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.
Demonizing processed food may be dooming many to obesity and disease. Could embracing the drive-thru make us all healthier?
Late last year, in a small health-food eatery called Cafe Sprouts in Oberlin, Ohio, I had what may well have been the most wholesome beverage of my life. The friendly server patiently guided me to an apple-blueberry-kale-carrot smoothie-juice combination, which she spent the next several minutes preparing, mostly by shepherding farm-fresh produce into machinery. The result was tasty, but at 300 calories (by my rough calculation) in a 16-ounce cup, it was more than my diet could regularly absorb without consequences, nor was I about to make a habit of $9 shakes, healthy or not.
Inspired by the experience nonetheless, I tried again two months later at L.A.’s Real Food Daily, a popular vegan restaurant near Hollywood. I was initially wary of a low-calorie juice made almost entirely from green vegetables, but the server assured me it was a popular treat. I like to brag that I can eat anything, and I scarf down all sorts of raw vegetables like candy, but I could stomach only about a third of this oddly foamy, bitter concoction. It smelled like lawn clippings and tasted like liquid celery. It goes for $7.95, and I waited 10 minutes for it.
In continuing to tinker with the universe she built eight years after it ended, J.K. Rowling might be falling into the same trap as Star Wars’s George Lucas.
September 1st, 2015 marked a curious footnote in Harry Potter marginalia: According to the series’s elaborate timeline, rarely referenced in the books themselves, it was the day James S. Potter, Harry’s eldest son, started school at Hogwarts. It’s not an event directly written about in the books, nor one of particular importance, but their creator, J.K. Rowling, dutifully took to Twitter to announce what amounts to footnote details: that James was sorted into House Gryffindor, just like his father, to the disappointment of Teddy Lupin, Harry’s godson, apparently a Hufflepuff.
It’s not earth-shattering information that Harry’s kid would end up in the same house his father was in, and the Harry Potter series’s insistence on sorting all of its characters into four broad personality quadrants largely based on their family names has always struggled to stand up to scrutiny. Still, Rowling’s tweet prompted much garment-rending among the books’ devoted fans. Can a tweet really amount to a piece of canonical information for a book? There isn’t much harm in Rowling providing these little embellishments years after her books were published, but even idle tinkering can be a dangerous path to take, with the obvious example being the insistent tweaks wrought by George Lucas on his Star Wars series.
When Kenneth Jarecke photographed an Iraqi man burned alive, he thought it would change the way Americans saw the Gulf War. But the media wouldn’t run the picture.
The Iraqi soldier died attempting to pull himself up over the dashboard of his truck. The flames engulfed his vehicle and incinerated his body, turning him to dusty ash and blackened bone. In a photograph taken soon afterward, the soldier’s hand reaches out of the shattered windshield, which frames his face and chest. The colors and textures of his hand and shoulders look like those of the scorched and rusted metal around him. Fire has destroyed most of his features, leaving behind a skeletal face, fixed in a final rictus. He stares without eyes.
On February 28, 1991, Kenneth Jarecke stood in front of the charred man, parked amid the carbonized bodies of his fellow soldiers, and photographed him. At one point, before he died this dramatic mid-retreat death, the soldier had had a name. He’d fought in Saddam Hussein’s army and had a rank and an assignment and a unit. He might have been devoted to the dictator who sent him to occupy Kuwait and fight the Americans. Or he might have been an unlucky young man with no prospects, recruited off the streets of Baghdad.
ISIS did not merely blast apart old stones—it attacked the very foundations of pluralistic society.
If the ruined ruins of Palmyra could speak, they would marvel at our shock. After all, they have been sacked before. In their mute and shattered eloquence, they spoke for centuries not only about the cultures that built them but also about the cultures that destroyed them—about the fragility of civilization itself, even when it is incarnated in stone. No designation of sanctity, by God or by UNESCO, suffices to protect the past. The past is helpless. Instead these ruins, all ruins, have had the effect of lifting the past out of history and into time. They carry the spectator away from facts and toward reveries.
In the 18th century, after the publication in London of The Ruins of Palmyra, a pioneering volume of etchings by Robert Wood, who had traveled to the Syrian desert with the rather colorful James Dawkins, a fellow antiquarian and politician, the desolation of Palmyra became a recurring symbol for ephemerality and the vanity of all human endeavors. “It is the natural and common fate of cities,” Wood dryly remarked in one of the essays in his book, “to have their memory longer preserved than their ruins.” Wood’s beautiful and meticulous prints served as inspirations for paintings, and it was in response to one of those paintings that Diderot wrote some famous pages in his great Salons of 1767: “The ideas ruins evoke in me are grand. Everything comes to nothing, everything perishes, everything passes, only the world remains, only time endures. ... Wherever I cast my glance, the objects surrounding me announce death and compel my resignation to what awaits me. What is my ephemeral existence in comparison with that of a rock being worn down, of a valley being formed, of a forest that’s dying, of these deteriorating masses suspended above my head? I see the marble of tombs crumble into powder and I don’t want to die!”
Heather Armstrong’s Dooce once drew millions of readers. Her blog’s semi-retirement speaks to the challenges of earning money as an individual blogger today.
The success story of Dooce.com was once blogger lore, told and re-told in playgroups and Meetups—anywhere hyper-verbal people with Wordpress accounts gathered. “It happened for that Dooce lady,” they would say. “It could happen for your blog, too.”
Dooce has its origin in the late 1990s, when a young lapsed Mormon named Heather Armstrong taught herself HTML code and moved to Los Angeles. She got a job in web design and began blogging about her life on her personal site, Dooce.com.
The site’s name evolved out of her friends’ AOL Instant-Messenger slang for dude, or its more incredulous cousin, "doooood!” About a year later, Armstrong was fired for writing about her co-workers on the site—an experience that, for a good portion of the ‘aughts, came known as “getting dooced.” She eloped with her now ex-husband, Jon, moved to Salt Lake City, and eventually started blogging full time again.
Encouraging a focus on white identity is a dangerous approach for a country in which white supremacy has been a toxic force.
Donald Trump and the disaffected white people who make up his base of support have got me thinking about race in America. “Trump presents a choice for the Republican Party about which path to follow––” Ben Domenech writes in an insightful piece at The Federalist, “a path toward a coalition that is broad, classically liberal, and consistent with the party’s history, or a path toward a coalition that is reduced to the narrow interests of identity politics for white people.”
When I was growing up in Republican Orange County during the Reagan and Bush Administrations, lots of white parents sat their kids in front of The Cosby Show, explained that black people are just like white people, and inveighed against judging anyone by the color of their skin rather than the content of their character. The approach didn’t convey the full reality of race as minorities experience it. But it represented a significant generational improvement in race relations.
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.
Though it wasn’t pretty, Minaj was really teaching a lesson in civility.
Nicki Minaj didn’t, in the end, say much to Miley Cyrus at all. If you only read the comments that lit up the Internet at last night’s MTV Video Music Awards, you might think she was kidding, or got cut off, when she “called out” the former Disney star who was hosting: “And now, back to this bitch that had a lot to say about me the other day in the press. Miley, what’s good?”
To summarize: When Minaj’s “Anaconda” won the award for Best Hip-Hop Video, she took to the stage in a slow shuffle, shook her booty with presenter Rebel Wilson, and then gave an acceptance speech in which she switched vocal personas as amusingly as she does in her best raps—street-preacher-like when telling women “don’t you be out here depending on these little snotty-nosed boys”; sweetness and light when thanking her fans and pastor. Then a wave of nausea seemed to come over her, and she turned her gaze toward Cyrus. To me, the look on her face, not the words that she said, was the news of the night: