31/10/2006 - 21:00

Greed can appear in many guises

31/10/2006 - 21:00

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Greed, in case you hadn’t noticed, is rampant. It’s in the curious financial phenomena known as ‘private equity’; and in the mysterious goings on at the Canal Rocks property development in the South West; in the bad behaviour being seen in elite western suburbs private schools; and the silly prices being paid for speculative stocks which have no visible means of support.

It would be too moralistic to condemn outright what’s going on with this outbreak of avarice, suffice to say that each of the examples mentioned will end in tears before bedtime, and perhaps even a great loss of money in the case of the private equity nonsense.

Looking first at private equity and it is important to ask what is it?

Yes, it is a key component of James Packer’s sell-down of part of his publishing and gambling empire. And, yes, it is appearing in deals around the world as the source of great dollops of capital.

But, when you peer behind the veil of secrecy erected by the investment banks that control this private equity stuff, what do you find?

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First, there is a collection of greedy investors who have been conned into believing that the clever chaps at the investment bank can earn a much higher return for them than from conventional investments.

Second, there is a mountain of debt.

Now, ask yourself; where have you seen this combination before – a little equity, a pile of debt and someone looking for a bright idea? Correct answer: everywhere, every time.

There is absolutely nothing new in private equity, just the name, which is complete twaddle. The world has seen repeated examples of higher returns being promised on investments, and they all end the same way – starting with the time some crazy Dutchman started speculating in tulip bulbs in the 17th century, and on to the mortgage brokers scandal in Perth in the 1990s.

Briefcase might be restricted from giving advice on investments that might rise in price, but there’s nothing to stop a tip on what’s going to fall, and then the next big crash you’ll hear, perhaps worldwide, is the big bang of private equity.

If in doubt, ask this question: what would a group of faceless, fat-cat speculators know about running a publishing and gaming empire? Answer: about as much as Alan Bond knew about running a media business when he bought Channel Nine from Kerry Packer 20 years ago.

Private equity, despite its allusion of discretion and hidden wealth, is a scam of the first order. It is nothing more than the latest version of leveraged debt, or of one group of people getting rich by using other people’s money.

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Canal Rocks, the second example of greed rampant, is awfully touchy right now because of a corruption commission investigation.

However, once the names of the various players are stripped away, the prize they are squabbling over, is nothing more, or less, than a property development – or, to be less polite, a get rich (quick) scheme.

The problem, as is slowly being exposed, is that a local council stood in the way of the appropriate zoning requirement for the creation of small lots for Perth fat cats to hide away.

As with greed and the business of private equity, there seems to be nothing new in fixing the problem of a zoning requirement – change the council.

The rest, as they say, is history in the making and Briefcase can hardly wait for the next instalment.

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Bad behaviour among the young elite of the western suburbs, which has even made national headlines, is also nothing new – especially at a time of greed rampant.

Older readers will remember the time when the Bond and Connell families strode across the Perth stage for a decade or so, tossing money and favours to a select handful of hangers-on, acquiring the best friends that money could buy.

Today, it’s a repeat of the 1980s, with only the age of the players reduced.

Students getting hammered is nothing new, goodness, even Briefcase has travelled that road. But getting hammered and trashing someone’s house, or prowling the streets in a pack, now that’s something different.

Why is it happening? Well the Briefcase theory is that too much money is sloshing around the elite suburbs of Perth. Businessmen are too busy making it, or spending it, and they’ve taken their eye off the family ball.

If a fraction of the stories emerging from the private schools are true then the price to be paid for allowing greed to displace parental duty will be horrifically high.

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The final thought about greed rampant relates to speculative share trading, and a warning that most of the uranium and iron ore stocks, which are today’s darlings of the share trading class, are doomed to end in the rubbish bin.

How does Briefcase know this is so? Because it was only a year (or so) ago that this column took a particular dislike to a couple of technology stocks – and warned then of the mess evolving.

The stocks in question were Clinical Cell Culture and Chemeq. Last week, without fanfare, C3 traded down to a new 12-month low of eight cents, a thumping 85 per cent fall from its mid-2004 price of 56 cents.

Briefcase is curious as to when it will next read a glowing story about spray-on skin, a terrific medical idea, but one without a business base.

Chemeq, well, the less said the better, just that it too hit a 12-month low of 17 cents, a price that represents a 97.6 per cent wipe-out for the poor punter who paid the 2003 high of $7.27.

Briefcase wonders, though not too seriously, whether a few stockbrokers around Perth have sent apologies to their clients for tipping Chemeq as a boom stock, then a misunderstood stock, then as a recovery situation.

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“All that the young can do for the old is shock them, and keep them up to date.” George Bernard Shaw

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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