Imagine you woke up one day to discover your bank account has been raided by another country's government. Just like that, $1 in every $16 of your supposedly safe money is gone. If you're wealthy enough to have more savings, it could be $1 in $10. Is it a nightmare? The opening chapter of a Kafka story? A Bond villain plot to start a bank run and bring down the government?
Nah, it's just the new reality facing bank depositors in Cyprus. And it might just set off a fresh wave of financial panic in the euro zone. Because we haven't had enough of that lately.
Cyprus is the forgotten sick man of Europe. It's so forgotten that it hasn't even cracked the acronym of troubled European economies (the PIIGS or GIIPS, depending on your taste). But being forgotten has made it no less troubled. It needs money. And Germany isn't exactly enthusiastic about handing over money, particularly in an election year for Chancellor Angela Merkel. Indeed, Germany has insisted on more than its usual pound of austerity in return for a bailout. It's insisted that Cyprus pick up a large part of its own check. And that's been terrible news for Cypriot savers. (And Russians. We'll get there, soon.)
The terms of the Cypriot bailout (and bail-in) are as simple as they are startling. Germany will cough up about $13 billion, and, in exchange, Cyprus will levy a "one-time" tax on bank deposits to raise an additional $7.5 billion. This tax will take 6.75 percent from insured deposits of €100,000 ($129,000) or less, and 9.9 percent from uninsured amounts above €100,000. Depositors will get bank stock equal to whatever they lose from the tax. If you're wondering why anybody would keep their money in a Cypriot bank now, well, they wouldn't. This is an open invitation for an old-fashioned run on their banks. The only reason that isn't happening now is their banks are closed for an extended holiday.
This bailout is the right answer to the wrong question. The wrong question is how Germany can bailout Cyprus (and a bunch of less-than-savory Russians) without risking Merkel's reelection. The right question is how does Germany bailout Cyprus in a way that doesn't risk the future of the euro at all.
Of course, there are all sorts of other questions here, all of them involving the word hell (or some other four-letter variation). Questions like: what the hell were they thinking, why the hell would Cyprus go along with this, and how the hell did an economy equal to 0.2 percent (!!!) of euro zone GDP become any kind of threat to the future of the euro? Well, as has often been the case, the answer begins with too big to fail, and in this case, too big to save, banks.
There's Something Rotten in Cypriot Banks
There are four things you need to know about Cypriot banks. First, they have assets equal to roughly eight times the country's GDP. Second, they get a huge percentage of their deposits from tax-dodging Russians. Third, they invested a ton of money in Greece. And fourth, they are highly dependent on central bank financing to stay afloat. In other words, Cypriot banks are too big for Cyprus to save. But somebody needs to save them.
How did all this money get into Cyprus banks? Like many other small islands, Cyprus has found that turning itself into a tax haven (and money-laundering center) is a pretty lucrative business. Money has poured in from Russian oligarchs and mobsters looking to avoid taxes back home, and that Russian money has bloated Cypriot banks to a size far beyond the government's ability to bail out. Indeed, roughly 37 percent of the island's €68 billion of deposits come from abroad -- and as Kate Mackenzie of FT Alphaville points out, this foreign money makes up €25.5 billion of the €37.6 billion of deposits over €100,000. In other words, almost all of the foreign money is in uninsured accounts, and 68 percent of all uninsured accounts come from abroad.
So, what did Cyprus banks do with all of this money?Well, they invested it where they thought they had a competitive advantage: Greece. After all, southern Cyprus is ethnically Greek (the northern half is occupied by Turkey), and the Greek economy, which is 12 times larger than the Cypriot one, looked like an ideal place to expand. It wasn't. Cypriot loans to the Greek government and businesses have opened black holes on bank balance sheets. In 2012 alone, two of the biggest Cypriot banks, Cyprus Popular and the Bank of Cyprus, lost a combined €3.5 billion on Greek bonds. That's over 10 percent of GDP in a €31.8 billion Cypriot economy. It'd be like if Citigroup and JP Morgan lost $1.5 trillion in a single year (or approximately 250 times the "London Whale" losses).
The Cypriot banking system would have collapsed long ago were it not for emergency funding okayed by the European Central Bank (ECB). Here's how it works. Suppose you run a euro bank desperately short on cash, collateral, and confidence. In other words, you need more money, but you so obviously need more money that nobody will lend it to you except on a secured basis -- and only then against top-notch collateral, which you don't have. Well, this is what lenders-of-last-resort are for, assuming your bank is illiquid and not insolvent. You can take your slightly crappy collateral to the ECB, and get a loan subject to a haircut. Technically-speaking, the worse your collateral, the higher the interest rate the ECB charges you.
But suppose your collateral isn't just slightly crummy; say it's really crummy. Well, don't worry, you're still in luck! The ECB won't give you a loan, but your national central bank will, pending ECB approval. Welcome to the wonderful world of "emergency liquidity assistance" (ELA). Now, this sounds confusing (and that's probably the intent behind it), but it's really not. It's the same idea as before, only with crappier collateral and higher interest rates. Remember, the ECB sets monetary policy for every euro member, but those members retain their own central banks, which carry out the ECB's policy decisions. These national central banks can basically accept any collateral -- really, anything -- as long as they apply more severe haircuts and get the okay from the ECB. The only other big difference here is the national central banks, not the ECB, are on the hook in case of default.
Cypriot banks have stayed alive by gorging on this ELA funding. The chart below from Joseph Cotterill of FT Alphaville shows the balance sheet of the second-biggest Cypriot bank, Laiki. Notice it gets a third of its capital from the central bank. That's, um, a lot.
This dependence on central bank financing leaves Cyprus quite open to, shall we say, ECB persuasion. This, ladies and gentlemen, is what we call "foreshadowing".
An Offer Cyprus Can't Refuse -- or Can't Accept?
Cyprus needs €17 billion. Germany doesn't want to give it €17 billion. Merkel doesn't want to bail out Russian gangsters in an election year. So she's forcing Cyprus to come up with €7 billion even though the government can't afford it.
There are two ways a broke government could still come up with this money. First, it could force its own creditors or the banks' creditors to take losses. But, as Joseph Cotterill points out, the Cypriot government can't logistically force losses on its foreign lenders, and its domestic lenders are mostly its banks. In other words, the only losses the government can force on its bonds would make the banks' problems all the worse.
That leaves the banks' creditors. Most banks fund themselves with three classes of lenders: junior bondholders, unsecured senior bondholders, and secured senior bondholders, including insured depositors. If the bank goes bust, the secured senior bondholders are at the front of the line for whatever's left, and so on. But Cypriot banks are almost entirely funded with deposits and ELA money. Now, junior bondholders did take €1.4 billion in losses, but there basically no unsecured senior bondholders. As Charles Forelle of the Wall Street Journal points out, the two biggest banks in Cyprus have €46 billion in deposits and €184 million in unsecured senior debt. In plain English, Cyprus has to make its depositors or its national central bank accept €5.8 billion in losses -- and it can't make its national central bank take losses.
So Germany is making Cypriot depositors pay. The questions are which depositors, and how much of their deposits. Cypriot president Nicos Anastasiades originally agreed to a 7 percent levy on deposit amounts above €100,000 and 3 percent below that, but the Germans decided that wasn't enough, according to Peter Spiegel of the Financial Times. When Anastasiades tried to walk out in protest, ECB officials promptly informed him they would cut ELA funding for the second-biggest Cypriot bank, Laiki, if he didn't agree. That would send Laiki into bankruptcy, and cost Cyprus €30 billion, versus the €5.8 billion the Germans wanted. It's quite something when the ECB lets Germany use it as its debt collector. Of course, Anastasiades eventually acquiesced -- though he insisted the top tax rate not exceed 10 percent, likely to preserve Cyprus' future viability as a tax haven. That meant insured depositors had to be charged 6.75 percent to make the math add up.
It's a total clusterf***. These tax rates still has to be approved by the Cypriot parliament, and, well, that's not happening. The vote has already been postponed twice, and the Cypriots are back negotiating what they hope will be more politically acceptable tax rates. Under the latest plan, deposits under €100,00 would get 3 percent haircuts, deposit amounts between €100,000 and €500,000 would get 10 percent haircuts, and amounts over €500,000 would get 15 percent haircuts. This has the virtue of mostly hitting foreign depositors, and mostly sparing poorer, domestic ones. It should pass, but, then again, insured deposits shouldn't be getting hit at all. Should is no guarantee.
Is the Euro Worth 5.8 Billion Euros?
The entire euro crisis comes down to a single question. Is a euro in a Spanish (or a Cypriot) bank worth the same as a euro in a German (or a Dutch) bank?
If Spain leaves the euro, then any euros in its banks will get turned into much cheaper pesetas overnight. Spanish depositors would be entirely rational to move their money to a German bank if they think there's any chance Spain will abandon the common currency. Even a slow-motion bank run would only starve Spain of even more credit, and drag it down even further -- making a euro exit all the more attractive. In other words, it's a self-fulfilling fear.
Or at least it was, until ECB chief Mario Draghi stopped the vicious circle. Last July, he promised to do "whatever it takes" to save the euro -- and those words alone were enough to end the panic. A Spanish euro was worth the same as a German euro once again. But what about a Cypriot euro? The tax on insured deposits resurrects the questions about whether a euro in a peripheral bank is worth the same as one in a core bank. It's just due to fiscal risk now instead of exchange rate risk -- but the effect is the same. Peripheral depositors would once again be rational to move their money. "One-off" events have a way of not always being so.
Now, that's not to say that a continental bank run is looming. Credit default swaps on peripheral debt increased a bit relative to core debt as of 9:45 this morning, as you can see below in the chart from Bloomberg, but there's no sign anything worse will happen. Markets have been mostly calm.
But just because there hasn't been any contagion so far doesn't mean it made sense to risk it over €5.8 billion. There's nothing more destructive than giving people the idea that insured bank deposits are not so inviolable.
It's a dangerous roll of the dice, for not much pay-off.
A British broadcaster doggedly tried to put words into the academic’s mouth.
My first introduction to Jordan B. Peterson, a University of Toronto clinical psychologist, came by way of an interview that began trending on social media last week. Peterson was pressed by the British journalist Cathy Newman to explain several of his controversial views. But what struck me, far more than any position he took, was the method his interviewer employed. It was the most prominent, striking example I’ve seen yet of an unfortunate trend in modern communication.
First, a person says something. Then, another person restates what they purportedly said so as to make it seem as if their view is as offensive, hostile, or absurd.
Twitter, Facebook, Tumblr, and various Fox News hosts all feature and reward this rhetorical technique. And the Peterson interview has so many moments of this kind that each successive example calls attention to itself until the attentive viewer can’t help but wonder what drives the interviewer to keep inflating the nature of Peterson’s claims, instead of addressing what he actually said.
All parents remember the moment when they first held their children—the tiny crumpled face, an entire new person, emerging from the hospital blanket. I extended my hands and took my daughter in my arms. I was so overwhelmed that I could hardly think.
Afterward I wandered outside so that mother and child could rest. It was three in the morning, late February in New England. There was ice on the sidewalk and a cold drizzle in the air. As I stepped from the curb, a thought popped into my head: When my daughter is my age, almost 10 billion people will be walking the Earth. I stopped midstride. I thought, How is that going to work?
The president’s reported criticism of Cabinet members Wilbur Ross and Ryan Zinke strikes directly at some of his own shortcomings.
Taking a job with Donald Trump means agreeing to sometimes be attacked by Donald Trump. This week’s victims are Interior Secretary Ryan Zinke and Commerce Secretary Wilbur Ross.
“These trade deals, they’re terrible,” Trump told Ross, according to Jonathan Swan at Axios. “Your understanding of trade is terrible. Your deals are no good. No good.” The president rejected a trade deal that Ross thought was closed. Ross also reportedly falls asleep repeatedly in meetings.
Zinke’s problem is different. First the administration announced a major expansion of offshore oil drilling. Then Florida Governor Rick Scott protested, because drilling is unpopular among Floridians, and since Scott is a Republican Trump ally and likely 2018 U.S. Senate candidate, Zinke hastily announced Florida would no longer be covered by the change. That, of course, led governors in other states to demand the same treatment. More recently, the Interior Department has had to walk back the exception.
For some Americans, sub-minimum-wage online tasks are the only work available.
Technology has helped rid the American economy of many of the routine, physical, low-paid jobs that characterized the workplace of the last century. Gone are the women who sewed garments for pennies, the men who dug canals by hand, the children who sorted through coal. Today, more and more jobs are done at a computer, designing new products or analyzing data or writing code.
But technology is also enabling a new type of terrible work, in which Americans complete mind-numbing tasks for hours on end, sometimes earning just pennies per job. And for many workers living in parts of the country where other jobs have disappeared—obviated by technology or outsourcing—this work is all that’s available for people with their qualifications.
Like ERs and doctors across the country, administrators at Michigan State assured Nassar’s victims that nothing was wrong.
As a freshman on the Michigan State University softball team, Tiffany Thomas Lopez went to Larry Nassar, the school sports therapist, for back pain. Nassar’s “special treatment”—a technique he’s used on many of his patients, including U.S. Olympic gymnasts—involved him inserting his fingers into her vagina. Thomas Lopez thought something seemed off. But when she reported the behavior to Destiny Teachnor-Hauk, an MSU athletic trainer, she said Teachnor-Hauk told her not to worry: This was “actual medical treatment.”
“She brushed me off, and made it seem like I was crazy,” Thomas Lopez told ESPN.
Last week, almost 100 women shared similar stories about Larry Nassar in a county courtroom in Lansing, Michigan. Many of them were MSU students—and, according to a recent Detroit News investigation, at least six reported the abuse to university administrators. All said they received versions of the same response: “He’s an Olympic doctor.” “No way.” You “must be misunderstanding what was going on.” A 2014 Title IX investigation reached a similar conclusion: Nassar’s conduct “was not of a sexual nature.” Kristine Moore, the university’s Title IX investigator, said the women likely did not understand the “nuanced difference” between proper medical procedure and sexual abuse.
The Trump administration is making it easier for medical providers to object to procedures on religious grounds. Will patients suffer as a result?
In 2014, a 27-year-old nurse-midwife named Sara Hellwege applied for a job at Tampa Family Health Centers, a federally qualified health center. She was a member of the American Association of Pro-Life Obstetricians and Gynecologists, a professional association that opposes abortion.
“Due to religious guidelines,” Hellwege wrote to the clinic’s HR director, Chad Lindsey, in an email, “I am able to counsel women regarding all forms of contraception, however, cannot Rx [prescribe] it unless pathology exists—however, have no issue with barrier methods and sterilization.”
In his response, Lindsey cited the health center’s participation in a government family-planning program, Title X, as grounds for rejecting her as an applicant. “Due to the fact we are a Title X organization and you are a member of AAPLOG, we would be unable to move forward in the interviewing process,” he wrote. The clinic did not, he added, have any positions available for practitioners who wouldn’t prescribe birth control.
Courts have historically been reluctant to strike down redistricting plans on the basis of political bias—unwilling to appear to be favoring one party—but Monday afternoon, the Pennsylvania state supreme court ruled that the state’s maps for U.S. House violate the state constitution’s guarantees of free expression and association and of equal protection.
That follows a ruling earlier this month in North Carolina, in which a federal court struck down the state’s maps, the first time a federal court had ruled a redistricting plan represented an unconstitutional gerrymander. The decision was stayed by the U.S. Supreme Court, which is already considering another partisan gerrymandering case from Wisconsin. The court has also agreed to hear another case, from Maryland, and rejected a case from Texas on procedural grounds.
Stories of gray areas are exactly what more men need to hear.
The story of Aziz Ansari and “Grace” is playing out as a sort of Rorschach test.
One night in the lives of two young people with vintage cameras is crystallizing debate over an entire movement. Depending on how readers were primed to see the ink blot, it can be taken as evidence that the ongoing cultural audit is exactly on track—getting more granular in challenging unhealthy sex-related power dynamics—or that it has gone off the rails, and innocent men are now suffering, and we are collectively on the brink of a sex panic.
Since the story’s publication on Saturday (on the website Babe, without comment from Ansari, and attributed to a single anonymous source), some readers have seen justice in Ansari’s humiliation. Some said they would no longer support his work. They saw in this story yet another case of a man who persisted despite literal and implied cues that sex was not what a woman wanted.Some saw further proof that the problems are systemic, permeating even “normal” encounters.
Allegations against the comedian are proof that women are angry, temporarily powerful—and very, very dangerous.
Sexual mores in the West have changed so rapidly over the past 100 years that by the time you reach 50, intimate accounts of commonplace sexual events of the young seem like science fiction: You understand the vocabulary and the sentence structure, but all of the events take place in outer space. You’re just too old.
This was my experience reading the account of one young woman’s alleged sexual encounter with Aziz Ansari, published by the website Babe this weekend. The world in which it constituted an episode of sexual assault was so far from my own two experiences of near date rape (which took place, respectively, during the Carter and Reagan administrations, roughly between the kidnapping of the Iran hostages and the start of the Falklands War) that I just couldn’t pick up the tune. But, like the recent New Yorker story “Cat Person”—about a soulless and disappointing hookup between two people who mostly knew each other through texts—the account has proved deeply resonant and meaningful to a great number of young women, who have responded in large numbers on social media, saying that it is frighteningly and infuriatingly similar to crushing experiences of their own. It is therefore worth reading and, in its way, is an important contribution to the present conversation.
It may not be as simple as calories in, calories out. New research reveals a far more complex equation for weight gain that places at least some of the blame on organic pollutants.
Conventional wisdom says that weight gain or loss is based on the energy balance model of "calories in, calories out," which is often reduced to the simple refrain, "eat less, and exercise more." But new research reveals a far more complex equation that appears to rest on several other important factors affecting weight gain. Researchers in a relatively new field are looking at the role of industrial chemicals and non-caloric aspects of foods -- called obesogens -- in weight gain. Scientists conducting this research believe that these substances that are now prevalent in our food supply may be altering the way our bodies store fat and regulate our metabolism. But not everyone agrees. Many scientists, nutritionists, and doctors are still firm believers in the energy balance model. A debate has ensued, leaving a rather unclear picture as to what's really at work behind our nation's spike in obesity.