24/01/2006 - 21:00

Tim Treadgold: Briefcase - If an offer seems too good to be true …

24/01/2006 - 21:00

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Tim Treadgold: Briefcase - If an offer seems too good to be true …

If a man in a pub offered to sell you the Sydney Harbour Bridge for $50,000, would you write out a cheque on the spot? For anyone in doubt, the correct answer to this week’s brainteaser from Briefcase is no.

What if the same man offered you 12 per cent interest on your $50,000 when the bank across the street is advertising a fixed interest special of 6 per cent?

Ah, getting tricky isn’t it? And while the correct answer remains no, it seems that an astonishingly large number of people continue to be lured by investment advisers offering them double the going rate for cash.

How does Briefcase know this is true? Not just because it is being splashed around in news reports into the alleged troubles of the Westpoint property development business, but also because it is one of the oldest stories in the world.

One the original ‘double the rate’ schemes dates back to around 1710, when the South Sea Company concocted a scheme to take over the debts of the Bank of England. It failed, but created what was, arguably, one of the first great financial bubbles, beaten for that title by the tulip bulb bubble in Holland in the 1630s.

Moving rapidly forward, there is an astonishingly long list of investment schemes that were emitting troublesome signals long before the law became involved. Australia alone has produced such great names as Reid Murray, HG Palmer, Mainline, Associated Securities, Bank of Adelaide and Gollin.

Each of those examples should have served as a lesson to anyone who bothered to study a little bit of national business history. But, if going national sounds a bit taxing, why not just focus on the locals, starting with Rothwells, and then moving up to Teachers Credit and a whole raft of mortgage brokers of little more than five years ago.

What really staggers Briefcase is that this problem of greedy investors being drawn towards financiers offering above-average interest rates is just so horribly, painfully, predictable.

It also begs a question as to who is the greater fool in these situations – the investor who should have known better, because there are 400 years of documented history of high-risk investment schemes failing, or the financier who tossed a totally unsustainable offer on the table in front of the greedy and ignorant?

It is also worth noting that what now follows also falls into the horribly predictable category in which we simple taxpayers will be asked to provide financial assistance to the unfortunates who claim to have lost all, or some, of their money by investing in Westpoint schemes – claims which are yet to be proven.

Sob stories will flow. We will read about widows, orphans, grandmothers and pensioners who are reduced to living in caravans because of their losses.

Briefcase sympathises with all of them but, why oh why were so many people, 4,000 according to some counts, so gullible as to think that someone could pay them 12 per cent when the bank rate was 6 per cent?

Greed, as they say, comes in many shapes and sizes.

•••

Speaking of greed, have readers caught up with the latest events at the penny dreadful end of the mining market where an equally predictable game is being played out; a game called ‘where’s the ore’?

For anyone unfamiliar with the rules, the game goes like this. A company tells the world it has done a deal on an asset, a structure in the ground it will soon drill and, with luck, there will be great riches found.

Next step involves the drilling, and the final step involves the company saying ‘oops’, no riches.

First cab off the ‘oops’ rank was Deep Yellow, a uranium explorer. It acquired a suite of tenements, expressed great optimism in them, and them found that the expected uranium was not there. The result of this unfortunate event was a fall in Deep Yellow’s share price from 20 cents in late September to 6.2 cents by late November, and now back to 10.5 cents, which is up for the bargain basement buyer in November, but half the money for the man who paid 20 cents.

Briefcase followed Deep Yellow with interest, but admits to have been waiting for the second example of the missing ore before scribbling this note. Sure enough, along came number two last week when another market darling, Iron Ore Holdings, issued its ‘oops’ notice when it reported that an expected thick section of iron ore in the Pilbara was actually rather thin.

From sales as high as $2.70 on January 4, IOH plunged to $1.19 by January 19. It is now back around $1.39, which, somewhat interestingly, produces a similar equation to Deep Yellow – a profit for the bottom feeders, and half-your-money for the lucky punter who paid $2.70 less than a month ago.

Ah, the delights of a penny dreadful boom.

•••

In keeping with its policy of minimising political content, Briefcase would like its reader to note that there has, so far, been no mention of state premiers, past or present.

However, it is worth pointing out a humorous (sad?) fact about government in general, along the lines of the king is dead, long live the king.

In this case it’s to do with the civil service, which really doesn’t care who’s king (premier in this case) because the wheels just grind away. And, in the case of state governments, they grind away about the most mind-numbing trivia, largely because that’s all the state governments really do (even the vital task of collecting rubbish bins is a job entrusted to local government).

Proof of the trivia charge is easy to find. In the week after Geoff Gallop quit and the political masters of government in WA shuffled their chairs, the civil service just kept pumping out “important” announcements.

Among these were: George Throssell’s home (WA’s second premier) being added to the heritage register; a financial grant ($250,000) for live music venues; a grant of $166,534 for Aboriginal communities; and, the best of all, on the very day that Dr Gallop pulled the plug, a statement from Planning Minister Alannah MacTiernan that seven new road signs are being installed in Roleystone. Yep, you read it in Briefcase first, seven entirely new road signs for Roleystone – imagine the size of the headlines if there had been eight new signs. Wow.

•••

“In general, we elect men of the type that subscribe to only one principle – to get re-elected.”

–        Terry M Townsend

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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