Saturday, 30 January 2010

Who’s to blame for the crisis / Cherish the bearish!

Ask an economist a question and they’ll answer: “It depends”. The question for today concerns Barack Obama’s plans to impose precautionary regulations on banking industry. Many opponents and commentators say this is the revenge for bankers’ to the latest financial crisis. The others say we have to prevent societies from the disasters reckless bankers may trigger.

Bankers became a scapegoat of the crisis, but the question who is to blame is multi-faceted, but can be boiled down to a simple dilemma: the market or the people? This single problem could be a great topic for a separate post – maybe one day…

If the people, you’ll probably blame the bankers and the factor that has always driven them – the greed. But please note dear reader that the bankers acted within a certain system, which created incentives to what you call immoral behaviours. The main pillars of the system were too loose monetary policy, lax regulations and certainly flawed remuneration schemes, under which bankers got paid generously for profits made on taking excessive risk and the burden of losses was carried by shareholders. When the banks were bailed out by the states, the governments stepped in as owners. A lot of free market advocates pulled the governments up for their disagreement for big bankers’ bonuses. Didn’t they notice the governments many times acted not as the states but as owners and exercised owner’s right to influence executives’ pays?

I would sooner incline towards a notion that the institutional framework is to blame. Bankers behaved rationally, if they could profit from the situation, they just did it. Many times I heard it was the greed that brought about the crisis. “Greed is bad” – the leftist organisations chanted on Canary Wharf on Halloween 2008. Greed itself, as an axe is not bad. Axe itself is evil when you use it to kill your mother-in-law. Greed is what propels development, boosts effectiveness, makes people strive for perfection, moves the world along.

But now add to this reasoning that markets are driven by two factors: greed and fear. Fear was taken away from global financial markets for a few years prior to the crisis. The moment market participants forgot about the links between expected profits and risk and believed prices could rise endlessly, they hammered a nail to their coffin. Financial markets should always be in the shadow of fear. They should always reckon with the worst scenario and must not expect that anyone, particularly the governments will come in aid. Conclusion. The crisis was caused by LACK OF FEAR, not by greed.

When the markets function without fear, the disaster in inexorable. That is why I welcomed the proposal of American president. Mr Obama brought back fear to the markets and restored the balance, I received it with a sigh of relief, the current correction proves markets stay sound.

What will happen in the coming weeks? There is one reason why the stock prices could go up – low interest rates, but I see several reasons, why this can be a long awaited correction:
- stock markets had been rising rapidly for eleven months and they simply deserve a decent correction,
- stocks are overvalued, but it’s not an argument, stock markets do not rely on rational arguments, but on power of demand and supply,
- big speculators will take profits and buy back the same securities in a few weeks at the lower price,
- those who’ll lose on this shrewd move will be small investors who believed in the bull market just before the trend reversed – history repeats itself, but few are sadder but wiser,
- stock exchanges have already discounted the scenario of V-shape recovery, now everything indicates we revival will be rather slower, the big vulnerability of economies to stimulus packages and too loose monetary policy has been recognised, now the valuations should reflect this scenario.

Dear readers, see you in a few weeks (in early March 2010) somewhere below 2000 points on WIG20, 32000 points on WIG, 900 points on S&P500, 8500 points on Dow Jones or somewhere else, if time proves me wrong. Today I estimate the chances my forecast is flawed are 35 per cent. Yesterday they were around 50 per cent, but after the markets rallied after the publication of USA GDP data and totally ran out of steam within just four hours, I’m quite convinced we’re heading south.

Thursday, 28 January 2010

Articles, opinion, views

At the beginning of the current year I initiated a new “secular tradition” – I began placing links to the articles I find of note in my profile on facebook, leaving room for comments to the readers and reducing my role to suggesting something would make a good read.

Today, exceptionally, I’ll do it on the blog. This time notable articles for Polish readers. Those to which I’m linking today prove best the true pluralism of press and that every opinion, not necessarily from the mainstream may break through.

Firstly, two articles for the readers interested in the problems and evaluation of Polish transition from central-planned to market economy. One voice for, another against, both make a good summary of the current public debate on the reforms implemented by Balcerowicz.

And secondly, the article “Zlikwidować OFE” (EN: Let’s scrap the pension funds”) by prof. Oręziak from my school, so maybe once again flogging a dead horse. This issue will have be raised repeatedly, until the problem is solved, because our reform does not appear to be the great success, as its authors claim.

This problem has been tackled earlier, click the label ‘OFE’ or ‘pension system’ to read my previous posts. They form a coherent series of features in which I pounce on the Polish pension system and suggest changes.

The article is not available online (why?), you have to buy a paper issue of this week’s “Polityka” to read it. I’ll comment on some diagnoses and proposals it contains.

“Most developed countries have given up on an idea to create pension funds with obligatory participation. They did it for two reasons: firstly they were reluctant to take away loads of money from public sector, secondly they didn’t want to expose future pensioners to the risks of financial crises and inflation.” The second argument is flawed, the state sector doesn’t really protect the money well, but the first one lays bare the bleak truth – public finances lose on the pension deal and if the public sector loses, the taxpayers will sooner or later have to pay for it.

“The OFE-based system continually generates growing public debt”. Sad, but true, the current government identified this perpetual flaw, but the influential economists have torn the politicians to pieces. The soundest proposal of labour and social policy ministry was to forbid investments in government bonds. Now pension funds are obliged to invest at least sixty per cent of the assets they manage in gilts. My views of public debt are quite extreme – I would welcome a balanced deficit. Firstly, because state should be lean, secondly, because it should not support financial markets. Offering government bonds to the market means offering to investors theoretically risk-free securities at taxpayers’ cost – if my neighbour buys government bonds and the interest is paid from my taxes it’s an unfair redistribution. Financial markets and governments (and monetary authorities) should have as little in common as possible.

One of the goals of the pension system reform was to take away the responsibility for pension benefits from the state. And the outcome is a travesty. The government bonds make up sixty per cent of pension funds’ portfolios. Moreover, state has to pay interest on this debt, unlike in patchy ZUS. So the main entity responsible for providing benefits remained the same, only the costs are higher. Once because of the interest mentioned above and later because of remuneration for fund managers. This is the next pathology, from January 2010 its scale was reduced by half. No regulations that would link management fees to investment results have not been put forward.

Mrs Oręziak slates the idea to allow pension funds to invest money in risky securities and lift the limitation in their investment policies. This move is right when it is accompanied by giving more freedom to future pensioners. They should, like in Sweden, have a big choice of institutions where they could save money for pension. They should include banks, insurance companies, various investment funds. Under such conditions they choice of ways of saving would offer many alternatives and would enforce competition based on (real!) free market rules. Under such a system the current pension funds with their effectiveness and costs would be wiped out!

And the last proposal, namely to transfer the money kept currently in pension funds to ZUS. It’s not the right solution. ZUS is not a quick fix, this ponzi scheme will sooner or later collapse under the burden of demographic changes. Let’s face the truth – the state will not be able to provide us with a decent pension benefit. If so, may it give us the freedom to save on our own, we know better what to do with our money.

In the last sentence, Mrs Oręziak brings up the burning issue of the expert who speak about pension system reforms in the media. One of these persons is Prof. Marek Góra, also from my school. He’s the main architect of the reform and keeps digging his heels in and defending the reform. He has some reasons, not only creator’s honour, but also a cushy job in ING pension company’s supervisory board. A conflict of interest?

Demography is only one side of coin, though it prompted changes in pension system. The overall idea of new system was good, only the solutions put into practice are lame. The bigger problems are the laziness of Poles, whose retirement age is the lowest in the EU and the untouchable – miners, policemen and also pension fund managers and shareholders… Instead of doing millions of Poles out of their hard-gained money, deprive the privileged groups of undeserved advantages!

UPDATE, 31 January 2010. a brilliant post on the same topic by Robert Gwiazdowski (in Polish)

Tuesday, 26 January 2010

This must have been the turning point

…of this winter. Or it’s just my wishful thinking. Temperatures in the last days have been very low. Chill snap hit its low in Warsaw on Monday, 25 January, when the temperature in the morning dipped to –23 degrees. It was colder than last year (–22 on 6 January 2009), but the record from 24 January 2006, when the temperature in Warsaw fell to –27 degrees, has not been beaten. The absolute record, from 8 January 1987, –31 degrees, also remains intact. And may it stay so. The activity of the sceptics who undermine the theory of global warming is still noticeable. Just like one trading session, when the stock prices decline doesn’t scrap the whole bull market, one anomalously cold January won’t blow up the general upward temperature trend. May they be happy, because it’s –25, not –30, probably thanks to global warming and may they focus on lobbies who try to profit from the climate changes.

If you are interested in temperature measurements taken in Warsaw, I recommend you a website by NASA, where you can access the average monthly temperatures from 1881 to 2009. I downloaded the file and copied the data to spreadsheet and formatted them to revamp the layout and be able to process them, etc. Please write you e-mail in comment if you want me to send you the MS Excel file.

I compared them with two other sources available on IMGW website – latest average monthly records and long-term averages and they look incoherent…

I have to praise media this time. Instead of spreading panic they warned against frost, as indeed the temperatures below minus twenty might be dangerous to human life and health. Many tragedies could have been avoided, not only by abstaining from drinking, but also by simply wrapping up. Sometimes the results of dressing in line with the fashion make themselves felt after years…

Is the frost visible? That’s a kind of quirky question, but I identified two signs of temperature of –20 degrees or lower.
Firstly, the radiation fog that usually hovers and makes air less transparent and billows of smoke coming out from almost every chimney. They also exacerbate the visibility.

On Sunday afternoon I strolled around the village. Not a soul around! Unlike other locals, I wasn’t scared away by low temperature. Actually it wasn’t that chilly, just –13 degrees, plus the clear sky and almost still air. Such weather is surely conducive to revel in the beauty of winter landscape.Just look at the pictures. Isn’t it picturesque? The landscape, not necessarily the high voltage electricity mains. And the trains run normally to supply the power plant in W-wa Siekierki. The ultimate upside of the chilly weather is that the chances of spotting a coal train are much higher.

Meanwhile I have to say my consumer electronics didn’t let me down. While on my Sunday walk I was rung and spoke on my mobile phone for thirteen minutes and the handset didn’t show any negative effects of exposure to low temperature. I took ten snaps before my camera signalled the batteries were almost flat. Quite decent, taking into account batteries were charged up in early November and I’ve taken around 200 shots since then. BTW, can some other more experienced photographers tell me how to protect the camera from cold? I don’t put in batteries every time I want to take a photo, I just keep the device in the inner pocket of my winter jacket. When I bring it home, I take out batteries and memory card for about three hours to protect them from temperature shock. This method has never failed…

The data I downloaded show no correlation between average temperatures in the consequent months. This year’s frosty January doesn’t mean the February will also be chilly. When it comes to long-term forecasts, meteorologists are on a par with fortune tellers. The last forecast were totally flawed. I wish I had archived it and could review, so believe me or not, but according to long-term forecasts from mid-2009, September should have been cool and wet, October warm and dry, November warm, December usually warm, January likewise. In three (Sep, Oct, Jan) out of five months the weather played a prank and turned out exactly the other way round.

The current long-term forecasts suggest February will follow this type of weather, March will be chilly, April windy, cool and sometimes snowy, May moderate and June and July will bring waves of heat and drought. I sincerely hope the weather in coming months will prove the forecasters totally wrong!

Sunday, 24 January 2010

Rozliczać jego mać!

WARNING: Reading this post may be extremely hazardous and may cause a serious mental breakdown, may make you lose your mind or send you to a funnyfarm. Unless you are a PL -> EN translation freak, then you’re quite likely to find the scribble below considerably amusing.

There’s no blogging without pleasure. I decided to write this post to reward myself for passing exam in cost accounting and dedicate it to my lecturer who used the Polish verb rozliczać at least one hundred times during the term. I’m somehow cocksure she won’t find it and read (computer literacy and command of English are essential to access and understand my blog!). Passing this exam might be regarded as an accomplishment, especially when one got a task “rozliczyć koszty” and scratched his head to figure out what it EXACTLY meant. I managed to get it right and apportioned the shared costs to the departments on the basis of the number of workers employed in each of them. I apologise to all fellow students who also found it difficult. I hope I’m not to blame.

For starters, I have to admit I’m not an expert in accounting. I generally don’t like, not to say I hate it and I don’t further my knowledge in it. Moreover, all courses in this field delivered at my school are run in Polish only, with no reference to English terms, what makes my command of accounting lingo limited. Forgive me my incompetence, but don’t expect it will hold me back from writing. This time…

The post you’re reading, in spite of its form, is meant to be semi-academic, so I should give an overview of its subject matter and set a thesis. Alright then. I want to get to grips with translations of Polish verb rozliczać, damned by translators, focusing mainly on the aspects of its use that can be come across in accounting parrot. I’ll omit the uses from common parlance, like the ones that translate into: settle up, pay off, bring sb to account, account for, in the last days of April also file a tax return, as they’re quite easy and don’t cause very serious problems.

My thesis is that the words rozliczać and rozliczenie are overused and misused by the Poles and often they can’t precisely explain its meaning. They have become catch-all words, if you don’t know which verb to use, use rozliczać and watch your interlocutor’s and reader’s face turning red from anger. Many people think it’s intuitive and everybody understands it. Polish verbs like je*ać or pie**olić, used by lower tiers of Polish society also cover many meanings and are intuitive, the more educated fellows have their rozliczać. In between there’s a middle class who have their załatwiać and kombinować.

Let’s set the ball rolling. Before I analyse my cost accounting notes, I’ll give you small warm-up. Here’s the instruction for students published recently by my school (in Polish). In case the link expires I’ll give you a screenshot. I underlined the sentences I’m grappling with.

Before I beheld this guide I had thought I had known all possible uses and misuses of rozliczać. They proved me wrong and I’ll thank them cause that was a good job!

First sentence goes: According to the resolution of SGH senate, passed on 22 July 2009, the second term students must complete only the courses listed in curriculum and plan of Master’s studies at SGH,.

The second one goes: Before you do this, check carefully your timetable and the list of courses you will have to get credits in.

Why the hell they used the verb rozliczać remains a secret. I put this example here because I fear the worst – they might try to translate it into English and the effect might be devastating.
No wonder they have problems with English, if they can’t even express themselves in Polish clearly and correctly.

1. Strata poniesiona w danym okresie może być rozliczana na zyski z pięciu kolejnych okresów sprawozdawczych. = A loss incurred in a given period can be offset against profits made in the next five reporting / accounting periods.

2. Rozliczenia międzyokresowe kosztów bierne i czynne = accruals and prepayments. Still quite simple.

SHOUT: a thought for today. Once again you are provided with a screenshot. The framed maxim reads: “Accounting exists because we must not trust one another”. I blame mistrust for many things in Poland so may it be the scapegoat blamed for the existence of the rozliczać.

3. Prenumarata ”Tygodnika X” jest rozliczana w czasie = The subscription of “X Weekly” is amortised over a period of time.

4. Wskaźnika tego używa się do rozliczania kosztów na komórki przedsiębiorstwa = This ratio is used to allocate the costs to firm’s departments.

SHOUT: Bilans wsadu i uzysku. Sporządź bilans wsadu i uzysku w przedsiębiorstwie przemysłu tłuszczowego, wiedząc, że ilościowe zużycie nasion na jednostkę oleju surowego o 100% zawartości tłuszczu wynosi 23 000 kg, a współczynnik zawartości tłuszczu w nasionach – 45,2%. Normatywny współczynnik zaolejenia śrutu w stosunku do wagi nasion to 1%, a normatywny wskaźnik strat oleju w stosunku do wagi nasion wynosi 0,5%. Dodatkowo uzysk z produkcji w postaci oleju surowego – 10 000 kg. Clues: bilans wsadu i uzysku = input and output balance, normatywny = standard, zaolejenie = oil content. If you know what śrut is, how to solve this problem, or why Poland is plagued by Siberian frost, or have any other useful or useless remarks, please leave a comment.

5. Konto rozliczenie kosztów. This is the really a hard nut to crack. In this example I found it really difficult to comprehend what the ultimate goal of keeping this account was. I don’t even know, if it has any equivalent in International Accounting Standards. I can only tell you its used to aggregate and then to break down the costs into other accounts and this account has to be reconciled at the end of each reporting period. My first white flag here, I won’t dare playing at word-building.

6. Rozliczenie kosztów wydziałowych, działalności na koszty produkcji, na inne wydziały, etc. – Here I can tell you the correct English verb once again seems to be ‘to apportion’, I would consider using ‘to divide’ or ‘to allocate’.

SHOUT: I haven’t realised this obvious fact that takes place every week. The next time I hear the word rozliczać I’ll ask myself: “Wednesday, Thursday, Friday does it mean?”

7. We wzajemnych rozliczeniach jako pierwszy rozlicza się ten wydział, który świadczy najwięcej usług na rzecz innych wydziałów = A department which renders to the other departments services in the highest value should account for its costs as a first one. I’m not satisfied with this piece, it sounds clumsy, like the source sentence in Polish.

8. Koszty zmienne są rozliczane według rzeczywistych rozmiarów produkcji, a koszty stałe są rozliczane według planowych rozmiarów produkcji = Variable costs are calculated on the basis of real output, whereas fixed costs are calculated on the basis of planned output. Hence, we have just discovered the next application of the hapless verb.

In this post I tried to prove that rozliczać is a translatable word. It’s a verb, not a noun. The words that tend not to translate are usually nouns. May radish serve as an example. This vegetable is not known in Japan and Japanese language doesn’t have a name for it. A verb express a certain activity which has to named somehow. As long as you understand the meaning of a word precisely and have a sufficient command of another language, you are able to translate it. Click here to see how the professionals are confused by the word – approximately each fourth query concerns this accursed verb, or noun.

Professional translators have a different perspective. They are graduates of English language or applied linguistics and their insight into the topic they deal with is rarely as good as economist’s, I’d hazard a guess. This gives rise to their confusion and pain which is hardly ever eased by dictionaries or colleagues.

It sometimes occurs to me that the best solution would be to cross out this accursed word from dictionaries and make people forget it. But hang on, it actually has its core meaning, as far as I’m concerned represented by the English verb ‘to settle’. I generally avoid using rozliczać like the plague, but I sometimes use it, but in the correct context only. In other instances I replace it with other verbs to get my message across precisely. This problem can be traced back to Polish and or rather its users, native speakers who nurture inaccuracy and low quality of their language. We should change it, unless we want our language to become a pack of rubbish… Am I oversensitive? Read the official documents. Year by year, they are getting harder to understand, more complicated, not to say convoluted. Those officials who draw up those turgid regulations should be fined and then dismissed. More labour force to build motorways or road sweeping crews would do this country much better than a group of layabout who sit behind their desks and come up with twenty-second use of rozliczać!

Thursday, 21 January 2010

My idol for today

All my Polish readers should click here and be all ears for nineteen minutes. Listen, hang on every word this guy says and chew it over – this is what an independent real estate market analyst says. Clear, well-argued, backed by calculations reasoning, something I yearn for and appreciate.

This is an inconvenient truth for all estate agents and developers and banks, who try to dupe buyers and persuade them that flats are cheap these days. Humbug! We shouldn’t succumb to their pressure. Real estate prices are exorbitant, very often unaffordable. We shouldn’t pay over the odds and become slaves of mortgages for three decades! Someone who does it, as Mr Macierzyński points out, is financially illiterate. Flats will be cheaper!

Tuesday, 19 January 2010

Exam period pictures

I adore it. My school always knows how to amaze me. Each month its administrative staff put up a funny announcement in English. Here’s the one I spotted yesterday. This time the biggest problem must have been posed by the word ‘postpone’. Clue: in other words, it means ‘to put sth off’, or in a simpler way, to take a decision to do something later than planned, not earlier. But for sure every Pole will understand this sentence, as it’s an excellent literal translation of Egzamin z Business environment in CEE z prof. B. Mrozem został przesunięty z 1 lutego na 21 stycznia.

I won’t go to dziekanat to tell them to correct it, I somehow don’t fancy running a risk of being expelled for reproaching school’s authorities over the quality of English they stand for. I’ll just share with you my proposal on how to correct this clumsy sentence. Here it goes: The exam in Business environment in CEE by Prof. B. Mróz, scheduled for 1 February, has been brought forward to 21 January 2010. Doesn’t it sound better?

And right the one for aficionados of social networking websites. Captions speak for themselves, so I won’t tack on any comments.

Saturday, 16 January 2010

A new Polish studniówka fad

Wikipedia takes me aback – it gives a quite comprehensive description of Polish customary ball called studniówka, I can only add it is held in January or early February, before high school leaving exams, which are equivalent to English A-level. Other nations usually celebrate the good results of passed exams, in Poland we throw a party on a sinking boat, the last before future high school leavers knuckle down and begin their cramming spree.

For some this reversed order of taking exams and celebrating might seem weird, nevertheless this tradition has put down roots and nobody will dare to overthrow it. Studniówka, as many other youngsters’ stuff, moves with the times. Back in PRL, balls were thrown in school gyms, in independent Poland, as people have grown richer, clubs and restaurants play host to this party.

Four years ago, when had my own one, it looked quite normal. Parents from my high school decided on hall in Banking and Finance Centre in Warsaw (the former PZPR edifice), where it had been held in the previous years. The setting was a reasonable compromise between austerity and luxury, the most important thing for everyone was to have fun and we achieved it.

But when I look at (maybe exaggerated) the news depicting how it’s organised now I’m struck by how much it has changed, provided it’s true.

Venue – school corridors and gyms are passé, so how about the most expensive in luxurious hotels in Warsaw? Parents from my high school actually kept a cool head!

Budget – I read an average one this year per person is 2000 zł, some six or seven times more than mine. The price of the ball itself might not be much higher than mine (200 zł), but all additional costs inflate the total. I didn’t have to purchase a new suit or shoes, those bought three years earlier for middle school leaving exam weren’t worn out (used a few times), I had tie which suited my polonaise partner’s dress, the only new part of my outfit was a shirt. I heard now a suit but be put on for the first time, dresses for girls are generally disposable…

Hairstyle – my hair were too short to be combed, but what some girls do with their hair and makeup they wear is horrible. A session at hairdresser’s and then in beauty parlance may turn a really good-looking girl into a monster. An average boy who could take this opportunity to pick up such a girl would probably give up his plan and scurry off.

Ball – with all its consequences, it’s not enough to just fork out for it attend it, but you have to know how to behave, how to eat those exquisite meals from menu and act up to the standard.

Transport – we had a choice of three ones – some of us were given a lift and picked up by parents, some used public transport, some took a taxi. But now in some school hiring a limousine is all the rage.

How far will the world go? Does everything have to boil down to showing off? It the nineties it afflicted First Communion. I don’t consider myself religious, but it seems to me that for a child it should be a spiritual experience, but in the contemporary skewed world the climax of the day is getting the new computer, mp4 player, or, Heaven forbid, quad. The same happened to studniówka. Do we have to swank about, try to outbid one another who can afford more? Isn’t good fun more important? Isn’t, after all well-passed matura more important than lavish studniówka?

I voted in a survey:
Studniówka in a luxurious hotel:
1) sure, why not?
2) tough luck, times are changing,
3) stupidity and snobbery,
and chose the third option. The results were respectively: 28%, 9%, 63% and lifted my spirits up. Most people still keep a cool head, but if you want to ask who’s to blame for those extravaganzas, my answers will be the parents, because they agree to pay for the ball. After all, if my child was to have its studniówka and fellow parents outvoted me and pushed ahead some ridiculous ideas, I wouldn’t hesitate to shell out the money for the ball. It happens only once in a lifetime…

Thursday, 14 January 2010

The unrepentant...

It’s increasingly harder to find an economist who would admit openly they were wrong. When sometimes I see them speaking in public it occurs to me they would sooner try to convince me that black is white and the other way round than concede their mistakes.

Today’s The Wall Street Journal Europe raises the vexed issue of Ben Bernanke’s opinion on the Fed’s role in fuelling mortgage bubble in the United States – a view many economists disagree with. Loose monetary policy was one of the major causes of collapse, not the only one, but saying as Mr Bernanke that Fed’s policy “does not appear to have been inappropriate” sounds at least absurd. Keeping the interest rates too low for a long time does not appear reasonable. Once, in a difficult situation they could have been slashed, but should have been raised gradually as soon as the signs of recovery came up.

The commentator’s note was quite uplifting to me. Reading this is a must for an economist and everyone who is interested in economy and its mechanics. It clearly presents what I described in my post a month ago, that it how cheap money fuels irrational, unfettered speculation. Quite probably all bubbles would rise without help from monetary authorities, but their scale would have been much smaller and so the last downturn would.

Conceivably, Mr Bernanke is trying to justify what the institution he is chairing is doing is right and justified. He consistently ignores the threat of inflation and his speeches are more important for financial markets, not for the real economy.

Another noteworthy text from Polish finance minister comes in Financial Times. Mr Rostowski not only warns there against too loose fiscal policy, but also outlines a remarkable picture of market driven by fear and greed. As far as I’m concerned financial markets cannot run properly without fear. Fear keeps them in balance, whenever it is eliminated it gives way to greed and we have seen what it leads up to. Mr Rostowski openly criticises the Greenspan put idea and tells a scenario of next arising bubbles.

I believe Greenspan put was one of the greatest distortions of free market. If someone decides to invest money in risky securities, he should not expect any help when the worst scenario comes to a pass. As even wikipedia entry shows, this policy tool was not targeted at real economy, but to prop up distressed financial markets. Who should the central bank favour? Speculators or the real economy entities – businesses and customers? Now also the speculators benefit the most from extremely low interest rates. Fortunately, more and more economists foresee the possible relapse of the crisis subsequent from repeating the same mistakes.

Meanwhile in Poland. Newly appointed member of monetary policy council calls for hikes in interest rates. At long last! Let’s jack it up!

Tuesday, 12 January 2010

Winter wonderland

Hey, I’ve found the answer to the question I asked in my Sunday post. The explanation of what caused the current freeze spell can be found here. It’s even reassuring that the almost worldwide cold snap draws to a close, but doesn’t imply winter will go away.

I also noticed nobody’s happy with the latest snowfalls, I haven’t seen anyone making a snowman, everyone’s struggling a huge snow cover that reached 40 centimetres in Warsaw, still far less than record 70 from late January 1979. I tried to discover the snow as a picturesque stuff, but if there’s nothing but the snow (below) it’s kind of hard.

Below – I’ve never seen such a phenomenon before. That’s what happened to my east windows on Saturday and disappeared on Monday. The frozen outer glaze is an effect of rain falling in the temperature of –3 degrees. It fell and froze over, so the windows looked a bit like stained glass.

I wondered how Warsaw dealt with the snow and my curiosity, though satisfied, has left me with mixed feelings. All main roads were clear, but the rest was no better than substandard… Driver’s life’s not easy these days, especially if they haven’t used their car for the past few days. This negligence may either immobilise their cars for the next days, or weeks, or force them to dig their car (below).

Once you get your car out of a snowdrift your problem isn’t solved yet. Finding a parking space free of mixture of snow, grit, salt and mud verges on a miracle, getting out of a vehicle usually means dirtying shoes and trousers up to your knees and an attempt to drive out of the mud, even if successful, may last a while. Many drivers pushed the excess snow from the parking spaces they had found (below). After all snow is quite movable and unlikely to dent or scratch car’s bodywork.

Pedestrians seem to be discriminated in the capital of Poland and air their disgruntlement. If somehow, miraculously, a pavement has been cleared, another ingenious human being may use a shovel to block it with some sizeable chunks of icy snow (below).

The worst happens when you have to get into a bus or cross a street. If another side of a zebra crossing looks like the one on the picture below, you’d better try to cross it somewhere else. I almost fell over on this site!

Yesterday in the afternoon I ventured to the Eastern bank of Wisła to visit my former colleagues from the bank where I had had an internship. I have to say I like popping in Praga from time to time and when I call it “Warszawa B” it’s not out of malice only. Praga has its own provincial charm. Below: a bazaar between ul. Grochowska and ul. Mińska. Shopkeepers collectively remove snow from the roofs of their stalls.

As they were inviting me, they advised me to take wellingtons. I did without them quite well, but was appalled by the sight of the car park (below). The administration of the building hadn’t deigned to move their arses and clear a single cubic centimetre of snow. Employees who came to work after snowy weekend also didn’t do anything about the snow, just drove onto it and wade through it to work. Weeks will last until it normalises, my former colleagues won’t see it cause their department is moving to a new headquarters in February.

Below: a flawed photo of National Stadium construction site. Cranes were meant to be in the foreground but the tram’s speed was too high, or I just didn’t foresee it and didn’t press camera’s button early enough. Heavy snowfalls haven’t suspended works but slowed them down.

Odśnieżanie has become a buzz word these days. But it’s not snow clearing that poses the biggest problems. It’s easy to remove snow, but what to do with it? Almost everyone has the problem of storing or getting rid of the damned white substance.
I piled a decent snow bank on my drive and after I take the most difficult exam I’ll carry the frozen snow onto the back of the garden with a wheelbarrow, but my neighbours don’t enjoy a comfort of having some spare space. We have, because as the only family in the row of terraced houses have only one car (poverty appears positive), kept in the garage.

The snow I cleared from the street is stacked next to the gate (below), but the potential for pouring the new amounts of white powder has drastically diminished, what means each new snowfall will cause a problem.

I wonder how the temperature will change. No new signs of cooling have been observed yet, though the meteorologists (and media) frighten us with temperature dropping to –20 degrees this week. Today it hovered slightly below zero and let the icicles (below) hang down from my roof.

Sunday, 10 January 2010

Climate and economy

At least we ceased to complain. Poland is gripped by the winter. In our climate, it shouldn’t surprise us, after the first “attack” in December, we learnt to live with it. Worse are the things in the Western Europe, in countries, where no one is used to, nor prepared for the snow and freeze. Temperatures in Scandinavian countries drop below minus forty degrees, United Kingdom and Ireland are paralysed by the snow, temperatures hit the next lows. Germany, Benelux countries, even Spain and Portugal are plagued by blizzards and frost. British commentators began to draw parallels between the current weather spells and the notorious winter of 1963.

This weekend Warsaw was haunted by the heavy snowfalls and blizzards laced with freezing rain, which brought around 30 centimetres of white powder and a layer of ice. Poles seem to be tackling hard weather conditions patiently, without griping and haste. There were several prangs, some buses landed in the ditches, trains and other means of collective transport are delayed. It looks a bit worse when it comes to pavements – few are clear of snow, so a pedestrian’s life’s not easy these days. Policemen and weather services appeal to people not to leave home, go by car, or travel longer distances, if it’s not necessary. Refraining from moving might be advisable, but on the other hand we can’t let the severe weather disorganise our lives. We have to commute to work or school, do the shopping and actually should fulfil our social and cultural plans. We mustn’t give up, even despite the forecasts, which are not favourable. Next week blizzards will give way to arctic high and lower temperatures, long term forecasts say the temperatures around 21 January might fall below minus twenty five in some regions of Poland. But we won’t give in!

I’ve read or heard the British economy loses one between seventy million and one billion pounds each day, due to harsh winter. Weather, which disrupts our daily routines is also costly in economic terms and, what few realise, can incur measurable losses.

Let’s look at what snow means:
1) Snow-clearing actions – thousand or millions spent each day for gritting, salting and disposal of snow, this money makes holes in municipal budgets
2) Snow-clearing means also time lost for this fascinating activity, time which could’ve been spent in much more productive way – this weekend I spent around five hours clearing the drive and street in front of my house. The same time I could have spent relaxing or learning more as it’s the exam period – if I spend less time cramming up, I get a lower grade and my scholarship will be lower…
3) Snowed roads get clogged – people waste time in traffic jams instead of working, when they get to work they’re tired and less productive.
4) If the roads are blocked, cars consume more fuel, give off more fumes, cause air pollution and hit wallets of carowners.
5) Those who travel by other means of transport also have to be prepared for delays, wasted time and productivity.

Frost, though not that inconvenient also from the point of view of economy means costs. It’s all about heating expenses. Whenever the temperatures fall, demand on natural gas, heating oil, coal or other materials is one the rise. This means households, institutions and businesses have to spend more money on heating and have less money to spend on other items. The same money could’ve been saved, if only the temperatures had been higher, so frost means in a way a waste of money.

In the light of the facts presented above, it’s hard to deny the countries located in the mild climate zones were given the head start, as they could focus on development rather on struggling the severe weather. Another explanation why Great Britain was and is higher developed than Russia?

The cold snap has added fuel to the sceptics who undermine the global warming theory. In my opinion, winter such as this year’s occurs once in ten to thirty years. It used to happen in the past and will happen, regardless of the global warming. This process does take place, but I don’t believe it is caused by mankind. Our activity can account for no more than ten per cent of the temperature rise, the rest is beyond our control, we can’t prevent it, just like we couldn’t avert global cooling. A noteworthy article on this issue can be found here.

There’s one thing that niggles me while I’m writing this post. It is commonly known that Earth’s atmosphere as a whole is in a balance. The composite average temperature on our planet is steady (though it creeps up and it’s called global warming), so when in one place it’s colder, in another one it must be warmer. So I’m asking – where? I read weather reports from all over the world every day and I haven’t noticed any news of abnormal heat in South hemisphere, meanwhile China struggles harsh winter, temperatures in Russia are totally normal, Europe is gripped by one of the allegedly worst winter since decades, Mid-west regions of United States are plagued by frost and snowfalls, Florida estimates losses on plantations incurred by sub-zero temperatures, only Greece and surrounding areas are reported to enjoy higher than usual temperatures. So where has the warmth gone???

A propos weather reports. Polish media informed today that the temperature in Bismarck, North Dakota, fell to minus fifty five degrees. I wasted almost an hour only to find out the news item was an absolute lie, spread by many websites, newspapers and radio stations. The media copied the article from one another and brought about sensation. Fifty five (Celsius) degrees would have been really remarkable, if the temperature dropped that low. In truth it hit its low at minus thirty six degrees (check the weather data for substantiation here), in a comprehensive account by CNN nobody mentioned such temperature. The Polish news of American tragic freeze cited an article from Washington Post. I found one, but it also doesn’t give any information of Siberian frost in Bismarck (you don’t have to register to read this article, you can use your facebook profile).

An explanation? A journalist who wrote this has either made the story up to make a sensational headline or misunderstood the source text which said the US weather services had warned against wind chill hitting less than minus fifty (Celsius, still) degrees. Wind chill is temperatura odczuwalna, so no wonder local residents were warned, as spending long time outside carried a serious danger of frostbite.

Is anyone else concerned about the declining quality of Polish journalism? I’m appalled firstly by the language – their spoken (glaring errors) and written (bombastic, but meaningless phrases) Polish leave a lot to be desired (if correct use of their native language isn’t within their capacity, how can they be credited with good command of foreign languages), and secondly by the content of news I receive. The story of minus fifty degrees a few thousand miles away is not that important, but it casts serious doubts on the reliability of Polish media and integrity of journalists. At least the readers’ comments didn’t let me down – they immediately pulled the mediocre journalist up for departing from the truth, although they could’ve done without foul language.

Will misrepresentations like this become order of the day? Minus fifty five will look great on a tabloid’s cover, so does it really matter if it was true?

Gorące serca zwalczą mróz – I feel under my skin this winter will give us a rough ride and will go down in history. We have no choice but to bear it up…

Thursday, 7 January 2010

That word

Note: I didn’t develop this post on my own. One wise man gave me some inspiration and knowledge, I just combined it with my own ideas and made use of it.

It was a bit silly and a tad mean of me, but I got my courage up and did it. After the last lecture in cost accounting I waited until everyone left the auditorium and went to my lecturer, acting as a daft student, who didn’t understand one certain word (which had been used around twenty of thirty times during almost each lecture), and asked his wise lecturer to enlighten him.

“You know”, she said “I do not know to explain it to you, that word means, what it means”. Dissatisfied with the answer I insisted on further dwelling on the topic and made a second step – I asked for some particular examples. At that stage, the issue of that word cleared up in most of its instances. I was in a hurry, as in a few minutes I had to show up four floors down to take a first exam in this winter’s exam period, so I gave up quite quickly and kindly thanked.

The goal of this weird experiment was not to prove my lecturer was incompetent or something like that (though sometimes something tempts me to do so, but immediately I perish such thoughts – it brings no benefit nor it proves my superiority). It had to highlight a kind of linguistic trap or rather a certain imperfection of Polish language which comes up, whenever the word I asked about has to be translated into English. And don’t think a good dictionary will help, PWN Oxford falls down on it.

I have to admit I do not tolerate that word. Firstly, because it is considered to be intuitive and understood by everyone, only I seem to be slow-witted, cause it does not always seem that obvious to me, and secondly because it is too general and unclear – it has at least a dozen meanings, each often to be distinguished only in a broader context. For example, in cost accounting it often goes together with a word “cost” used in plural. Hence, you can deal with costs in many ways and even though each time you do something different, you almost use that word.

The real problem is that we sometimes tend to use words we have heard many times and which have shaped concepts of their approximate meanings. Or we don’t know other words that could render the same message in a different way. The point here is, apart from linguistic paucity, the inaccuracy. Words which are overused and cover a multitude of meanings tend to be imprecise. It the case of those crucial words, in my opinion, we should try to reformulate our thoughts to give them a unambiguous shape and use clear and precise vocabulary.

The Polish verb I’m ranting on can be translated into English probably in (almost) as many ways, as many meanings it has. The most popular that come to my mind are: to pay, to pay off, to pay back, to claim, to claim back, to settle, to settle up, to expense, to apportion, to account for, to report, to reconcile, to clear, to clear off.

Now a quiz for Poles reading this blog. What word does this post revolve around?

Hint, and another example of use: “I think I won’t be brought to account for my misdeed.”

Tuesday, 5 January 2010

Welcome to the new decade

From the mathematical point of view, the current decade will end on 31 December 2010, but my children or grandchildren will speak about the ten-year-long period that has just begun as of “the 2010’s”.

The new year has traditionally began with a “National Hangover Day”. It’s because each year on New Year’s Day media (mostly the radio stations) are trying to convince me that every decent Pole should suffer a severe headache, feel sick and have other symptoms of excessive drinking the night before and offer various folk methods of easing the pain resulting from a good party the day before. I’m becoming fed up with those rotten consensuses over what a decent Pole should do. You should get tanked up on New Year’s Eve, buy on New Year’s Sale, spend Christmas behind the table with your family, devouring kilograms of meat and singing carols, think president and his brother’s party are bad (I also think so, but it’s also a consensus of media with “Polityka”, “Gazeta Wyborcza” and TVN on the lead, the alternative version is that the leftist parties are commies in disguise and thus are the biggest evil), be a catholic to be a decent man, think the Martial Law was an absolute evil and cannot be justified, but the Warsaw Uprising was the most noble event in the 20th century, file a tax statement on the last day of April, etc.

The last dogmatic debate that wound me up was the one between advocates and opponents of Balcerowicz’s plan. Both groups (critics from Krytyka Polityczna, supported by Jacek Żakowski – journalist of “Polityka”, and defenders mostly from “Wyborcza”) appeared full of themselves and blind and deaf to any arguments of the opposite party. This has been a hollow discussion. Economics is a social science, what means no experiment can be repeated. We cannot say that any other strategy would do our economy better. We are unable to turn back time and turn Polish economy around once again. The critics can say it should not have been a shock therapy. I refute it with an argument that if the reforms had been implemented before 1978, the transition from the central-planned to free-market economy could have run smoothly. Later, as it was plunged onto a slippery slope and slid down, there was no easy fix.

If you think the radio hangover propaganda has thrown me off the balance, then you’re dead wrong! I felt like laughing and found the whole absurd situation very amusing. Last year for the first time since many years I didn’t feel low in the “slack period” (that’s how I dubbed the period between Christmas and New Year’s Day when everything seems to run into a standstill) and at the beginning of the new year I have an inkling of a breakthrough laying ahead, a big change about to happen this year. Even the weather can’t take away my optimism, though the long-term forecasts say the winter will be long, frosty, snowy and will give way to spring not earlier than in April. If the forecasts say so, it’s quite probable that we’ll have an early spring and a warm and sunny March, like in 2007.

A propos predicting. Last year most of my dreams were nightmares. Moreover, I dreamt my own death seven times and all those visions were puzzlingly realistic, accurate and coherent (they all had in common a feeling of acute pain in the chest which I felt also after waking up). Last year my dreams were so ridiculous that I could tell they weren’t true. In the first days of the new year I had only pleasant, even very pleasant ones ;) For some apparent reasons I felt I wasn’t awake and I asked myself if I was dreaming, but the answer was always negative, so my dreaming intuition failed my a few times in a row. Then I woke up, disillusioned. If the dreams have anything in common with the future, or anticipate it anyhow, I think I have a spot of a bother… ;)

PS. On New Year’s Day in the morning, my blood pressure was 91/53, pulse 98. Two coffees and snow clearing brought me back to life.

Saturday, 2 January 2010

The capitalism, taken apart

My big thanks to professor Marek Garbicz from Warsaw School of Economics for a big dose of factual knowledge and critical approach.

I appreciate every opportunity to come up against the wacky or peculiar outlooks on the economic system. The extreme examples, both from the right (in economic terms the radical liberalism) and from the left (socialism, verging on communism) sometimes make me laugh, sometimes infuriate, but they are the most valuable, when they bring me on to reflections or egg me on to gainsay them. In Polish, there’s a adage that says the truth lies in between. In truth, it lies where it really lies and nowhere else.

This time we’ll dwell on the contents of “Let’s Make Money” film, released in 2008 (in Poland in 2009, at cinemas from September). Unlike many of such films it hasn’t been shot by an American leftist intellectual, but it’s a work of an Austrian director.

In brief, it’s a bit longish attempt to harp on the vexed questions of development economics (Why do some countries develop faster than others? Why are some of them rich and the other poor?) and more or less deft depiction of the impact the globalisation has on different countries.

The most apparent is the issue of beneficiaries and losers of the process. The world has been ruled by the superpowers for centuries. They arranged it, set the rules, conquered new lands, competed against one another, shared their spheres of influences. In the twentieth century they set up organisations, aimed at maintaining peace, rule of law, democracy and for economic stability. I’m not naïve, I lean towards the view of Adam Smith, who said people are driven mostly by their egoism. Well-developed countries will firstly pursue their own interest, just later on they’ll mind the performance of poorer countries, whenever it’s advantageous to them. For instance, if a poor country is abundant in natural resources or they could profit from trade partnership.

What can be done to help the poorer countries grow? Can they catch up with the most developed ones? Is the convergence hypothesis true? If I can suggest anything, look at the development as on a dynamic process. What underlies the current economic situation is rooted in the past and can be dated back to renaissance era. Those countries which are better equipped in physical capital, human capital, knowledge and institutions (what in economics means “rules of the game”) have a head start, so maybe a divergence instead?

There are many schools of handling economic growth.
Firstly, a separation from the world economy. It didn’t work out, as the technologies in the countries where it had been implemented had been too poor.
Secondly, an export strategy – boost your exports, prohibit imports, protect your own industry, fight through competitiveness. This approach has been rather successfully adopted in the East Asia.
Thirdly, one in line with Washington Consensus, followed also by Poland, time will tell if it was a correct decision, now it’s still too early to judge it.

The third one is (as the wikipedia entry also shows) the most controversial. For me, its assumptions are praiseworthy, only officiousness in the implementation can wreak the economy. The film points at four aspects of Washington Consensus recommendations.
1) Deregulation – which is generally beneficial is the policymakers don’t make one step too far. Hence, there are the justified fields, where a certain dose of regulation is essential to preclude a bigger disaster.
2) Liberalisation – in the long term favourable to everyone, but the film director points out that unconstrained capital flows are the biggest evil. Indeed, the speculative money is used to make more money and its contribution to tangible output and social benefits from liberalised capital markets are tiny.
3) No state intervention – here they misrepresented the assumptions or followed the visions of some market fundamentalists. State’s activity should stimulate growth, draw in foreign investors, so the education or infrastructure provision shouldn’t be handed over to private sector. Even the early night-watchman concepts (as the first one, by Adam Smith) postulate active role of the state in these fields.
4) Privatisation. Quite important, but not the most. Even Milton Friedman, who twenty years ago advised to privatise, privatise and privatise, in the last days of his life admitted the most important role in the transitional economies should’ve been played by institutions. What lack of good rules of the game means? Just look at the example of Russia – mob and oligarchy (or state) have a hold over the country’s richness.

When is a privatisation good then?
- When state property is not sold in haste.
- When the rules (tenders, etc.) are transparent.
- When state property is sold for decent price.
- When the industry will be more efficient after turning private. It’s a paradigm, but how about the markets when there’s room for only one supplier and every citizen is obliged to consume them, like waterworks, sewerage. The state enterprise is likely to be run worse, for some built-in reasons, but, if provided by law, it won’t be profit-oriented, so it will deliver more goods at lower price.

“Buy when the blood spills on the trading floor”. What’s so reprehensible in this approach? Every speculator knows the best moment to buy is when the stocks are undervalued. Those who spotted a turning point in February or March won! When should we buy then? When the bull market ends? Someone has to do it, but those are mostly the small, inexperienced investors, who join the game when it’s actually over. It don’t get where the authors of the film saw the cynicism of that statement.

“Three million empty flats and houses on Spanish coast”. The property bubble grew robust in Spain, real estate prices would go up by more than twenty per cent per year. Investments in real estate are considered safe and profitable, in the long term. Long term profitability is one of those entrenched dogmas. Investments in stocks are according to the past data the most profitable – you’ll hear it from any financial advisor (they get the highest commission when they sell products linked to equity investments). Why then, some economists (like prof. Sławiński) easily undermine this assertion by pointing out that in the long term the probability of a big bull market is higher?

Back to real estate – I’m wary of this kind of capital investment. The reason is simple – every man needs a dwelling, but the speculation drives the property prices up and makes them unaffordable for many people. Much depends on the source of the speculative capital. If like in Poland between 2005 and 2007, prices soared because of domestic demand, situation is not that bad. In such a scenario, domestic demand is stimulated by low interest rates and liberal credit policy, what leads up to what the author of this blog has devised and described as “affordability paradox”. Let’s consider the following example. A buyer wants to buy a flat which costs 200 000 zlotys, but he has amassed only 120 000, what stands for 60% of the price. Creditworthiness criteria are tight and he cannot get a loan, he has to put aside money, the money he saves still works on the compound interest principle, some time later he can buy a flat without running up debts. But there’s a catch. This reasoning is correct only if the restrictions on access to credit are not lifted. If it happens, the same flat may soon cost 400 000 zlotys (the better access to mortgage loans has created additional demand) and our buyer can afford to buy that flat, even though it’s two times more expensive. A lot of economists claim everything’s alright. Prices are higher but he can afford a flat. But who sees a burden of a huge loan which will be being paid off for twenty five or thirty years? Repayments will decrease his discretionary income, so he will consume less for all that time. The credit is sometimes ball and chain – what if Mr buyer loses his job or his child goes down with an illness which would require a costly therapy? Would a bank take into account his unfavourable situation or would it foreclose his flat and turn him out?

In Poland, I’ve heard many times that flat prices are prohibitive. Indeed, five years ago, a person with considerable, but not very high savings could afford to buy a flat or house without taking out a loan, today it’s hardly ever possible. In Berlin, a square metre of a flat in a panel building block, similar to many in Warsaw, costs around 800 Euro, in Warsaw, on average two and a half times more (let alone the purchasing power of a Berliner and a Varsovian – I wonder how many square metres of a flat in a high-rise from the eighties can the former and the latter buy for their monthly salary). The price in Berlin probably reflects the intrinsic value of a property. In Warsaw the prices have been put up both by insufficient supply and excessive demand.

Back to Spain, those flat and houses, all in luxurious estates, in the prestigious coastal areas, are uninhabited. They were built and bought not to be dwelled, nor even to hire, but to earn on their growing market value. Any asset that should fetch a real profit has to be cashed in, so those who sold their properties off to the other fools, raked the profits in, the ones who bought before the bubble popped, were left with useless flat in Spain. Meanwhile millions of domestic buyers found the real estate in their country unaffordable – they were the victims of speculation… In a few years, property market will get back to its equilibrium. The huge supply of empty flats will bring the prices down and they’ll be bought sooner or later for a reasonable price.

And finally the tax havens. I strongly believe the existence of such spots stems from the common perception of the taxes, not only from greed. For centuries they have been perceived as the biggest possible evil, tax avoidance has not been treated as misdemeanour, people have sought ways to reduce their taxable incomes, what led to many absurdities. Before the Poland’s accession to the EU, many firms were inflating their costs, just to have a smaller profit and a smaller tax. Then, when they put in for grants from the EU or for bank loans, their applications were rejected, cause nobody wanted to finance unprofitable businesses. Few people realise that what they get for paid taxes are public services like infrastructure, education, health care. The other point are the costs of redistribution, its justice or effectiveness, let alone the quality. But the fact is that we get something from the state. Nothing’s for free, but some crafty fellows try to take advantage at the other’s expense, this is called free riding.

But look at it from the tax haven’s perspective. A country attracts zillions and even if taxation rates are very low, the revenues they take are not to be sneezed at, so that they can fare very well. On the other hand, the money taxed in a tax haven is not collected in the country of its origin. Consequently, the budgets of those countries the capital flees suffer, governments run up higher debts which will have to be paid in taxes by the next generations.

At long last. THE END.