Time for Plan B. The Spanish bank bailout didn't even work for one day.
Apparently, $125 billion billion doesn't buy much these days. Not even six hours of relief.
Over the weekend, Europe announced a bailout of Spain's ailing banks. It wasn't quite financial shock-and-awe, but €100 billion ($125 billion) seemed like an impressive enough sum to buy at least a few weeks -- or at worst a few days, right? -- of calm in the markets. It wasn't. If anything, things are getting worse faster in Europe. What's going on?
First, a quick recap. As Paul Krugman put it, Spain was Europe's Florida. It had a prodigious housing bubble. And now its cajas saving banks have a prodigious amount of bad real estate loans on their books. But the Spanish government can't afford to bail its banks out. It can't print euros, and it can't borrow euros, except at punitive rates. We have a word for this. That word is "broke".
But Spain resisted going to Germany for a bailout. Spain feared the austere terms Germany would likely impose as part of any deal. So Spain played a game of chicken. First, it tried to get the European Central Bank (ECB) to bail out its banks instead. Germany balked. Then, it threatened eurogeddon -- memorably saying that they would not be bullied because "Spain is not Uganda" -- if it didn't at least get better terms on its bailout.
At first, it looked like Spain had won. Europe announced that the €100 billion aid package for Spain's banks would come without any further conditionality. Translation: Spain would get the money without having to do any more austerity than it had already promised to do. But then things unraveled. And fast.
The chart below from Bloomberg shows Spain's 10-year borrowing costs. Remember, the point of the Spanish bank bailout is, in large part, to reduce yields on Spanish bonds to break up the doom loop between weak sovereigns and weak banks. About that....
After briefly retreating, Spanish borrowing costs surged above 6.5 percent. That's the market giving a vote of no-confidence for the bank bailout. But the bad news hasn't stopped there. The Spanish IBEX stock index gave away a 5.9 percent increase, and finished down on the day. Italian bonds got hammered too. So did the Italian FTSE MIB stock index.
Why did markets turn so quickly from gloom to doom? The short answer: Investors are worried the Spanish bank bailout might make things worse -- and with good reason. The devil is in the details, and the Europeans have been embarrassingly short on those. Here are the four big questions that remain to be answered.
1) What's the interest rate on the €100 billion loan to Spain?
This being Europe, the term "bailout" is a bit misleading. Germany isn't cutting a check for Spain. It's a loan. European officials have promised that the interest rate on this loan is well below what Spain can borrow in the markets -- it'd better be, or what would be the point? -- but they haven't said what that rate is. It's hard to judge how good a deal Spain is getting without knowing this.
2) How much will the bailout add to Spain's debt?
This being Europe, Spain's bank bailout has a slightly Byzantine structure. The bailout funds will go to Spain's so-called Fund for Orderly Recapitalization of Banks (FROB) -- a government agency that will then inject the money into struggling banks. The Spanish government, however, backstops the FROB.
But this being Europe, this financial legerdemain doesn't really matter. The Spanish government is ultimately on the hook, full stop. So the bank "bailout" will add roughly 10 percentage points to Spain's public debt-to-GDP ratio, assuming growth doesn't collapse further. That's a big assumption.
3) Will the bailout loan be senior to other debt?
This being Europe, there are two bailout funds. There's the soon-to-be defunct European Financial Stability Facility (EFSF) and the soon-to-be online European Stability Mechanism (ESM). Spoiler alert: They're supposed to increase ... stability. They haven't exactly succeeded.
This being Europe, it actually matters a great deal whether the EFSF or the ESM loans the money to Spain. The ESM is senior to all other creditors, after the IMF. The EFSF isn't. In plain English, an ESM loan increases the odds that private bondholders will take a loss if Spain ever restructures its debt. An EFSF loan doesn't. So private investors will demand higher interest rates on Spanish bonds to compensate for the higher risk of losses if the money comes from the ESM. That's precisely what happened on Monday after European officials announced that it would indeed be the ESM making the loans.
But this being Europe, they subsequently reversed themselves. They said that the money might come from the EFSF instead -- at least at first. In the long run, it's unclear how much this would even matter. In the short run, Spain is still on the hook as a partial guarantor of EFSF loans. Um, what? The EFSF works by issuing bonds backstopped by Europe's healthy economies. But Spain can't get out of its commitment as a guarantor because its government technically isn't getting bailed out. Its banks are. So Spain would be guaranteeing a loan it's taking out. That makes even less sense than you think.
4) Will the bank bailout come with new strings attached?
This being Europe, it's not too surprising that the initial headlines that Spain was getting this money unconditionally might not be true. On Monday, German officials said that the so-called Troika of the EC, ECB, and IMF would "supervise" the bailout -- which is eurospeak for imposing more austere austerity. Still, it's unclear what this means. It's possible the Germans were talking about a previously announced agreement where European officials will reform Spain's sclerotic financial sector. But it's also possible that they were talking about further spending cuts and tax hikes.
This being Europe, it's almost impossible to say. But it's another reason for markets to worry. Troika reforms in Greece, Portugal and Ireland have knee-capped growth. And a country that can't print its own money can't pay back its debts when it's not growing. It creates self-fulfilling doubts about its solvency. It's just another reason for investors to push up the yields on Spanish debt.
There's a simple way to tell if the Spanish bank bailout is working. Look at Spanish borrowing costs. If they're falling, it's working. If they're not, it's not. By that metric, the 48-hour old bailout is already a clear failure.
It's easy to understand why. The bailout will increase Spain's debt. It will make Spanish debt riskier for private investors. And it might make it harder for Spain to pay back its debts. It kicks the can at the expense of zombifying Spain's economy.
Here's the worst part. It's not even clear that the Eurocrats understand the mistakes they're making. If they did, they wouldn't keep repeating them, from Greece to Ireland to Portugal, and now Spain. They're running out of time. So are we.
Emma Perrier was deceived by an older man on the internet—a hoax that turned into an unbelievable love story.
Emma Perrier spent the summer of 2015 mending a broken heart, after a recent breakup. By September, the restaurant manager had grown tired of watching The Notebook alone in her apartment in Twickenham, a leafy suburb southwest of London, and decided it was time to get back out there. Despite the horror stories she’d heard about online dating, Emma, 33, downloaded a matchmaking app called Zoosk. The second “o” in the Zoosk logo looks like a diamond engagement ring, which suggested that its 38 million members were seeking more than the one-night stands offered by apps like Tinder.
She snapped the three selfies the app required to “verify her identity.” Emma, who is from a volcanic city near the French Alps, not far from the source of Perrier mineral water, is petite, and brunette. She found it difficult to meet men, especially as she avoided pubs and nightclubs, and worked such long hours at a coffee shop in the city’s financial district that she met only stockbrokers, who were mostly looking for cappuccinos, not love.
More comfortable online than out partying, post-Millennials are safer, physically, than adolescents have ever been. But they’re on the brink of a mental-health crisis.
One day last summer, around noon, I called Athena, a 13-year-old who lives in Houston, Texas. She answered her phone—she’s had an iPhone since she was 11—sounding as if she’d just woken up. We chatted about her favorite songs and TV shows, and I asked her what she likes to do with her friends. “We go to the mall,” she said. “Do your parents drop you off?,” I asked, recalling my own middle-school days, in the 1980s, when I’d enjoy a few parent-free hours shopping with my friends. “No—I go with my family,” she replied. “We’ll go with my mom and brothers and walk a little behind them. I just have to tell my mom where we’re going. I have to check in every hour or every 30 minutes.”
Those mall trips are infrequent—about once a month. More often, Athena and her friends spend time together on their phones, unchaperoned. Unlike the teens of my generation, who might have spent an evening tying up the family landline with gossip, they talk on Snapchat, the smartphone app that allows users to send pictures and videos that quickly disappear. They make sure to keep up their Snapstreaks, which show how many days in a row they have Snapchatted with each other. Sometimes they save screenshots of particularly ridiculous pictures of friends. “It’s good blackmail,” Athena said. (Because she’s a minor, I’m not using her real name.) She told me she’d spent most of the summer hanging out alone in her room with her phone. That’s just the way her generation is, she said. “We didn’t have a choice to know any life without iPads or iPhones. I think we like our phones more than we like actual people.”
The White House chief of staff decried the desacralization of military deaths—but it was the president he serves who politicized condolence calls.
White House Chief of Staff John Kelly made some extraordinary remarks during Thursday’s White House briefing. They were extraordinary not only because Kelly seldom speaks on the record to the press and was doing so for the second time in a week, but also for the deeply personal nature of what he said—discussing the death of his son in combat, a topic he has in the past been careful to avoid. Yet Kelly’s defense of President Trump, who is embroiled in a self-inflicted crisis over his condolences for the families of fallen servicemembers, also contained the grain of a strong rebuke to the president.
Kelly began with a description of what happens when a soldier, sailor, marine, or airman or -woman is killed in battle. Then he said:
By making it harder to punish official misconduct, the justices risk damage to America's republican institutions.
For a few days earlier this month, it looked like the years-long corruption probe targeting New Jersey Senator Bob Menendez would fall apart seven weeks into his trial. At issue was the prosecution’s “stream of benefits” theory, which argues that the steady flow of donations and gifts from a wealthy Florida doctor to the Democratic senator—and the flow of favors from the senator to the doctor—amounted to quid pro quo corruption.
During a hearing last week, Judge William Walls seemed to signal that argument was dead on arrival by citing a recent Supreme Court ruling that has vexed public-corruption investigators across the country. “I frankly don’t think McDonnell will allow that,” Walls told prosecutors, referring to the decision in McDonnell v. United States that fundamentally changed the standard for bribery.
Two centuries ago, America pioneered a way of thinking that puts human well-being in economic terms.
Money and markets have been around for thousands of years. Yet as central as currency has been to so many civilizations, people in societies as different as ancient Greece, imperial China, medieval Europe, and colonial America did not measure residents’ well-being in terms of monetary earnings or economic output.
In the mid-19th century, the United States—and to a lesser extent other industrializing nations such as England and Germany—departed from this historical pattern. It was then that American businesspeople and policymakers started to measure progress in dollar amounts, tabulating social welfare based on people’s capacity to generate income. This fundamental shift, in time, transformed the way Americans appraised not only investments and businesses but also their communities, their environment, and even themselves.
In western Germany, populations of flying insects have fallen by around 80 percent in the last three decades.
The bottles were getting emptier: That was the first sign that something awful was happening.
Since 1989, scientists from the Entomological Society Krefeld had been collecting insects in the nature reserves and protected areas of western Germany. They set up malaise traps—large tents that funnel any incoming insect upward through a cone of fabric and into a bottle of alcohol. These traps are used by entomologists to collect specimens of local insects, for research or education. “But over the years, [the Krefeld team] realized that the bottles were getting emptier and emptier,” says Caspar Hallmann, from Radboud University.
By analyzing the Krefeld data—1,503 traps, and 27 years of work—Hallmann and his colleagues have shown that most of the flying insects in this part of Germany are flying no more. Between 1989 and 2016, the average weight of insects that were caught between May and October fell by an astonishing 77 percent. Over the same period, the weight of insects caught in the height of summer, when these creatures should be at their buzziest, fell by 82 percent.
The Centers for Disease Control and Prevention (CDC) keeps a Most Wanted list for flu viruses. The agency evaluates every potentially dangerous strain, and gives them two scores out of 10—one reflecting how likely they are to trigger a pandemic, and another that measures how bad that pandemic would be. At the top of the list, with scores of 6.5 for emergence and 7.5 for impact, is H7N9.
Influenza viruses come in many flavors—H5N1, H1N1, H3N2, and so on. The H and N refer to two proteins on their surface, and the numbers refer to the versions of those proteins that a particular virus carries. H1N1 was responsible for both the catastrophic pandemic of 1918 that killed millions of people, and the most recent (and much milder) one from 2009. H5N1 is the bird-flu subtype that has been worrying scientists for almost two decades. But H7N9? Until recently, it had flown under the radar.
Last year, a 77-year-old woman traveled to a clinic in Georgia to have stem cells injected in her eyes. She came in hope of a cure—or at least something that could help her macular degeneration, which causes a dark spot to appear in the center of vision.
The procedure was supposed to work like this: The clinic would take fat from her belly, separate out stem cells that naturally occur in fat, and inject them into her eyes to regenerate damaged tissue. The procedure cost $8,900. It had not been approved by the Food and Drug Administration and was not covered by insurance. To pay out of pocket, she had to raise money on a crowdfunding site.
Her vision did not get better. It got much worse. Within three months, her retinas—the eye’s layer of light-sensitive cells—had peeled away from the rest of her eyes. As a result, she can only make out hand motions in her right eye and light in the left, according to a recent case report. She could no longer walk on her own.
The foundation of Donald Trump’s presidency is the negation of Barack Obama’s legacy.
It is insufficient to statethe obvious of Donald Trump: that he is a white man who would not be president were it not for this fact. With one immediate exception, Trump’s predecessors made their way to high office through the passive power of whiteness—that bloody heirloom which cannot ensure mastery of all events but can conjure a tailwind for most of them. Land theft and human plunder cleared the grounds for Trump’s forefathers and barred others from it. Once upon the field, these men became soldiers, statesmen, and scholars; held court in Paris; presided at Princeton; advanced into the Wilderness and then into the White House. Their individual triumphs made this exclusive party seem above America’s founding sins, and it was forgotten that the former was in fact bound to the latter, that all their victories had transpired on cleared grounds. No such elegant detachment can be attributed to Donald Trump—a president who, more than any other, has made the awful inheritance explicit.
The spectacular neutron-star collision eventually faded from view, but it was immortalized by space animators.
It took 130 million years for astronomers to see the light. On August 17, scientists observed through telescopes a small, glowing orb, the remnants of a collision between two neutron stars in another galaxy that triggered universe-bending gravitational waves. They watched as the sphere changed from royal blue to crimson red, as lighter chemical elements in the cloud of radioactive debris gave way to heavier ones, like gold, platinum, and silver. About a week later, it faded.
The light show may be over in the night sky, but it can be found on the internet and replayed, over and over, as a dreamy short video:
Luís Calçada created the video for the European Southern Observatory, whose fleet of telescopes in Chile tracked the aftermath of the collision. Calçada is a member of ESO’s education and public-outreach department, a team of astronomers and science-communication specialists in Munich.