I can't afford to... - so what the hell does it mean? As an economist I should understand and clearly define the meaning of such predication, yet I could struggle and all attempts to do it could go in vain. Affordability is probably one of the most ambiguous concepts in economics, containing enough imprecision to leave its users much room for (mis)interpretations.
Personally, I would distniguish three main concepts of it. If you can afford to buy something, you:
1) have enough money not only to purchase the item you want to have but also don't need to cut back on other expenditures - a very conservative approach, I'm kind of attracted by,
2) have enough money to spend it on a specific item - conservative approach, the one I'm guided by while managing my personal finances,
3) expect to have enough money to service the debt you run up to buy what you want and in the meantime don't have to tighten the belt while repaying the loan - a contemporary approach, not really what I embrace, yet not what I reject,
4) expect to have money to pay back the loan you take out to finance you dreams, but struggle to make ends meet - a subprime approach, what I consider a regular folly and signifcant threat to financial stability on micro- and macroeconomic levels.
While approaches no. 2 and 3 prevail, the difference between the two can be illustrated by the language of accounting. If you have cash at hand to buy something, I would call it a balance-sheet approach, whereas calculating what share of your monthly income can be spent on debt service can be called a cash-flow approach. Banks, when they analyse their customers' creditworthiness, check, whether the current cash flows are high enough to cover the debt service expenses. This method is a huge simplification, as it assumes that:
1) a borrower doesn't lose their source of income (downcase scenario) or
2) a borrower doesn't receive an additional income (upcase scenario).
Most people around lean towards the cash-flow approach. It's not uncommon that a human being is impatient and would like to have its needs met immediately*, without waiting and putting money aside and often without initial sacrifices. Such approach squares also with life-time income theory, yet as every model is based on several assumptions, including no misfortune is going to crop up. The model works properly as long as your career develops in a natural course (i.e. at startpoint you earn little and then your earnings rise until you retire), no illness, accident or death hits you. Well, there is no perfect model in economics, each model has its limitations, and inputs will always determine outputs.
My personal preference of the balance-sheet approach stems from the insecurity. I hope what future holds for me is only bright and do my best to ensure it, but since I've seen fellow good workers laid off out of the blue in an inhuman way, I don't want to take a risk of having a debt burden and being jobless at the same time.
* Example I heard at work in April 2011, one of my colleagues saying about her friends: They have a flat, but would like to swap it for a bigger one, but unfortunately their outstanding mortgage debt in CHF is higher than the market value of their current flat - my jaw dropped open, how about yours???
Another example - recently I changed my commuting routes and leave the car at a P&R car park closer to home, this lets me save some 3 PLN each day. But I did it not because I can't afford to buy petrol - I could even easily drive directly to the office every day and spend on it some 200 PLN more a month. I clamped down on driving because I consider it a waste of money which could be put it aside and utilised in a better way in the future.
Next week: The Iron Lady - film review (watched it, but had too little time to put all my thought into the correct order)
I hatched the idea of writing this in late 2009, after seeing on my two friends' respectively: facebook profile and website their "about me" descriptions. One described her interests as "pure hedonism" (hedonizm w czystej postaci, the other introduced herself as "consummate hedonist" (wytrawna hedonistka. I read it with a bit of disdain, pulled a silly face and decided that the next day I would ask my closest schoolmates how they would react to it.
My pristine reaction was "there's nothing to boast about". Pursuit of pleasure is not evil itself, but setting it as an overriding goal in life smacked of being totally out of place. Then I read the entry in wikipedia to learn more about this so-called "school of thoughts", the read dispelled some of my doubts, but the bad aftertaste remained - maybe I was biased. But then it turned out my friends' opinions generally squared with mine. Actually they didn't find it as repulsive as I did, but were all far cry from embracing the pleasure-oriented stance.
As open-minded and tolerant people, we are aware and accept that people have different definitions of happiness and different hierarchies of values and they have a right to arrange their lives in a way they choose. Different people mean different objectives in life. For some the most important things are: family, friends, work, career, money, material goods, travels, education, sport, hobby, entertainment, fun, sacrifice to other people, etc., so why not pleasure? The take on how one assesses hedonism probably hinges upon the definition of the term. What occured to me, at first glance, was that pursuit of pleasure, the most important goal in life for a hedonist, must be subordinated to other values, including feelings of fellow people. The "at all cost" pursuit of pleasure probably whipped up my reject of the concept. My first association was that seeking happiness must be done at the expense of other people. I see two reasons for such reaction: blissful ignorance (mother of prejudices, misunderstandings and egregious errors) and my perception of the two women who’d declared themselves hedonists and whose behaviour usually involved caring little about others.
The wikipedia article says: a hedonist strives to maximize net pleasure (pleasure minus pain). Well, I'd had it in mind before and this probably will always prevent me from embracing hedonism. The pain, not physical, but primarily emotional, is an indispensable element of a human life. If you've never experienced a pain tearing you apart, you can't call yourself a human. You simply can't always avoid pain. Suffering adds you experience, toughens you up, makes you wiser, allows you to sympathise with the worse-off. This puts me further away from the embrace and brings me closer to reject.
So is the hedonism about self-centredness then? Maybe if it's rational to take care of one's own interests firstly, the answer is 'yes'? Is there one good answer? Are there still more questions than answers? I don't wish to condemn the dissenters, but it seems the key question is whether somebody is able to strike a trade-off between egoism and altruism, with more emphasis on the latter.
The whole post is apparently one huge ramble, may it charm consist in the confusing disorder of thoughts...
Just a few sentences not to let pass the third anniversary of my blogging pass unnoticed. Few people manage to run the blog for so long, but knowing I hardly ever post more often than once a week, I can't consider this a success. Of course I'll keep it up, but the inspiration and passion I used to have in 2009 or 2010 are long gone. It's rather a call of duty that prompts to update the blog (usually) each Sunday, not the desire to write I had prior to the start of my professional career in summer 2010. The blog has seen a shift from subject matters mentioned in its title to more personal observations and I have serious doubts whether this is the right direction...
My big thanks for the faithful readers who keep visiting the site, despite declining quality of its content. Please don't run out of patience and if you still like PES, gee me up from time to time.
And I'll try to refrain from sharing the state of my mind here. Will do it better
I tied myself with wire
to let the horses roam free
Playing with the fire
till the fire played with me
(...)
Two souls to smart to be
in the realm of certainty
(...)
Every eye looking every other way
Counting down till the pain would stop
A sudden attack of winter is probably the best incentive for some people to tidy up their garages and find there enough room to park their vehicles. The rest, who don’t have garages, use their garages as lumber-rooms or have too small garages to keep their cars, have their vehicles put to the test by the cold weather. Below is a coverage of how my car, almost nine-year-old Renault Megane (runs on petrol), kept for the first winter outside a garage, has borne up the recent big freeze.
Friday, 27 January 2012
06:50 / -13C
Engine starts obediently, something near the clutch squeaks when I pull out or change gears. The unpleasant noise ceases when engine warms up.
17:50 / -11C
Fires up like a dream, oil in the gearbox is a bit thick.
Saturday, 28 January 2012
Night-time low: -13C
08:20 / -12C
Engine starts without enthusiasm, but also without hesitation, then it warms up and defrosts windscreen and rear screen while I scrape the hard rime off side windows. Clutch again is a bit frozen up.
08:50 / -12C
Fires up like a dream, off for a 12 kilometres journey, everything warms up and runs very smoothly.
10:45 / -10C
At the car park outside my grandparents’ block I spot a guy starting his Skoda Octavia with diesel engine. The owner has a rough ride, the third attempt is successful. My engine hasn’t run cold during an hour-long sitting.
14:10 / -8C
While on my walk I hear two other cars wheezing… Note temperature hasn’t dropped below –15C and problems have begun for many carefree drivers.
17:15 / -10C
No sign of six hours of sitting, cranks up like in summer…
21:15 / -12C
Again exemplary start, later the car left for a cold night and morning…
Sunday, 29 January 2012
Night-time low: -14C
09:50 / -13C
Just like yesterday, everything works properly. No sign of winter on car’s bodywork, so after a minute of heating the engine up I set off to Media Markt Okęcie. I cover altogether 40 kilometres, therein first 7 before the engine reaches its working temperature. A longer run at the steady speed with radio and heating turned off does good to the battery.
11:30 / -10C
And now the vehicle left for 19 hours of sitting, including twelve hours in double-digit frost, expected to hit even –18C.
Monday, 30 January 2012
Night-time low: -16C
06:35 / -16C
Okay, this might be boring, the car cranks up obediently. My colleagues say there’s nothing to be excited about, each well-maintained, petrol-fuelled car, with properly charged battery, will start without problems in temperature above –30C. I somehow don’t feel like checking it, but nothing indicates it could pack up…
18:20 / -12C
Fires up as if it was summer, unfortunately the bottom part of windscreen froze over inside and the car defrost itself very slowly. OK, as long as it doesn’t impede driving…
Tuesday, 31 January 2012
Night-time low: -17C
06:40 / -17C
No changes since yesterday. It should keep running well as long as it’s driven every day, albeit it has to be said exposure to frost is not what vehicles like the most. Natural selection on the roads – I put down lighter traffic to the fact some cars failed the cold weather test
17:45 / -13C
Engine warms up quite quickly – wondering why…
Wednesday, 1 February 2012
Night-time low: -20C
06:35 / -20C
It has to be said for over 8 years in my family Megane had never been used in temperature lower than –19C.
Another good start and another rough ride with frosty windows. Hard rime is very hard to scrape, plus fingers, even in gloves are freezing. The traffic is sparse and 90% of cars on the road have driven out of garages (no sign of sitting in the cold), so I go by car to the office…
17:50 / -15C
The car sat for 10 hours in the sun and an unpleasant surprise inside – the windscreen has frozen over… inside. It’s not totally frozen, so I pull out and begin the crawl in a traffic jam towards Plac Zawiszy (less than one kilometre out of my 18 kilometre journey and covering it takes 15 minutes (vs. 45 minutes for remaining 17 kilometres), by the time I reach it, the car defrosts itself. I was a bit stressed out by goings-on at work and frozen screen and didn’t make out whether the engine was hesitant to start…
Thursday, 2 February 2012
Night-time low: -22C
06:40 / -22C
Oil in the gearbox is very thick, but the battery is doing a great job. Kicks in immediately despite harsh frost. Number of cars on the roads that have stayed the night in the harsh frost is lower than yesterday. Warsaw is full of cars left where they packed up.
17:05 / -18C
I leave the office at time and again find the windscreen frozen inside, but the layer of frost is not as thick as yesterday. After warming the engine up for half a minute I pull out, all frozen elements creak, windscreen is being defrosted while moving in a snarled-up traffic. A very frosty night ahead!
Friday, 3 February 2012
Night-time low: -24C
06:35 / -24C
Minus twenty four – no such word as “fun”. I barely can turn the gear from rear to neutral, then press the start button, hear a short wheezing and the engine cranks up!
Then ensues a long scrape during which my fingers are in a state near frostbite. Than it all looks pretty surreal. Radiation fog lingers, roads are swathed in clouds of fumes from engines of sparse cars. This looks like an icy hell, but Megane bravely carries me to work. Traffic is holiday-time-like – very light. Most cars sitting outside have refused to start… Mine works, but LCD displays go bonkers, when I try to check if the radio works, I learn it doesn’t, the computer indicates current consumption of petrol on cold engine is 40 litres per 100 kilometres…
17:15 / -17C
Well, not a surprise that it starts, but I wonder where’s the boundary of the machinery (battery, starter, engine, oil…). Would it start at –30C?
Saturday, 4 February 2012
Night-time low: -22C
08:40 / -21C
Oil is thicker than yesterday, or maybe it just seems to be just because the car has been sitting for two hours longer. Sun melts some of the frost, so scraping takes shorter and I manage to pull out faster. Two first kilometres are disastrous… I’ve had enough of grappling with barely movable gear lever…
09:30 / -20C
Ok, now it starts briskly… At my father’s insistence I turn the radio on; it seems to work when it’s above –20C outside… When I arrive at my grandparents I see another comedy titled “Using wires to start a car”.
10:40 / -19C
Off to home, engine within an hour of sitting has not run cold, then the car is left for some 22 hours of sitting in the cold.
Sunday, 5 February 2012
Night-time low: -19C
11:00 / -15C
The car sat for 24 hours in temperature below –15C and kicks in without hesitation. There’s no frost on windows and I can easily set it in motion without warming the engine up. Oil in the gearbox is not very thick. To the petrol station and then for a 10-kilometre ride to charge up the battery. If the worst is over and the car withstood the nadir of cold snap, it doesn’t mean precautions don’t have to be taken.
Monday, 6 February 2012
Night-time low: -20C
06:40 / -20C
Another brisk start after 20 hours of sitting in the frost. The car’s got used to the frost, but it only puts up with low temperatures. I’m sick of thick oil in the gearbox and several noises it gives off before it warms up.
17:45 / -15C
Traffic on ul. Puławska is oddly sparse. Longing for single-digit frost…
Tuesday, 7 February 2012
Night-time low: -14C
06:45 / -13C
Dammit, oil in the gearbox is not really thick, only falling snow slightly impedes driving
17:55 / -10C
Hey, I haven’t seen such a brisk cold start for a week. We’re returning to normal driving!
Wednesday, 8 February 2012
Night-time low: -12C
Is there any point in writing???
Until today, each morning was colder, with –19C hitting today. The engine has always cranked up impeccably. But today I again saw some cars whose owners made the most of the weekend to start them with wires and electric current borrowed from another vehicle.
So why some cars don’t cause their owners any troubles, while other pack up. My take on the issue is that not the car, but its owner (or user) is to blame… Maybe the content below is belated, but I prepared some advice for carefree drivers…
1. If your car runs on petrol, you’re some 10 degrees ahead. Diesel engines need more energy from the battery to be started, but beware – this doesn’t exempt you from taking care of your vehicle.
2. Good battery is a crucial when temperatures drop really low – check it before winter comes, if necessary charge it up or buy a new one. Prudent drivers do it in the autumn (I changed the battery in November), carefree wrangle with a dead one while standing in double-digit frost.
3. Other devices must work properly – nothing’s going to help your good battery, if alternator doesn’t charge it properly, motor starter is worn-down, ignition and injection systems are faulty, or fuel is tainted with water. When it’s below minus twenty any weaker link in the chain might immobilise your car…
4. Avoid short runs and starting the engine many times a day – during short trips shortage of energy used to start the engine is not replenished by alternator. Also crawling in traffic jams doesn’t do good as engine revolutions are low and little energy is produced and goes to battery.
5. Drive every day even if you don’t have to – the big freeze set me back some extra 30 zlotys spent on petrol – on account of driving longer distance directly to work (which in fact is a waste of money, but to my surprise not time!) and driving on one Sunday when I didn’t need to, but it spared me potential troubles. A well-maintained car will sit overnight in –25C and start, but adding to it one more day and a second night might be a risky step.
6. Hold back from using energy-consuming devices – radio and CD are off, heating is not turned up, windscreen and rear-screen heating are in use only when necessary. Energy produced by the alternator should charge the battery (and it’s the last receiver of energy, so it receives only the surplus of the produced electricity), whose capacity in –20C is by some 50% lower and which needs to give more energy to crank up an iced engine…
The frosty period is coming to an end – this means denser traffic…
There are moments when it never hurts to look back on one’s old thoughts and review their accuracy with hindsight. A year ago I, a half-baked graduate, just in the eve of starting my first permanent job, set out to summarise ups and downs of leaving university and stepping into the corporate world. Time to quote my thoughts from February 2011 and confront them with my views today.
I WILL MISS:
1. Day-to-day contact with peers. Truth be told my colleagues will be a bit or much older than me. From my past experience I know I can get along with older colleagues very well, but they are a sort of a different breed, they have different problems, pastime activities, interests, priorities in life, usually they have a different point of view because they have their own families and obligations it entails.
I somehow miss it less than I expected. I’ve always found it easy to get along with older people and so I do at work, but there’s a noticeable gap between us – most of them have spouses and children, hence have different duties and problems. I haven’t experienced their daily bread, they long for carefree period of youth in which I, in their opinion, still am.
2. Clever, awe-inspiring lecturers, just to name a few:
dr Bogusław Czarny, who taught me basic micro- and macroeconomics, inspired to think independently, form my own opinions and who stressed the importance of the overriding rule in economics, that an assertion is true when it cannot be disproved, not when it can be proved,
prof. Marek Garbicz, for his breathtaking lectures, sense of humour and open mind,
prof. Maria Podgórska, for her patience, consistency and the fact she did not confine just to teach econometrics and mathematics in finance and insurance, but also wanted to instil in us integrity and made us aware how important in life it was,
mgr Sławomira Rajkowska, my best German teacher ever, unfortunately she stood in for our lecturer just for one term, but the progress I made (without much effort) was unbelievable. Had my Deutsch been that good today...
mgr Aneta Piwko, my best English teacher ever. If all teachers had such excellent command of English, passion and drive to teach, Germans would not stack up against Poles in terms of English skills.
prof. Sławiński... Here words are very unnecessary. Who experienced the pleasure of attending his lectures knows what I mean. The rest may only regret.
dr Piotr Mielus, the supervisor of my MA thesis and an outstanding practitioner.
True, but on the other hand, I met several awe-inspiring people where I work, and, like at SGH, many mediocre individuals (who are in a minority). I should kick myself for not attending open lectures at my school, or not visiting some of my favourite scholars during their office hours. Yet still there time to make up…
3. Casual clothes. From next week will fit for weekends, holidays and cult dress-down Fridays. I actually like formal outfits so this one should be taken with a pinch of salt.
Well, I’m still at the age, when I don’t mind wearing a suit and tie (business casual dress code Mon – Thu), but dress code policy is much more flexible than I expected – if I don’t have any important meeting there’s no reason why I couldn’t wear jeans, casual shirt, or a jumper if I feel like.
4. Commuting in non-peak hours. Lovely it was to get from or to Warsaw within fifty minutes in the middle of the day or in the evening when streets were already unclogged. My new recipe for avoiding traffic jams will be trains, so the journey between home and the office should take around an hour.
In July I swapped trains for a car, since then I’ve used public transport within the boundaries of Warsaw only (P&R to work and back + getting about town). I depart for work in early rush hours when traffic is snarled-up, but not stationary. I return to P&R in late rush-hours or after it. Carrying one’s arse in a vehicle is convenient, but expensive…
5. Job fairs, event, meeting famous people who visited SGH and other events. First two and a half years abounded in such events. Later the crisis came, companies cut their promotion budgets and I ran out of disposable pens.
At work there are different events during which I can pick up other gadgets. And I slightly miss these small talks with representatives of employers on potential internships. These days internships are beyond the scope of my career interests and provided no big wipe-out (i.e. lay-offs) strikes out of the blue, I should hold down the job.
6. Privileges. Not that soon. I will pick up my diploma some three months after the final MA exam, so I until then will I make the most of my ticket concession and other measurable benefits of being a student. The new world will compensate me for this by giving perks.
I lost my privileges on the last day of June 2011. From then I’ve had to pay the full fare for my travelcard, but on the other hard I have a health-care package, swimming pool entry card and reimbursement of glasses expenses.
7. Unfettered speculation on stock exchange. From now I will not be able to do a real-time trading plus I will have several trading restrictions. This does not mean I will pull back from the stock market at all; the speculator will become a mid-term investor.
I have to keep away from some stocks and I’m obliged to submit weekly report on my trading activity. These days all those limitations don’t hurt me at all, I don’t understand where and why markets are heading, so I trade very cautiously, or not trade at all.
I WILL NOT MISS:
1. The overwhelming mess, bad communication between authorities and students and general disinformation.
Replace “authorities” with “superiors” and “students” with “subordinates”, and the sentence stays true!
2. Ignorance and laziness of lecturers. I do not even wish to comment. The list of admired lecturers was short. The list of big let-downs from the whole course of my studies would be much longer...
The problem of ignorance is far less appalling, actually people there are well-educated and reservations concerning their expertise are rather sparse. Plus they are ready to lend a helping hand and share their experience, if I’m in need.
3. Workings of the student office (dziekanat), its surly personnel, quaint decisions (deleting completed courses from track record of studies, informing me about my Bachelor's exam the day before in the evening)...
Thank God I’ve finished school! But a private corporation with head office in the fatherland of capitalism has its own set of absurdities, equally enervating.
4. To boot bad organisation, doing everything at eleventh hour...
This has not sunk into oblivion, just manifests itself in a different way. Closing deal at eleventh hour is not infrequent, being assigned tasks with tight deadlines is not uncommon, but it’s typical for the corporate world and at least if the job is done correctly, it’s appreciated.
5. Appalling use of English, which was ridiculed on this blog repeatedly.
At the bank virtually everyone uses English and everyone does it as good as they can, still too often with putting too little emphasis on quality. People from London or from the US have got accustomed to us mangling English. I’ve been reproved a few times for using too difficult (for native speakers) vocabulary, but no one’s ever told me off for polishing up a piece written in not-up-to-the-standard English.
6. Broken down central heating when outside it was -15C or unopenable windows and lack of curtains or blinds when outside temperature hit +30C
It’s been kind of dreadfully cold over the last week and temperature in my office was around +19C, barely above the threshold of +18C, allowing employees to refuse to work. But aircon was doing well in summer.
7. Lectures at 19:00 for day-time students (prevalent, alas).
There were a few incidences of working later than until 7 p.m. over that year, with record-late knock-off at quarter to nine in the evening, but if you think anyone at the top cares that it’s after 5 p.m. and it should be your private time, you’re wrong.
Immersing in the corporate world will not only mean I will be self-supporting, but also will bring new challenges and real learning opportunities. In the coming months I expect to work harder and learn more than within four and a half years of my studies.
Here I wasn’t wrong.
Hitherto I have not observed any symptoms of depresja magisterska, (graduates afflicted with this malady are down in the dumps because the carefree period of studies is drawing to a close and they are in for forty years of work), but the worst might be still to come.
There have been ups and downs over that year, but all in all I don’t miss school. Somewhere deep down I feel the clock is ticking, years are passing by (about to turn 25 in ten months) and self-fulfilment should lie above all outside work, if for somebody it also lies within it, they must be very happy.
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…
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…
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…
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…
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 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.
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 ;-)
Gormally & Kuhn, Merchants – a short story (Pt I)
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[Based on a dream I had this morning, set in the City of London in 1880.]
Joseph Gormally came to London as a young man in 1870 from the rural
poverty of...
