businessweek.com- Many Greeks view the state with a combination of a sense of entitlement, mistrust, and dislike similar to that of teenagers vis-à-vis their parents. …

US Federal Reserve- “It is not the wolf at the door but the termites in the walls that require attention. The sooner the house’s structure is strengthened, the better.” …

FT- It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. …

blogs.ft.com- The eurozone’s most vulnerable economies are getting little benefit from the euro’s fall because they are too inflexible and uncompetitive. …

standpointmag.co.uk- The least bad option would be for the German bloc to leave EMU. Germany’s banks might still have to be recapitalised, but it would be less costly than trying to “rescue” Greece. …

The Economist- Rich countries with their greying populations should be saving whereas younger, fast-growing developing countries should be borrowing heavily. But in fact it is the other way round. …

NY Times- Austrian banks slowly recover from a sharp economic downturn and tries to pay down a pile of private-sector debt. …

marketwatch.com- We’re still living in a fantasyland. Most people have no idea what’s really going on in the economy. …

WSJ- Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. …

Newsweek- We may be reaching the limits of economics. The disconnect between theory and reality seems ominous. …

newyorker.com- Financial illiteracy isn’t new, but the consequences have become more severe, because people now have to take so much responsibility for their financial lives. …

cjr.org- Rolling Stone made a virtue of the fact that it is not wedded to the news cycle in order to produce journalism that helped drive it. …

seedmagazine.com- No animal spends more of its allotted time on earth fussing over sex than homo sapiens. …

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Like other pockets of Europe, Ireland experienced phenomenal growth in the 2000s.

Like Iceland for example, both relatively poor before major economic changes took place, soared to unimaginable heights during the boom, and now shot down to earth and licking their wounds.

But are the Irish more mentally equipped to deal with the recession, given their not-so-distant memories of poverty and hardship?

We have a long and proud history of poverty, I don’t know if that helps. When I was growing up, you never asked another Irish person what they did for a living, and you never turned a beggar from the door. These are lyrical and dangerous clichés, of course (though incidentally true): Ireland was by no means a classless society. Even so, I do see differences from other countries in the play of rage, entitlement and delight around money: who has it, who deserves it, who gets cross.

An insightful narrative of the recession months, as seen by the Irish.

This is the first real recession for many of us. Some are dealing with the uncertainties by crying foul and uploading blames to all the wrong sources, others are blithely unaware of the seismic shifts taking place right under our noses. Which ones of those trends are long-lasting, and which are merely temporary?

Flirting with frugality

For months, the media has been obsessive in its coverage of America’s new favourite past-time: extreme frugality. It’s one thing to have a subculture of cheapskates planning to save another ten bucks a week in some dark corner of the blogosphere (I know because I am one of those). But it’s entirely another matter to have the Wall Street Journal persuading me from buying a bottle of Evian, so I can save a buck.

With countless individuals and families dealing with foreclosure, many grappling with unemployment, and the millions suffering in silence from a vast amount of their wealth wiped out from a drop in housing prices and stock portfolios, some say that a focus on savings may not be an entirely terrible pursuit.

Certainly, if you are head over heels in debt, and threatened by lay-offs and a drastic change in income, then lifestyle changes must follow. Some consumers are so shell-shocked over the drastic drop in their perceived wealth that they may never recover to join the consumerist party again.

Indeed, America may move away from its previously rampantly materialistic culture of years past to become a more moderate consumerist group. On second thought, I’m not sure I can even believe that. The American Dream of rags to riches will not die. The passionate measures that some Americans have taken to protect and preserve their wealth (of which frugality is a tactic) can only accentuates, instead of diminishing the very American practice of linking success to material possessions. The pursuit of wealth and subsequent accumulation of wealth may be temporarily halted, but centuries of ideals and beliefs do not get erased from the collective psyche just like that.

So to foretell a future peppered with penny-pinching and miser American population is unrealistic. Those trends come in waves. A period of tightening must be followed with a period of letting lose. Once the feelings of desperation become distant memories, debt levels abate, and investment portfolios recuperate to a bearable level, Americans have little reasons to hold back.

The one exception I see in this case is a particular group of baby boomers that are neither nearing retirement, or have already retired. In their cases, massive losses of retirement savings are next to impossible to recover, leading to the next two permanent trends in both the job market and the recreational/travel industries.

Baby boomers holding the fort

If you are a baby boomer nearing retirement, but suddenly finding your nest egg much smaller than you had anticipated, and the value of your number one asset – your property, dropping more than you ever thought possible, what would you do? Instead of sailing into the sunset, you’d probably stick around for a while longer.

It is sad that some members of my parents’ generation cannot proceed according to schedule to enjoy his or her golden years. But the overall ramifications for the wider society might not be all bad. Just a couple of years ago, sociologists and demographers were bemoaning the imminent shortage of workers as waves of baby boomers leave the workforce. This recession has tamed that tide for the time being.

The temporary pause in the mass exodus of medical professionals, and those in the teaching profession, has no doubt allowed alleviated some anxieties. A more measured departure in those seasoned workers may also allow more hand-holding for those taking over the torch. The young ones may want more responsibilities all at once. But from the look of the ongoing debacles, were we really prepared to face it alone?

Business catered to baby boomers: outlook down

During the past few decades, business developers had all but worked themselves into a frenzy to meet the demand from the flood of baby boomers going into retirement. They were supposed to live out their remaining years in beach properties, complete with sun and fun. That meant high-end cruises all around the world, and lots and lots of golf.

Many may still go on to live out this pretty picture. But for the many that had entrusted their retirement portfolio to the wisdom of the buy-and-hold long-term philosophy, the plan is coming up empty. It may take a while yet to see the long-term fallout of such a devastating destruction of wealth for a segment of the population that may never recover. Therefore, those recreational and travel industries catered solely to the baby boomers may want to make slight adjustments to their previously water-tight business models.

Of all the age and demographic groups, I doubt any had suffered a loss as irreparable as the boomers. Knowing this, I find whines and whimpers from the younger generations ignorant and narcissistic. The X and Ys still have many years to build up their damaged portfolios or repair their damaged credit ratings. Because of our later starting points, we should be thankful that a crisis this scale happened this early in our lives and careers. Our career trajectory may be stunted in the short term, but this is hardly an insurmountable barrier.

Alternative career options open up for the young

For the last few decades, banking and finance was king. It still is, in some ways. But the overwhelming pull of the banking industry has undoubtedly waned. Demand for junior bankers are down, and what a favour they are doing for the many burgeoning industries desperately in need of talent!

To some, this is nothing short of emancipation. Previously bound to the competition for the highest post-graduate signing bonuses and compensation packages, many are seeking riches, glory, and satisfaction elsewhere.

Pitting the effect of this new wave of highly ambitious and competitive youngsters (freshly redirected from the financial field) against the larger number of baby boomers holding on to their reigns for longer than previously expected, will a corporate culture clash or bottleneck emerge? Combined with a renewed corporate conservatism getting ready to cloak the business world, are we going to witness a larger number of younger workers turning away from the system not with protests and efforts to steer changes, but with quitting?

There is no shortage of industries in need of innovation. Alternative energy, bio-technology and pharmaceuticals, medical products and services, network and web technologies, are just some of fields always ready for new ideas. Some old ones need help too, newspapers, anybody? The future is hardly bleak for most of us.

picture source: ~FreakyDarlingx

What’s worse than getting caught in an economic crisis? How about, not? I know it’s wrong to laugh at poverty, even the first-world variety, because there are plenty of sad situations out there.

But when the tongue-in-cheek headline laments, “Can’t even afford a crisis: Berlin’s poverty protects it from downturn”, that’s practically baiting you to light up just a tad bit, no? In the article, the author contends that Berlin is just too “cool” (I’m guessing economically) for the recession.

Recession? What recession? From Berlin, it’s been hard to tell that there is a global economic downturn. A lack of industry and years of high unemployment mean that Germany’s capital can’t sink much further.

And listen to this.

“We don’t feel it at all,” he said. “It’s a lot of theory, this crisis. These financial types, they make crises and they make stimulus packages — it’s all very hypothetical. Everything can’t always keep growing; you can’t have 4 percent growth every year. It just doesn’t have that much to do with real life.”

That’s right, in the eastern frontier named Berlin, the city has long accepted the concept of a no-growth economy.  Its lengthy money problems  have bizarrely insulated the city from a crisis rippling through from rest of the continent.  Its mayor proudly proclaimed the city “poor but sexy” in 2003, when the rest of the world was growing at breakneck pace. With unemployment hovering between fifteen and twenty percent, and a debt of €60 billion, Berlin is no stranger to financial crisis. It’s been in one for twenty years. Or any crisis for that matter, it’s been at those for the past century.

Berlin, from the onset, looks like that grubby teenager with badly dyed hair that’s greasy and streaky, bitten nails, jeans that are too long and hangs too low, with a T-shirt that begs for attention, and when you stare at it for too long, he looks up and glares at your with pure venom and then gives you the finger. And then you hear about his abusive father and alcoholic mother, and learn about him having to look after his grandfather with Alzheimer, has a job in the grocery store and occasionally turn tricks to bail his drug-addicted sister out of trouble. Something like that. That’s how Berlin feels to me: wounded and indignant, angry but indifferent, stalled but trying to push through.

Because everywhere you go in Berlin, you feel it’s a city burdened, no, almost crushed by its history. There is the church with bullet holes from Allied shelling during WWII that the government doesn’t bother to fix nor hide. There are remnants of the Wall everywhere, covered by commissioned graffiti artists. The images are dreamlike, distorted, and scream the existential angst of Edvard Munch. The open air gallery is just next to the river that many died trying to cross during the separation. Some were fired upon, some drowned, some electrocuted as the Soviets put up nets that killed whoever tried to climb the wall.

There were also symbols of endless guilt. On the one hand, Berlin made amends to the allied forces and entire European Jewish population for its wartime crimes. Thus the various open air museums to its wartime aggressions, and its famous and solemn Jewish memorial in the middle of the city. Then, Berlin had to submit to its other master, the Soviets, by allowing the various memorials that commemorated Soviet sacrifices in defeating the Nazis. Angular and symmetric, they are ruthless in construction and the feelings they inspire, awe and fear.

Proceeding to Checkpoint Charlie and its museum, the city finally acknowledges its own suffering through years of Soviet rule. The exhibits conjure up a collection of dark, cynical and hopelessly miserable memories. Then on May 1^st, ghost of Berlin past emerged, now in the forms of anarchists, right-wing anti-immigration groups, and left-wing labour unions. They marched on, some peaceful, some violent, scrutinized by nervous police brigades dressed in riot gear, all the while looked on by the many curious Berliners still beholden to Ostalgie.

That is the Berlin I remember from a year ago. Here are some pictures I dug up from the trip.

Growing up, whenever I screwed up in a test or assignment in school and had to face my mom, I would always preface my failure by citing more spectacular blow-ups by my classmates. The habit never escaped me.  Now instead of placating my parents, I use it as a self-administered sedative whenever things get bad.  By reminding myself that it could be worse.

It’s easy to fall into a depressing spiral these days.  There’s little voyeuristic pleasure in watching your economy on a high speed race heading for the cliff, especially when your savings and investments are wrapped in the vehicle.

But maybe you can take solace in the fact that we are all in this together.  And whichever corner in the world you might be, there’s some level of financial uncertainty, maybe even serious suffering going on.  But let’s take a break from self-pity today, and indulge ourselves in the guilty knowledge that out there in the big world somewhere, exist those that screwed up (or got screwed) way worse.

1. Iceland. With a population of 300,000, this northern tundra is the size of Kentucky. Inheriting this insular landscape with your large extended family, gifted with little other than thermal geezers and short days, the setting is already rather glum.

Add reckless Icelandic fishermen, stir in some explosive banking capital epitomized by a stock market that multiplied nine times from 2003 to 2007, and we get the tragic climax: a bankrupt country with debt 850% of its GDP.  To put that into perspective, an average of $330,000 is owed by every Icelandic man, woman, and child to its numerous and very angry foreign debtors.

What’s worse, to get out of this mess, the Icelandic has abandoned their currency, and now needs to claw its way up Brussels’ ass to save its economy. To be allowed entrance in the EU, it will most likely have no other choice than accepting reduced fishing grounds in exchange for debt forgiveness. The monumental humiliation of it all will shatter the Icelandic collective confidence for decades to come.

2. Germany. Looking at the astronomical debts of the US, economists and politicians no doubt salivate at the thought of being on the other side of the balance sheet. How sweet it must be: to make things and sell them to the rest of the world, to have a manufacturing driven instead of a consumption driven economy, and to run a budget surplus instead of a deficit. Except grass is almost never greener on the other side: cue Germany.

Germany is the world’s largest exporter. Surprised it’s not China? What’s more, it’s one of the major auto manufacturing countries in the world. One in six jobs in the country is related to the auto industry. When its wealthy European and American customers halted their vehicle orders last quarter, the factories became empty – of workers, not cars.

Germany is also heavily dependent on machinery sales to Eastern Europe and Asia. With large-scale industrial projects in those regions put on the backburner amidst falling demand for finished products exported to Western Europe and America, Germany’s manufacturing orders are nearly cut by half this year.

It’s one thing to recklessly run up debt, chase property bubbles, and get punished for it. It’s another to slavishly economize your finances by pinching public spending and controlling your labour costs, and still get dragged into the mud. There’s no getting off easy for good behaviour, darn it!

3. Japan. Combining the worst ills of both rapidly falling exports, high public debts, lasting psychological and financial baggage from its previous decade-long recession, Japan is now dubbed the “structural pessimist”.

And who can blame them? Japan does not have the deep pockets to stimulate its economy nor placate its struggling citizens through either pumping money into public projects (i.e. China), nor going into additional debts by exercising fiscal and monetary policies (i.e. US). Clearly reeling from large public debts accumulated from the last recession, Japan is tapped out from any more public spending. Nor can it rely on the export sector Asian neighbours for sales in machinery, nor the US for finished auto and electronic products. Now combine the gloomy economic outlook with a lack of Social Security or tax-advantaged retirement plans, you get an excessively frugal population that, well, have resorted to some truly miser methods to save money, such as using old bath water to do laundry.

Surely domestic consumption cannot be the only engine driving growth. But at a time when little government stimulus will prove effective, main wealth-generation machine (export) is shut off, and now domestic consumption falling year after year, is Japan kaput?

4. Ireland. Oh to fly so high and fall so fast. One day, you’re the Celtic Tiger, the textbook success of a low-tax and open economy, in Europe of all places. After millennia of oppression, poverty, violent clashes and petty bullying by its stronger neighbour, Ireland was finally able to stand straight and hold its own.

Corporate investments poured in from all directions to fuel its growth. Ryanair, Intel, Dell, IBM, HP, Oracle, Lotus, Microsoft, made Ireland the unlikely high-tech and investment capital of western Europe.

The commercial corporate boom led to a construction boom and exuberant optimism. Massive borrowing followed against (rising) property prices, leading to a ballooning construction industry that pre-crisis, made up one fifth of the total economy.

Then the American sub-prime crisis hit. Ireland became the first euro zone country to officially enter into a recession. With global contraction, many companies have slashed jobs or bailed altogether. The country is left with an Americanized mess that includes shaky banks, collapsed building sector, and little credit. Except in a country of 4 million, and short of a sensational Icelandic flop, the rest of the world barely hears the Irish whimper.

picture source: jesper-gfx

Thanks to the Skilled Investor for including us in its Carnival of Financial Planning for Mar 7.

Really?  Yes.  And I’m not talking about the less stress, better health, more me and my family-time kind of perks.

Let’s rewind.

For months, we have been pounded in the head over and over again on the evils brought on by the recession.  Let’s recount the havoc wreaked.

• Retirees have seen their savings significantly reduced or wiped out, some even going back to work to alleviate the cash problem.

• Baby boomers see their expected retirement date stretched indefinitely into the horizon, investments portfolio reduced, housing worth shattered.

• Gen X are getting squeezed in the workplace in more ways than one, and feels more insecure in the job market.

• Gen Y, having just gotten their feet wet in the workplace, feels betrayed by the many promises dangled in front of them.  Demographers have predicted speedy career advancements as a result of baby boomer exits. So much for that.

There has been considerable faults placed on the baby boomers, in their relative easy paths to success in America since the 1950s.  There were no major war nor catastrophic financial turmoil, jobs were easy to come by, properties were cheap, and the infrastructures were there to service their every need.  Many Gen Y and Gen X blame the “selfish” generation for their over-the-top consumption, excessive debts, degradation of the environment, mis-management of the social security and health care systems that will be defunct as soon as they have benefited from it, and falling asleep at the helm when it comes to financial regulation that plunged the nation, and perhaps the world, into the perilous position that we are in now.

Simplistic and over-dramatic? Indeed it is.  But there is no denying that for the younger generations, the foreseeable future is an uphill battle.  The workplace will only become more competitive, property prices are still steep in many parts of the country, health care and social security is broken, and country is bankrupt. Ouch.

But is this recession really the be-all and end-all that a lot of people make it out to be? Of course not.  Is there a silver lining under all these stories of misery? Of course there is, as there always is, during times of unjustifiable pessimism.

Times are bad, and things are difficult.  But as Warren Buffet said, and I’m paraphrasing him here, that in the last a hundred years, the US has seen a flu epidemic, two world wars, a great depression, a dozen recessions and panics, and by the end of the century, an average American was living seven times as well as they did beginning of the century.

Granted, many people lament that this will be the first generation that will not live as well as their parents.  And surely, we have no reason to expect the past to repeat itself indefinitely into the future.  But perhaps this recession will even out the playing ground just a little bit for the disgruntled X and Ys.

1. Housing will be invariably cheaper than it would otherwise be.  If anything, the recession has “reset” the astronomical rise in property prices in many parts of the US and UK.  With substantially lower prices and tighter lending policies, tighter credit making the rounds means slower rise in housing prices.  That is, housing prices will not rise in a way that is unsupported by an increase in demand or value.  Bubbles of this magnitude will not happen again in the foreseeable future.  Good news for everyone that’s looking to buy or upgrade their housing in the coming decades.

2. This is the golden nugget.  The credit bubble burst has led to massive de-leveraging across the board.  The resulting catastrophe means that many markets are giving back all the advances made this century.  These kind of price resets probably happen once in a generation, if that.  That’s to say, this is a great opportunity to pick out some businesses to hold for the long run – businesses that are sound and well managed, yet due to overall market sentiment, trading very cheaply compared to their intrinsic value.  Even if your previous savings are seriously damaged, for the Gen X and Y, your best earning years are still in front of you.  In the meantime, educate yourself and take advantage of market corrections such as this.

3. If nothing else, let this be a serious educational experience for all of us, especially those who still have our best investing years ahead of us.  Jobs will come back in one form or another, we will consume, the standard of living will again rise, the bear market will give away to the bull, and irrational exuberance will invariably creep its way back into the market.  When that happens, turn off the TV, remember all that you have seen and learned in the last year, and act accordingly.

I will leave you with those words from Benjamin Graham, to be taken with a grain of salt, both in times of relentless pessimism and times of unjustifiable optimism not far off in the future.

Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble … to give way to hope, fear and greed.

picture source: ~MaraleA