The country's slow-motion bank run could end the euro -- if the ECB lets it.
Bank runs usually have one speed: all-out-sprinting. But today, the Greeks are jogging.
There's been a quiet bank run in Greece the past three years. Since 2009, Greek banks have lost somewhere between 25 and 30 percent of their deposits. That's actually surprisingly low considering that a euro in a Greek bank doesn't look like it's worth as much as a euro in a German bank. The calculus is simple. Greece might turn its euros into cheaper drachmas and Germany won't. Why wouldn't more Greek people move their money to be safe?
Increasingly, they are. On Monday and Tuesday alone, Greeks withdrew over €1.2 billion ($1.53 billion). That's roughly 0.75 percent of remaining Greek deposits. This still-gradual bank run -- what FT Alphaville's Joseph Cotterill calls a "bank jog" -- is accelerating because Greek politics is making a Greek exit look more imminent.
It is a classic case of self-fulfilling economic expectations. Greeks are nervous about leaving the euro. The nervousness leads to a bank run. A bank run increases the chance that Greece will have to leave the euro. Which makes people more nervous. And around we go.
GOOD NIGHT, EURO
As Greek banks lose deposits, they need new sources of funding. But they can't raise money from markets. That leaves the ECB. The ECB has so far been a reluctant lender-of-last-resort, but it has been a lender-of-last-resort -- for banks, if not countries. The Cliff Notes version is that the ECB has kept Greek banks afloat by giving them money in exchange for collateral.* Warning bells might be going off. If Greek banks have good collateral, why can't they use it to get private loans? The answer is that they don't have good collateral. In other words, if Greece defaults and exits, the ECB will be stuck holding a bag of mostly worthless pieces of paper.
How big is the problem? Let's take a look under the hood of the ECB. The below chart courtesy of Scotty Barber shows so-called TARGET2 balances. It's a bit technical, but TARGET2 shows how much countries owe or are owed by the ECB. That's more or less a decent proxy for where deposits are moving from and to within the euro zone.
A Greek default would effectively cost the ECB roughly €100 billion ($127 billion), to be split between the remaining euro zone members.
Here's how this could push Greek out of the euro zone. Greek banks are running out of collateral. Even bad collateral. All they have is really bad collateral. As the bank jog speeds up, they need to get more and more money from the ECB. But they might not have good enough collateral to get it. The ECB can change its rules and accept dodgier collateral -- but that would open the ECB up to even bigger losses down the line, assuming a Greek exit is inevitable.
If the ECB says no, then the jig would be up for Greece. Its banks would run out of money. That's when the bank jog would turn into a full-fledged run and then a sprint -- if it hadn't already. Of course, when banks don't have money, nobody has money. The Greek government wouldn't have a choice: It would have to start printing new drachmas. Good night, euro.
AFTER GREECE ...
The damage won't stop there. Take a look at the TARGET2 balances again. Italian and Spanish banks are even more dependent on ECB funding than Greece. Already, there are signs of a bank racewalk going on among them. If the ECB cut the cord on Greece, Italian and Spanish depositors would frantically move their euros to German banks to protect themselves against the same fate. This deposit drain would eventually push them into the same collateral bind. The ECB would have to dramatically reverse itself to save the common currency.
Let's take a step back for a minute. The world of TARGET2 balances can be something of a rabbit hole, but there are two big takeaways here. First, the Greek bank jog will put more pressure on the ECB to do more. It will have to decide again whether or not to boot Greece from the euro zone. And second, a Greek exit would be a mess for Italy and Spain regardless of whether Greek politicians or the ECB makes the move.
It's hard to imagine the ECB pulling the plug on Greece anytime soon. Europe doesn't have anywhere near the bailout fund it needs ready, nor a consensus on euro bonds, nor on more aggressive ECB action. But the longer the ECB keeps Greek, Italian, and Spanish banks on life support, the greater the final cost if one of them exits -- and the greater the panic will hit the other countries in that event. The danger is that the ECB will lose its nerve -- that it will worry about potential future losses. That's what Bundesbank chief Jens Weidmann fretted over a few months back. That could become a self-fulfilling prophesy.
The biggest thing Europe has to fear is ECB fear of a euro breakup.
* It's a bit more complicated than that. There are two ways banks effectively get money from the ECB. They can either pledge collateral to the ECB directly, or pledge collateral to their national central banks. The benefit of the latter option -- so-called Emergency Liquidity Assistance (ELA) -- is that banks can use worse collateral. Still, the ECB has to okay the collateral. ELA are technically liabilities of each individual country, but if a country defaulted and left the euro zone, the ECB would be on the hook. Joseph Cotterill has a good summary of ECB versus ELA liquidity in Greece.
Donald Trump flaunted his elastic conception of truth in an interview with Time—but he may yet learn that facts are stubborn things.
How can anyone convince the most powerful man in the world of something he does not wish to believe?
It’s not an idle question. In a remarkable interview with Time’s Michael Scherer, President Trump flaunted his elastic relationship with truth. Instead of weighing evidence, he explained, he prefers to trust his gut. “I’m a very instinctual person,” he said, “but my instinct turns out to be right.”
Trump unrepentantly rehearsed his litany of false or unsubstantiated claims with Scherer. Was Ted Cruz’s father linked to Lee Harvey Oswald? “Why do you say that I have to apologize? I’m just quoting the newspaper.” (The newspaper in question is the National Enquirer.) Had the president tapped his phones? “A lot of information has just been learned, and a lot of information may be learned over the next coming period of time. We will see what happens.” Were there 3 million fraudulent votes cast in 2016? “Well I think I will be proved right about that too.”
The commander in chief embraces a peculiar worldview in which bogus claims are retroactively justified and evidence simply conjured into existence.
President Trump remains peculiarly fixated on the cover of Time magazine. He has claimed in the past that he holds the record for most covers, but in an interview with Michael Scherer for this week’s magazine, the president asked if he was the all-time leader. Scherer had to break the bad news to him: Richard M. Nixon still held the lead—though he added, “He was in office for longer, so give yourself time.” “Ok, good. I’m sure I’ll win,” Trump replied.
The exchange is full of intrigue. Neither man noted that though Nixon was elected to two terms, his presidency was foreshortened by paranoia and lawbreaking. Nor did they note the increasingly frequent comparisons between Nixon’s terminal scandal and Trump’s own difficulties. But in the course of an interview about Trump’s extremely distant relationship with the truth—from obvious lies to head-scratching speculation—the president offered Nixonian maxim of his own.
Two Princeton economists elaborate on their work exploring rising mortality rates among certain demographics.
Two years ago, the Princeton economists Anne Case and Angus Deaton published an alarming revelation: Middle-aged white Americans without a college degree were dying in greater numbers, even as people in other developed countries were living longer. The husband-and-wife team argued, in a study in the Proceedings of the National Academy of Sciences, that these white Americans are facing“deaths of despair”—suicide, overdoses from alcohol and drug, and alcohol-related liver disease.
The paper caused a stir in academic circles and in the media, and has remained in the public discourse following Donald Trump’s win partly on the strength of his support from these same middle-aged white Americans (the alive ones, to be clear). The paper, however, couldn’t answer the question everyone had: Why was this demographic in particular struggling? It couldn’t be purely the economic pain they faced in the wake of globalization; after all, European countries are also affected by globalization, and their residents are getting healthier and living longer. And non-whites in the U.S. are living longer than they used to as well, and they are subject to the same economic forces as middle-age whites and are struggling, at least in economic terms, even more.
Hours before the vote, President Trump and House Speaker Paul Ryan are in search of a deal with conservatives to salvage a faltering plan.
Updated on March 23 at 2:13 p.m. ET
House Republicans on Thursday plan to mark the seventh anniversary of the signing of the Affordable Care Act by voting to dismantle the law and reshape the American health-care system.
Well, that’s the plan, at least.
Hours before the scheduled evening roll call, neither party leaders nor rank-and-file lawmakers know exactly what they’ll be voting on. They haven’t posted the final text of the American Health Care Act, they don’t have an updated projection of how it will impact the deficit or the millions of people currently insured under Obamacare, and they haven’t agreed to the rules governing a House debate.
But most ominously for President Trump and Speaker Paul Ryan, Republicans don’t appear to have the votes to pass whatever they put on the floor.
New research on the creatures’ family tree could “shake dinosaur paleontology to its core.”
When I first read Matthew Baron’s new dinosaur study, I actually gasped.
For most of my life, I’ve believed that the dinosaurs fell into two major groups: the lizard-hipped saurischians, which included the meat-eating theropods like Tyrannosaurus and long-necked sauropodomorphs like BrontosaurusYes, Brontosaurus. It’s a thing again. ; and the bird-hipped ornithischians, which included horned species like Triceratops and armored ones like Stegosaurus. That’s how dinosaurs have been divided since 1887. It’s what I learned as a kid. It’s what all the textbooks and museums have always said. And according to Baron, a Ph.D. student at the University of Cambridge, it’s wrong.
By thoroughly comparing 74 early dinosaurs and their relatives, Baron has radically redrawn the two major branches of the dinosaur family tree. Defying 130 years of accepted dogma, he splits the saurischians apart, leaving the sauropods in one branch, and placing the theropods with the ornthischians on the other. Put it this way: This is like someone telling you that neither cats nor dogs are what you thought they were, and some of the animals you call “cats” are actually dogs.
Trump promised to revitalize the blighted heartland. His policies will punish them.
President Donald Trump might be consumed by half-truths and conspiracy theories, but during the campaign he brought attention to a very real phenomenon: regional inequality. He promised not only a proper swamp-draining in Washington, D.C., but also a renaissance for the Rust Belt, Appalachia, and America’s blighted heartland.
Even when his prognoses were fantasies—neither trade wars nor border walls will ever bring back 1950s-level manufacturing employment—the underlying diagnosis was pretty much right. For much of the 20th century, productivity in America’s poorest regions actually grew faster than in rich metros. But decades of convergence have come to a screeching halt in the 2000s. Rich coastal cities have left the rest of the country behind. In 1980, the typical New York City worker earned 80 percent more than the national average. By 2013, he earned 172 percent more.
Tech companies are spending hundreds of millions of dollars to improve conditions for female employees. Here’s why not much has changed—and what might actually work.
One weekday morning in 2007, Bethanye Blount came into work early to interview a job applicant. A veteran software engineer then in her 30s, Blount held a senior position at the company that runs Second Life, the online virtual world. Good-natured and self-confident, she typically wore the kind of outfit—jeans, hoodie, sneakers—that signals coding gravitas. That day, she might even have been wearing what’s known as the “full-in start-up twin set”: a Second Life T-shirt paired with a Second Life hoodie.
In short, everything about her indicated that she was a serious technical person. So she was taken aback when the job applicant barely gave her the time of day. He knew her job title. He knew she would play a key role in deciding whether he got hired. Yet every time Blount asked him a question about his skills or tried to steer the conversation to the scope of the job, he blew her off with a flippant comment. Afterward, Blount spoke to another top woman—a vice president—who said he’d treated her the same way.
Many experts have blamed a poor job market, but new research indicates that an overlooked cause may be poor health.
CHARLOTTE, North Carolina—John LaRue is having a tough time of it these days. He used to move things for people, advertising his services on Craigslist. But work slowed up, and he became homeless and started sleeping in his truck, until, that is, someone stole it.
Now, he told me, he’s fighting alcoholism and his health is deteriorating from living on the streets. I met LaRue at a Social Security office outside of Charlotte, where he was hiding his belongings in the bushes because he didn’t have anywhere to keep them and wasn’t allowed to bring them inside. “I feel like there’s a cloud over my head,” he told me. “It’s just been one thing after another.”
LaRue is one among many. In 1957, 97 percent of men in America ages 25 to 54 were either working or looking for work. Today, only 89 percent are. Italy is the only OECD country with a lower labor-force participation rate for men in their prime years. Just why there are so many men who aren’t working is a matter of debate. In a 2016 report, President Obama’s Council of Economic Advisers examined the declining labor-force participation rate and suggested that a drop-off in good jobs for low-skilled men was part of the explanation. Wages, the report theorized, are so low for many jobs that don’t require a college education that men don’t find it worth it to seek out bad jobs. A lack of job training and job-search assistance—when compared to other OECD countries—makes it more difficult for men to move into more lucrative fields. And a surge in incarceration has made it more difficult for men to find work when they leave prison, according to the report.
The new Republican provision to allow states to deny health assistance for lacking employment will only make the program worse.
What are work requirements good for?
Stretching back to the establishment of welfare in the United States, politicians have debated both the practical and moral utility of requiring people to work in order to receive government benefits. Since welfare reform in the 1990s gave states wide latitude to create work requirements in the Temporary Assistance for Needy Families cash-assistance program, Republicans have hankered for a chance to extend those requirements to other safety-net programs, as part of their push to “require everyone who can to work.”
The purpose of work requirements in welfare, according to the Congressional Research Service, is “to offset work disincentives in social assistance programs, promote a culture of work over dependency, and prioritize governmental resources,” in addition to helping lift people out of poverty.
The House intelligence committee chair, a Trump ally, muddied waters and gave comfort to the White House, but he provided no evidence of wrongdoing or support for Trump’s “wiretap” claims.
Updated on March 22 at 5:24 p.m.
In a head-spinning development on Capitol Hill on Wednesday, Representative Devin Nunes, the chair of the House Permanent Select Committee on Intelligence, revealed that … well, what Nunes revealed isn’t totally clear.
Nunes held a brief press conference Wednesday afternoon saying that “on numerous occasions the Intelligence Community incidentally collected information about U.S. citizens involved in the Trump transition.” But Nunes’s vague statements raised a host of questions, and his decision to announce them publicly and then go to the White House to brief President Trump, having not informed Democrats on the committee about his new findings, cast a pall of politics over the proceedings.