Dec 15, 2009

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The blindness of greed

The Global Financial Crisis has caused many investors to lose their life savings. Many others have suffered severe set-backs to their financial wealth. All of us have (or should have) learned serious lessons about fiscal prudence. But you have to shake your head at some f the madness that was going on prior to the meltdown.

Details emerged recently of just one victim of an investment scheme that collapsed due to poor management. Oh, and a good mix of greed and a very large dollop of madness.

This investor is a female elderly pensioner. She is close to being evicted from her modest home because her shares in a failed investment company are now worthless. At face value, it’s a classic tear-jerker. Poor old lady diddled by financial institutions focused on greed and aided by scumbags who were nothing more than con artists. But is all what it seems?

The basic facts are that this woman was given a loan of $208,000 by a major bank so she could buy shares in the investment company. Well, there are worse things in life than that, it’s true. But then we learn that woman already owed $625,000 on a margin loan for more shares in the same company. Yes, those shares were valued at $713,000 so – on paper – she’s a smart investor.

We won’t ignore the apparent facts that she was conned by slick marketing and was allegedly duped into signing a bank loan application form. Dumb? Sure. But there are two facts which start to pt this picture into true perspective. First, her house is apparently worth just $320,000 and her only income is the aged pension. Yep. That’s worth less than $20,000 a year. So, she’s borrowing the best part of a million dollars with income of not much more than a thousand dollars a month.

Nah, you don’t have to be Einstein to figure that’s not a viable arrangement.

But the real point is this: even if this woman was duped, what possible right did she have to think that she could be a million dollar sharemarket player when her only income was the aged pension and her only substantial asset was a house worth a bit more than half the national average?

We have consumer protection laws to muzzle blatant crooks but we cannot simply ignore personal responsibility. The adage of ‘let the buyer beware’ remains just as pertinent today as it ever was. I have some sympathy for this woman but I cannot feel truly sorry for her because she was so greedy she sold her inheritance on a gamble that was – on any sensible assessment – sheer madness. The real sadness is that somehow, some way, the rest of us taxpayers will have to pick up the tab. Now that’s real injustice.

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