Sunday, 30 September 2012

One move in the right direction

It’s been a while since leader of the main opposition, Mr Kaczyński, party delivered his inaugural speech in the headquarters of his party (I wanted to follow suit and deliver a speech at home, but my parents declined to listen to it) in which he focused on the economic agenda of his party. The proposals put forward by Mr Kaczyński’s grouping centre around reforming tax code, pro-family policies, turning around the labour market.

The first discussion that sparked off in the wake of the announcement was about the costs of the proposals. The proponents argued the changes would set the state budget back 11 billion zlotys in the first year and then (I infer due to multiplier effects) would bring net revenues to the public purse. The opponents, i.e. ministry of finance pointed out new stimulus package would ruin Poland’s public finances (net extra deficit of 54.5 billion zlotys in 2013 only) and compared to a Ponzi scheme in terms of mismatching inflows and outflows.

Interestingly, none of the arguing parties has bothered to present calculations and underlying assumptions which could back the quoted figures. Actually those calculations have long been forgotten amid the daily bread of political squabbling. Last week I promised to catch up with a coverage of the debate between economists staged by the biggest oppositional party.

The discussion, held on Monday, was attended by over thirty eminent economists, representing a spectre of views and… was a huge letdown for me.

Many people spoke, little has been said. The discussion was full of very general conclusions, discussants have come up with several apt diagnoses, but few proposals how to turn the states of affairs around. OK, I know the tax code is over-complicated and loopholes give room for abuses, tax offices unrelentingly chase down perplexed taxpayers, I know the pension system needs to be revamped and broached this topic several times here, I know the state is not friendly enough towards child-raising families, I know it. It is easy to say what is wrong, the real challenge is to come up with feasible solutions to the problem, not the quick fixes, such as taxing financial institutions and large retailers. Levying a 0.39% tax on financial institutions’ assets and up to 2% tax on turnover of big retail shops means simply passing on this taxes to end customers. Additional (remember those enterprises are regular payers of corporate income tax) tax burden would become a substantial drag on profitability of financial institutions (what is their return on assets?) and retailers (operating on small margins and earning on big volumes of goods sold) and in effect all firms would in unison pass the tax on their customers in form of higher fees and gross margins (difference between revenues and cost of goods sold). And if Mr Kaczyński says competition would hinder such hike, he again proves he is completely out of touch.

Such diminutive is the revenue side in the PiS’ proposal, compared to bloated expenditures. I fear rule of PiS would mean a revisiting flawed economic policies from years 2006 – 2007 when despite economic boom state budget did not run a surplus, as expenditures were raised and taxes were cut. Promising people lower VAT, higher tax allowance for children, labour market kick-starting spending and planning to fund it with additional tax on two types of companies (those hailed as hostile) is, putting it mildly, pure tale-telling. Many voters will fall for it, only few will take the trouble, or be clever enough to make out such plans do not hang together. Poland’s creditors have confidence in the sovereign debt of the country. Yields on 2Y zero-coupon bonds run below 4.2% these days, one percentage point below inter-bank market rates and less than one percentage point above looking-backward inflation. Ruthless speculators do not buy Polish bonds so cheaply because they are in collusion with the worst, hopeless government in the history of Poland. They see our public finances are run prudently, fiscal deficit, although in my opinion excessive, is still moderate and debt / GDP ratio is bound to decline to 50% by 2016. Any silly proposal that would push up the borrowing needs would shatter the excellent perception of Poland as a debtor and this, by any means, must be averted. All in all I am glad the debate was held and that many economists turned up to have their say.

The real pity is that it was a one-day event and soon after Polish politics return to its ordinary course. On Thursday I came home and stared at TV screen watching the parliament session during which deputies were once again dragging out and taking into pieces the Smolensk tragedy. It is unacceptable there was a mess when bodies of crash fatalities were laid into coffins, but why the hell have coffins become a focal point of public discourse? The world does not revolve around those who should rest in peace. In peace, which is disrupted. Let’s face the brutal truth – after the impact at the speed of 280 kmph bodies of fatalities were shattered into pieces, mangled, deformed. Putting this together was a challenge and allowances should have been made for some mistakes.

And again, I want to know what the hell the point in exhumations is. The grave, as I understand is a symbolic place to commemorate a person who is buried, a place that should serve as a symbol and the issue whose decomposing cadaver lies there is of secondary importance (if my opinion winds you up, feel free to express this). By making politics on Smolensk disaster fatalities’ grave we do not give ourselves the chance to move Poland ahead.

Wallowing in the mire of past events will not make most of us feel better. In fact most people focus on down-to-earth issues and I would prefer politicians to focus on public finances, pension system, health service, in a word on the future of us. This should make the news, not rooting about in coffins or rallies of self-styled catholics, who feed on hatred towards fellow men. They invoke teachings of John Paul II who said ‘there is no solidarity without love, solidarity is when people stand together, not against one another’. How does it square with the amount of mutual loathing in our society?

Sunday, 23 September 2012

Until the end of the world

Haven't seen you in quite a while
I was down the hold just passing time
Last time we met was a low-lit room
We were as close together as a bride and groom
We ate the food, we drank the wine
Everybody having a good time
Except you
You were talking about the end of the world

I took the money
I spiked your drink
You miss too much these days if you stop to think
You lead me on with those innocent eyes
You know I love the element of surprise
In the garden I was playing the tart
I kissed your lips and broke your heart were acting like it was
The end of the world

In my dream I was drowning my sorrows
But my sorrows, they learned to swim
Surrounding me, going down on me
Spilling over the brim
Waves of regret and waves of joy
I reached out for the one I tried to destroy said you'd wait
'til the end of the world

If there is a perfect song on the leitmotiv of guilt, the U2’s song is for me an undisputable candidate for it.

According to the most common interpretation, the lyrics illustrate the last momenta of the relationship between Judas Iscariot and Jesus, told from the perspective of the former. References to biblical story, including the last supper, betrayal in the garden and Judas overwhelmed with pang of conscience appear clear, but somehow I have never been fond of this elucidation. Mentioning ‘being close together like bride and groom’, or ‘playing the tart’ verges on hinting on a homosexual relationship between Jesus and Judas Iscariot, which would have been a pure sacrilege.

From the first time I heard it, in late 2002, I have construed the song as a confession of a man who seduced a woman and is full of remorse on account of his deeds. “Until the end of the world” has besides and thus has a very personal dimension for me.

Today, while sitting about in an empty office, trying to oversee content-related aspects of a new supporting IT tool for underwriters (incidentally, I believe this will be a huge botch-up, the implementation phase reveals this is bound to fuck things up, rather than revamping the current process, this always happens when a man is harness to serve its tools, not other way round), I let my mind drift away and pondered upon relationships between women and men, or rather a single facet of them, namely why usually women pair up with older man. The reasons why men fall for younger women are quite obvious (albeit I have not reached the age when younger girls would impress me and still prefer a bit older ones), while motives behind women’s preference of older males remain a bit puzzling for me. I know women seek mature, responsible, wealthier guys, but are these the only reasons? Is it the matter of cultural stereotypes, stating a male should be older? I believe in the era of thriving liberties such prejudices should not play any role. Among the readers of this blog there are surely men married to much (more than 5 years) younger women, so maybe they wield the key to the door? Or maybe before posting comments they should take their wives’ advice?

Tomorrow the main opposition party will host a debate of economists on its recently announced economic agenda, by many hailed as disastrous for public finances. Many renowned economist are expected to turn up, albeit some eminent figures, such as dr hab. Leszek Balcerowicz and governor of the central bank, prof. Marek Belka declined to attend it. The debate will be held tomorrow at 10:00 a.m., so I will not be able to keep track of it and hope I will find an extensive on-line transcript of it. This will help me not only assess key proposals in PiS’ economic agenda, but also review the economists’ stance on it. I hope the discussion will be purely substantive and I am looking forward to more such initiatives. PiS have finally showed they want to do something to move Poland forward, rather than simply slating the government (faring worse and worse indeed).

Meteorologists are forecasting a full-blowm summer to come over around the next weekend. Temperatures in the last days of September are said to hit +30C which would mean record-breaking temperatures during astronomical autumn. So if this comes to a pass, the coverage of the debate might be delayed by one week, so I am apologising in advance. If the last of the summer beckons, resisting to indulge in outdoor activities would not be forgiven.

Sunday, 16 September 2012


Here we go again! Less than two years after the launch of QE2 the Federal Reserve has announced a new round of monetary easing. This time the quantity and time frame of the bond buy-up programme are unbounded. Would it lift the ever-ailing US economy? I seriously doubt it.

Let’s face it, the economy of the United States has seen better and worse days since 2008. Despite near-zero interest rates and two completed rounds of injecting ample liquidity into the banking system, economic growth is brittle, labour market shows little signs of improvement and housing market, which quite probably bottomed out is still in a slack, as access to credit stays tight. The very last factor, as I have pointed out many times, foretells the ultimate failure of the QE programme.

Quantitative easing basically consists in changing structure of commercial banks’ assets by the central bank. The Fed buys government bonds (mainly those with longer maturity, thus exerting pressure to move down to long end of the yield curve, which in turn relieves mortgage debtors) from commercial banks and changes them into cash. This means banks have more liquidity that can, theoretically, be used to grant loans to businesses and households. This does not happen, as banks keep restraint in lending, which they perceive risky and additional cash is goes into financial markets where it pushes up price of risky assets such as equities, commodities and currencies of emerging markets.

According to theory of economics, increased money supply, the direct consequence of the QE, should, holding everything else unchanged, give rise to inflation. This has not happened, as the new money does not flow into real economy, but is diverted into artificial financial markets. If the above holds true, does the real economy benefit from the QE? I uphold my theory Mr Bernanke again favours speculators betting on financial markets over non-financial businesses and households. The QE3 might peter out and then he may launch another QE4, QE5, …, QE100 and extend the balance sheet of the central bank he governs until the end of the world and keep helping the US government financing its mammoth debt, but without solving structural problems of the US economy, he is going to attain nothing, except for gratitude of bankers. I could call for further deleveraging, turning the savings rate positive, switching from imports to domestic production, tax reforms and other moves that would change the distribution of income between the poor and the rich. The cradle of modern capitalism is no longer the country where you can grow from rags to riches. Once you are born as the underclass, you are very likely to die as the underclass…

Recent action of the European Central Bank are not such a crying shame, but cannot be deem commendable though. The key institution of the monetary union announced it is conceivable the ECB would buy up on secondary market bonds issued by distressed eurozone governments. Technically the PIGS bonds would be swapped for money market bills issued by the central banks. Here no new money flows into the financial systems, so the beneficiaries of the operations are commercial banks, which have a better credit quality of assets and distressed governments, as yields on their bonds go down. The move does not solve any structural problems of economies under water, it only defers their ultimate collapse, which still looms unavoidable.

To explain the results of both programmes run by central banks we have to invoke the mechanism of self-fulfilling prophecy. If market participants expect the Fed pursues QE3, they believe the money is not injected to real economy, but into financial markets, as it always used to be. Consequently, their inflation expectations do not change and consumer prices do not go up, but they expect prices of risky assets to increase, so they buy them to profit from the uptrend and bring about a bull market on risky asset markets. I was once told not to play against the Fed, but this time I would not dare to put my money into equities. Stock prices hinge upon macroeconomic fundamentals; fragile as they are know, they will sooner or later drag them down, despite excess money on the market. If market participants believe the ECB would buy up junk bonds of PIGS countries, they would be more eager to purchase them on primary markets. This will surely help these government stay afloat, but still does not solve structural problems underlying economic miseries.

Plus note all actions of central banks do not affect confidence among consumers and companies. Both are reluctant to spend money for consumption and investment purposes as they fear lean times, so they do not generate demand on products and services…

Many economists claim 2013 will bring another economic disaster – recession in the eurozone and in the United States, Greece being ousted from the eurozone, severe slowdown in China and in Poland. Whatever happens, we have to live through it and draw lessons from it. What central banks do, apart from its moral aspect, i.e. fostering financial institutions interests, is essentially sweeping the problems under the carpet, by giving temporary relief. And the longer you do this, the larger the hill of rubbish under the carpet grows…

Sunday, 9 September 2012

Toughness, indifference, or something else

Summer of 2007. The time when my (then) best friend’s mother was terminally ill and finally passed away. Normally a human’s psyche is deeply affected by such traumatic experiences. Usually people react sensitively, can’t help crying, or get carried away by emotions. Most of us do, but not Mateusz (name this time not changed). When I talked to him or met him he showed absolutely no emotions, behaved like a doctor looking after another patient about to die sooner or later. He did take care of his mother, did everything to relieve her pain (she was down with a rare illness, called amyloidosis) and waited patiently for her death. The day it happened, he called me in the evening, announced the wait was over and promised to let me know about the date of the funeral. Before the burial ceremony I visited him in his house. The room where his mother died was tidied up – the hospital bed was pushed aside, all medicines, equipment and other traces of her last days were gone. To mark the mourning, Mateusz wore a black tie and had a black bow attached to the right sleeve of his shirt. His face and so his eyes were as hollow as over the previous weeks. He briefly, with technical details described how she departed. I listed and after a minute it occurred to me I seemed to be more touched then him.

A year or two ago I recalled those days with his grandmother (whose daughter deceased). Matuesz and his grandma have broken up any bonds soon after the funeral but both cited different reasons and accounts of event after Mateusz’s mother’s death. The grandma with dread recalled how Mateusz behaved on those days, chiefly his absolute lack of emotionality. It all prompted me to consider whether this has not been inhuman. Today Mateusz’s father is dying from cancer and Mateusz acts in exactly the same way…

In some cases getting immune to other people’s suffering is the only way to avoid going crazy. Imagine an oncologist who works every day with people terminally ill on cancer. Such person, even if they care for their patients, can’t be oversensitive. Otherwise, they would have to go through bereavement every few weeks or so.

Whenever a difficult situation strikes us for the first time, we are more likely to fail do deal with successfully. Each next occurrence of a similar experience finds us more accustomed to face the hardships and better prepared to overcome them.

The key concept, crucial to understand what I’m getting at, is the hackneyed adage “what doesn’t kill you makes you stronger”. I’ve been pondering upon this for weeks and reached a conclusion that as long as the pain, trauma, suffering, etc. is not overwhelming, it should add us resilience. The magnitude of experiences we’re exposed to determines the way they shape us. Life without suffering is impossible, so life must toughen us up. Of course there are situations which would bring even mentally toughest people to their knees and there are individuals who let insignificant hardships overpower them.

Again, I began to draw comparisons between the moment I was hired where I work now and today. This time I focused only on my psyche and toughness. I evolved from a moderately fragile person, prone to give up in stressful situations to the strongest link in the chain. Spontaneously I’ve taken up the role of the person in the team and in the department who takes stuff on the chin, often even if someone else has been assigned to deal with it. For instance, for my colleagues going to a credit committee meeting and presenting a transaction to a group of nine decision-makers, including three management board members and then responding to their questions, is a very stressful experience. The tension paralyses them, they shudder before going there and agonise over what they are going to tell and even after they come back and it is over, they take their speech and the whole meeting to the pieces. For me such task involves a dose of stress that stimulates me, motivates me and sends my adrenaline rise a bit. I doesn’t mean I’m totally laid back, credit committee meeting involves a lot of responsibility. The way I present a deal may influence the committee’s decision and this in turn may lead to losses of millions of zlotys, so I can’t be indifferent, I just don’t let stress take hold of me.

If you’re tough, it doesn’t mean you’re indifferent. If you’re tough, it doesn’t mean you’re devoid of any emotions. It may mean so, but usually doesn’t. Your toughness just proves you’ve learnt how to cope with emotions and bears out your maturity, it also predestines you to become a leader and to assume responsibilities. At work emotions shouldn’t play a role, this is obvious, in private life it’s not that easy, but it’s good to try. Sometimes, when push comes to shove, in emergency situations, such toughness helps take wise decisions swiftly and doesn’t let you fall into panic. Again, keeping a cool head, keeping your distance, should not be mistaken for indifference.

Funnily enough, these weren’t several stressful situations I have been exposed to that have toughened me up. I intended not to revert to it, but to complete this post, I need to. It was the violation of a good practice that one should separate private and professional life, in particular not to start intimate relationships with workmates. Quite predictably, the forbidden fruit was delicious, but such affections, full of twists and turns are clearly asking for troubles. I haven’t fallen in any real troubles, but the by-product of this God only knows if actually reciprocated affection was the rise of my strength. Oddly enough, I feel more than ever before and act as if I felt less than ever before. I sometimes have remorse on account of appearing to be stone-cold, but at the end of the day I think I’ve pursued the best face-saving strategy that helped me avert going mad.

I actually planned to examine the new economic agenda of PiS, presented last Sunday and again ended up compiling a post akin to a page torn away from a teenager’s diary. One day I’ll mend my ways and return to the original formula of this blog.

Sunday, 2 September 2012

Who allowed Amber Gold to grow so big?

Looking back to late 2008 and early 2009 I remember first advertisements of Finroyal and Amber Gold in newspapers. Both shady companies would tempt potential customers with deposits meant to fetch income a few percentage points higher than traditional bank deposits. Cognisant of risk – return trade-off I wondered how it was possible to fix such income for customers, but never took the trouble to inquire into workings of such companies. In 2009, when browsing Polish Financial Supervision Authority, I ran across the black list of companies engaged in bank-like operations without required licences. Both business were listed there, but who actually visits the site of KNF?

Months went by and depositing money with such companies has grown in popularity. Poles have been put off risky investments on stock exchange and in investment funds after the bear market of 2007-2009, bank deposits could barely beat inflation, so guaranteed profits exceeding inflation rate by almost ten percentage points loomed as attractive investment opportunities. In the meantime some journalists tried to unravel the workings of companies offering allegedly guaranteed gains higher than offered by banks. With time Amber Gold began advertising itself aggressively. As long as inflows of money from depositors were bigger than outflows and OLT Express airline was managing to cover its expenses, the business drifted above water. Much of the money was probably swindled out of Amber Gold to its CEO and owner, currently 28-year-old Marcin P. In late July 2012, the house of cards was pulled down.

If you want to ask me to explicate how the whole scheme, or rather scam, worked, feel free; you’ll catch me naked. I know what principles underlie Ponzi schemes, I am familiar with some methods of laundering money, but each case is different. Unfolding the story will take relevant secret services and persecution offices years.

Marcin P., a man who at the age of 20 was sentenced for embezzlement for the first time and did his time, was allowed to set up another scam and run it undisturbed for three years. For years he kept away form the limelight and assiduously raked in money from the venture. In the days preceding the spectacular collapse of OLT Express and Amber Gold he came out of the shadow and acted as the number one celebrity in Poland. Currently Mr. P is behind bars, charged with several crimes. Personality of Mr. P is a good topic a separate posting – bold, unprincipled, lying through this teeth without scruples. There are supposition he is just a cog in the machine and much more powerfully and cunning criminal have contrived the scheme.

The money was taken away from the company, whose liabilities surpass its assets several times, so depositors who entrusted their savings to Amber Gold have little chance to recover their money. Thousands of people done out of money. The youngest aggrieved is aged 22, the oldest over 80. From all walks of life, some put there a few hundred zlotys, one sank there staggering 3.2 million zlotys. Some invested their savings there because they believed it was a bank, some realised it was a scam, but hoped to withdraw money before it falls apart. Most of Amber Gold’s customers had no notion of economics, were simply duped, fell prey to promises of gold-backed profits. Now they hold it against the Polish state that it has failed to protect citizens from deceitful businesses.

So who should be held accountable for dilatory dealing with Amber Gold case? The Financial Supervision Authority issued warnings on its website and filed a crime suspecting notion to the prosecution office. To no avail – sloppy prosecutors for some reasons, maybe the reason is imperfection of Polish law, full of loopholes, failed to get to grips with Amber Gold.

The scandal gave rise to a dispute who actually is to blame for loss of money deposited by people in the Amber Gold. There are generally two groups. Some, identified with enlightened economists, say these are depositors themselves who gave credence to implausible promises, others point at Polish state institutions failure to lay down clear law and to enforce it.

My take is that both groups are partly right. The state should secure a legal system under which a criminal cannot start up a financial company that works like a bank. The state should take steps to close it as soon as possible. The state should inform citizens about perils associated with putting money there. But the state should not forbid citizens from doing with their money whatever they wish. In a properly run country citizens should be able to easily access information (e.g. black lists should be printed in newspapers, presented in TV and put up in all bank branches) that Amber Gold, Finroyal and many other companies are on a black list of KNF, operate without license, are not covered by financial supervision and deposits are not guaranteed by the bank guarantee fund . Then fully aware citizens could choose to put their money at risk.

This, along with recent bankruptcies of travel agencies sheds some light not only on Poles’ carelessness, but also Poland’s advancement on the way towards welfare. Choosing to go on holidays with a dodgy travel agency to save, depositing money with a shady financial company to earn more. This illustrates not only unfettered and stupid avarice, blissful ignorance, but also the vague concept of dziadostwo. There is little wisdom in risking much to earn little and such was the case here.

In managing my financial surpluses I favour transparency. I keep 75% of my savings on bank deposits and make sure that the bank with which I deposit money is registered in Poland, thus overseen by Polish Financial Supervision Authority, deposits are covered by Bank Guarantee Fund and the bank is listed on the Warsaw Stock Exchange. The rest of my money is used for investment of speculation on the stock exchange. There I am exposed to market risk, i.e. that prices of financial assets I hold may drop, but at least it is transparent and I have no problems selling my stocks with a loss and recover the rest of money. It is not a matter of risk, as some say, it is a matter of transparency that enables you to control risks. Victims of Amber Gold surely had some problems with risk management…