There's a simple enough way to resolve the mess in Cyprus. It doesn't even involve asking the Germans to pay more or the Cypriots to tax bank deposits. It's called printing money.
A quick recap. Cyprus needs to raise €5.8 billion ($7.4 billion) to rescue its insolvent banks or the European Central Bank (ECB) says it will cut off the "emergency liquidity assistance" (ELA) loans keeping those zombie banks afloat. It's not so easy to come up with €5.8 billion in just a €19 billion economy. So Germany has told Cyprus to tax bank deposits, including supposedly insured amounts below €100,000, to get what it needs. The Cypriot parliament hated that idea and voted in unison to reject the bank-deposit tax on Tuesday.
There are three players here -- Germany, Cyprus, and the ECB -- and each comes with a big hurdle. First, Germany insists it won't hand over any more than the €10 billion it's already committed. Angela Merkel doesn't want to fully bail out the less-than-reputable Russian oligarchs who use the island as a tax haven, particularly in an election year. Second, Cyprus doesn't want to cripple its future as an offshore financial center (although it's too late for that) with any kind of deposit tax. Third, the ECB has to sign off on any agreement.
This is what we call an impasse. Germany doesn't want to pay more, Cyprus doesn't to tax more, and the ECB doesn't want to print more. It's a game of chicken with the future of the euro potentially at stake (again). The question is who moves first. With Germany and Cyprus still quite far apart, it's up to the ECB. After all, the magic of the printing-press would make the Cyprus banking disaster much easier to solve.
Here's how Cyprus could save itself in three, easy steps -- with the ECB's tacit support.
1. Merge Cyprus' Big Banks and then Spin Off a Bad Bank
The best way to deal with the losses in Cypriot banks is to isolate them. This just means putting all the good assets from its biggest banks into a good bank pile. The rest goes into the "bad bank" pile. But how does this improve things? Well, for one, it gives the government an idea of the size of the black hole in bank balance sheets. For another, it replaces two zombie banks that won't lend with one dead bank that won't and one healthy one that will. In other words, it should, albeit slightly, increase the amount of credit in the economy.
2. Convert Uninsured Deposits to Bank CDs
Deposit tax or not, the Cypriot financial system is doomed. Its business model of giving rich Russians a place to park (perhaps ill-gotten) cash and avoid taxes is finished. Just the specter of the deposit tax will be enough to spur deposit flight from abroad.
This capital exodus will only hasten the next bailout. Cypriot banks can afford to lose a bit of their deposit base, but losing too much will turn their balance sheets even more upside down -- and make them even more dependent on ELA funding. It won't be long before the banks need more capital from the Germans.
What is to be done? As Felix Salmon points out, sovereign debt guru Lee Buchheit and Mitu Gulati of Duke University have come up with an elegantly simple solution: Convert uninsured deposit amounts above €100,000 into bank certificates of deposit, or CDs. Now, this wouldn't solve the banks' capital problems now, but it would reduce the banks' capital problems in the future. Banks would give uninsured depositors the choice of accepting either a five- or ten-year bank CD, with the latter offering either a higher interest rate or some kind of natural gas bond as a sweetener. The government would also extend the maturity on its sovereign debt by five years -- which Buchhet and Gulati estimate would save €6.6 billion.
3. Recapitalize the Bad Bank with Government-Guaranteed Natural Gas Bonds
This is where things get tricky. Even if the Cypriot government did all of the above, it would still need to recapitalize the bad bank. And that's still not easy for Cyprus to do. But with a little legerdemain, Cyprus can get the ECB to print what it needs. That is, after all, what Ireland recently did.
There's a wildcard in all of this. Cyprus might have huge natural gas reserves. Upper-end estimates value the hoped-for-reserves at €300 billion, but that's all they are for now: hoped for. Almost none of the reserves have been proved yet. And besides, even if they do exist, it would still be another decade before they came on line. But this could be enough to save Cyprus now. Here's how it would work.
First, securitize future natural gas revenue into long-term bonds. These bonds would have maturities between 25 and 40 years, and the senior-most tranche would go exclusively towards recapping the bad bank. Depositors who term out their accounts could get junior tranches if they prefer the upside risk to a lower interest rate on their CD.
Second, the government guarantees the senior-most tranche of these natural gas bonds. In other words, the government will cover the difference between what these bonds are supposed to pay, and what they do if it turns out there isn't much (or any) natural gas. Now, this looks like a pretty daunting contingent liability for a government with a €19 billion economy, but it's much more manageable over 25 to 40 years.
Third, backload the payments on the bonds.
Fourth, give these government-guaranteed bonds to the bad bank to use as collateral for ELA loans. Let's be clear what this means. These bonds would almost certainly trade far below par, but that's not what the Cypriot government cares about. It cares about giving the bad bank safe-ish assets it can use as collateral for ELA money from the Central Bank of Cyprus. The bad bank gets the capital it needs now, and the government doesn't have to pay much until much later. It's money-printing in disguise. Of course, the ECB Governing Council could overrule this extension of ELA by a two-thirds vote ... but would it would really push Cyprus out of the euro zone if crisis had been averted? Probably not.
I know this sounds incredibly fanciful. Gimmicky, even. A government driven into bankruptcy by its banks can save them, and itself, by issuing some new long-term debt to give them? Really? Well, yes. This kind of alchemy is precisely what Ireland has done.
Like Cyprus, Ireland has an outsized financial sector that made some outsized bets that went bad. Financial bankruptcy turned to national bankruptcy and then bailout after the Irish government guaranteed losses it couldn't possibly guarantee. So far, so bad. But here's where things get interesting. The Irish government nationalized its biggest problem bank, and recapitalized it with promissory notes -- basically, front-loaded government debt instruments. The now-nationalized bank then used these promissory notes as collateral for ELA funding, which allowed it to slowly wind itself down. (Irish economist Karl Whelan has the best explanation of all this, if you want the full wonk).
Then they had a revelation. Wouldn't it be great if they could exchange these promissory notes with their upfront repayments for back-loaded, longer-term bonds? Yes, yes it would. The Irish government ripped up the promissory notes and issued 25-to-40-year bonds to use as collateral instead. (For legal reasons, they also closed down the nationalized bank, and transferred its remaining assets to a bad bank). The ECB could have vetoed this, but it chose not to.
Again, the benefit of all this financial sleight-of-hand was the central bank printed money for Ireland today, and Ireland didn't have to pay it back for many years. As Wolfgang Münchau of the Financial Times explains, it was a deliberately convoluted way of printing money for the government to hide that they were printing money for the government.
Cyprus should pull an Ireland, and force the ECB to make a decision. Either the ECB refuses to accept guaranteed natural gas bonds as collateral, and Cyprus gets booted from the euro, or the ECB relents, and the panic subsides.
In other words, make the ECB decide whether the euro is worth printing 5.8 billion euros.
Thicker ink, fewer smudges, and more strained hands: an Object Lesson
Recently, Bic launched acampaign to “save handwriting.” Named “Fight for Your Write,” it includes a pledge to “encourage the act of handwriting” in the pledge-taker’s home and community, and emphasizes putting more of the company’s ballpoints into classrooms.
As a teacher, I couldn’t help but wonder how anyone could think there’s a shortage. I find ballpoint pens all over the place: on classroom floors, behind desks. Dozens of castaways collect in cups on every teacher’s desk. They’re so ubiquitous that the word “ballpoint” is rarely used; they’re just “pens.” But despite its popularity, the ballpoint pen is relatively new in the history of handwriting, and its influence on popular handwriting is more complicated than the Bic campaign would imply.
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.
Wine snobs, string quartets, and the limits of intuition
Several months ago, this author sat at a classical music concert, trying to convince himself that wine is not bullshit.
That may seem like a strange thought to have while listening to Beethoven’s Symphony No. 7 in A major. But Priceonomics had recently posted an article investigating The Price of Wine, part of which reviewed research that cast doubt on both consumers’ and wine experts’ ability to distinguish between quality wine and table wine or identify different wines and their flavors. It seemed a slippery slope to the conclusion that wine culture is nothing more than actors performing a snobbish play.
Listening to an accomplished musician while lacking any musical experience resulted in a feeling familiar to casual wine drinkers imbibing an expensive bottle: Feeling somewhat ambivalent and wondering whether you are convincing yourself that you enjoy it so as not to appear uncultured.
On the desperation behind the migrant tragedy in Austria
On Thursday, as Krishnadev Calamur has been tracking in The Atlantic’s new Notes section, Austrian authorities made a ghastly discovery: a truck abandoned in the emergency lane of a highway near the Hungarian border, packed with the decomposing bodies of 59 men, eight women, and four children. They are thoughtto be the corpses of migrants who suffocated to death, perhaps two days earlier, in the bowels of a vehicle whose back door was locked shut and refrigeration and ventilation systems weren’t functional. Stray identity documents suggest that at least some of the victims were Syrian—refugees from that country’s brutal civil war. The truck featured an image of a chicken and a slogan from the Slovakian poultry company that the lorry once belonged to: “I taste so good because they feed me so well.”
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.
The new drama series, which follows the Colombian kingpin’s rise to power, feels more like a well-researched documentary than the gripping saga it wants to be.
Netflix’s new series Narcos is possibly arriving at the wrong time: The doldrums of summer aren’t really the ideal moment for a narratively dense, documentary-like look at the rise and fall of the Colombian drug kingpin Pablo Escobar. Narrated in voiceover by DEA Agent Steve Murphy (Boyd Holbrook), the early hours of Narcos feel like a history lesson, though an visually sumptuous one.
As Netflix continues to expand its streaming empire, it’s making a concerted effort to appeal to worldwide audiences, and Narcos fits neatly into that plan, alongside last year’s expensive critical flop Marco Polo. Narcos was shot on location in Colombia and stars the acclaimed Brazilian actor Wagner Moura as Escobar. It takes full advantage of its setting, loaded with sweeping helicopter shots of the Colombian jungle where Escobar founded his cocaine empire, filling a power vacuum left by various political upheavals in late-’70s South America.
Dealing with misinformation, feeling powerless, and slowly getting better together
I thought the article would validate my husband’s experience. That’s why I emailed him the link to the decade-old New York magazine article about his alma mater, the American Boychoir School for vocal prodigies, where alumni from as late as the 1990s estimate that one in five boys were molested. Boys like Travis.
“It used to feel like an isolated incident that affected just me," Trav said.
It was the end of my workday on an October afternoon; I had just set my keys on the kitchen table. My coat was still buttoned.
“Now I know I spent nearly three years of my childhood at a boarding school not just with random pedophiles, but in a culture that allowed it.”
As his wife, how do I respond? That he survived? That he’s brave? That he’s a hero for letting me talk about it? That I will stand beside him with a personal mission and public vow that nobody will ever hurt him, physically or emotionally, again, the way they did during his 30 months as a choirboy from 1988 to 1990?.
Trying to find clarity in a world muddied by differing opinions and too much information
The deadlock began around week 20 of my pregnancy, when my mom casually asked about when and where our son would be circumcised. I presumptuously told her we weren’t going to do that. Then I saw the surprised look on my husbands face.
“We’re not?” he asked.
Sensing an opportunity to mount an offensive, my mom backed him with the full force of the guilt-inducing tone she’d perfected over the years. “But honey, it’s not natural to leave your son uncircumcised,” she said. “You don’t want to do that to him, do you?”
Quickly realizing that I would never win a drawn-out argument, I decided to end the conversation. To do this, I summoned the petulant teenager lying dormant inside me—something that only a mom can awaken in a 33-year-old woman—and said, “Actually mom, circumcision is the exact opposite of natural. That’s the whole point, to do away with the ‘natural’.” Then I gave my husband the ‘you’d like to have sex with me again, right?’ look and said to him, “We’ll talk about this later.”
At a time when same-sex marriage and gay equality are on the march, a new poll of LGBT Americans shows women lagging in several disheartening respects.
It’s easy to assume that queer Americans are thriving today. A year out from the Supreme Court decision striking down DOMA, 55 percent of Americans favor legalizing same-sex marriage legalization—an all-time high. State bans continue to knock around the lower courts, Wisconsin’s and Indiana’s being the ones most recently scrutinized in federal appeals courts. Queer people, research shows, are happier in their marriages than heterosexuals; in the June 2013 Atlantic cover story, Liza Mundy explored the possibility that queer unions lend themselves more readily to relationship-sustaining egalitarianism by avoiding the potential marital pitfalls of sticking too strictly with traditional gender roles.
"You have to remember," says someone who knows him, "that the great passion in his life is his hatred of the Labour Party"
ON October 3 of last year the world awaited the verdict from a Los Angeles courtroom. That Tuesday was also the opening day of the Labour Party's annual conference at Brighton, and at 6:00 P.M.--10:00 A.M. Pacific Time, when the jury's decision was due--many of us covering the conference headed for televisions in bars or hotel rooms. To our astonishment, the BBC led off its news program not with the O. J. Simpson verdict but with the keynote speech that Tony Blair, the Labour leader, had given earlier that day. Surprise turned into a mixture of irritation and amusement when the full story emerged. The television companies had been badgered by faxes from Alastair Campbell, Blair's press secretary: "Whilst I fully understand there is much interest in the verdict, I would implore you not to lose sight of the news value and of the importance to the country of Mr Blair's speech." Nor did they lose sight of it. The BBC did as it was told. This went beyond spin-doctoring. It was news management worthy of a none-too-democratic Balkan state, or of some Third World country rejoicing in the "new information order."