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Monday, 14 March 2016

Mario Draghi, the bankers and the Week of Money in The Netherlands: a modern conversation!

Good morning, Jan. How are you? How was your weekend?

-      It was fine, thank you, Mark! Great weather. I had a firm walk at the moor near Hilversum with Sanne and the kids yesterday.

Ah, that’s great! And what are you up to today? Do you have a couple of meetings to attend? Like every darn Monday?!

-      No, not at all! Didn’t you hear it? Today is the start of the Week of Money in The Netherlands. I am going to primary school Het Spectrum this afternoon, here in Almere. To teach children about the value of money and the importance of saving. It will be great. I love children. They are always so enthusiastic and they believe everything that you say!

That’s fantastic! Well, I am curious whether they indeed buy your stories. Those kids are so smart and streetwise nowadays. They watch the Youth News on television and read the children's news messages on the internet every day. And I don't have to explain yóu what happened with the ordinary savings’ accounts, right?!

-      Oh sh*t. Thanks to that moron Mario Draghi, with his quanta... quantiti... – Oh, I hate that expression... –  quantitative easing program, the official interest rates on savings’ accounts are nearly touching the 0% at our bank. We pay those poor kids a token 0.25% interest, but it is rather charity than that we really need their money. We can borrow it for free, for crying out loud... for free!

Can you believe it?! I can’t believe that people buy this crap. When nothing changes, those kids can better spend their money on candy and toys than bring it to the bank. Really!

Yeah, it is crazy indeed. Yesterday, I read in Het Financieele Dagblad that some smart-ass economists are thinking about helicopter money. Y’know, they hand out €10,000 euros to everybody and their sister. For free. I’m convinced that some of those rich slickers will find a way to get a little more, but heck!

Y’know, when you give something away for free, it loses its value. Those economists, and especially Mario Draghi in his ivory tower in Frankfurt, hope to spur inflation with it, right?! They hope that people start to spend their money again. But why would you spend all your money when the authorities have gone bonkers?! It... just... doesn’t... make... sense...

And what are you going to tell those poor kids today anyway?! That saving is good? Sh*t!

Y’know, when I was young... in the eighties, it was really worth my while to save. My nest egg, which my parents started saving for me when I was six years old in 1972, paid out in 1982: it was a special government-endorsed savings' account. 

I believe it was called 'De Zilvervloot'[i.e. a rather nationalistic reference to the famous Dutch 17th Century Lieutenant-Admiral Piet Hein and his conquest of the Spanish Silver Fleet - EL] in those days. That account paid out around 8.5% interest per year at the time and an additional 5% savings' premium at maturity date, coming from the government. Those were the days....

Heck, we had around 7% of inflation in those days, but I didn’t care. My parents entered 1000 guilders themselves into this nest egg during these ten years: 100 guilders per year. Still, with the mounting interest on interest and the government premium, I ended up with NEG1,888 (Dutch guilders) in 1982. And subsequently, I started a 5 year closed deposit with this money, which paid 11.2% interest per year. Can you believe it?! In 1987 I was paid back NEG3,209. I wasn’t rich, but at least I had a nice start. That’s for sure!

But now? With the current interest rates, I would have ended with NEG1,014 in 1982 [based on 0.25% interest on a typical savings’ account – EL] and €1,089 in 1987 [based on 1.45% interest on a five year closed deposit – EL ] after 15 years of hard saving. It is legalized robbery. Even the banks themselves are complaining about losing their interest margin nowadays.

-      Don’t feel sorry about the banks. You saw the profits, didn’t you?! Everybody is doing fine! They borrow the money almost for free and hand it out at 3 -5 % interest per annum on mortgages, investments and even in the form of SME loans with ironclad collateral and pawn. After lending the money, the mortgages are collaterized and sold to large investors and pension funds. Safe as h*ll! Same with the investments. Virtually no risks at all and still a decent profit.

And believe me, the SME companies that receive the lending money, are definitely worth it. And even if they default, we are always first in line to collect our debt. That’s the law!

And look at Silicon Valley. Every guy with a bright idea and a couple of young programmers is worth a billion dollars or more nowadays. Can you believe it?! Look at Instagram, look at Uber, look at AirBnB, look at Zalando and a dozen other companies that you haven’t even heard of. What are their names again. Oh yeah, I've got them here: Spacex, Zenefits, Xiami, Palantir... 

    I heard about those guys at RTL Z, the new business TV channel, from some trendwatcher. Do you know what those guys in Silicon Valley are doing anyway?! I don’t! But still they are worth more than 1 billion dollar. It is madness!

Most of these guys didn’t make one cent of profit yet and some of them won’t ever do so, but when you are on top of the food chain as an investor, there is virtually no risk at all. The muppets at the bottom must foot the bill eventually, but than the big investors already earnt back their initial investments tenfold. It is so easy to be an investment banker or a venture capitalist today. You sell promises for gold nowadays. If I only had the money to start a hedgefund myself...

Yeah, you are absolutely right indeed. But I still have worries. What are the bosses going to do with a few old geezers like us?! Everything is “online”, “virtualized” and “in the cloud” nowadays. There are hardly any real customers in our bankshops anymore, except for a few old ladies. But we don’t earn one cent from those old ladies, so the banks are trying to softly push them away, actually.

”Go visit the online channel, madam. Learn how to use the internet, so that you can handle your banking affairs 24x7 and you are not dependent on our opening hours anymore. Our helpdesk can help you with that... for free!”. That is what they say. They close one bank shop after another and many office clerks, and a lot of private bankers as well, have been fired, except for a few bankers that work on the really wealthy customers.

-      Don’t tell me about it. Between us, I am looking for a new job, but it is oh so hard, when you are close to fifty. Well, at least I have those kids at Het Spectrum today. That will be a lot of fun.

I know... I wish I could join you today. Just to be out of the office... But what are you going to tell them?!

-      I stick to the script. That saving is good and that it will help them to build up a financial future. And that they should put half of their weekly pocket money in their piggy banks. That than they will own a lot of money when they are eighteen. Well, you know the drill... I know it is probably not true, but I don’t want to disappoint those lovely little kids, by telling them the truth. They are so sweet and so full of confidence in people. I hate to spoil their party.

You’re definitely right. That is what I tell my children too. I hope that this zero interest rate and helicopter drop madness is over soon. And that we will receive a few percents of interest on our savings' accounts again, within a few years. 

Otherwise my retirement plans for 2028 go down the drain and I won’t be able to send my children from my second marriage to university anymore.

-   Retirement? In 2028 ?! Are you not going to work until 68 or something like that?! You know that the government wants us to do that?!

Me? No way! Astrid and I have bought a small cottage in Calabria, Italy, a few years ago..., after my mother had passed away. During our holidays we are refurbishing it and turning it into a small family dwelling, where we can stay all year long. It is really beautiful there. As soon as I’m 62, I am off!

-      Oh yeah, I know it. Sanne and I are also thinking about that. But saving is a real drag these days. 

You’re right, Jan. Darn, you are right! 

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