Earnings

On Wednesday my manager, while doing a research in the Internet (managers don’t surf the web at work, they are always focused on their duties) ran across an article from Warsaw pages of Gazeta Wyborcza about wages of SGH graduates… An interesting piece, particularly if you bear in mind how opaque the Polish labour market is...

The very title, literally “Graduates of Warsaw School of Economics, [earn] even eight thousand zlotys after tax, just upon graduation” would suit better a tabloid, as it includes more than a tinge of manipulation. The piece is a summary of a survey conducted among recent graduates of my university, participation to it was voluntary and answers were given totally anonymously. The sample numbered, if my memory serves me right, 837 graduates who were divided into three groups, according to period of time elapsed since their graduation, i.e. those who had graduated less than six months ago, those who had finished their studies more than a half, but less than three years ago, and those with longer post-graduation career.

The reactions the title provoked in my team, categorise it to gullet-press style. “How come?”, “How bold”, “Insolence” – my manager and head of my department, both graduates of SGH remember how much they earned as freshmen and know how high my salary is and wondered who would be eager to pay some 12,000 PLN before tax to a grown-out student. While cries of outrage died down, I induced everyone to read the article over and than return to the discussion. As it turns out, only 7.6 percent of the surveyed declared they earned more than 8,500 PLN net per month, but around 25% of the respondents asserted their monthly salary was between 2,500 and 3,500 PLN and another one-fourth said they earned from 3,500 to 4,500 PLN. No other figures were cited, so one can’t infer how numerous was the low-paid group (monthly wages below 2,500 PLN) and how many were paid between 4,500 and 7,500 PLN.

I’m leaning towards fault-finding in my attitude towards the article. The sample was rather small, bearing in mind that around 2,000 students graduate from SGH each year (I have to admit I also didn’t take the trouble to accept the invitation to fill in the questionnaire), so there were only over 60 graduates with relatively high earnings, in the group of 0.5 – 3 years after graduation (headcount of ca. 6,000). Hang on, if the survey was anonymous, everyone could write whatever they wanted and inflate their earnings, this affects reliability of such research. The puzzling thing is also that I’m a registered user of SGH career centre and I didn’t find any report on their pages. If I’m not authorised to view it, how have journalists of GW come into it? Doesn’t it cast any doubts on reliability?

There are some outstanding graduates of my school, I know some who’ve managed to climb many steps on the ladders of their careers very fast. In each population there is a fraction of very gifted people, if they are interested in economics, business, finance, etc., many of them are destined to get in to SGH, so the very group of SGH graduates does not reflect an overall situation of graduates of all universities on the Polish labour market. If we assume we agree that free market properly estimates the price that a young, outstanding employee deserves to be paid, or how much they have to be paid to fend off job offers from the competition, we shouldn’t find those earnings outrageous. Compare this to bonuses of CEOs of British banks (there’s a lot of hue and cry about this in the UK these days) and 8,500 zeds per month sound like little peanuts. And last but not least, many of those well-paid rat-racers spend more than 12 hours a day in their offices over the working week, work over weekends and grow rich quickly at the expense of their personal lives. Be aware there’s always a price to pay…

Much more uplifting is the news that some 50% of SGH graduates earn between 2,500 and 4,500 PLN and this is where I fall as well. Deep down I feel the bracket sets floor and cap for a decent salary for a graduate with considerably short experience… A proper career and earnings path should start at a rather low level and have a strong upside potential left for an employee, if they prove they deserve to move up, they should be given a pay rise.

This is what seems proper to me, but in practise appetite comes with eating. As I was about to start my current job a year ago, I thought my salary was very competitive; today I find it only very decent, but from what I discerned, where I work commitment is appreciated – so I stay patient… Plus I have to add I’m in a different situation than my peers who’ve come to Warsaw to study and settled down here for good. I don’t have to pay rent for a flat, actually my expenses are still quite low and having the luxury of owning and using a car, I can still put aside 50% - 60% of my salary. No room for discontent for sure, but well, appetite comes with eating, and the more you eat, the more bloated your belly gets…

Margin Call - film review

Usually the word “crisis” puts you in mind unpleasant associations of jobless people, bankrupting companies, rampant impoverishment and other miseries. But if you look at how the recent meltdown influenced contemporary culture, you can notice the upsides of it. Before 2008 there had been few and far between books or films depicting the sleazy world of disgustingly well-heeled bankers. Scandals surrounding misconduct of financial industry that broke out in 2008 not only have shed light on workings of the only industry when one’s legally obtained earnings looked like telephone numbers, but also turned out to be an excellent inspiration for artists willing set their works in the murky world of investment banking.

From this blog you should remember reviews of Let’s make money (film), Cityboy (book) and Inside job (film). Each of the abovementioned works can be catogorised to a bit different genre, each has some features of a documentary, unlike Margin Call, a new film which had its premiere on 26 December 2011. “Margin Call”, in Poland translated as “Greed” (what’s the Polish for margin call?), has gone down well with film critics and cinemagoers and I must say the accolades are well-deserved.

It can be easily inferred that the plot is set (PL: osadzona) in mid-2008, in an investment bank with a head office in NYC, which has a huge portfolio of toxic mortgage-backed securities whose value, if the worst-case scenario materialises, will drop to zero, sending the highly leveraged bank under water. Makers of the film avow any semblances between actual persons and events are unintended and if someone happens to discern them, they are only coincidental. But if the stricken bank’s CEO’s surname is Tuld, similarities are evident… But don’t dare to think the film tells the story of Lehman’s collapse…

“Margin Call” repeats a few truths that have been said about the banking industry.

1. Guys who work in risk management are not economists but quants – rocket scientists, physicians, engineers, mathematicians. They have little notion about non-quantitative factors that influence workings of financial markets and are behind the laws of economics. Probably many of those individuals, attracted by sky-high salaries, have not been the right men in the right places. Eric, one of the characters fired out of the blue at the beginning of the film, at the end tells a story of a bridge he had designed and overseen the construction of some 22 years earlier. The power of his brain is underlined by quick mental calculations on numbers hitting up to nine digits. You can find this funny that the guy can multiply millions without using a calculator, but the purport of the scene, for me the principal one in the whole film, is that Eric recalls making something tangible that still serves people, in contrast to what financial engineers have contrived. Real engineers build, while financial engineers destroy?

2. Thursday evening parties in strip-clubs are an indispensable part of the male-dominated industry.

3. Earnings are shocking and even the old rule that one shouldn’t earn more than $ 100,000 over the first year has long been waived.

The above are typical for Anglo-Saxon investment banking, so is there anything common with what you can come across while working at a bank in Poland? The film begins with a scene showing how people are laid off out of the blue in the ruthless industry. It would be fool to describe it, just watch and I hope you will get the point. I witnessed it in Poland and… it is done in exactly the same way…

The film, however, could do with some enhancements. Firstly, it is not comprehensible for laymen. If you’re not familiar with the workings of the financial industry, your chances to find out what is going on, how and why, are grossly limited. Secondly, the film is drawn-out – the same story could have been squeezed into a 20 minutes shorter film, although I have to admit shots of New York on a September night are memorable. Thirdly, the lacklustre ending. This is my second letdown this year (first was when I was finishing reading “Money to burn”) and sadly I must say “Margin Call” lacks a head-splitting ending. The bank shown in the film does not end up like Lehman Brothers. Its survival strategy is to get rid of toxic assets, incur huge losses and foist worthless securities upon clients and other banks. Stinky shit is being spilled over the whole financial system, while the culprit stays afloat. Few have remorse, the unprincipled chaps are proud of their well-done job.

The film again reminded me I should be grateful I was born and live in Poland, not in the United States. May my country never stoop so low…

Taking chances

I was a first-year student, when, during a class in basic microeconomics, I first encountered the topic of risk from economic perspective.

Have you even tried to put in words what actually risk is?

In economics and finance, one has to distinguish between risk and uncertainty. The former must be measurable, the latter is not quantifiable. If the risk is measurable, it should be possible to estimate probability that a specific scenario materialises. In life we usually face uncertainty – hardly ever it is possible to make an educated guess on how probable it is that a choice we are making will prove right.

Those who have even learnt business English should have come across several verbs that go together with the noun ‘risk’. You can: accept, analyse, avoid, estimate, hedge, manage, measure, minimise, mitigate, quantify, run, take, tolerate, understand a risk; share it and divide it. Something can carry or pose a risk, something can be put at risk. ‘Risk’ as a verb and adjective ‘risky’ might come in useful quite frequently.

Economic theory distinguishes between pure and speculative risk. In the case of the former you might lose, or not, but you cannot win. Pure risk can be transferred to another party, willing to take such risk, this happens when you buy an insurance policy. In the case of the latter there might be one more outcome – you might also win. Modern financial engineering has devised many tools used to manage risks, transfer them between entities and “reliably” quantify it. When misused, those tool can result in worldwide financial meltdowns…

Economists have come up with a concept that different people have different tolerance of risk. Some are eager to take it, some avoid it, some are indifferent to it. As scholars claim, most individuals prefer not to take risks and make do with certainty equivalents. Most of us would rather take out an insurance, pay a fixed premium and reduce our exposure to a specific risk, many people do not fancy investing their money on volatile stock exchange and put them into bank deposits, on which they can earn lower, but “safe” income.

But what determines an attitude to risk a specific person has? Genes? Upbringing? Entourage? Education and awareness? Experience gained in life? Job and challenges it poses?

Why in different realms of life people have a totally different tolerance of risk? Some people drive like lunatics and risk their and other people’s lives but would never put their savings on the stock exchange. Others are not afraid to run up debts in form of mortgage loans for decades, but avoid taking professional decisions that entail responsibility.

Does eagerness to take risks influence the job one should take up? What should be the profile of an employee who works, like me, in risk management? (Incidentally, I recently heard in the risk division there’s no place for people with below-average IQ!) Surely they should have competence to assess and analyse risk, but how about the tolerance of various types of risks their employer would be exposed to, depending on their decisions? Of course, they are paid for taking care of someone else’s business, so private preferences should not matter at all. Once I triggered peals of laughter at work when I commented on potential highly speculative financing for a junk public company: “I wouldn’t put the bank’s money at such risk as my own”.

Financial institutions have their risk managers (who should be well paid ;-)), but human beings should be able to cope with uncertainty in everyday lives. Almost every time we take an important decision, the outcome is a mystery. Choice of path of education – whether you choose the right studies might impinge on your future self-fulfilment. Choice of a spouse – will influence your happiness. Both aforementioned decisions will also affect your financial standing, as well as the choice of career path.

Such decisions surely involve a bit of stress, as each even-tempered person should think twice, weigh in pros and cons, analyse what can go wrong. This can result in paralysis by analysis, but done prudently might help avoid mistakes, which in life are inescapable anyway. When choosing to study at SGH, I was not sure if this would be good for many; with time fortuitous decision proved right. When I got an internship in credit risk department I was not sure whether I would find my way there, but soon settled down very quickly and well there. Again a leap into the dark proved a good decision. I feel when one day I’ll pop the question I will have doubts whether this woman would really be the one I want to spend the rest of my day with.

It is probably the saddest point of this post. These days nothing lasts forever, promises are broken easily and without remorse. Is my observation, that people no longer hold stability as dear as they used to in the past, right? I recently witnessed a marriage breaking up just because one of the spouses found a few years younger, sexually attractive partner. After a few months the new couple have shaken off the short-lived affection and came to a conclusion that together they cannot face everyday hardships and actually they do not fit each other. Guess how one of the spouses, who left the family for a fleeting adventure, the other, cheated-on spouse and their children felt… Now they are back a family and are trying to pick up the pieces of the broken-up marriage and start a new life. But I know how the ex-lover of the spouse feels and oddly enough that person currently appears to be the most hurt, deceived and disillusioned.

For sake of clarity, I do mention the sex of the unfaithful spouse, just not to spread stereotypes – both women and men cheat on their partners… Also for the sake of clarity I am not the aggrieved hero of the story. But there were times when I found flirting with older (in their 20s and 30s) women in relationships exciting (then I have grown out of this silly sort of entertainment). But except for realising those were childish games it occurred to me that if a woman dumps her boyfriend for me, one day she might be capable of doing the same with me for another guy.

There is not just the fear that someone might hurt me, what worries me is that I may inadvertently break a promise given to someone. One day my common sense might tell me to take a path which will give me some stability, but will not be the most preferable, but some time later I might feel the temptation to try my foregone luck. Life is full of wasted chances, but is it worth taking a chance, heedless of consequences?

And you can speak about any risk here? Only uncertainty is left…

Orbanomics

Liberal media in Poland and across Europe have joyfully relished on the economic decline of Hungary under Victor Orban’s rule. The fellow CEE country does not fare well, despite Mr Obran’s peculiar efforts to tackle the crisis and may face insolvency even sooner than far more stricken Greece.

When examining economic situation of Hungary, biased media often leave out how Hungarian economy was wrecked by eight years of leftist rule, marked by soaring corruption, concealing ever-deteriorating state of public finances and unfettered living beyond means, both on public and private level. In September 2006, confessions of Hungary’s former prime minister leaked to the media and triggered widespread outrage. Things came to a head. While neighbouring economies were booming, Hungary had to implement first austerity programme, aimed at turning public finances around. Retrenchments slowed the economy down, yet the country kept moving ahead. The veritable turmoil sparked off in autumn 2008, when CEE currencies were sold off in the wake of Lehman bankruptcy. The sell-off of Hungarian forint was much more justified than in the case of Polish zloty, as Hungarian economy has already suffered from structural problems. Hungarian central bank immediately jacked up interest rates, hoping that the higher price of money would attract speculative capital. It did not, but as each interest hike, the move stifled the already ailing economy.

The Hungarian economy was particularly severely hit by depreciating HUF, mainly owing to unconstrained mortgage lending in foreign currencies. Millions of Hungarians have found it increasingly difficult to service their mortgage debts. Many borrowers defaulted on their obligations, so banks had to make massive write-offs on bad loans, households had to tighten the belt, cut down on various expenses and keep servicing their debts. As a result, consumption and investments fell, government spending was also curbed. Hungary was the first country that applied for a bail-out from the IMF and EU to bring back financial stability in the country.

Such pitiable was the shape of Hungarian economy taken over by Mr Orban’s party in mid- 2010, after it had won over two-third seats in the parliament, majority allowing to pass almost any law they wanted, including entitlement to change constitution. Mr Orban, in over year and a half managed to make extensive use of power he had been entrusted. He has had many successful attempts to tweak with scope of civic liberties, including free speech, economic order has also been revamped. The most controversial economic changes were:

1) Nationalisation of assets held by pension funds and using it to reduce public debt. As an unfaltering critic of obligatory participation to private-run pension funds, I could agree this was a good move. But look at the way it has been done. Citizens were given the choice – either to transfer “their” savings into the state-run system, or to pay pension contributions to both the state and to private-run funds and retain “their” savings in the private-run system, but being deprived of the right to pension benefit paid by the state. Fair deal? Plus note pension funds were scrapped not because they had been a scam, but only to inject cash the state budget had been running out of.

2) Freezing CHF/HUF rate at which distressed debtors repaid their CHF-denominated mortgages. In the first variant the rate was to be fixed for a few years, the government would pay the difference between the fixed rate and market rate, and debtors would repay the difference after a few years. In the second variant, losses were covered by banks which had granted loans. This reminds of the option quarrel, when some politicians also tried to nullify legally binding contracts.

3) Taxation reform, consisting in replacing two PIT rates of 17% and 32% by a flat tax of 16% - the measure did not revive the economy, but, predictably, brought down budget revenues. Guess who benefited the most… From 1 January 2012 key VAT rate was raised from 25% to 27%. Guess who lost the most…

4) Tampering with central bank’s independence, allowing political influence on the decisions taken by hitherto independent body and making it possible for the government to tap its monetary reserves to pay government debt in foreign currencies.

Well, until now the uncanny experiments have not dragged the Hungarian economy out of the recession. Over the last month three main rating agencies have downgraded Hungary’s sovereign rating to junk status, this should not be put down only to high debt-toGDP ratio of approximately 80%. The main reason for the downgrade was the unpredictability of Hungarian decision-makers. As the ex-member of Polish monetary policy council said yesterday, these are not only several ratios, determining a country’s capacity to service debt, that set debt service costs, the key driver of financing costs is credibility and Hungarian government completely lacks it. No wonder it has to pay over 10% for its 10Y bonds, yet it puts a bold face and declares readiness to turn down potential financial aid from the IMF and the EU, condition on pulling back from curbing central bank’s independence.

No one should draw pleasure from watching our ill-run neighbour going under (unless you are a currency speculator). But Hungarian troubles should teach us a lesson. Remember the evening of 9 October 2011 when Jarosław Kaczyński expressed his hopes that one day there would be Budapest in Warsaw? Not letting it happen does not simply mean preventing Mr Kaczyński from winning majority in the parliament. If we do not want Poland to follow the path of Hungary we have to prevent it from plunging into such economic and political downfall. To some extent, it is rather improbable that things in Poland might with take a dire shape. Political class is not as corrupt as it was in Hungary, we have never lived beyond our means to the extent Hungarians did, burden of mortgage debts is not too heavy to carry for Poles, public finances are in a better shape, but... Do we know if the ruling politicians tell us the truth about public finances? I think Mr Rostowski runs our finances quite prudently, but when I listen to him, I am not convinced he tells the whole truth. It is not inconceivable that, when in distress, Polish central bank might buy up Polish government bonds, which would be a violation of constitution and would be actual act of printing money – if this happens, expect a condemnation on PES.

Whatever future holds for Hungary and for Poland, I hope Hungarians and other nations draw conclusions from the current economic ailments of the former country. Whenever we assess Mr Orban, we must not forget about the context in which he gained power. At least we cannot accuse him of inactivity. He does try to overcome the crisis. A drowning man will catch a straw, so maybe this might be excuse for moves which in my opinion are inexcusable and detrimental for the economy. Time and financial markets will soon prove somebody right.

Financial markets, I say. Very few countries can afford to mess with financial markets. And you can do it only if you do not have to rely on them, i.e. when you do not have to finance your debt by issuing bonds. Mr Orban unfortunately forgot that public debt of his country accounts for 80% of GDP, so he might be fighting a losing battle…

End-year* thoughts

My last success this year was surviving the idle period between Christmas and New Year’s Eve. I don’t know why, but over five years of my studies it was the most depressing period of the whole year. I’m putting it down to low amount of daylight, imminent exam period and the fact that virtually everything comes into the standstill on those days. In the office we also were ticking over, but somehow being put through this period in the company of colleagues made it much less painful.

On Friday morning I kept refreshing the page showing current EUR/PLN quotation to witness the battle between Polish state, represented by NBP and BGK, and speculators. The former were to sell foreign currencies just before the fixing, the latter were to bet against zloty. The tug-of-war was short, featured with increased volatility and not really fascinating. The government got what it had wanted – public debt to GDP ratio was at ca. 54% - safely below the threshold triggering austerity measures.

Time to look back on my predictions from mid-January and bring myself to account for all the guesses that have turned out to be wide of the mark. Polish central bank’s benchmark rate is indeed 4.50%, in line with my forecasts, but home-owners paying off mortgages denominated in foreign currencies saw their instalments soaring in the summer, rather than slowly decreasing. WIG20 at the end of 2011 fell below 2,150 points, while I predicted 3,200 points. At the end of the day I’m an analyst so the outcome above should not surprise you at all ;-)

Financial markets have become so wobbly, as the situation in real economy has gone, that I will not dare to come up with any predictions for the coming year. I have some scenarios of possible future courses of event, but may they not be disclosed to the public. While I’m holding back, Michael decided to have a stab at it. Come the end of the year and we’ll see if he can rely on his intuition.

Just to recap the year which will has become a history.

In January I thought Polish economy would be thriving in the coming year and I was actually right, only the rest of the world was falling apart since then, the first report on causes of Smolensk crash was unveiled and prompted questions and heated disputes.

In February I took up my first permanent job and began to cast doubt on robustness of Polish economy.

Key issue in March was the pension system reform.

April passed very quickly for me, while the key event in Poland was the first anniversary of Smolensk disaster.

In May Catholics celebrated beatification of John Paul II, and end of days, due on 21 May didn’t happen to come.

In June I had first inklings of coming tsunami on financial markets and graduated from SGH.

July was extraordinarily wet…

In early August politicians in the United States were haggling on what conditions to raise the debt ceiling and despite the assent to raise it, panic took over financial markets, and was exacerbated after S&P downgraded US rating.

September was marked by 10th anniversary of 9/11 attacks.

In October Poles chose that a predictable, but timid and often inactive PO-led government should run Poland for the second term.

In November I realised what the word ‘insecurity’ in the corporate would means (no link and no details) and the first re-sworn-in prime minister delivered his inaugural speech in which he focused on painful programme of healing Poland’s public finances and which brought about a sudden revaluation of stocks of one of the biggest Polish companies.

In December the story of lent 1,000 PLN dragged on and weather was very merciful.

The list of random events of 2011 is patchy and does not cover many issues which you might find important, yet which were not mentioned on the blog and escaped my notice.

Now when 2011 is left behind, try to guess what the future holds. I surmise in 2012:
1) financial markets will stay very volatile. Where exchange rates and stock markets head will depend on performance of real economies (watch out, I’ve just reinvented wheel) and strength of the eurozone,
2) politicians of the eurozone, faced with pressure of unrelenting financial markets will have to get to grips with insolvent, inordinately indebted PIGS and pull the plug on them. Greece will be forced to secede from the eurozone, re-establish drachma and devalue it to regain competitiveness,
3) winter will stay mild, there will be three incidences of proper winter, including one bringing heavy snowfalls and another with temperatures much below –10C at nights. Winter-time low in Warsaw will be –16C.

In 2012 all adverse effects of economic slowdown, that Poland escaped until now, will make themselves really felt. Polish economy will be expanding at slower pace, along with its trade partners who may even face a contraction. Weak zloty should prop up exports, but will also push up prices of imported goods, and thus inflation. Private sector will have to adjust their scale of operations to shrinking demand and many companies will be downsized. Savings will be looked for on cost side and because companies’ influence on prices of inputs is highly limited, payroll expenses will be cut. This will result in a wave of lay-offs, lower or no pay rises and higher unemployment.

Tax-burden-raising programme will hit Poles’ wallets. On 1 January excise tax on diesel fuels hike takes effect. From 1 February sickness benefit contributions paid by employers will be increased by two percentage points. Rising prices of fuels, energy and gas will probably keep reducing Poles discretionary income. This, in conjunction with job insecurity might put to the end gold times of consumer confidence that prevented Polish economy from shrinking in early 2009.

All property market analysts expect another year when prices will be going down, they only vary in determining the scale of decline. The factors that will contribute to lower property prices will be:
1) recommendation SII, issued by Polish Financial Supervision Authority, ordering banks to calculate creditworthiness of borrowers taking mortgages with longer than 25Y maturity as if they were to repay them in 25 years, this might reduce available loan amounts by some 5%,
2) implementation of more restrictive credit risk policies in banks, including virtually scrapping FX lending,
3) supply of properties on primary and secondary markets, much surpassing demand,
4) aforementioned lower discretionary incomes of households who might spend less on debt service,
5) drop in job security which prevents people from buying things they cannot afford to have
6) fading optimism among buyers, far less eager to live for 30 years with ball and chain called mortgage and more often noticing property prices have been exorbitant and hence holding off on buying a property,
7) growing number of young Poles working on “junk” contracts rather than having a permanent job, who, without stable source of income, are deemed to be not creditworthy for banks.

So everyone who has taken it for granted investments in properties are the quick and safe way to grow reach, please prepare for a rude awakening. Prices have already fallen by some 25% from peak noted in 2008 and are set to drop by some 10%, before they level off, at best. If four ago you pointed out that if in London for an average one can buy 0.35 sqm of a flat, the ratio should be the same in Warsaw, just keep your head down. Market will strike a health balance if the monthly-wage / sqm price ratio hits some 0.75.

I look at people who run up huge debts in CHF in 2007 or 2008 to buy tiny flats and I’m sorry for them. They’re carrying a burden disproportionate to what they “own”. There was no fully-fledged property bubble in Poland, but what was witnessed from early 2006 to mid-2008 had many features of a typical bubble.

I have already got the idea of taking out a mortgage out of my head. I don’t feel secure in terms of employment. I realise 2012 will be a year of ruthless cuts in banking sector and despite my good performance one day I might be made redundant. My savings are going up, property prices are going down, one day in two or three years they should meet half way. Cards aren’t stacked against me.

To make this post more optimistic, it is worth mentioning that several hundred kilometres of motorways and expressways will be opened in 2012 in Poland. Most not before Euro 2012, but we’ll have to lap this up, as construction will grind to a halt as soon as taps with EU funds are switched off.

And for a bitter ending, I’ll share with you a gut(-wrenching) feeling that’s nagged me over the past two weeks. In 2012 we’ll see a big disaster, not the one prophesised by Mayans, but an economic disaster which will be a shock for many and will result in huge turmoil on financial markets and in widespread social unrest. Something tells me the blow will be dealt in April or May.

Despite the doom and gloom emerging from the paragraph above, I wish you all a prosperous year. May you find self-fulfilment in everything you do.


* When I was setting out to write this post yesterday, these were supposed to be end-year thoughts. By some coincidence, I didn’t make it to the end yesterday and had to finish writing today; with some more effort ;-)

It won’t cease soon

Some people say if you don’t have a profile on facebook or another social networking website, you simply don’t exist. I’m not in favour of this theory, but there is a grain of truth in it. Over the week when I was offline, my high-school classmates organised a Christmas meet-up and notified me via facebook. I learnt about the gathering the day after it was held. I wouldn’t have turned up anyway, as it was held at the same time as Christmas party of my company, but no one considered any other way of getting in touch with me…

The other thing I spotted on facebook last Saturday after logging in was a message from my middle-school classmate. Let’s name him Marek (name deliberately changed, again, I’m sure he at least once visited my blog and is aware of its existence). He asked me to give him my phone number and tell when he could call me, implying the sooner the better. I’m generally sensitised to all requests when I feel I can lend somebody a helping hand and felt a bit guilty, as his message was dated 14 December and I read it three days later. I went for a walk, grabbed my mobile and dialled his number (how come I had his number, he didn’t have mine?).

Marek was more than happy to hear my voice in the receiver. Without even exchanging pleasantries, he cut to the chase and asked if I had lent any money to our classmate, Karol. He left me a bit speechless for a moment, but instead of telling him I had done this mistake, my reply was: “has your money also gone down the drain?” (też utopiłeś pieniądze?).

Marek and I have known each other since we were six. He lived with his mother and sister in a neighbouring block of flats in Piaseczno, we went to the same group in the nursery school and then attended the same class and primary and middle school. We even chose the same high school, I surmise his choice was a bit influenced by mine. Marek’s life has always been uphill. He grew up without father and most of time without any financial aid from him. He has never been really talented (truth be told, even if it’s bitter), but as long as he could, he has made up for his by hard work and consistency. He has always aimed high and never liked to give up on his plans.

Despite financial hardship, Marek managed to put aside some money. In August 2010 he lent a large chunk of it, i.e. 8,000 PLN to our ex-friend, Karol. Unlike me, he secured his interests by signing a loan agreement with the hapless debtor. Until now Karol and his mother have paid him back 5,000 PLN, while 3,000 PLN remains outstanding and odds of getting it back are dwindling. As it turns out, precedence of creditors depends on their capacity to claim their money back. My loan to Karol was backed by gentleman’s agreement; Karol’s mother claims she respects it, yet when others threaten to take steps to recover their money, it’s not hard to guess who’ll be paid off first. Marek is not even better-off, just because his recovery ratio is 62.5%, while mine is 0%. For me 1,000 PLN is not a big sum, compared to my savings and earnings, for Marek 3,000 is much, much more and currently he desperately needs that money.

[insertion: it just occurred to me I could help Marek out and lend him 3,000 PLN, but I won’t…]

With the legally binding obligation to return the money, Marek is going to take the case to the court. Some law students who provide other students with legal advice free of charge have helped him write a claim and in the new year he intends to file a lawsuit against Karol. The case was if I would testify. Without much hesitation I agreed to appear before court. After all I’ll be telling the truth, but maybe I’ll help the guy who’s had it uphill all his life and doesn’t deserve to lose much of his savings. Testifying will not fray my nerves, as I’ve got over the lost money long ago and I won’t forget the story of a guy who used to my good friend, who was an up-and-coming talent and who squandered all opportunities life had offered to him, anyway.

On 9 December I sent to Karol’s family a Christmas card. I packed in an envelope and didn’t sign sender’s name at the back of it, just to give it a chance of not landing in a rubbish bin before being opened.

Just after finished the call with Marek I rang Karol’s mother, immensely curious to find out how the family are doing. What I heard from her has not impressed nor touched me, actually nothing I would hear about Karol would surprise me. Apart from what I listened about misery of Karol’s father who had undergone a surgery and Karol’s senile grandparents (all their ailments are somehow related to Karol having fallen into troubles), I have been informed that Karol is doing a sentence for unpaid debts and since his mother and I last talked, he tried to take away his life three times and is determined to try it again.

The shock came after hanging up. It sank in to me that this woman was at the end of her tether. She’s so tired of what she’s gone through that she doesn’t even appear to be moved by the fact his son wanted to commit suicide it even seems she has already come to terms with the inexorable eventuality of Karol’s suicidal departure.

Maybe the story is not apposite for the Christmas tide, but this the time, when apart from rejoicing, we should think about fellow people’s misery. Remember Band Aid’s “Do they know it’s Christmas”, peaked with Bono’s verse “Well tonight thank God it’s them, instead of you”? Cherish what you have, if you can read this post, I bet most people have it worse than you and your problems are laughably small, compared to theirs.

X-mas wishes

Dear readers, wish you all, peaceful and joyful Christmas. may it be a stress-free time of rejoice, spent with your family and friends. Recharge your batteries, as you never know what the future holds and the only thing we can be sure of is that the coming year, at least for economists and so called "financial markets" won't be boring.

Offline

Went through an involuntary Internet-rehab over the last week. The extent of the therapy wasn’t actually full, as I had access to most websites at work, but access to private e-mail, blogs, bank and brokerage accounts, allegro or facebook is blocked there, hence I was devoid of some entertainments offered by the Web. Truth be told I didn’t miss surfing the Net much, so it seems I’m not addicted to it(yet), but having no access to the Internet is inconvenient. I couldn’t read nor comment on any blogs, I couldn’t speculate in stocks, paying bills on-line was impossible, I didn’t know how my friends were keeping. Maybe the reason why I didn’t miss it much was that I had to work overtime over the week and back at home I wouldn’t have found much time to turn the computer on anyway. In fact my notebook was switched off for five days (antivirus software warnings of outdated protection popped up immediately), for the first time since September 2009…

The reason for being cut off the rest of the world was a defective Huawei (pron. ch**owy) modem delivered by Cyfrowy Polsat (hereinafter: CP). Buying their services was a memorable rough ride, but using it was all downhill since then. Until it worked…

The Chinese modem (piece of sh*t) began to spin out of control in November. It developed a despicable habit of disconnecting and reconnecting whenever it felt like doing so. This was a bit annoying, but I put up with this, as it didn’t impede much using the Internet. On 5 December it also began to transfer data at its discretion. Over the previous week most of time it didn’t upload nor download any data, but at times it roused up and did its job, until it went into a stand-by mode again. Last Saturday I went with it to several shops of CP, but none had any other modem to lend to us for the time of the repair. Finally an assistant recommended us to skip the intermediation of CP’s customer service and turn directly to Huawei repair centre, located in Piaseczno, who should check the modem off-hand and fix it overnight.

On Sunday, just after publishing the post on the blog, my modem gave up the ghost for good. My father took the modem to the repair centre on Monday. They promised to check it overnight and get in touch as soon as possible. They hung back on contacting us, so my father called them on Tuesday. They replied the modem was broken down beyond repair and under warranty would be replaced for a new one, free of charge. Unfortunately they had just run out of the devices and waited for the delivery of new ones. We called them for a few consecutive days and asked them when they expected the delivery. Finally on Friday they blatantly declared Christmas was coming and the new supply wouldn’t come in by the end of the year. The sods there didn’t give a shit about the fact that their customer would have to stay offline for some four weeks and pay the monthly fee for the Internet connection as usual. Shocked by the insolence of the repair centre I demanded my modem back, but it turned out it wasn’t an easy task for the sods to reverse the order which was being effected. I saw red, but despite having my blood pressure sent rising, I quickly realised they couldn’t do it to me. I was the owner of the modem and the sods could not seize my belongings, so I threatened to sue them for stealing my stuff. It worked. I called my father and he picked it up, together with the repair report, in the meantime I arranged borrowing another modem from CP shop in Piaseczno. My father did me a favour, handled the complaint procedure again and brought the lent modem home.

On Friday evening (or night) I returned home late from a corporate X-mas booze-up, additionally I looked like a drowned rat, as the pouring down rain left me totally sodden. Sodden and moderately befuddled, I didn’t feel capable of operating technical devices, so I decided to plug in the borrowed modem on Saturday. On Saturday I made an attempt to use the device, but it also turned out defective. The modem from CP shop lacked drivers and software and my computer couldn’t detect the content of its internal disk. I drove (no hangover so I assumed alcohol level in my blood was negligibly low) to CP’s shop and asked there to transfer modem drivers and CP software to my pendrive. I had to go there twice because for the first time they had given me the wrong software (from a different modem) and at last I needed to call CP customer service helpline to get the support in installing it…

Now it works, but things haven’t straightened out yet. I don’t how long my modem will be under repair, I don’t know if the opinion of the repair centre will be the same and if the new one will work properly. Right now I’m thinking how to get back on CP for the quality of their customer service. I’m not vindictive towards people, but powerful corporations that mistreat their customers must not go unpunished and their sins won’t be absolved. What sort of compensation should I demand? I don’t need apologies, they’re duty bound to provide me with a new modem under warranty, but how about claiming exemption from monthly Internet connection charges? Am I entitled?

Two readers marked my previous post as “well-argued / clear”, so a quick follow up – I’m still emotionally unstable and the magnitude of instability is very volatile.

Maybe due to what I described last week I’ve become disturbingly indifferent to current political and economic issues. I wasn’t focused the outcomes of EU summit held on 8 and 9 December, sovereignty marches staged on 30th anniversary of declaring martial law haven’t impressed me (my take on the martial law hasn’t changed since two years), nor did the end of Polish presidency to the EU. Yesterday in the evening, back online I found out stock markets are poised for a very bearish Christmas period (technical analysis and macro factors back this scenario) and may hit this year’s new low by the end of the year. Cesaria Evora and Vaclav Havel passed away - happens

I let things drift, every destiny should be fulfilled.

What no man can own, no man can take.
(U2, Yahweh)

You miss too much these days if you stop to think
(U2, Until the end of the world)

The two quotations reverberate in my mind and emerge from an enormous tangle occupying my head and giving way to clear thinking only when I concentrate at work or drive a car.

I let things drift, let the destiny fulfil itself.

Next week – another follow up to the story of my ex-classmate.

When children grow rebellious...

Time goes by, entourages change. Gone is the period of formal education when every day I used to meet my peers who look at the world from roughly the same perspective as I do. People I am surrounded by these days, at least a few years older than me, have different problems, grew up in different times, spend their leisure time differently. What we usually have in common is a certain part of our background – we are almost all graduates of Warsaw School of Economics. And despite this we are all “normal”, I mean we do not fit the image of a stereotypical rat-racer. This is what probably marks the boundary between slightly “backward” Polish commercial banking and Anglo-Saxon overgrown financial sector which favours alpha-males with specific set of traits and predispositions…

All (except one, single girl aged 28) my colleagues have spouses and most have children. Their offspring are usually in pre-school or early-school age, only one colleague’s children are in their teenage years. He sometimes talks over his observations of his daughter (aged 16) and son (aged 14) with a woman from the other department whose son is also adolescent. While listening to their conversations, I finally realised what sort of problems I will have to tackle in several years, when my currently unborn children grow to the age of defiance. From what I observed, my colleagues strike a good balance between strictness and leniency in upbringing their children. They are aware it is natural that teenagers begin to have their own opinions, often totally opposite, as a matter of principle, to their parents’ views, want to dress the way they want, spend the time the way they want, meet with who they want and arrange their lives in their own way. They talk a lot to their children and forgive some misbehaviours (one-off occurrences of returning home inebriated or nasty behaviour at schools).

I sometimes butt in to their talks and present them my point of view, but more often they make me look back on over past ten years, from the moment I came into age of adolescence, until my 24th birthday. Much can be said about me, but I was anyone, but a problem child / problem teenager. For some reason, maybe because my parents would talk with me a lot, I did not have inclination stir up troubles. I always did good at school; in good and bad times, for 12 years of primary, middle and high school I passed with flying colours. I did not have to retake a single exam during four and a half years of my studies and unlike fellow students I finished my studies in time. There were some incidences of inappropriate behaviour at school, but they have never been really inexcusable and never sullied my good reputation. There were some disputes between my parents and I, there was a time when I was 16 and in a relationship with two years older girl, when we argued a lot. They told me she was not good for me, after a few months time and my ex-girlfriend proved them right. I have never experimented with drugs, never had a cigarette in my mouth (I owe it to my parents, until November 2003 chain smokers, whose addiction filled me with abiding disgust for smoking), I would hit the bottle from time to time, I used to come back home tipsy, yet in my lifetime I have not got hammered more than five times and never I had I drunk so much that I could not remember what I had been doing; I have never let the alcohol turn my stomach. Plus I was a “frugal” child – I did not need private tuition (korepetycje), I did not demand from my parents that they bought me some stuff others had.

Yet my colleagues, who patiently put up with their children, point out it is better if teenagers get through a period a defiance before they grow adult, because this has to come sooner or later, and the later it comes, the higher the magnitude of cheekiness is and the more severe outcomes of stupid decisions might be. I suppose the belated adolescence crisis has hit me recently. I am putting it down to changes that have taken place over the last year around me. The transition from school-oriented to work-oriented life, drifting apart with my schoolmates and hitting it off with older, more mature people, gaining the long-awaited financial independence; all these factors have been a source of joy and excitement, but to some extent they turned my life upside down, I am not a man I used to be a year ago. To put if briefly – I sometimes feel as if I was living someone else’s life… Some changes are positive – at work I can spread my wings. I left behind the unpleasant experience of being one of hundreds of anonymous students, which used to hurt during the years spent at SGH. I realise this might be an illusion, but where I work at least I am recognised and my accomplishments are appreciated (one day someone might recall my name and put it on a redundancy list – would it pay off not to stand out and keep a low profile?). Some changes, i.e. aforementioned tangle in my head, are a bit disturbing. When making up for the time wasted on being an obedient child, I hold off on taking stupid, emotion-rather-than-consideration-driven decision and wait. I believe by the 25th birthday it should pass…

The meek and the outraged

Once upon a time there was a prosperity...

In one country in which several years ago one could rise from rags to riches, everyone, including drunkards having no jobs, no assets and no income, could get a mortgage without having to prove their creditworthiness. They could buy dreamt-up houses they had never afforded to buy and everyone was happy.

In another, once poor country, government, trade unions and employers entered into a social partnership, which gave rise to over a decade of fast, yet sustainable growth. When natural growth ran out of steam, economy was boosted by construction boom that did not last long, as everything what is credit-fuelled and based on low-efficiency sectors. They government would run budget surpluses thanks to rising property taxes and people could afford to buy houses despite prohobitive prices, thanks to easy credit conditions. Everyone was happy...

Once a country, which was facing bankruptcy in 1998, got up off its knees and rose to prosperity thanks to huge revenues from export of gas and oil... Only tycoon were happy... The rest were only proud of their new empire.

Another country, which joined the European Communities in 198,1 could rig statistics, wheedle out subsidies from the EU and live off the backs of German taxpayers. But actually eveyone was happy.

Once the biggest CEE economy was run by reckless politicians who at the same time cut taxes, raised government spending and despite this had a nearly balanced budget. But people weren't happy and in early election kicked out those magicians.

The times of living beyond one's means are gone. Good times will roll in sometime, but I suppose not before long. Come to terms with it, there's no such option as 'ship out' now.

Then the house of cards fell apart and Mr Crisis knocked on our doors. Believers of American Dream were evicted from their over-mortgaged houses and complex securities engineered by brainy quants from investment banks turned out to be a load of junk scattered all over the financial system. The government rushed to help out the troubled, but those bailed out were financial institutions. The case was that someone had been arranging the world in such way that banks had grown too big to fail and their collapse could trigger a knock-on effect, i.e. their bankruptcies would wipe out the 'real economy'. Thus the bankers were helped out and got away with the punishment and things went on.

At that time voices of people outraged at policies focused on big players, rather than ordinary people, were heard. But nothing, virtually nothing has changed.

As part of tacking the crisis, zillions of money wer pumped into financial system and some money was even injected into real economy. Economies somehow revived, but did not thrive as good as the financial system did. Drip of newly printed dollars flowed into banks' balance sheets and the banks did not, as the decision-makers had intended, turn them into loans for firms and individuals, but put them on financial markets. Between late winter of 2009 and mid-spring of 2011 stock prices doubled and commodity price tripled, not really reflecting economic recovery (often, like oil prices, threatening to hamper it).

In the meantime countries using fiscal stimuluses to prop up their economic, nations living beyond their means and those whose growth prior to the crisis had been totally unsustainable (these were the countries that had experienced property booms) fell into trouble. In 2011 banks are solvent (unless they have bought up too much "risk-free" Greek bonds), in 2011 the governments are about to go bust.

Poland got off the first wave of the crisis lightly. In early 2009 it was the only economy in Europe that did not contract. Neither the current (PO-led), nor previous (PiS-led) government could take credit for it. Accolades go to resilient Poles and their remarkable consumer confidence (in fact verging on profligacy), sound monetary policy pursued by the Polish central bank, wise financial supervision that curbed lending and resilience of Polish entrepreneurs. But lower budget proceeds and higher expenditures and inevitable in economic slowdown and so Poland as well has to tighten the belt...

But not only us. People feel it and someone roused up and discerned that ordinary people are paying for the crisis, while bankers, still untouched, are doing well. In 2008 Barack Obama won by promising the 'change'. The matter (or rather lobbyist) proved too resistant, and the change has not been brought about, leaving more and more people livid. They gathered in one New York district and dubbed themselves Wall Street Occupiers. The movement gained popularity in many countries, but I didn't think it would fell on a fertile fround in Poland. Yet for a moment it did. On 15 October hundreds of protesters marched through Warsaw's streets, but who were they? As right-wing journalists claimed, those were children of wealthy parents who thought it would be fun / trendy to protest again cruel capitalism and spent afternoon in such way. They even received support from a prominent leftist politician who came to the demonstration in his brand-new Jaguar...

In all countries they protested against the palpable distortions of capitalism, yet did not come up with any counter-ideas. Some of their postulates are even self-contradictory - how can you raise public spending and cut public debt at the same time? I don't feel affinity with those people. We are simply worlds apart, and not because we have different descents, but because our mindsets are worlds apart. I have a job that gives me a lot of satisfaction and offers me financial independence (limited, as without ruining my personal finances I cannot afford to move out from my parents' house) and... I'm afraid of losing the job, for reasons other than my performance. They are often jobless and with bleak future prospects. But where we are now is a result of how we got there and this in turn is a testimony of effort or lack of it over the past years.

And no, you are no longer entitled!

While others are outraged, I stay disturbingly meek. VAT increased by one percentrage point - other fulminate against the government, I say it is essential to bring extra revenues to the state budget. Raising the retirement age - my colleagues say they won't make it until they hit 67, I declare to toil away even longer without murmur to make budget'e ends meet. Scrapping tax deductible expenses - others are livid as they will not be allowed to claw back some money from the state, I happily commend the idea which simplifies tax system. I was even asked by my colleaugue, with a big tinge of malice, how I would be fixed for shortening paid holidays by some five days each year, cutting sick leave benefit, raising social sickness benefit contributions and restoring tax rates and brackets effective until 2008 (19% / 30% / 40%). Without much hesitation I said I would approve this, if only the money collected thus was spent wisely, i.e. on investments in infrastructure, education or, above all, contributed to reduction of public debt.

All in all, I have all makings of a ruthless technocrat who could turn an almost bankrupt country around and leave the office after four years, hated by 95% of the society. Or am I simply a naive sucker?


PS. This post written without effort. Was it read without pleasure?