform) placed time limits and work requirements on benefits in an effort to get welfare recipients back into the workforce, single-parent families have had a harder time receiving government benefits. Some states have made it more difficult for low-income single-parent families to get other types of assistance too, such as imposingwork requirements and other barriers for food stamps. According to a recentNew York Times column, between 1983 and 2004, government benefits dropped by more than a third for the lowest-income single-parent families.
Managers who believe themselves to be fair and objective judges of ability often overlook women and minorities who are deserving of job offers and pay increases.
Americans are, compared with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system that rewards merit (ability + effort) with success. Americans are more likely to believe that people are rewarded for their intelligence and skills and are less likely to believe that family wealth plays a key role in getting ahead. And Americans’ support for meritocratic principles has remained stable over the last two decades despite growing economic inequality, recessions, and the fact that there is less mobility in the United States than in most other industrialized countries.
This strong commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular demographic groups. For example, initiatives designed to recruit or provide development opportunities to under-represented groups often come under attack as “reverse discrimination.” Some companies even justify not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates people on their skills, abilities, and merit, without consideration of their gender, race, sexuality etc., and managers are objective in their assessments then there is no need for diversity policies, the thinking goes.