Revisiting the Great Recession, or: how to waste your youth in a country in crisis
What’s shakin, y’all?
I recently got back from about 5 weeks in the US.
Funny thing about that: I’d heard from all sides that the US was now a giant dumpster fire of a country. And I’d been away for a long time. What did I know?
So when I got there and found it to be the same wealthy and diverse place I remembered, I was a bit confused. Was everybody just lying to me? Was I a victim of clickbait?
(Maybe people in the US just don’t have a lot of perspective on what other countries are like. You wanna talk dumpster fire? There are plenty of places where “dumpster fire” would be a step up.)
Back here in Spain, for example, there’s talk of a new recession.
Inflation is over 10%, and even though employment is still high, people are starting to worry.
The prices of gas and electricity have been going up for a while, and with the war in Ukraine continuing – and Russia in charge of a lot of Europe’s gas supply – it looks like we’re in for some volatility.
How much volatility is anybody’s guess.
But it’s got me thinking about the Great Recession. The old crisis, from back in the early 2000s.
Because if a new recession is coming, I can take comfort in the fact that this isn’t exactly my first rodeo.
This time will be different, of course. History doesn’t repeat itself, but it often rhymes.
So what happened in the aughts? Where did my youth go, exactly?
I guess it’s story time…
Madrid, 2005: España Bonanza
When I moved to Spain in late 2004, things were booming.
My first job search took me exactly 3 days, in the cold week between Christmas and New Year’s Day.
I remember leaving my rented room in Lucero on Monday morning, callejero in hand, having just copied a list of language schools from the Yellow Pages.
(Remember callejeros? The novel-sized books of street maps you needed to find anything in the time before GPS? Those were, indeed, the days.)
By Thursday of that week I had an offer for a job teaching English in a school in Puerta del Sol. The boss told me I could start after the holidays. I didn’t know it at the time, but I was going to be spending ten pretty eventful years right there at Kilómetro Cero, the metaphorical center of Spain.
Madrid was in full real estate boom at the time. The whole city was under construction, and a lot of the workers were born somewhere else – this was also one of the peak years for immigration.
People were optimistic. Taking out mortgages on 5th-floor flats in new neighborhoods popping up around the city, and bragging about how the value of their homes were increasing by the minute.
The price of real estate always goes up! Everybody knows that.
When I started working in the language school, I soon found that my co-workers were all pretty sure they could skip off to better jobs at any moment. A few of them even did.
But I felt pretty good with what I was earning. This is coming from the US, where I’d been working as a barista for $7 an hour plus tips. That job involved mopping, and washing dishes, and I’d always smell like burnt coffee when I got home after my shifts. Now, in Madrid, I was being paid 11 euros just to talk to people.
The euro, in those days, was around a buck thirty, and I was feeling rich when I got my envelope full of cash at the end of the month.
Then, feeling even richer when I gave private lessons and was paid in crisp, tax-free twenties. That was like $26 an hour… and, I repeat, all I had to do was talk to people!
Ah, to be 22 again, and bursting with youthful exuberance.
The fact that technically I was an illegal immigrant in a job with limited prospects for the future didn’t bother me at all. Because like I said, I was 22. I figured I’d probably die by age 27 anyway, so why worry?
In the meantime – in the few years before I was certain to die, rockstarishly, on the floor of my rented room – I could focus on what really mattered. My barely-formed brain was pretty clear on what that was. It could only be one thing, in fact: sleeping with the locals.
Long story short, I had some fun. You can check out my article about dating Spanish girls for more about that. Also, I didn’t die. I turned 27 in 2009, incidentally the year that Spain entered the Great Recession.
Maybe it was time to make some sort of life plan.
The recession, though, took some time in coming.
I remember reading some headlines in the summer of 2007, when I was up in Santander staying with some Spanish friends. It was Bear Stearns this and Northern Rock that.
I didn’t have much clue about the economy. I’d never previously heard of Bear Stearns. And at that point, it didn’t really seem like I should care. I put it out of my mind, and did my job. I didn’t own any real estate, after all, or really much of anything else. My most valuable possession, at that point, was probably a pair of shoes.
Another year passed. I spent a summer dating a French girl who was an Esperantist, and had a lanolin allergy. Sleeping two people in a twin bed, in summer, without aircon is something I don’t recommend, although it’s somewhat better if one of the people has perky boobs and a cute French accent. In any case, it had never occurred to me that I could just walk into a shop and buy a bigger mattress.
Presumably, the hedge fund guys were running around in full panic mode, around that point… You can (and should) read the book The Big Short for the whole story. But I knew nothing about it. I was, as the saying goes, just having some fun, and (mostly) avoiding thinking of myself as a full adult.
The French girl went back to France, as French girls tend to do, and I went back to work.
A coworker bought a flat in Vallecas – not the most glamorous neighborhood in Madrid. I know because I lived there too, by that time. He and his partner paid 250,000€ for the flat, and one day in probably 2007 he bragged that the value of his home had already doubled.
“In a few years we’ll be able to sell it for 700,000€”, he said. I had the feeling, even at that time, that he was very wrong about that. After all, he was working with me, getting paid with an envelope full of 50s and 20s as well.
The Big Short talks about US banks giving loans to undocumented immigrant waiters who couldn’t even make the first payment. Here, things didn’t get that bad, but they were close.
How was the real estate market supposed to continue growing when the average salary was 22,000€ a year? How was the government going to collect enough taxes when half the economy was underground?
I guessed we would soon find out.
Lentils at the end of capitalism
Finally, the proverbial shit hit the fan with the collapse of Lehman Brothers in September 2008. Some of my more communist-leaning coworkers declared, over sour break-room coffee, that capitalism was over.
But was it?
A new academic year was starting, so every morning I’d roll out of bed, pull on my ultra-valuable pair of Doc Martens, and head off to the language school. If this was the end of capitalism, why was I still going to work? Why was I paying rent and shopping for lentils at the supermarket?
This was long after I’d given up, personally, on seeing the world as a class struggle between bourgeoisie and proletarians. Because what was I in that little worldview? Illegal immigrant, English teacher, aspiring writer… Not bourgeois, certainly, but I couldn’t really identify as one of Marx’s proletariat, either.
(Most of the people I know who did identify as Marx’s proles were mostly interested in cashing unemployment checks. As an immigrant with no right to unemployment, I couldn’t really relate.)
My highest aspiration, at that point, was actually to get legal with the Spanish government so I could start paying taxes – plus enjoy some of the “free healthcare” everybody was always talking about.
I guess I’m a terrible revolutionary.
But I decided capitalism was probably not over, and went back to work teaching the present perfect to my groups of people from Spain and also literally everywhere else.
Rubbing elbows with the aristocracy
One of my private students at that time was a countess. She found me through a classified ad.
Remember those? I’d text “Profesor Nativo de Inglés” to some special phone number, and the next morning my ad would appear printed in the newspaper. My phone would ring a few times throughout the day, and hopefully I’d end up with a couple of new customers.
Anyway, the countess lived in a huge house on Calle Velazquez – or at least spent time there between trips to her husband’s country manor. She had a Paraguayan butler who would bring me glasses of water on a silver platter, which he held up in one white-gloved hand.
Did she call him by ringing a bell, or is that a detail my brain is just adding in now that I think of it? I’m not sure. Anyway, I wasn’t too impressed. Okay, that’s a lie. I was.
I charged the countess 25€ an hour, a price she loudly objected to every time she paid it. But I was unwavering. President Zapatero was assuring us all that the financial meltdown was happening elsewhere else, but not here.
“España no está en crisis”, he said. “España no está en crisis”, he repeated.
This went on for a couple of years. Except for the temporary readjustment of housing prices and the rapid doubling of the unemployment rate, he told us, Spain was fine. So surely, the countess could afford to pay me 25€ an hour. (I had expenses too, after all. Doc Martens and wine aren’t free.)
Surely something important happened in those years, but not to me. My chronology is pretty vague and mostly based on who I was sleeping with.
Eventually the countess gave up on English, or at least on me. I briefly dated a girl from Eastern Europe who’d walk around in knee-high stiletto boots and leopard print tops. A real head-turner, that one.
Then there was a Latin girl who was an ex-nun.
And a Basque actress, who…
Actually, you know what? Forget about it. The list of girls I “briefly dated” in my 20s is long and fascinating, but that’s not what we’re here for. We’re here to talk about the economy.
The end of the world as we know it
In Spain, you’re a “young person” until at least age 30. And I turned 30 in 2012, when the unemployment rate was hovering around 25%.
I had an actual girlfriend by then. Italian girl. We could call her Mariglia, with a silent “gl”. I’ve probably mentioned her somewhere else.
Thus ended my dating escapades, along with my youth. We celebrated my 30th birthday with suckling pig at Restaurante Botín. Because Hemingway.
In 2012, I was still working at the same job in Puerta del Sol. And by this time, I was pretty sick of it. Seven years in, and the joy of earning 11 bucks an hour had worn off. But it didn’t seem like the moment to go looking for jobs.
Most of the people I knew were being fired, or going to work on promises, every day, that the boss would have enough money to pay them “soon”. My flatmate was a dentist, working shifts at multiple clinics, and none of them had paid him in months. When the main place went bust, the employees just took everything they could carry away. Such stories were depressingly common.
Turns out, people had been getting their dental work done on credit. Now that there was no credit, most people couldn’t spend 3000€ on a dental implant. The number of collections agencies that started advertising everywhere was outpaced only by the proliferation of pawn shops.
On the other hand, the language school always had plenty of students, and I was getting paid on time. We were actually experiencing something of a boom, as people lost their jobs and had to look for something to do to improve their skills.
All the architects and engineers who’d been living well when the whole country was a giant construction site were now unemployed. The outskirts of Madrid (and every other Spanish city I visited at the time) were full of half-built housing developments that looked like they’d been abandoned by the builders. Ghost towns crisscrossed by ghost streets, relics of all that early-century optimism.
For a lot of people, the situation was looking dire. The immigrants were leaving and the Spaniards were trying to figure out where to go themselves, when their unemployment subsidy ran out.
People with Master’s degrees were going off to work at Starbucks in Berlin, or Zara in London. Germany and the UK seemed to be doing great, actually. And here in Spain we were four years into the crisis and things were getting worse every day.
Oh well. Better learn some English. The language school was an all-cash operation, so financially, I was fine. I’d started eating horse meat as a hedge against the uncertainty of the times, but that was about it.
Don’t get me wrong: I wasn’t getting rich.
It just that I was as broke as I’d always been, while everyone around me was getting much broker. Also, I’d finally worked out my legal situation and become an official taxpaying resident of the Kingdom of Spain. I had a work contract, finally, and a health card.
Despite the terrible economy, things were going well. Except for the fact that the “free” healthcare was actually taking a chunk of my paycheck in Social Security. Oh well.
When I hadn’t died rockstarishly at 27, I’d looked around and decided I probably needed a plan for my life. I’d never hoped to be a teacher forever – it seemed like a young person’s game and I wasn’t going to be “young” much longer.
How long do people live, anyway? I did the math. My grandfather was 90, and my grandmother was 88. Shit. I’d better start acting like an adult.
One day I asked my boss, “So what are the chances for progressing in this industry? How do I move beyond explaining the pronunciation of beach and bitch 7 times a day for the rest of my life?”
He gave a long, rambling reply that amounted to a big fat zero. There was zero hope here. No possibility for growth. This was it – 1200€ a month (and nothing all summer) until you’re old enough to get Social Security. Either that, or, you know, find a real job.
Real jobs, however, were increasingly hard to come by, and anyway, I had no marketable skills.
Stock market woes and the pain in Spain
What’s a guy to do?
I got really interested in the economy. I read every article Morgan Housel was writing over on the Motley Fool. Then I moved on to Expansión, the Spanish business journal.
I started investing in Spanish stocks. Telefónica, Mapfre, Banco Santander.
Looking back, I’m impressed that I managed to start investing while earning so little. I guess the money I was saving by eating horse meat instead of beef was my seed capital. (Pro tip – tell your roommates the lasagna was made with horse meat after they’ve eaten it, not before.)
The Spanish stocks though, caused me nothing but pain.
Spain’s stock market, the IBEX 35, took a huge dive in 2009 at the same time the US market did. Then it stumbled around for a few years, before taking an even deeper dive in 2012. Years later, it still hasn’t recovered – today, as I’m writing this, it looks like it’s trading at about half of it’s pre-crisis highs.
The economy eventually recovered. But not the stock market.
A lot of this had to do with the banking sector. When suddenly nobody could afford to pay their mortgages, the banks were stuck with a lot of houses they couldn’t get rid of. Sometimes people would lose their houses, and be forced to pay anyway – the famous “dación de pago” which people had signed up for, in better times, usually without knowing what it was.
There was also the little matter of the Greek debt crisis. Every couple of weeks, it seemed like the Greeks would threaten to default on their loans, and the whole EU would panic. It wasn’t clear where this was going to end.
If Greece defaulted, Spain could be next. Would we have an Argentina-style crisis, with a currency worth nothing and runs on the banks? Would I soon be bartering English classes for sacks of potatoes? It seemed like anything was possible – but not in a good way.
The Germans were suggesting that the Greeks sell the Accropolis to get some cash flow. The Greeks, in return, asked for $302 billion in reparations for Nazi war crimes.
Those were, indeed, interesting times.
How exactly did the crisis end?
There wasn’t really a big announcement that it was over.
Zapatero was voted out of office. He now says that claiming “España No Está En Crisis” for years was a mistake. The Partido Popular took over, led by a gaggle of grey-skinned zombies who’d send out a list of decrees every Friday. Things sucked balls for a while. Then, they sucked a little bit less.
What happened to get us out of it? I’m not sure. It seems like things started to turn around when Mario Draghi said he was going to do whatever it took to keep the Eurozone together.
Apparently, this meant he had lots of money as head of the European Central Bank to spend on buying Greek bonds to keep everyone solvent. It wasn’t just Greece, of course – it was all the “peripheral countries” on Europe’s second tier. The PIGS, as they were lovingly called: Portugal, Italy, Greece and Spain were kept afloat through those years by Draghi’s “liquidity injections”.
(This same Mario Draghi later became Prime Minister of Italy, and only resigned a couple of weeks ago. I’d mostly forgotten about him, but his signature is still on one of the 50s in my wallet.)
The Spanish government, of course, bailed out a lot of the banks, and there was a lot of consolidation as well. I find bank bailouts to be a bit dubious, but letting them all fail and then trying to pick your way out of the rubble seems unlikely to be much better. There’s a book called The Great Depression: A Diary that describes what happened when the US let the banks fail in the 30s. Short version: it wasn’t pretty.
But besides the bailouts, what happened?
I’m still not sure. It seems like we were talking about the crisis every day for years – and we were – but at some point we just stopped. You know how good news just seems to make a bit less impact on your psyche than bad news does.
I guess things just slowly got better. The job situation improved, bit by bit. At the time of writing, we’re actually at levels of employment resembling those previous to the whole Great Recession.
But it’s not like there was a giant headline saying “CRISIS OVER. PHEW.”
Just like with the coronavirus, the news about the economy slowed to a trickle, and was replaced by other more pressing issues.
In all of this, the king resigned. I dumped Mariglia, and quit my job. We got a new king, I got a new girlfriend – or, rather, a new series of girls I dated briefly. I moved north to the Tetuán neighborhood, and got and quit a couple new jobs. Things moved forward.
The last crisis-y thing I remember happening was that Banco Santander bought out Banco Popular for the symbolic price of one euro, in June 2017. I get the idea this was something they were forced to do – a new law in which banks would have to bail each other out, rather than the government using public funds.
And then one day, we just weren’t in crisis anymore….
The US stock market had a really good decade, from the 2009 crack until the lockdowns hit. The Spanish market, as I said earlier, is still in the tank. Make of that what you will – the link between stock market and the economy as a whole is tenuous at best.
Did the Spaniards who left during the crisis ever come back? I sure know a lot who didn’t. Because the Spanish economy during good times still isn’t incredible. Salaries aren’t growing much, and it’s unclear that they ever will. It’s still hard for young people to leave their parents’ house, unless they’re willing to share with a bunch of other people. And rent prices – apart from a slight drop during the Covid years – aren’t exactly becoming more affordable.
Add in the 10% inflation, and – excellent job numbers aside – the feeling of optimism that a lot of people felt in 2005 hasn’t returned. Or maybe I’m just old.
(Old or not, I’m definitely part of a demographic: the people who were “young” during the crisis are still earning less than previous generations, according to the Bank of Spain. The same thing happened to people who came up during the Great Depression.)
To stoically face the next recession
Marcus Aurelius, the Stoic Roman Emperor, has a quote that I like a lot.
“Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.”Marcus Aurelius, Meditations.
And I know that guys with online businesses who do a lot of pushups and talk about Stoicism are something of a cliché these days, but I get a lot out of Seneca and Aurelius. Your mileage may vary.
In any case, now the euro and the dollar are close to parity for the first time in 20 years. The war in Ukraine is dragging on. And there’s bad news every day from some corner of the economy.
What does it all mean, in real terms? Probably nothing good. But I guess we’ll muddle through, somehow, like we (usually) manage to do.
Let’s gird ourselves with those weapons of reason, then. It’s gonna be an interesting few years, again.
Here’s to muddling.
Daniel AKA Mr Chorizo.
P.S. This was all meant to be a prequel / sequel / follow-up to my article Scenes from the Great Recession, which goes into some more detail about the day to day. I started out trying to add a few new bits to that one, and ended up with an even longer article here. Hope you enjoyed it… please leave a comment!