Dec 13, 2009

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If it seems too good . . .

Like a Black Saturday bushfire, the get-rich-slowly dreams of another 40,000 Australians have gone up in smoke thanks to the collapse of our biggest managed investment scheme. The greener-than-green scheme was supposedly an eco-friendly way to grow lovely things like grapes, olives and pulpwood. Trouble was, it wasn’t really sustainable at all. It was actually nothing more than a means to exploit a loophole in our ridiculously convoluted tax laws.

But, like a black hole devouring everything in its path, this supposedly safe investment has sucked-in the hopes and dreams of one in every 500 Aussies. And $4 billion has gone with it. Oh, there might be something salvaged but the hopes of that are pretty scarce. About as likely as Reg Reagan doing a promo for the NRL next season.

This was a delightful scam all dressed-up to appeal to ageing Baby Boomers. A clutch of conniving marketers left no stone unturned in their efforts to win hearts, minds and hip-pockets. The concept was environmentally-friendly, apparently legitimate and true blue. They even called it Great Southern (lovely name, pity about the balance sheet).

Yet, you have to ask: why did those who shoved 4 thousand million dinky-di Aussie plastic notes into the gaping maw of this rapacious yet environmentally-friendly con not question the reality of the investment? Perhaps because it is now admitted that these schemes comprised an investment strategy solely to reduce tax. In other words, to avoid paying what our democratic system says you should pay to the upkeep of society. Yes, it is not illegal to participate in such schemes but is it ethical? Is it moral? Perhaps we should heed the words of taxation Commissioner, Michael D’Ascenzo, (yes, The Man himself) who advises that reducing tax should never be the sole reason for making an investment. In other words: don’t cheat on your obligations.

Over the next few weeks those glorious current affairs ghouls who bring up the rear of the evening newscasts will tug our heart-strings as they profile sad mums and dads who have watched their luxurious retirement lifestyle limp into limbo. Should we be sympathetic, though?

After all, you have to ask yourself: if agriculture in this country is so bloody profitable, how come all we ever hear is the whine of people in RM Williams’ boots and broad-brimmed hats bewailing how tough things are. I’m not knocking them, though, because I think they really do have a tough existence. So, how come all these investors wanted to believe that life on the land is all beer and skittles nad returns wonderful profits? Have they not read anything in the past few years about the vast glut of wine grapes in this country? How small wineries are going to the wall faster than a brickie’s labourer can down his first beer at the end of the day? I mean how many more olives can we consume in this country? And beef: we’ve got so many of the bloody things we don’t even bother to cut them up anymore, we just ship them offshore live. You have to admit, some people only hear what they want to hear.

And, frankly, that is a group of high nett worth individuals who earn more than $250,000 a year and who have had a wonderful time in years gone by investing in ‘hobby farms’ which actually lose money. Damned shame that such clever people (well you have to be to earn more than a quarter of a million a year, don’t you?) can’t even choose an investment that’s going to make money. Oh, dear: they’ll actually be able to claim their losses as a deduction against their other income. Maybe – just maybe – this passion of theirs was actually intended to lose money? Now, that couldn’t be right, could it? Well, these rich people have been gouging more than $200 million a year out of the rest of us for some time now through this kind of scheme. Feel sorry for them? Nah, neither do I.

Which brings us to a group of people who are well on their way to becoming as popular as an itchy scab on your nether regions: financial planners. Sure, you might even let your daughter marry one of them, but you’d be a bit worried, eh? And – surprise, surprise – who didn’t get their fingers burned in this one? The bloody spruikers!

Seems Great Southern lavished a massive $62 million on marketing, promotion and commissions to those financial planners last year. With a network of some 800 gougers pushing this product, that equates to roughly $75,000 per planner for the year. Bet there’s some investors choking on their Weeties at that notion.

Wonder how many of the planners got their fingers burned or did they, from the inside, reckon it was all too good to be true? Maybe the clever dicks got out when Great Southern’s market rival Timbercorp turned up its toes a little while back, costing mum and dad investors yet another $1 billion.

And, still, there’s that nagging question of why were so many people so eager to gamble their hard-earned on a scheme that they had to know the Tax Man didn’t like? And, if the returns were so apparently wonderful, why did that not make would-be investors think twice or even three times and decide to hide their life savings under the mattress?

We know the answer even if we don’t like it. And we don’t like it because it says something about us: we’re a bloody greedy lot. You just can’t argue with the wisdom of the old saying – if it seems too good to be true, it probably is. That’s the bottom line. It was a gamble. Pure and simple. Not an investment. That was all just window-dressing like a tart in a short skirt trawling the Valley on a Saturday night.

So, when the bleating starts – and it will – and we’re confronted by tales of woe-is-me, let’s do what these investors did not. Let’s examine the facts and make a clear-eyed assessment: you gambled and you lost so don’t expect the rest of us to bail you out and don’t tie-up our courts for years in wasteful litigation trying to prove who was wrong only to learn that there’s barely tuppence ha’penny left for every dollar misguidedly ‘invested’.

Perhaps those who subscribed to this agricultural mirage weren’t really out to save the planet? Maybe they were just rapacious ne’er-do-wells wanting to gouge what they could out of a tax system they believed was unfairly biased against those who can actually afford to invest in tax-breaks. Honestly, my heart bleeds – but not for them.

And what are we to make of one regional bank that has an exposure of some $600 million to the collapse of these two MIS schemes? It has more than 8000 customers who have an average loan of $75,000. Now, the bank is sensible in that the loans are full-recourse (the bank can pursue investors’ other assets if there’s a default) but surely the question – given the sheer scale of the bank’s exposure – is how effective was the bank’s risk management? Clearly, not very. With so many eggs in one basket surely prudence dictates some intervention before all the eggs are scrambled?

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