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.
The candidates are back on the campaign trail, following the third, and final, debate on Wednesday night.
It’s Thursday, October 20—the election is now less than three weeks away. Donald Trump and Hillary Clinton are returning to the campaign trail to deliver their final pitch to voters, ahead of Election Day. We’ll bring you the latest updates from the trail, as events unfold. Also see our continuing coverage:
Science says lasting relationships come down to—you guessed it—kindness and generosity.
Every day in June, the most popular wedding month of the year, about 13,000 American couples will say “I do,” committing to a lifelong relationship that will be full of friendship, joy, and love that will carry them forward to their final days on this earth.
Except, of course, it doesn’t work out that way for most people. The majority of marriages fail, either ending in divorce and separation or devolving into bitterness and dysfunction. Of all the people who get married, only three in ten remain in healthy, happy marriages, as psychologist Ty Tashiro points out in his book The Science of Happily Ever After, which was published earlier this year.
Social scientists first started studying marriages by observing them in action in the 1970s in response to a crisis: Married couples were divorcing at unprecedented rates. Worried about the impact these divorces would have on the children of the broken marriages, psychologists decided to cast their scientific net on couples, bringing them into the lab to observe them and determine what the ingredients of a healthy, lasting relationship were. Was each unhappy family unhappy in its own way, as Tolstoy claimed, or did the miserable marriages all share something toxic in common?
Why her vow not to “add a penny to the debt” is an impossible pledge to keep
Hillary Clinton said nothing on Wednesday night that should derail her considerable chances of winning the presidency on November 8. But if she wins, one simple promise she repeated over and over again could come back to haunt her reelection bid in 2020.
“I also will not add a penny to the debt,” Clinton said toward the beginning of her final presidential-debate performance. She made a similar pledge two more times that night, and it’s a line she has used before on the campaign trail. It’s a short-hand reference to the fact that although she has proposed hundreds of billions in new federal spending for infrastructure, paid family leave, education, and other items, she would pay for those investments by raising an equal or greater amount in revenue through higher taxes on the wealthy and corporations.
Rarely have presidential nominees declared, without qualification, that it’s a woman’s right to choose.
Even in a presidential campaign that has become so intensely focused on gender, there was something surreal about watching Hillary Clinton’s response to a question about abortion in Wednesday night’s debate.
Here was the first woman nominated by a major party for the United States presidency, standing on the debate stage in “suffragette white,” and talking in no uncertain terms about her strong commitment to protecting a woman’s right to “make the most intimate, most difficult in many cases, decisions about her health care that one can imagine.”
Democrats are expected to support abortion rights, of course, but that support is often couched with carefully hedged language. This is an understandable impulse, given how divisive the issue of abortion remains.
Narcissism, disagreeableness, grandiosity—a psychologist investigates how Trump’s extraordinary personality might shape his possible presidency.
In 2006, Donald Trump made plans to purchase the Menie Estate, near Aberdeen, Scotland, aiming to convert the dunes and grassland into a luxury golf resort. He and the estate’s owner, Tom Griffin, sat down to discuss the transaction at the Cock & Bull restaurant. Griffin recalls that Trump was a hard-nosed negotiator, reluctant to give in on even the tiniest details. But, as Michael D’Antonio writes in his recent biography of Trump, Never Enough, Griffin’s most vivid recollection of the evening pertains to the theatrics. It was as if the golden-haired guest sitting across the table were an actor playing a part on the London stage.
“It was Donald Trump playing Donald Trump,” Griffin observed. There was something unreal about it.
As the group sheds territory, its propaganda wing has been forced to come up with a new storyline.
On the morning of October 17, Iraqi Prime Minister Haider al-Abadi announced the launch of the operation to recapture the Iraqi city of Mosul from the Islamic State. In the hours that followed, Kurdish Peshmerga claimed to have seized no fewer than nine villages and 200 square kilometers of territory. By lunchtime on day two, the spokesman for the U.S.-led coalition went as far as to say that the offensive was “on or ahead of schedule.”
Unsurprisingly, the Islamic State’s version of events read very differently. While its official media team conceded that the group had faced a large attack near Mosul on Monday morning, that was about all its propaganda shared with the mainstream news narrative. Indeed, while the peshmerga were counting up their captured kilometers at the end of the first day, the Islamic State’s Amaq News Agency was claiming that the reports were all false, and that it had, contrary to the lies peddled by the “crusader” media, managed to “absorb the momentum” of the encroaching forces before subsequently “repelling” them.
With two and a half weeks to go, the debate phase of the competition is at last at its end. In real time last night I did an endless tweet-storm commentary whose beginning you can find here and that wound up this way:
Most of what I thought, I said at the time. But to summarize:
1) Predictability. To my relief, most of the expert forecasts I quoted in my debate preview piece matched what actually occurred.
The match-up really did turn out to be an extreme contrast at every level—intellectual and rhetorical styles, bearing on stage, what each candidate talked about and didn’t. The things Jane Goodall foresaw about Trump’s primate-dominance moves actually took place, when he was free to roam the stage in debate #2. As his fallen rivals from the Republican primaries had predicted, Trump faced much greater challenges in these head-to-head debates than he had in the crowded-podium prelims. Back then, he could chime in with an insult whenever he wanted and otherwise just stay quiet and roll his eyes. In the head-to-head round, especially the last debate, he struggled to fill his allotted time with details on any topic and fell back on slogans from his stump speech. Also predictably, Hillary Clinton was as prepared as she could be and barely put a foot wrong.
On Wednesday, Trump employed the adjective to insult his opponent. What he didn’t realize was that the word has long been a rallying cry.
After Donald Trump referred to Hillary Clinton, during Wednesday’s final presidential debate, as “a nasty woman,” many of Clinton’s fellow ladies took it upon themselves to make an announcement: They were nasty, too. Just as nasty—maybe even more nasty—than the woman Trump had attempted to denigrate, via a weaponized mutter, before a live audience of millions of people.
Soon, the hashtags #nastywomen and #IAmANastyWoman trended on Twitter. The website nastywomengetshitdone.com got passed around, mostly by people delighted by the fact that the URL, via some hasty behind-the-scenes maneuvering, now leads to Hillary Clinton’s campaign website. The Huffington Post asked its readers, with only a trace of irony, “Are you a nasty woman? Let us know.”
A gender-studies professor explains how the industry works.
Humans have been creating images of sex and genitalia for millions of years, but it is only in the past few centuries—since the 1600s, according to historians—that these representations started meeting academics’ preferred definition of pornography, which involves both the violation of taboos and the intention of arousal. The first efforts to make money off of this new endeavor could not have come long after that.
With the publication of Playboy and Hustler in the mid-20th-century, porn started going corporate, and the industry has since bloomed into an enterprise so vast that people have a hard time estimating its size. Like any other industry, porn has its shady qualities—labor abuses, content piracy, and a blemished supply chain, to name a few. But unlike nearly any other industry, these unseemly features are allowed to thrive, mostly unchecked, behind the curtain of social taboo.
“Imagine what would happen if we don’t stand and fight [ISIS],” he said:
If we didn’t do that, you could have allies and friends of ours fall. You could have a massive migration into Europe that destroys Europe, leads to the pure destruction of Europe, ends the European project, and everyone runs for cover and you’ve got the 1930s all over again, with nationalism and fascism and other things breaking out. Of course we have an interest in this, a huge interest in this.