There's a simple enough way to resolve the mess in Cyprus. It doesn't even involve asking the Germans to pay more or the Cypriots to tax bank deposits. It's called printing money.
A quick recap. Cyprus needs to raise €5.8 billion ($7.4 billion) to rescue its insolvent banks or the European Central Bank (ECB) says it will cut off the "emergency liquidity assistance" (ELA) loans keeping those zombie banks afloat. It's not so easy to come up with €5.8 billion in just a €19 billion economy. So Germany has told Cyprus to tax bank deposits, including supposedly insured amounts below €100,000, to get what it needs. The Cypriot parliament hated that idea and voted in unison to reject the bank-deposit tax on Tuesday.
There are three players here -- Germany, Cyprus, and the ECB -- and each comes with a big hurdle. First, Germany insists it won't hand over any more than the €10 billion it's already committed. Angela Merkel doesn't want to fully bail out the less-than-reputable Russian oligarchs who use the island as a tax haven, particularly in an election year. Second, Cyprus doesn't want to cripple its future as an offshore financial center (although it's too late for that) with any kind of deposit tax. Third, the ECB has to sign off on any agreement.
This is what we call an impasse. Germany doesn't want to pay more, Cyprus doesn't to tax more, and the ECB doesn't want to print more. It's a game of chicken with the future of the euro potentially at stake (again). The question is who moves first. With Germany and Cyprus still quite far apart, it's up to the ECB. After all, the magic of the printing-press would make the Cyprus banking disaster much easier to solve.
Here's how Cyprus could save itself in three, easy steps -- with the ECB's tacit support.
1. Merge Cyprus' Big Banks and then Spin Off a Bad Bank
The best way to deal with the losses in Cypriot banks is to isolate them. This just means putting all the good assets from its biggest banks into a good bank pile. The rest goes into the "bad bank" pile. But how does this improve things? Well, for one, it gives the government an idea of the size of the black hole in bank balance sheets. For another, it replaces two zombie banks that won't lend with one dead bank that won't and one healthy one that will. In other words, it should, albeit slightly, increase the amount of credit in the economy.
2. Convert Uninsured Deposits to Bank CDs
Deposit tax or not, the Cypriot financial system is doomed. Its business model of giving rich Russians a place to park (perhaps ill-gotten) cash and avoid taxes is finished. Just the specter of the deposit tax will be enough to spur deposit flight from abroad.
This capital exodus will only hasten the next bailout. Cypriot banks can afford to lose a bit of their deposit base, but losing too much will turn their balance sheets even more upside down -- and make them even more dependent on ELA funding. It won't be long before the banks need more capital from the Germans.
What is to be done? As Felix Salmon points out, sovereign debt guru Lee Buchheit and Mitu Gulati of Duke University have come up with an elegantly simple solution: Convert uninsured deposit amounts above €100,000 into bank certificates of deposit, or CDs. Now, this wouldn't solve the banks' capital problems now, but it would reduce the banks' capital problems in the future. Banks would give uninsured depositors the choice of accepting either a five- or ten-year bank CD, with the latter offering either a higher interest rate or some kind of natural gas bond as a sweetener. The government would also extend the maturity on its sovereign debt by five years -- which Buchhet and Gulati estimate would save €6.6 billion.
3. Recapitalize the Bad Bank with Government-Guaranteed Natural Gas Bonds
This is where things get tricky. Even if the Cypriot government did all of the above, it would still need to recapitalize the bad bank. And that's still not easy for Cyprus to do. But with a little legerdemain, Cyprus can get the ECB to print what it needs. That is, after all, what Ireland recently did.
There's a wildcard in all of this. Cyprus might have huge natural gas reserves. Upper-end estimates value the hoped-for-reserves at €300 billion, but that's all they are for now: hoped for. Almost none of the reserves have been proved yet. And besides, even if they do exist, it would still be another decade before they came on line. But this could be enough to save Cyprus now. Here's how it would work.
First, securitize future natural gas revenue into long-term bonds. These bonds would have maturities between 25 and 40 years, and the senior-most tranche would go exclusively towards recapping the bad bank. Depositors who term out their accounts could get junior tranches if they prefer the upside risk to a lower interest rate on their CD.
Second, the government guarantees the senior-most tranche of these natural gas bonds. In other words, the government will cover the difference between what these bonds are supposed to pay, and what they do if it turns out there isn't much (or any) natural gas. Now, this looks like a pretty daunting contingent liability for a government with a €19 billion economy, but it's much more manageable over 25 to 40 years.
Third, backload the payments on the bonds.
Fourth, give these government-guaranteed bonds to the bad bank to use as collateral for ELA loans. Let's be clear what this means. These bonds would almost certainly trade far below par, but that's not what the Cypriot government cares about. It cares about giving the bad bank safe-ish assets it can use as collateral for ELA money from the Central Bank of Cyprus. The bad bank gets the capital it needs now, and the government doesn't have to pay much until much later. It's money-printing in disguise. Of course, the ECB Governing Council could overrule this extension of ELA by a two-thirds vote ... but would it would really push Cyprus out of the euro zone if crisis had been averted? Probably not.
I know this sounds incredibly fanciful. Gimmicky, even. A government driven into bankruptcy by its banks can save them, and itself, by issuing some new long-term debt to give them? Really? Well, yes. This kind of alchemy is precisely what Ireland has done.
Like Cyprus, Ireland has an outsized financial sector that made some outsized bets that went bad. Financial bankruptcy turned to national bankruptcy and then bailout after the Irish government guaranteed losses it couldn't possibly guarantee. So far, so bad. But here's where things get interesting. The Irish government nationalized its biggest problem bank, and recapitalized it with promissory notes -- basically, front-loaded government debt instruments. The now-nationalized bank then used these promissory notes as collateral for ELA funding, which allowed it to slowly wind itself down. (Irish economist Karl Whelan has the best explanation of all this, if you want the full wonk).
Then they had a revelation. Wouldn't it be great if they could exchange these promissory notes with their upfront repayments for back-loaded, longer-term bonds? Yes, yes it would. The Irish government ripped up the promissory notes and issued 25-to-40-year bonds to use as collateral instead. (For legal reasons, they also closed down the nationalized bank, and transferred its remaining assets to a bad bank). The ECB could have vetoed this, but it chose not to.
Again, the benefit of all this financial sleight-of-hand was the central bank printed money for Ireland today, and Ireland didn't have to pay it back for many years. As Wolfgang Münchau of the Financial Times explains, it was a deliberately convoluted way of printing money for the government to hide that they were printing money for the government.
Cyprus should pull an Ireland, and force the ECB to make a decision. Either the ECB refuses to accept guaranteed natural gas bonds as collateral, and Cyprus gets booted from the euro, or the ECB relents, and the panic subsides.
In other words, make the ECB decide whether the euro is worth printing 5.8 billion euros.
Five days after Hurricane Maria made landfall in Puerto Rico, its devastating impact is becoming clearer.
Five days after Hurricane Maria made landfall in Puerto Rico, its devastating impact is becoming clearer. Most of the U.S. territory currently has no electricity or running water, fewer than 250 of the island’s 1,600 cellphone towers are operational, and damaged ports, roads, and airports are slowing the arrival and transport of aid. Communication has been severely limited and some remote towns are only now being contacted. Jenniffer Gonzalez, the Resident Commissioner of Puerto Rico, told the Associated Press that Hurricane Maria has set the island back decades.
How could six senior presidential aides mimic the strategy for which Trump lacerated Hillary Clinton? Only if they believe they are as immune to the usual rules as he is.
Updated on September 25 at 8:20 p.m.
Late Sunday night, Josh Dawsey of Politico dropped a story that, in any other administration, would have been cause for concern but hardly surprise.
“Presidential son-in-law and senior adviser Jared Kushner has corresponded with other administration officials about White House matters through a private email account set up during the transition last December,” Dawsey wrote. “Kushner and his wife, Ivanka Trump, set up their private family domain late last year before moving to Washington from New York, according to people with knowledge of events as well as publicly available internet registration records.”
One hundred years ago, a retail giant that shipped millions of products by mail moved swiftly into the brick-and-mortar business, changing it forever. Is that happening again?
Amazon comes to conquer brick-and-mortar retail, not to bury it. In the last two years, the company has opened 11 physical bookstores. This summer, it bought Whole Foods and its 400 grocery locations. And last week, the company announced a partnership with Kohl’s to allow returns at the physical retailer’s stores.
Why is Amazon looking more and more like an old-fashioned retailer? The company’s do-it-all corporate strategy adheres to a familiar playbook—that of Sears, Roebuck & Company. Sears might seem like a zombie today, but it’s easy to forget how transformative the company was exactly 100 years ago, when it, too, was capitalizing on a mail-to-consumer business to establish a physical retail presence.
E!’s 10-year-anniversary special celebrating its flagship family was surprisingly honest and strangely tragic.
On Friday, as Puerto Rico contended with the aftermath of a hurricane that had left much of the island without power, and North Korea threatened to detonate a hydrogen bomb in the Pacific Ocean, the internet-gossip complex grappled instead with the momentous news that an unmarried 20-year-old reality star was pregnant. Kylie Jenner, TMZ reported, the youngest scion of the Kardashian family, had been telling friends that she and her boyfriend, the rapper Travis Scott, were going to have a baby. Unidentified family friends promptly confirmed the news to People. And some fans began to wonder—had Kylie’s mother, Kris Jenner, leaked the news herself to boost the ratings for E!’s Sunday night 10-year-anniversary special of Keeping Up With the Kardashians?
What J.R.R. Tolkien’s classic The Hobbit still has to offer, 80 years after its publication
“In a hole in the ground there lived a hobbit.” So began the legendarium that dominated a genre, changed Western literature and the field of linguistics, created a tapestry of characters and mythology that endured four generations, built an anti-war ethos that endured a World War and a Cold War, and spawned a multibillion-dollar media franchise. J.R.R. Tolkien’s work is probably best remembered today by the sword-and-sandal epic scale of The Lord of The Rings films, but it started in the quiet, fictionalized English countryside of the Shire. It started, 80 years ago in a hobbit-hole, with Bilbo Baggins.
Although Tolkien created the complicated cosmological sprawl of The Silmarillion and stories like the incestuous saga of Túrin Turambar told in The Children of Húrin, Middle-earth itself is mostly remembered today as something akin to little Bilbo in his Hobbit-hole: quaint, virtuous, and tidy. Nowadays, George R.R. Martin’s got the market cornered on heavily initialed fantasy writers, and his hand guides the field. High and epic fantasy are often expected to dip heavily into the medieval muck of realism, to contain heavy doses of sex and curses, gore and grime, sickness and believable motives and set pieces. Characters like Martin’s mercenary Bronn of the Blackwater are expected to say “fuck.” Modern stories, even when set in lands like A Song of Ice and Fire’s Essos that are filled with competing faiths, tend toward the nihilist, and mostly atheist. Heavenly beings are denuded of potency and purity; while the gods may not be dead, divinity certainly is.
“This fear is very deeply felt and not understood in the West—and it comes from a real place rooted in history.”
Over the past month, a crackdown by Burma’s military has forced more than 400,000 Rohingya Muslims from Rakhine state to flee to neighboring Bangladesh in what the UN human-rights chief has called a “textbook example of ethnic cleansing.” The military crackdown was prompted by an attack August 25th by the Arakan Rohingya Salvation Army (ARSA), a Muslim militant group with reported links to Pakistan and Saudi Arabia, on security outposts.
The international community has condemned the violence unleashed by the Burmese military on Rohingya civilians. It has also voiced sharp criticism of Aung San Suu Kyi, the Nobel laureate and de-facto Burmese leader, for, in the view of her critics, not doing enough to protect the Rohingya, who have been stateless for more than three decades. But where humanitarian groups and Western nations see the world’s most persecuted minority, the government of Burma (also known as Myanmar) and an overwhelming majority of its people see a foreign group with a separatist agenda, fueled by Islam, and funded from overseas. It’s this difference in perception that will make any resolution of the Rohingya issue extremely difficult.
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.
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.”
Two new books explore America’s changing romantic landscape.
C.S. Lewis’s wife, Joy Davidman, died of bone cancer on July 13, 1960. The next day, the famous author wrote a letter to Peter Bide, the priest who had married them, to tell him the news.
“I’d like to meet,” Lewis writes, suggesting the two grab lunch sometime soon. “For I am—oh God that I were not—very free now. One doesn’t realize in early life that the price of freedom is loneliness. To be happy is to be tied.”
When it comes to romance, Americans are freer than they’ve ever been. Freer to marry, freer to divorce, freer to have sex when and with whom they like with fewer consequences, freer to cohabitate without getting married, freer to remain single, freer to pursue open relationships or polyamory.
It's getting sweeter in the South—and at one university in particular.
In recent years the rising cost of student debt has given birth to an odd phenomenon: a population of ostensibly generous older men who appear poised to solve the higher-education crisis, one student at a time. Once a relatively underground subculture, this benevolent group of men is coming to the rescue across the country, essentially volunteering to subsidize the students’ tuition costs. But that description could be, shall I say, sugarcoating it.
Yes, these men are ponying up their money—plus more—for financially struggling students. However, it’s not free money, and it’s not all students. In other words, these benefactors typically expect some compensation from their beneficiaries—students who generally tend to be women willing to accept the help from the men in exchange for providing some tender loving care. And, at least, flaunting their good looks.
"Sugar daddies"—the official moniker granted to these wealthy men—and the microcosm they occupy aren’t anything new, but they’ve become more mainstream in recent years. That they’ve emerged as a noteworthy group during America's student-debt crisis is indicative of their growing prevalence—as well as that of "sugar babies," the ones entrenched in that crisis. And the subculture—"daddies" and "babies" alike—appears to be expanding rapidly. 2014 saw a huge spike in sugar babies nationwide, especially in the southern states, according to new data from SeekingArrangement, a site where "babies" and "daddies" sign up and connect. The trend itself, let alone writing about it, might seem frivolous or demeaning. But the data could clarify what's going wrong with the system and where those problems lie.
The latest figures on student-loan debt—now an average of $28,400 per person—are frightening. This number has steadily risen over the past few years, and, worse yet, it’s likely much higher than estimated considering only 57 percent of public and private nonprofit colleges volunteered to report their statistics this past year. Moreover, these debt figures exclude for-profit colleges, which are notorious for their especially high student debt-default rates.
What might have been little more than a nuisance in the past has turned into an outright hindrance to many students’ financial security: It takes about 14 years on average to pay off the debt. As a result, young women across the country are turning to sugar daddies in droves. Many of them use SeekingArrangement, which describes itself as "the world’s largest Sugar Daddy dating site." More than 1.4 million students have signed up as members, including nearly 1 million in the U.S., according to the company. The website claims that 42 percent of its members are students, many of whom are incentivized by SeekingArrangement to join; people who sign up with a .edu email address or show proof of enrollment, for example, receive "premium memberships" for free.
The whole thing may seem shady, but in its defense SeekingArrangement has strict rules prohibiting the exchange of money on its site. It also apparently has an in-house team that does background checks on members. Understandably, the company is mired in controversy. One New York Postcontributor even accused the sugar-baby industry of trying to justify prostitution, one of the many claims to which SeekingArrangement eventually responded with a disclaimer. Last year, the company set up a FAQ-esque page, "a refresher course in the definitions of Sugar" that aimed to delineate the so-called differences between sugar baby-ing and prostitution.
But for many, that’s all old news. Now, the latest data reveals not only that the phenomenon is spreading, but also that it’s gaining traction in certain areas much more than in others.
The University of Texas at Austin, in particular, saw a massive growth in sign-ups between 2013 and 2014. With a 227 percent increase the growth far outpaced all other schools in the country when it came to the sugar phenomenon, according to SeekingArrangement. In fact, according to the company, last year was the first time several Texas schools even appeared on the list. (Four schools in the Lone Star State made the most recent top-50 list). So while sheer sugar-baby numbers are important, growth rates are telling, too. Here are the top-five schools in terms of growth in sign-ups between 2013 and 2014: