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.
The MIT economist Peter Temin argues that economic inequality results in two distinct classes. And only one of them has any power.
A lot of factors have contributed to American inequality: slavery, economic policy, technological change, the power of lobbying, globalization, and so on. In their wake, what’s left?
That’s the question at the heart of a new book, The Vanishing Middle Class: Prejudice and Power in a Dual Economy, by Peter Temin, an economist from MIT. Temin argues that, following decades of growing inequality, America is now left with what is more or less a two-class system: One small, predominantly white upper class that wields a disproportionate share of money, power, and political influence and a much larger, minority-heavy (but still mostly white) lower class that is all too frequently subject to the first group’s whims.
New presidents often err by either trying to impose their will on Congress or being too hands-off. Trump is on course to commit both errors on his top two legislative priorities.
Mucking up an interaction with Congress is a rite of passage for every new president—usually on health care, and especially for those with limited experience in Washington.
The twin pitfalls for a new president are the same ones the great Tommy Lasorda described in his approach to baseball: “I believe managing is like holding a dove in your hand. If you hold it too tightly you kill it, but if you hold it too loosely, you lose it.” A president can try to push his vision aggressively on Congress, risking backlash from members—let’s call that the Bill Clinton approach. Alternatively, he can try to hang back and let Congress act, risking the chance that without presidential leadership, members will come up with something he doesn’t like, or even worse that they can’t pass. We’ll call that the Barack Obama approach.
Princeton freshman Tal Fortgang was right that "privilege" is a problem, but not about why.
Poor Tal Fortgang. (Well, perhaps “poor” isn’t the right word.) Not long ago, the Princeton freshman’s white male privilege was known only to those in his life. Then he published an essay about this privilege in a conservative student publication, arguing that because his ancestors had struggled, he personally doesn’t benefit from unearned advantage. If he’s not privileged, no one should be asking him to check his privilege, right? After all, some of his advantage was earned; he just doesn’t happen to be the one who earned it.
Because “privilege” is clickbait, Fortgang’s piece made the rounds, culminating in the New York Times interviewing his classmates about his privilege and whether he had, in fact, checked it. The consensus is that he did not. Fortgang’s privilege has now been checked not only by his classmates and Facebook friends but by the entire Internet.
In 1985, Neil Postman observed an America imprisoned by its own need for amusement. He was, it turns out, extremely prescient.
Earlier this month, thousands of protesters gathered at Washington’s National Mall to advocate for an assortment of causes: action against global climate change, federal funding for scientific research, a generally empirical approach to the world and its mysteries. The protesters at the March for Science, as scientists are wont to do, followed what has become one of the established formulas for such an event, holding clever signs, wearing cheeky outfits, and attempting, overall, to carnivalize their anger. “Make the Barrier Reef Great Again,” read one sign at the March. “This is my sine,” read another. “I KNEW TO WEAR THIS,” one woman had written on the poncho she wore that soggy Saturday, “BECAUSE SCIENCE PREDICTED THE RAIN.” Three protesters, sporting sensible footwear and matching Tyrannosaurus rex costumes, waved poster boards bearing messages like “Jurassick of this shit.”
“Somewhere at Google there is a database containing 25 million books and nobody is allowed to read them.”
You were going to get one-click access to the full text of nearly every book that’s ever been published. Books still in print you’d have to pay for, but everything else—a collection slated to grow larger than the holdings at the Library of Congress, Harvard, the University of Michigan, at any of the great national libraries of Europe—would have been available for free at terminals that were going to be placed in every local library that wanted one.
At the terminal you were going to be able to search tens of millions of books and read every page of any book you found. You’d be able to highlight passages and make annotations and share them; for the first time, you’d be able to pinpoint an idea somewhere inside the vastness of the printed record, and send somebody straight to it with a link. Books would become as instantly available, searchable, copy-pasteable—as alive in the digital world—as web pages.
All over America, people have put small "give one, take one" book exchanges in front of their homes. Then they were told to tear them down.
Three years ago, The Los Angeles Times published a feel-good story on the Little Free Library movement. The idea is simple: A book lover puts a box or shelf or crate of books in their front yard. Neighbors browse, take one, and return later with a replacement. A 76-year-old in Sherman Oaks, California, felt that his little library, roughly the size of a dollhouse, "turnedstrangers into friends and a sometimes-impersonal neighborhood into a community," the reporter observed. The man knew he was onto something "when a 9-year-old boy knocked on his door one morning to say how much he liked the little library." He went on to explain, "I met more neighbors in the first three weeks than in the previous 30 years."
Recent border battles have once again redrawn the lines of the metro area.
On the Saturday before Election Day last November, Jason Lary, a former insurance executive, crouched on a rough patch of grass at the center of a busy intersection 20 miles outside of Atlanta in DeKalb County. Lary was holding a hammer, and he tapped carefully on the thin wire base of a campaign sign. “My hand is like Fred Flintstone’s right now because I banged my hand in the night,” he said, noting his latest sign-related injury. This hazard, though, was worthwhile: “If you don’t start [the sign] with your hand, it will bend. It takes longer—guys are 10 times faster than I am. But my sign’s still gonna be up.”
This was a non-trivial advantage for Lary, who for the past month had begun most mornings with a kind of ground-game whack-a-mole. He would put up signs under the cover of night, only to have his opponents dislodge them by hand or, when that failed, run over them with their cars. Nevertheless, Lary was feeling good. “My opposition? Worn down,” he told me. “They don’t even have any more signs. And I kept a stash, knowing this time was coming. This is not my first picnic with nonsense.”
Will you pay more for those shoes before 7 p.m.? Would the price tag be different if you lived in the suburbs? Standard prices and simple discounts are giving way to far more exotic strategies, designed to extract every last dollar from the consumer.
As Christmas approached in 2015, the price of pumpkin-pie spice went wild. It didn’t soar, as an economics textbook might suggest. Nor did it crash. It just started vibrating between two quantum states. Amazon’s price for a one-ounce jar was either $4.49 or $8.99, depending on when you looked. Nearly a year later, as Thanksgiving 2016 approached, the price again began whipsawing between two different points, this time $3.36 and $4.69.
We live in the age of the variable airfare, the surge-priced ride, the pay-what-you-want Radiohead album, and other novel price developments. But what was this? Some weird computer glitch? More like a deliberate glitch, it seems. “It’s most likely a strategy to get more data and test the right price,” Guru Hariharan explained, after I had sketched the pattern on a whiteboard.
It's okay for parents to nurture, protect, and encourage their children, especially when they're very young.
I still remember the first time someone spoke to me about grit. It wasn’t when I lost my dad and saw my mother fall apart.
It wasn’t when my mother died, and I felt like I was falling apart.
It wasn’t when people who I believed would invest in my business didn’t. It wasn’t when the great recession hit our advertisers and my business had to stop publishing a magazine.
It was when I was thinking of pulling my 3-year-old out of a preschool in which she clearly wasn’t thriving. She was anxious, frozen, a shadow of the child she used to be before she started there.
But it was a co-op preschool, meaning I couldn’t just turn around and leave. When you sign up to join a co-op, you also sign up to work various jobs around the school and to commit to being an active part of a larger community. In other words, I had to talk to the other parents at the co-op about my decision. One of them cautioned me: "What about grit?" she said. For a minute, I was taken aback. Was she talking about me or my 3-year-old?
On Wednesday, the administration launched a new office to “assist victims of crimes committed by criminal aliens.” Some rang in with reports of UFOs.
The term “alien” is used in legal contexts to denote those present in the United States who aren’t citizens. But some callers are using a new hotline launched on Wednesday for victims of crimes committed by aliens to report that they’ve been victimized by extraterrestrials.
On Wednesday, the Trump administration launched the Victims of Immigration Crime Engagement Office. The office, which was originally announced in a January executive order on immigration, intends to “assist victims of crimes committed by criminal aliens,” according to the Department of Homeland Security.
“All crime is terrible, but these victims are unique—and too often ignored,” said DHS Secretary John Kelly in announcing the office. “They are casualties of crimes that should never have taken place—because the people who victimized them often times should not have been in the county in the first place.”