The daily slyness

Went to a nearby garage yesterday to have my tyres changed for winter ones…

Here a succinct interleaf – Poles are masters of procrastination. The example of tyre change is spot-on. Garages where tyres can be changed are chock full of clients desperately trying to make an arrangement for a service when the first snow falls. Before the first whiff of winter makes itself felt, tyre change is being put back. Collective lack of foresight repeats every year…

Yesterday I my vehicle was the first in the queue, scheduled for 9 a.m. and despite Saturday time, convenient for many drivers who, like me, suffer from deficiency of spare time during the working week, I learnt the list of clients was very short. Even nearing middle of November has not prompted most drivers to see the back of this duty. Who cares that winter tyres prove superior in temperatures below +7C? I prefer to have a comfort of being prepared for the winter conditions.

Back to my experience – the car was dealt with by one guy (usually this garages hires more staff in peak season, but since there were few clients signed up, sharing the same price for changing tyres among more guys was not economically sound) and while I was reading a newspaper in the waiting room (EHS first and foremost), the owner of the garage showed up. He glanced at the car, looked something up and called me in. “Rear brakes need to be replaced badly. Not today, but let’s arrange for a change next week”, he muttered. I was kind of stunned. Back in June, some 3,500 kilometres back, brake system was thoroughly inspected at Renault garage and said to have been is very good condition (had it not been, they would not have passed up the opportunity to mend it in exchange for appropriate payment). I immediately asked whether he had looked at front brake blocks and disks, since their wear and tear is for obvious reasons greater, but the garage owner fobbed me off. “Never mind the front brakes, look at the rear axis, they need to be replaced, just look at the disk”. He pointed his finger not at the face of the disk against which the block rubs, but at its rim, part which has little to do with efficacy of brakes. This smelled a rat already, but I carried on the conversation, inquiring how he had come to the conclusion blocks were also in need of immediate replacement without taking them off. “They’re damn thin, much too thin”, he said and walked away adding he had some capacity in the evenings the coming week. Had I been as assertive as I wish I were, I would have told him what I thought of his method of fleecing clients, but I have only reached the stage of being assertive enough to firmly turn down such proposals…

To avert wasting money on needless repairs, I have found a way to get to grips with dishonest mechanics. Last year, while having my car serviced with the car producer’s authorised garage, I paid extra for longer labour charges of mechanics and together they showed me around the car, so that a sly mechanic does not wheedle money out of me. The only way not to be deceived is to be equipped at least in basic knowledge. Otherwise the ignorant and his money are soon parted.

Why in Poland pecking order is too often set by measuring one’s ability to fleece, dupe or outwit a fellow man? What the hell drives the desire to exploit someone else’s inexperience or ignorance to unduly grow rich? Such behaviours undermine the social trust whose level is disturbingly low in Poland anyway.

Actually there are professions whose representatives which stand out in disgraceful ranking of cons hoodwinking their clients. Car mechanics are one of them. Many of their customers, especially women, have little notion about how a car works, plus when the mechanics repair a vehicle, they often come across (or make up) other defects that need to be repaired. Then a totally unaware client hears a story about a breakdown which can potentially threat their safety or cause the car to pack up in the middle of the road and, scared away, forks out money for a repair which not always is necessary or could be deferred. In extreme cases there is no breakdown at all. With such low level of integrity, many people as a matter of principle refuse to pay for additional service which means when a mechanic detects a serious problem which needs to be fixed, the defect might be disregarded. I wonder whether the mistrust can be quantified in terms of casualties and fatalities being aftermath of such state of affairs in Polish garages.

The other professions I am particularly mistrustful of are:

1. Builders and akin “professionals”. It looks like a perfect moment to underline the linguistic difference, between the English word “professional” which refers to lawyers, doctors and other well-respected specialists who have earned university degree and can boast about many years’ experience, and the Polish word fachowiec, the term coined to name a self-possessed dab hand. Whenever you need to rely on a builder, electrician, plumber, tile-layer or any other fachowiec you’d better beware and in advance take advice of somebody having notion of construction, or even better ask such person to look after the fachowiec. A typical Polish fachowiec cuts corners, does his job quickly and carelessly, leaves a mess when he finishes and at the end of the day overcharges you.

2. Taxi drivers. It is easiest to fall victim of them if you show you do not know a city where you take a taxi. For some reason the more estranged a passenger looks, the more a taxi driver is likely a sub-optimal, i.e. not the shortest, nor the fastest route. My way with taxi drivers if I pay for a ride with my own money is to tell them which streets to drive, not the destination. If the corpo pays, I don’t care (then the weaker once stands a chance to fleece the stronger).

3. So-called financial advisers. By dint of working in a financial services industry, it is hard to foist upon me a “product” which does not suit me needs. However, ordinary people who are not versed in finance can easily fall prey to hard-sellers chasing their sales targets.

4. Used car traders. Rolled back odometers and vehicles after serious accidents beaten up and sold as low-mileage non-accident cars are said to be the order of the day. Bearing in mind the market is plagued by negative selection (why I don’t sell my car) and finding a reliable car in decent condition is a challenge, I hope I will never be pressurised by buy a second-hand car.

The struggle to move higher in the pecking order thus goes on. A banker is tricked by a fachowiec who finishes banker’s new apartment and pays over the odds for servicing his car. A builder fools his starry-eyed clients, but when his rickety car breaks down he is ripped-off by a mechanic. A taxi driver knows his onions when it comes to his car, but will be ripped of by a guy refurbishing his flat. And at the bottom of this idiotic system are humanists who lack technical and financial expertise and are duped by everyone.

The banker’s role, from a bank employee’s standpoint and in Poland

My brother Marek e-mailed me with his observations about my last post, pointing out the importance of the banking sector to the entrepreneur. Indeed - such a valid point that it will make a separate post.

Instead of posting a drawn-out comment in response to Michael’s insightful post, I decided to dedicate a separate note to his text, making references to each paragraph and put his reasoning into the context of Polish banking sector, far younger than those established in Western economies. Beware though, the picture presented is biased, inevitably, when written from a bank employee’s perspective. A for starters, a valid point – I don’t feel I’m a banker, I’m only a bank employee – just an in a 5-year-old Polish joke, there difference between bankier and bankowiec is roughly the same as difference between rentier and rencista… There are no bankers in Poland, there are banks and their representatives who do exert influence on how businesses are run.

Looking in stereotypes, the British believe the Germans have got it right. Their Landesbanks provide a capital lifeline to small and medium-sized family-owned businesses for generations. They know their clients personally (often having a banker sitting on the firm's supervisory board). When the firm needs money to buy another production line because it's just won a new order in South America, the bank looks at the firm's track record and says "by all means".

Is this really true the British envy the Germans how their banking system functions? In Poland such relationships simply cannot exist, because civilised banking sector emerged only after 1989 and had to be developed from scratch. It has grown out of the teething phase quite quickly, as Polish banks have been sold to foreign investors, who have contributed with their know-how of doing banking business.

Deals in which there is a too profound relationship and a client smell a rat to me. Whenever I see a transaction in which someone from a bank knows too well a company, it heralds troubles, if it goes through… The proper distance between a bank and a company increases… bank’s safety…

In the UK, the banks have done away with personal relationship managers and have outsourced the loan decisions to a call-centre in Bangalore, which mechanically ticks the boxes and says 'no', just in case. Online banking has many positive facets for the consumer, but for the small business it has killed off the personal nature of the banking relationship. "Lend to the man, not to the asset" was the golden rule for Mr Mainwaring and his generation of bank managers, who knew their customers, but this is no longer the case. Today, UK banks talk of 'relationship banking' as if it were a new discovery; the truth is they lost it long ago and are now trying to rebuild it on the basis of call-centres, internet banking and algorithms that replace loan decisions.

As a rule – the bigger the Customer is, the more personalised the relationship must be. And whenever you speak of a relationship manager, you should have in mind somebody who knows its customer inside out and fosters its interests, not just foists upon them services they don’t need only to get a bonus. But personalised relationships do cost money, so probably the cost-to-benefit analysis has led many banks to give upon the relationship model. Let’s face it – does an average individual or small company need a dedicated employee who knows them and their needs well? Such approach costs and this cost will be passed on to a client, often reluctant to incur additional expenses. The question one needs to answer is whether a customer prefers and individual approach or low cost of banking services. Cost savings are also the driver of automated loan decisions – in assessing creditworthiness of a small business, one of many millions in the country, a well-designed system will beat a not infallible human. Another advantage of a score-based loan decision system is its quickness – within a few minutes you know whether you are eligible for a loan or not. Of course, again, the bigger the business, the more complex the credit analysis and the less reliable simple algorithms based on questions are cut-off points are. Plus an important note – in Poland credit risk management cannot be outsourced, so whenever you apply for a loan in a Polish bank, be sure it is not farmed out to Bangalore.

Now that the economy is on the rebound, British banks have only got worse in this respect. Want to borrow money to buy a house on a rising market? Why certainly! Mortgage lending is back to 2008 levels. Want to borrow money to expand your small business...? Ooh... That's a bit difficult... We'll need to send someone over to check your business in person, but that costs us money, so we won't bother, so to save time, our answer is no. Bank lending to business is 30%-40% down on 2008 levels (depending on sectors and regions).

The rationale behind such stance is as follows: for housing loans, a bank has a tangible collateral and very strong incentive for the debtor not to lose the roof over their head. For small business the risk profile is far worse. I don’t know how law in terms of creditor protection in the United Kingdom exactly works, in particular I’m not familiar with issues of owners’ liability for their business’ debts. A small company might easily wind down in a few days, owners may go away or tell their venture didn’t work out, having pumped out cash beforehand and the bank is left out in the cold… Oddly enough, in Poland mortgage lending has been curbed, while SME lending also, but not to such extent…

What's it like in Poland? Banks have generally tended to say 'no' from the outset (that lack-of-trust issue again), so Polish entrepreneurs have just got used to financing growth out of saved earnings. Over the economic slow-down (no recession here, remember!), Polish entrepreneurs drew in their horns and sat on their cash, tempting politicians to tax it or somehow put it to better use.

Rightly discerned, it all boils down to mistrust. Banks are too wary to lend to small firms, which are risky businesses, less transparent and more shaky and corporate clients. The other story is when you criticise banking sector’s mistrust, you should keep in mind a bank collects money from depositors and has to return the money to them, no matter of its borrowers settle their debts or not. Banks’ restraint in lending is also a form of prudent management of someone else’s money. As a depositor I also must trust my bank that it doesn’t engage in risky lending.

Poles, like Brits, look across to Germany's Landesbanks as the ideal model for small- and medium-size businesses, yet another reason (along with apprenticeships, a high social regard for engineers and manufacturing industry) why the German economy weathers the storms well (and can still afford to bail out the lazy southern Europeans).

I would also add focus on competitiveness. This praise of the German economy is quite surprising when made by someone who support liberal economic agenda of the Conservative Party.

Ethics in banking? Polish bankers are nowhere nearly as well paid as their British counterparts. The result is that here in Poland, people have no problem inviting bankers to dinner parties, saying 'hello' to them in the street, or generally treating them as fellow human beings.

What earnings have to do with ethics? Ethics is about conduct, not about salaries – one could even point out someone who earns less is more encouraged to behave unethically in pursuit of quick wealth.

Still, banking sector employees in Poland earn well above national average. It just the gap between average salary in the national economy and in the banking sector that is much smaller than in the UK. A relationship manager for corporate clients in Poland earns on average between 10 and 15 thousand PLN per month before tax (some three times more than average salary in the national economy), plus it gets numerous perks (company car, phone, etc.) and discretionary bonuses for meeting sales targets – unlike in Anglo-Saxon banks, bonuses are not contractually guaranteed. Still, although quite wealthy, Polish banking employees are ordinary people, unlike their spoilt counterparts from the City or Wall Street.

The Polish banking sector is generally in sound shape, but still has much to learn about working closely with the entrepreneur for the benefit of the economy at large.

And the essential thing on both sides is empathy – the bank needs to understand the entrepreneur and the other way round – banks have status of ‘public trust institution’ and no matter how ludicrously it sounds, their primary goal is to ensure the safety of funds entrusted with them, this can be achieved by cautious risk management…

Was it really about trust?

A follow-up to the story from late August. Not a breakthrough hitherto, although things have moved on a bit. I still haven’t got back a single zloty out of one thousand I had lent my ex-classmate over six months ago.

I tried to get in touch with Karol a few times, he wrote back to some text messages, but never picked up a phone. Once, in mid-October he claimed he had made a transfer to me a month earlier. When I told him I hadn’t received any money he couldn’t believe it, but also couldn’t submit any receipt of bank transfer executed. Funnily enough, not only didn’t he have any confirmation slip, but also he didn’t know to which bank account he had transferred the money. The next day he dropped me another text in which he asserted he had just transferred money and asked for a reply when I got the money. Needless to say I once again I didn’t see a single zloty.

On 19 November Karol’s mother called me. To my surprise it turned out he had told his family about much more transfers sent to me. She also added he wouldn’t return any money to me because he was “undergoing a therapy” and pledged to take over his debts. We also arranged a meeting next day, in the evening. I met up with her in her house in Piaseczno. Once well-furnished and well-maintained flat has lost its finery. Karol’s mother was quite jittery (they still have some other problems in the family) and explained she was desperately trying to borrow some money to straighten things out. I think I managed to talk her out of turning to a loan shark (who the f*ck invented the name of the company which surely doesn’t cater for provident people?) and suggested she should apply for a regular cash loan in a bank. She also asked me not to call Adam (Karol’s brother) because his nerves were frayed after months of sorting out his brother’s problems and having two full-time jobs for a few months to earn more money.

The sentence about the therapy was the most puzzling. The first supposition that occurred to me was that he had got addicted to gambling and lost all his money as a compulsive casino-visitor. Then I began putting the pieces of jigsaw puzzle together, all goings-on from the day I had lent him the money and the possible sequence of events began to unfold it was even more frightful than gambling.

Schizophrenia is a quite possible explanation. Did he lie he was a chairman of a student organisation or did he think he was? Did he have a job or did he think he had a job? Did he think he had had ordered those transfers and was he really baffled because he couldn’t find any documents to prove it? Was his strange behaviour at home, before he moved out, about which his brother told me, a sign of developing mental illness? Probably I’ll never find out the truth about what has happened, but if it’s really schizophrenia, it’s a tragic story. Karol and his family might have met a tragic fate. He was an up-and-coming lawyer, now, regardless of what he’s being cured from, he’s not going to finish his studies. His family, once well-off are now almost destitute. Will they manage to give him a helping hand after they lost all their ample savings getting him out of troubles? A fellow blogger’s wife, who is a psychiatrist, told me care from family and friends is essential to return to a rather normal life after symptoms of schizophrenia recede. Or will he be left to his own devices on account of his misdeeds?

For two weeks they Karol’s mother didn’t call me. If she fails to do it for a while, I’ll get in touch with her in January. Her assurances to pay me off sounded credible, so I’ll give them at least a bit more peaceful period before Christmas. I told her the repayment wasn’t urgent for me and I could wait for some time, but in the long run I wished to get the money back. I hope we’ll agree on a repayment schedule and I mull over what then. Given their situation and mine, I think it would be wise to write down a part of the debt, but only when they repay more than a half of it in time.

Another question is if I’ll every lend any money (except small change everyone can afford to lose) to anyone. I think lending some money (no more than a few hundred PLN) to friends I keep in with regularly doesn’t have to be ruled out. The other thing is securing the loan by signing a loan agreement, which enables me to claim my money in a court. But if I had signed a valid loan agreement with Karol on that hapless day, would I be better off now? I could sue him, I would have to lose time for wrangling with Polish judiciary system and quite probably the court would hand down a ruling favourable for me, but what would the ruling mean in a situation when my debtor is out of cash and, moreover, insane? Maybe his family would go to a great extent to repay the debt? Who would cover the litigation costs? Finally, I’d have to listen the whole sanctimony…

Hmm… I know by dint of age I’m wet behind ears and maybe I don’t handle the matter properly… So what do you make of it?

A short story about the price of trust

Till some time ago I thought the price of mistrust was much higher, but the moment I had to pay the price of trust I changed my mind.

Karol (name deliberately changed) joined my class almost exactly ten years ago, when we were beginning our first year at middle school (gimnazjum). I don’t even remember if he sat behind the same desk I sat, or was it me who joined him in. As a rather sociable person he quite easily found his way around us (we’d been together as a class for six years on then), though I can’t say he would get along with everyone for the next three years of middle school. Soon by dint of sitting next to each other we became good mates, though I could never say we had ever been friends. We were just good classmates, spent some time after school together, but surely weren’t friends for good and bad times.

Karol soon became the best student in our class and later even in the whole school. Teachers deemed him to be impeccably well-mannered and he soon also became an exemplary pupil. In fact as we all knew he was not just extraordinarily clever. He was a typical “smarty pants” – no one else would get away with getting a bad grade when being unprepared for a lesson, no one else would wriggle out of being punished for cheating during a class test. For some reason he had a charm which worked on all teachers, but my classmates and I weren’t impressed with his continuous wheeling and dealing.

Karol somehow also had an inclination for trying to outfox everyone around, but not everyone could discern it. Many people, including my parents warned me against him, I treated those advice seriously, but they didn’t dissuade me from helping him putting into practice some of his stillborn ideas. Fortunately, it never ended up badly for me, so actually I could have gone unharmed out of this friendship… Within those three years there were many conflicts within our class, but even despite falling in love with the same girl (who eventually chose him) somehow we didn’t fall out, all tribulations didn’t tear us apart.

As I dropped in on his house quite often, I met his parents and older brother, Adam (name also changed), who incidentally attended the same high school as I did, so we had an opportunity to get to know each other better. Although born to the same parents they were totally different – Adam was a paragon of virtues, Karol kept trying to outwit the whole world around.

With time we my friends from middle school fell in with new companies from high schools, old friendships began to break off. Karol and I met usually met in a bus, since we both commuted to high schools to Warsaw. From time to time we called each other, sent text messages, wished happy birthday or merry Christmas. We hadn’t been keeping in with each other since the beginning of our studies in 2006. Occasionally I met his brother in a bus and when I asked him about Karol, I’d usually hear his inclination for wheeling and dealing had only intensified (to Adam’s discontent).

Karol turned to me a few times in 2008 and 2009. Every time he had a great deal to strike but he was hard up for cash and asked me to lend him some few hundred and later even few thousand zlotys. Every time he claimed he had an opportunity to earn thirty to fifty per cent or so and promised to share profits with me, but never revealed what the gooses that laid golden eggs were. As an economist I know such opportunities generally don’t happen in the real world and each time his loan requests were rejected by me.

On 31 May 2010 a text message from him hit me out of the blue. That time he didn’t write about any profitable (read: shady) business to be done, he said we was in an urgent need of money (2,500 PLN) because he had to pay a bill (lie( of a student organisation he was in charge of (lie). The organisation was about to have its expenses reimbursed within a week plus he was about to get his salary within a few days as well. What he described were just some liquidity problems he temporarily had. He managed to earn my trust by offering to meet quickly and sign a loan agreement that would secure the repayment. On that day I was in the middle of exam period and didn’t wish to bother to meet him to sign a stupid piece of paper.

At the beginning I lied to him I had all my money in stocks and investment funds and it would take me three days to turn the assets to cash, but later on I gave in. I transferred to him 1,000 PLN since I realised this was a quite risky move and of course we didn’t meet up to put any signatures. I know very well why I did it, actually despite myself. Just before it all happened I had painfully experienced a blatant example of mistrust and I told myself the relationships between people could not be founded on mistrust, hence my half-baked decision.

Karol offered to return all money four days later in cash. He offered to come to my house, but as it was the day after Corpus Christi downpour I was busy tidying up my garden I asked him to transfer the money to me next Monday. The other reason was that my parents still don’t know about the sunk money – I somehow don’t fancy hearing the “Haven’t I told you” phrase…

On Sunday he asked me to lend him another 500 PLN, I refused. The money I had lent him didn’t appear next Monday, moreover, Karol stopped answering his phone and writing back to my text messages. Soon his voice mailbox got jammed and I realised things must have gone pretty nasty. I got in touch with his brother who promised to tell him to call me, his mother couldn’t tell me where I could find him. Karol’s behaviour became more and more mysterious.

I had a few phone calls with Adam in June, which consisted in reading between the lines. In early July we finally talked openly. Adam politely asked if I had given his brother any money and if Karol hadn’t given it back to me, I politely confirmed to find out I was a bit out of luck. Karol would behave strangely for the last four years, he moved out from home in 2009. For the last two years his family had been paying his debts until they ran out of cash. They decided not to run up their own debts to repay Karol’s obligations, so all debtors who turned to them were simply rebuffed. Karol managed to ruin financially his quite well-off family. From what I could infer from what Adam had told me, I estimate his all debts could total to around 100,000 PLN. Staggering? During the open conversation in early July Adam told me Karol had assured them he had found a job and promised to give his family a half of his salary. Till now (I called Adam yesterday) they haven’t received a single zloty from Karol. He tritely explained it away by telling his employer hadn’t paid him yet. Adam and his parents still remember about my ten stoovers and still openly declare they will transfer it back to me as soon as Karol gives them the money. I don’t hold out much hopes for getting the money back, but given the very good stance of Karol’s family, there’s still a glimmer of hope. I’ll treat this thousand as a windfall if it ever comes back to me.

Never mind the money now. One thousand more won’t make me much happier, one thousand less won’t make me much sadder (but wiser?).

How come? He used to be the best student in the whole school, everyone spoke highly about him, he was held in high esteem by everyone. Everyone said he would be really successful in the future. My teachers from middle school would never believe in the story above.

And the roles reversed. Seven years ago his family was much better-off than mine. Karol had brand-name clothes and footwear, would go on holiday abroad two years in a year, had all electronic gadgets. At the same time I had clothes from normal shops or from a supermarket, I within those three years I was abroad once for a week and spent two third of my holidays at home and didn’t have all newest consumer electronics devices – my parents were scrimping and saving to buy their dreamt-up house. Today my family’s and mine financial standing is satisfying, his family is flat broke and he ended up as a downright cheater.

I wonder what Karol feels now. I’d be surely conscience-stricken having done something so awful. I wonder how it feels to borrow money with an intention not to give it back. When I talked about it with Scatts two months ago he said in the UK he would never make a down payment for a house without securing it properly, which is normal in Poland. In the UK, in turn, he would lend someone a few hundred pound right away, in Poland he wouldn’t hope to get the money back. Cross-cultural differences?

And how did Karol manage to get into such debts? Stock market? Not that easy. Gambling? Possible. Leveraged risky deals is for me the most probable explanation. If you borrow a lot to increase your profits and it doesn’t work out you’re left with huge debts. That probably dragged Karol (and his family I feel sorry for) down.