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.
He died on a Saturday.
My mother and I had planned to pick my dad up from the hospital for a trip to the park. He loved to sit and watch families stroll by as we chatted about oak trees, Kona coffee, and the mysteries of God. This time, the park would miss him.
His skin, smooth and brown like the outside of an avocado seed, glistened with sweat as he struggled to take his last breaths.
In that next year, 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.”
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 sport is becoming an enterprise where underprivileged young men risk their health for the financial benefit of the wealthy.
Football can be a force for good. The University of Missouri’s football team proved it earlier this month when student athletes took a facet of campus life that’s often decried—the cultural and economic dominance of college football—and turned it into a powerful leverage point in the pursuit of social justice. Football can build a sense of community for players and fans alike, and serve as a welcome escape from the pressures of ordinary life. The sport cuts across distinctions of race, class, geography, and religion in a way few other U.S. institutions do, and everyone who participates reaps the benefits.
But not everyone—particularly at the amateur level—takes on an equal share of the risk. College football in particular seems headed toward a future in which it’s consumed by people born into privilege while the sport consumes people born without it. In a 2010 piece in The Awl, Cord Jefferson wrote, “Where some see the Super Bowl, I see young black men risking their bodies, minds, and futures for the joy and wealth of old white men.” This vision sounds dystopian but is quickly becoming an undeniable reality, given new statistics about how education affects awareness about brain-injury risk, as well as the racial makeup of Division I rosters and coaching staffs. The future of college football indeed looks a lot like what Jefferson called “glorified servitude,” and even as information comes to light about the dangers and injustices of football, nothing is currently being done to steer the sport away from that path.
“Wanting and not wanting the same thing at the same time is a baseline condition of human consciousness.”
Gary Noesner is a former FBI hostage negotiator. For part of the 51-day standoff outside the Branch Davidian religious compound in Waco, Texas, in 1993, he was the strategic coordinator for negotiations with the compound’s leader, David Koresh. This siege ended in infamous tragedy: The FBI launched a tear-gas attack on the compound, which burned to the ground, killing 76 people inside. But before Noesner was rotated out of his position as the siege’s head negotiator, he and his team secured the release of 35 people.
Jamie Holmes, a Future Tense Fellow at New America, spoke to Noesner for his new book Nonsense: The Power of Not Knowing. “My experience suggests,” Noesner told Holmes, “that in the overwhelming majority of these cases, people are confused and ambivalent. Part of them wants to die, part of them wants to live. Part of them wants to surrender, part of them doesn’t want to surrender.” And good negotiators, Noesner says, are “people who can dwell fairly effectively in the areas of gray, in the uncertainties and ambiguities of life.”
It was widely seen as a counter-argument to claims that poor people are "to blame" for bad decisions and a rebuke to policies that withhold money from the poorest families unless they behave in a certain way. After all, if being poor leads to bad decision-making (as opposed to the other way around), then giving cash should alleviate the cognitive burdens of poverty, all on its own.
Sometimes, science doesn't stick without a proper anecdote, and "Why I Make Terrible Decisions," a comment published on Gawker's Kinja platform by a person in poverty, is a devastating illustration of the Science study. I've bolded what I found the most moving, insightful portions, but it's a moving and insightful testimony all the way through.
Nuts-and-bolts Washington coverage has shifted to subscription-based publications, while the capitol’s traditional outlets have shrunk.
Back in 2009, I had a job with a Washington, D.C.-based newsletter called Water Policy Report. It wasn’t exactly a household name, but I was covering Congress, the federal courts, and the Environmental Protection Agency—a definite step up from the greased-pig-catching contests and crime-blotter stories I had chased at a community newspaper on Maryland’s Eastern Shore, my first job out of college.
One of my responsibilities at the newsletter was to check the Federal Register—the official portal that government agencies use to inform the public about regulatory actions. In December of that year I noticed an item that said that the Environmental Protection Agency had decided that existing pollution controls for offshore oil-drilling platforms in the Gulf of Mexico were adequate, and that there wasn’t enough pollution coming from those platforms to warrant further review or action.
A Chicago cop now faces murder charges—but will anyone hold his colleagues, his superiors, and elected officials accountable for their failures?
Thanks to clear video evidence, Chicago police officer Jason Van Dyke was charged this week with first-degree murder for shooting 17-year-old Laquan McDonald. Nevertheless, thousands of people took to the city’s streets on Friday in protest. And that is as it should be.
The needlessness of the killing is clear and unambiguous:
Yet that dash-cam footage was suppressed for more than a year by authorities citing an investigation. “There was no mystery, no dead-end leads to pursue, no ambiguity about who fired the shots,” Eric Zorn wrote in The Chicago Tribune. “Who was pursuing justice and the truth? What were they doing? Who were they talking to? With whom were they meeting? What were they trying to figure out for 400 days?”
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.
While some companies squeeze staff to make more money, a growing number are testing the theory that they can have both profits and happy workers.
NORWICH, Vt.–Call centers are not, typically, very happy places—especially around the holidays. Workers have quotas to make, and often sit in bleak cubicles, headsets on, plowing through calls from stressed shoppers, as they count down the minutes until lunch.
But the employees in this call center in Vermont are rosy-cheeked and—can it be?—smiling. They field calls about misplaced packages and gluten-free dough, while surrounded by orange and red Thanksgiving decorations and a wall lined with baking gear that they’re allowed to borrow. They still have quotas—10 calls per hour, per agent—but they know they won’t get fired if they spend 45 minutes talking to a woman with cancer about baking, as one agent recently did.