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.
The permissiveness of Republican leaders who acquiesce to violence, collusion, and corruption is encouraging more of the same.
In the annals of the Trump era, May 25, 2017, will deserve a special mark. Four remarkable things happened on Thursday, each of which marks a way that this presidency is changing the nation.
The first remarkable thing was President Trump’s speech at the NATO summit in Brussels. Many European governments had hoped—which is a polite way to say that they had suggested and expected—that Trump would reaffirm the American commitment to defend NATO members if attacked. This is the point of the whole enterprise after all! Here’s how it was done by President Obama at the NATO summit after the Russian invasion of Crimea:
First and foremost, we have reaffirmed the central mission of the Alliance. Article 5 enshrines our solemn duty to each other—“an armed attack against one … shall be considered an attack against them all.” This is a binding, treaty obligation. It is non-negotiable. And here in Wales, we’ve left absolutely no doubt—we will defend every Ally.
She lived with us for 56 years. She raised me and my siblings without pay. I was 11, a typical American kid, before I realized who she was.
The ashes filled a black plastic box about the size of a toaster. It weighed three and a half pounds. I put it in a canvas tote bag and packed it in my suitcase this past July for the transpacific flight to Manila. From there I would travel by car to a rural village. When I arrived, I would hand over all that was left of the woman who had spent 56 years as a slave in my family’s household.
The condition has long been considered untreatable. Experts can spot it in a child as young as 3 or 4. But a new clinical approach offers hope.
This is a good day, Samantha tells me: 10 on a scale of 10. We’re sitting in a conference room at the San Marcos Treatment Center, just south of Austin, Texas, a space that has witnessed countless difficult conversations between troubled children, their worried parents, and clinical therapists. But today promises unalloyed joy. Samantha’s mother is visiting from Idaho, as she does every six weeks, which means lunch off campus and an excursion to Target. The girl needs supplies: new jeans, yoga pants, nail polish.
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At 11, Samantha is just over 5 feet tall and has wavy black hair and a steady gaze. She flashes a smile when I ask about her favorite subject (history), and grimaces when I ask about her least favorite (math). She seems poised and cheerful, a normal preteen. But when we steer into uncomfortable territory—the events that led her to this juvenile-treatment facility nearly 2,000 miles from her family—Samantha hesitates and looks down at her hands. “I wanted the whole world to myself,” she says. “So I made a whole entire book about how to hurt people.”
Maine attached work requirements and time limits to its safety net, intensifying poverty in the state.
ORLAND, Maine—In the eyes of the state of Maine, Laurie Kane is an able-bodied adult without dependents, and thus ineligible for most forms of government support. In her own eyes, it is hard to see how she is going to find housing, work, and stability without help.
Kane is struggling to put her life back together amid a spell of homelessness that has lasted for three years. She has a severe anxiety condition, along with other health problems, and had suffered a panic attack on the day I met her. But she had not managed to sign up for MaineCare, the state’s Medicaid program, because she cannot get a doctor to certify her as being disabled. That’s not because a doctor has evaluated her and found her to be fine, but because she’s been unable to get a doctor’s appointment. “I was denied MaineCare because I’m considered an able-bodied person,” she told me. “A lot of people say, ‘Well, you can just get free care.’ They say, ‘You can go to a clinic with a sliding-fee scale, which would be $20 a visit.’ But what if I can’t come up with $20?”
The president’s business tells lawmakers it is too difficult to track all its foreign revenue in accordance with constitutional requirements, and it hasn’t asked Congress for a permission slip.
Days before taking office, Donald Trump said his company would donate all profits from foreign governments to the U.S. Treasury, part of an effort to avoid even the appearance of a conflict with the Constitution’s emoluments clause.
Now, however, the Trump Organization is telling Congress that determining exactly how much of its profits come from foreign governments is simply more trouble than it’s worth.
In response to a document request from the House Oversight Committee, Trump’s company sent a copy of an eight-page pamphlet detailing how it plans to track payments it receives from foreign governments at the firm’s many hotels, golf courses, and restaurants across the globe. But while the Trump Organization said it would set aside all money it collects from customers that identify themselves as representing a foreign government, it would not undertake a more intensive effort to determine if a payment would violate the Constitution’s prohibition on public office holders accepting an “emolument” from a foreign state.
Returning to her alma mater to celebrate the class of 2017, she acknowledged her defeat—and offered a vision for the next generation of women leaders.
On Friday morning, along with the families of graduating seniors, hundreds of Wellesley College alumnae flocked to the school’s suburban Massachusetts campus in order to see Hillary Clinton, class of 1969, take the stage. Local alum groups hosted watch parties, starting early on the West Coast, and thousands of alums across the country live-streamed the event at their desks (myself included).
Long before some Americans took comfort in Clinton spottings in the woods, Wellesley alums have been known to track her spottings on campus, including her reunion visit in 2014, when her 2016 presidential bid was still just a rumor, and more recently at a private event in March when she spoke with students about activism and organizing.
“What of the person who spends the sacred month ... oppressing people and killing innocents?”
For the overwhelming majority of Muslims, Ramadan, the ninth month of the Islamic calendar, is a time of prayer and atonement. In addition to fasting for its duration and praying five times per day (as normal), many Muslims add special readings from the Koran to their daily worship, so that, by the end of the holy month—which, this year, begins today and ends on June 24—the text has been read in its entirety.
Sadly, in recent years, Ramadan has been marred by increased terrorist violence around the world, as the Islamic State has attempted to transform it into a month of unparalleled bloodshed. To some extent, it appears that its supporters are willing to help it do so.
On June 23, 2015, six days into Ramadan, then-ISIS spokesman Abu Muhammad al-Adnani called for attacks to commemorate the holy month. Three days later, a Shia mosque in Kuwait was hit by an ISIS suicide bomb that killed 26 Muslim worshippers. Later that same day, a tourist resort near the city of Sousse in Tunisia came under fire, with the attacker killing 38 people and injuring dozens more. On May 21, 2016, about two weeks before the start of Ramadan, Adnani made another speech. “Get prepared, be ready,” he said, “to make it a month of calamity everywhere for nonbelievers.” He argued that the targeting of civilians in the West was not only permissible, but desirable, and that as long as coalition forces were at war with ISIS there were no “innocents.”
The Republican bill would decrease access for millions, and in the process dismantle the tools used to fight substance abuse.
The middle of an unprecedented nationwide opioid epidemic might seem like a strange time to slash public funding for substance abuse, but that’s exactly what Republicans intend to do.
The American Health Care Act, which passed the House in early May and will soon be debated in some form in the Senate, will mark a major shift in national policy for opioid treatment, as well as for mental health, behavioral health, and substance abuse across the board. And it would come just after the Affordable Care Act began to create the first semblance of a true national safety net for those health issues.
Medicaid is the single largest source of funding for mental health and substance abuse treatment in the United States, and the Affordable Care Act’s expansion of the program to low-income adults was the first time there was some semblance of a national structure for treating mental health and substance abuse issues. Many people with severe substance abuse and mental-health issues also have low or no incomes or are homeless, and before the ACA were often ineligible for public insurance through Medicaid. So for that group especially—but also for millions of people with inadequate insurance or whose pre-ACA Medicaid didn’t cover mental health and substance abuse services—the only reliable way to receive care was when problems became severe enough to merit admission into an emergency room or institution.
The television host is chalking up the loss to a liberal media crusade.
At least five advertising firms have pulled their commercials from the Sean Hannity Show on Fox News following the television host’s coverage of a false murder conspiracy. On Tuesday of last week, Hannity reiterated a now-debunked theory regarding the death of Seth Rich, a Democratic National Committee employee who was gunned down last summer in Washington, D.C. While local police suspect the shooting to be a botched robbery, Hannity claimed that Rich was murdered over his alleged ties to WikiLeaks. Moreover, Hannity argued on Twitter that the story could potentially discount any evidence of collusion between Russian officials and the Trump administration leading up to the 2016 U.S. presidential election:
When the FBI discovered a network of Bosnian-Americans giving support to terrorists, they also discovered Abdullah Ramo Pazara, a U.S. citizen and a battalion commander in Syria.
Abdullah Ramo Pazara had a craving for packets of instant hot cocoa. The Bosnian-American former truck driver was, at the time, a commander of an Islamic State tank battalion in Syria. Apparently, even foreign fighters who reject their former lives in Western countries for a chance at martyrdom for ISIS sometimes long for the creature comforts of their previous homes.
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In 2013, six Bosnian immigrants in the United States allegedly sent money, riflescopes, knives, military equipment, and other supplies to jihadists in Syria and Iraq through intermediaries in Bosnia and Turkey. According to the U.S. government’s allegations, individual ISIS fighters would make specific requests—mostly for money and military equipment—and the group would then raise funds and send supplies to Syria. The requests included what was surely an unexpected revelation of nostalgia—packets of Swiss Miss hot cocoa. By sending the cocoa mix and other supplies, federal prosecutors argue, these U.S.-based Bosnians provided what is known as “material support” to terrorists, in violation of the Patriot Act.