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.
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.
How men and women digest differently, diet changes our skin, and gluten remains mysterious: A forward-thinking gastroenterologist on eating one's way to "gutbliss"
Robynne Chutkan, MD, is an integrative gastroenterologist and founder of the Digestive Center for Women, just outside of Washington, D.C. She trained at Columbia University and is on faculty at Georgetown, but her approach to practicing medicine and understanding disease is more holistic than many specialists with academic backgrounds. She has also appeared on The Dr. Oz Show (of which I’ve been openly skeptical in the past, because of Oz’s tendency to divorce his recommendations from evidence).
A new anatomical understanding of how movement controls the body’s stress response system
Elite tennis players have an uncanny ability to clear their heads after making errors. They constantly move on and start fresh for the next point. They can’t afford to dwell on mistakes.
Peter Strick is not a professional tennis player. He’s a distinguished professor and chair of the department of neurobiology at the University of Pittsburgh Brain Institute. He’s the sort of person to dwell on mistakes, however small.
“My kids would tell me, dad, you ought to take up pilates. Do some yoga,” he said. “But I’d say, as far as I’m concerned, there's no scientific evidence that this is going to help me.”
Still, the meticulous skeptic espoused more of a tennis approach to dealing with stressful situations: Just teach yourself to move on. Of course there is evidence that ties practicing yoga to good health, but not the sort that convinced Strick. Studies show correlations between the two, but he needed a physiological mechanism to explain the relationship. Vague conjecture that yoga “decreases stress” wasn’t sufficient. How? Simply by distracting the mind?
An increasing number of respondents are checking “Some Other Race” on U.S. Census forms, forcing officials to rethink current racial categories.
Something unusual has been taking place with the United States Census: A minor category that has existed for more than 100 years is elbowing its way forward. “Some Other Race,” a category that first entered the form as simply “Other” in 1910, was the third-largest category after “White” and “Black” in 2010, alarming officials, who are concerned that if nothing is done ahead of the 2020 census, this non-categorizable category of people could become the second-largest racial group in the United States.
Among those officials is Roberto Ramirez, the assistant division chief of the Census Bureau’s special population statistics branch. Ramirez is familiar with the complexities of filling out the census form: He checks “White” and “Some Other Race” to reflect his Hispanic ethnicity. Ramirez joins a growing share of respondents who are selecting “Some Other Race.” “People are increasingly not answering the race question. They are not identifying with the current categories, so we are trying to come up with a (better) question,” Ramirez told me. Ramirez and his colleague, Nicholas Jones, the director of race and ethnic research and outreach at the Census Bureau, have been working on fine-tuning the form to extract detailed race and ethnic reporting, and subsequently drive down the number of people selecting “Some Other Race.”
The political commentator may be more committed to the Republican nominee’s platform than he is.
Donald Trump has just betrayed Ann Coulter. Which is a dangerous thing to do.
This week, Coulter released her new book, In Trump We Trust. As the title suggests, it’s a defense of Trump. But more than that, it’s a defense of Trumpism. Most Trump surrogates contort themselves to defend whatever The Donald says, no matter its ideological content. They’re like communist party functionaries. They get word from the ideologists on high, and regurgitate it as best they can.
Coulter is different. She’s an ideologist herself. She realized the potency of the immigration issue among conservatives before Trump did. On June 1 of last year, she released Adios America, which devotes six chapters to the subject of immigrants and rape. Two weeks later, Trump—having received an advanced copy—famously picked up the thread in his announcement speech.
Donald Trump’s new campaign CEO, who is registered to vote at an empty house in Florida, may be as scandal-plagued as his predecessors.
Barely a week into the job, Donald Trump’s new campaign CEO is already facing harsh scrutiny over a 20-year-old domestic-violence charge and an allegation of voter-registration fraud.
On Thursday night, the New York Postand other outlets reported that Stephen Bannon was charged with misdemeanor domestic violence, battery, and dissuading a witness in 1996, after an altercation with his then-wife in Santa Monica, California. According to a police report, Bannon’s spouse said he pulled at her neck and wrist. A spokesman told Politico that Bannon was never questioned by police and pleaded not guilty. The charges were dropped around the time that the couple divorced later that year. In divorce proceedings, she outlined several vulgarities Bannon allegedly used.
City dwellers spend nearly every moment of every day awash in Wi-Fi signals. Homes, streets, businesses, and office buildings are constantly blasting wireless signals every which way for the benefit of nearby phones, tablets, laptops, wearables, and other connected paraphernalia.
When those devices connect to a router, they send requests for information—a weather forecast, the latest sports scores, a news article—and, in turn, receive that data, all over the air. As it communicates with the devices, the router is also gathering information about how its signals are traveling through the air, and whether they’re being disrupted by obstacles or interference. With that data, the router can make small adjustments to communicate more reliably with the devices it’s connected to.
Last night, in Time Capsule #88, I noted the deafening silence of Republican officialdom, after Hillary Clinton delivered her calmly devastating indictment of Donald Trump’s racist themes.
After this frontal attack on their own party’s chosen nominee, the rest of the GOP leadership said ... nothing. The cable-news Trump advocates were out in force, but senators? Governors? Previous candidates? Wise men and women of the party? Crickets.
A reader who is not a Trump supporter says there’s a logic to the plan:
I think you might be missing the GOP strategy here regarding Sec. Clinton’s bigotry speech, and the fact that no Republican came forward to defend Donald Trump. Republicans know that she spoke the truth—the indefensible truth about Donald Trump—and they want to squelch any discussion about it. That’s what they are doing.
Because they don’t want this speech on the airwaves, debated on panels, over several news cycles, with more and more of the dirty laundry getting debated in the mainstream news cycles, leading the Nightly News with dramatic music. Screaming headlines. Any any—ANY—statement by a Republican will trigger that discussion that no GOPer wants.
The mainstream news guys are sitting there at their email boxes, waiting, waiting, for statements, so they can write a piece on it. Benjy Sarlin mentioned it on Twitter, which you probably saw. [JF: I have now] And a couple of other journos, agreed.
But without some outraged statement from Ryan, Cruz, anybody, the mainstream journos have nothing to write about, there is no news cycle, no panels, no screaming headlines, no multi-news cycle. Just a Wow! Clinton gave a rough speech!” End of story. And that’s the strategy. Bury this story. And it’s working.
That’s how the GOP handles this kind of story. And it works just fine, every time. The mainstream journos can't find a both-sides hook, and they are nervous about this alt-right stuff anyway, so the story dies. Journos fear the brutality of GOP pushback. So it goes. Every. Time.
Contrast that with the non-story about the Clinton Foundation. Every GOPer was sending out a truckload of statements to keep that story going. Chuck Todd has stated in the past that he—they—have no choice but to write about whatever the GOP is upset about because they all put their shoulder to the wheel. And the GOP always has something for journos to write about. Controversy! And no fear of brutality from the Democrats. That’s how that goes.
If Hillary Clinton beats Donald Trump, her party will have set a record in American politics.
If Donald Trump can’t erase Hillary Clinton’s lead in the presidential race, the Republican Party will cross an ominous milestone—and confront some agonizing choices. Democrats have won the popular vote in five of the six presidential elections since 1992. (In 2000, Al Gore won the popular vote but lost the Electoral College and the White House to George W. Bush.) If Clinton maintains her consistent advantage in national and swing-state polls through Election Day, that means Democrats will have won the popular vote in six of the past seven presidential campaigns.
Since the 1828 election of Andrew Jackson that historians consider the birth of the modern two-party system, no party has ever won the presidential popular vote six times over seven elections. Even the nation’s most successful political figures have fallen short of that standard.
History repeats itself, it is often said. The strife facing modern-day Libya—strife largely born of and fueled by internal, sometimes tribal divisions—is only the latest iteration in a longstanding pattern. As the Italians discovered during their colonization of Libya, and as ISIS discovered when it conquered Sirte, and as the international community has recently discovered in a multitude of ways, Libya is a deeply divided country. Without a real approach to that reality—including, perhaps, creating a confederal model for Libya—Libyans themselves will continue to be their own worst enemies.
Libya’s tribal divisions were long a reality for the Italians, who occupied the North African country from 1912, after winning it from Turkey, to 1943, when they lost it against the British. Italy also used those divisions to its advantage in early 1928, when it defeated the rebellious tribes of Mogharba and many others who were engaged in a fight against the Italian Royal Army, but also—and above all—against each other. The Italians occupied the Corridoio Sirtico (Sirtic Corridor), an ideal break line, and conquered the oases of al-Jufrah, Zellah, Awjilah, and Gialo, isolated in the Cyrenaic desert, more than 150 miles from the Mediterranean Sea. Shortly afterwards, three gruppi mobili (mobile groups), formed by thousands of Italian soldiers, moved in from Tripolitania and Cyrenaica in a pincer movement. The target: the rebels in the Sirtic Corridor, who also fell.