News That's Fit To Punt - 17/Aug/2015

When You Are Crap, The World Craps On You

167 bad polls in a row, would tell you something, most likely that you're not loved and you're not going to win.

Inside the Prime Minister's inner circle, they tell themselves that they can win the next election because Bill Shorten is so hopeless. 

They've told themselves that 166 times in a row; that's the number of consecutive polls since the government was ahead in any of them.That's counting all the surveys conducted by all six national pollsters, according to the research consultant John Stirton. 

With today's Fairfax Ipsos poll, they'll have to tell themselves once again, whistling past the graveyard for the 167th time. 

You have to go back 16 months, to a Newspoll in April 2014, to find any survey that put the government ahead. 

"I think the government is essentially stuck" in its long losing rut, says the Ipsos director, Fairfax pollster Jess Elgood. 

The closest Abbott came to breaking into winning territory was with its second budget, in May this year. 

The Coalition levelled with Labor on 50:50, on the election-deciding two-party preferred measure. 

"Its second budget was well received and its polling bumped up," says Elgood.

But three months on, we see that the budget was not an elevator to a higher level of support but a momentary appreciation. 

The electorate doesn't disagree with the Liberals' assessment of Shorten. The Labor leader's approval rating consistently has a minus sign in front of it. It's just that the people think Tony Abbott is even more hopeless. 

The really interesting thing there might be the run of one sentence paragraphs. Gotta love these subeditors out in New Zealand. :)

More seriously... it should be obvious by now that Abbott didn't really win in 2013 on any merit whatsoever except for the single fact that he wasn't from the ALP. It's getting to the point where Abbott's doing serious harm to the country. He might be doing things pleasing to the nut job right wing of the Coalition, but the more they insist on their crappy agenda, the more it locks the entire government into the electorally hated zone. And let's make no mistake, even the long-time Liberal voters in blue-ribbon seats hate Tony Abbott. They only vote Liberal because it's religion (and there's really no cure for that variety of stupid).

Of course, the obvious man with electoral appeal is exactly the man the right wing of the Coalition cannot abide, Malcolm Turnbull; which essentially duplicates - in mirror image - the problem of the Gillard Prime Ministership wherein the factional heads loved Julia Gillard, but she had minimal appeal outside of her base supporters. This allowed Kevin Rudd to stalk her leadership all the way - but the faction leaders hated Rudd too much to have the good sense to go back to him. And so, the right wing powerbrokers of the Liberal Party who continue to back Abbott might end up losing their seats. Worse still, it's threatening to take down swathes of rookie Liberal and National MPs who came to Canberra on Tony Abbott's coattails. These backbench will get restless about that sort of projection. It's the same calculations that brought about the Gillard downfall. It's hard to defy the gravity of 167 losing polls.

The worst thing then, might be to pretend that polls go up and polls go down. In the case of Tony Abbott, they've never gone up enough call 'up'.

More On Dyson Heydon, Partisan Warrior

Not that I was ever close to the possibility of becoming a Rhodes Scholar back in my day at Uni, the notion of becoming a Rhodes Scholar does carry a certain gravitas with it. Well, it did, until I got up closed personal with some of the people who became Rhodes Scholars and quickly came to the conclusion that it wasn't on the basis of the kind of merit or character that normal, ordinary people would call merit or character. Certainly my day, which was the second half of the 1980s, it was abundantly clear that it was more a case of smarm than smarts, charm than marks, connections and patronage than merit or character. I won't name names - it would be boring to do so - but I will say I lost faith in the title long ago.

That Tony Abbott was a Rhodes Scholar gets bandied about as if he were an ace guy on campus. I don't know. He was a decade before my time so it's hard to say for sure but I've long suspected that by the time Tony was handed his, this fine institution had been rendered weak-chinned-and-neutered. Today we find out that none other than Dyson Heydon was on the panel that handed Tony Abbott his Rhodes Scholarship.

Mr Heydon was part of the seven-member Rhodes Trust selection committee in NSW that in 1980 handed the prestigious Rhodes scholarship to the future prime minister, then a 23 year-old student politician at Sydney University.

Tony Abbott, some time before his fateful boxing match that damaged his brain

According to documents seen by Fairfax Media at the NSW state archives on Monday, the selection committee was chaired by former NSW Governor, Sir Roden Cutler and "Professor JD Heydon" was a member.

The emergence of the Rhodes scholarship connection sets the personal relationship between Mr Abbott and his hand-picked judge to lead the trade union royal commission back decades.

Which all goes to show, it was smarm, charm, connections and patronage.  The men might deny - as they must, and as is their wont - but as any reasonable person could surmise, Tony Abbott was nothing special:

In his 2012 essay Political Animal, journalist David Marr, recounts how Mr Abbott "impressed a panel of worthies chaired by the governor of NSW, Sir Roden Cutler". 

"For Anglophiles and rugby players, the Rho­des was died-and-gone-to-heaven time. Winners must be scholars fond of sport who display "moral force of character and instincts to lead". The award to Abbott came as a surprise, particularly to those who had seen him up close on the SRC. One jibe at the time was, 'second-grade footballer, third-rate academic and fourth-class politician.'," Marr wrote.

Some men know how to cheapen the most impregnable heights of Empire. That's our Tony - everything he touches turns out cheapened; even the Rhodes Scholarship, even the Prime Minister's office. In some ways it is remarkable that a man could be of such low character and not get noticed on the way to the highest of offices. But that's how patronage works - picking out the people who would continue your cultural prejudices. And really, that's the kind of miserable government we've got, thanks largely to Tony Abbott.

As for Dyson Heydon, it seems he was getting his back scratched nicely by getting this appointment to look into corruption in the Unions. A real a snout-in-the-trough appointment by Tony to repay an old debt. Merit and character be damned. 

Mac Bank Boss Calls Out Government, Government Wimps Out

It seems to happen every day these days that the Liberal Party's own supporting lobbies step forward and slam the government for its bad governance and absence of policy worth spit. This time it's Macquarie Bank, which must feel like friendly fire with a howitzer in the back. 

Kevin McCann, the chairman of Macquarie Group, says the state of policy in Canberra is so dispiriting he feels he has to say something, despite his wariness about entering the political debate. 

In rare public criticism of the government of the day, Mr McCann has called on the Abbott government to stop fighting so many policy battles at once and to try to focus on just two or three priority areas.

"I've always been reluctant as chairman of a large company to start lecturing politicians and the community about what they should do, but I think I'm reluctantly changing that," Mr McCann said on Monday.

"With no disrespect to [Treasurer] Joe Hockey or [Assistant Treasurer] Josh Frydenberg, policy seems to have fallen off the table in Canberra."

Which is, neither here nor there, on its own. This bit however is pretty telling:

Mr McCann said on Monday that the Abbott government was failing to take the public with them on crucial policy reform and they desperately need to construct a narrative the public will find believable. 

And he singled out the Commission of Audit report as an example of the way in which the government had bungled its political messaging over the last 12 months. 

"I think it was a mistake to have the Commission of Audit say the country was busted, because the community knew that we weren't busted," Mr McCann said. 

"Surely we've got budget issues, but at the moment the community [feels] 'we're doing okay, why do we have to go through all this pain?' We've got to stop lecturing these people, we've got to have conversations and we've got to build up support," he said.
Mr McCann was speaking at the Australian Chamber of Commerce and Industry's business leaders' summit, held at the National Portrait Gallery in Canberra. 

He was sharing a panel with Mr Frydenberg whom defended the government's reform efforts, saying it is unfair to say policy has fallen off the table.
"The question [is], how do we get [reforms] through Parliament?" Mr Frydenberg said to the audience. 

"Let's call a spade a spade. The Productivity Commission ... was tasked by us to produce a blueprint for reform in industrial relations. [But] before they had even released their interim report the unions had come out against it. 

"[You should] say to our political opponents, don't run scare campaigns on issues as important as IR before the report has even hit the desk."

Good God Josh Frydenberg! So that awful Productivity Commission report which was a wishlist of crazy rightwing wet dream fantasies was the blueprint, and now that the Unions got up in arms and opposed it, they don't feel like they can get it through? It's not as if it's - God forbid! - a hung Parliament. They have the majority in the Lower House and the Senate has always been the place where negotiations took place. Just because you don't have the skills, patience, brains or stomach to negotiate in good faith, doesn't mean Australia's somehow ungovernable. It means you are insufficient to the task. It means you're not competent, worthy or appropriate for the job. It means you should quit. 

Market Bears Lining Up

How Australia Looks From The outside

We must look like we're living in some cloud-cuckoo land to outside observers. We haven't had a year without economic growth for twenty-oddyears, and we sailed through the GFC without having serious market corrections in Real Estate. Our Equity markets haven't exactly recaptured the highs before the GFC but dividends have been robust. For an economy largely dependent on commodity exports, it simply looks like the GFC hasn't quite caught up with us.

With that in mind, it's almost refreshing to be told we will soon fall back to earth.

"Domestically, mining output is still strong, but investment in the sector is not, and iron ore prices are plummeting," wrote Roubini's local analyst David Nowakowski.

"Although some easing of China's credit crunch will help Australian exports in the short run, we see lower Chinese growth in 2015 as a headwind that will weaken Australia's growth and inflation next year, and weigh on growth-orientated assets such as equities and the Australian dollar." 

Mr Nowakowski said flagging growth and low inflation would create room for the Reserve Bank of Australia to make a "cut or two in interest rates, to 2 per cent". 

This would help drive the Australian dollar down as the US Federal Reserve started to lift interest rates, he said. "The Australian dollar is likely to weaken to below US75¢ - a fall of around 20 per cent - on a combination of the lower interest rate differential and slumping GDP growth, with commodity price effects outweighing volumes," he said. 

The local unit was fetching about US89.50¢ in early afternoon trade on Monday, up slightly on the day. After recovering slightly throughout last week, the price of iron more settled down again on Friday at a new five-year low of $US81.70 a tonne. 

The bearish Roubini report also identifies Australia's housing boom as "increasingly out of line with fundamentals", including demand for goods and services and the unemployment rate.

Ah. So in amongst all that, Dr. Roubini thinks there's something wrong with the housing price boom. It's interesting to see this today of all days because the share market essentially has given up all the gains of 2014 to date. The Australian Dollar has been retreating significantly to below 90cents, hitting a 7month low today. Taken together withe collapse in iron ore prices and the wide-spread perception that China is finally about to crack, we might be about to see Dr. Roubini's scenario come true.

There's even a joke going around that if Mac Bank is handing out exorbitant pay packets to its top execs we must be close to the end of the cycle. You get the feeling that investors are heading for the door, and the outward momentum is building. If the RBA cuts rates next month, we'll know we're headed towards "ZIRP" - anything to keep asset prices up.

More BrisConnections News

Comfortably Dumb

I missed this one by the way, what with all the excitement going on.

THE BrisConnections debacle will make its Sydney courthouse debut this morning, where the banned company director Jim Byrnes will launch his $1.3 billion claim against the toll-road project and its adviser, Macquarie Group.

With a deadline for unit holders of BrisConnections to cough up the second $390 million instalment just two days away, a short preliminary hearing will be heard in the Federal Court to consider a statement of claim lodged by Mr Byrnes on Friday.

Documents filed by Mr Byrnes allege that BrisConnections had misled investors on several fronts. The claim alleges the road builder's product disclosure statement omitted "the leverage risk associated with the project", falsely said the dividend was fixed and that the directors would use 40 per cent of their fees to buy units in the toll-road.

It also alleges BrisConnections made misleading statements to the Australian Securities Exchange and in its accounts.

BrisConnections yesterday shrugged off the claim as a "distraction".

The documents filed to the court said Mr Byrnes purchased 3000 units in BrisConnections off-market at one thousandth of a cent each. The filing does not say when or from whom Mr Byrnes had purchased the stake worth 3c. His purchase is one millionth the $1 listing price of BrisConnections, or one thousandth of its current price of 0.1c.

Over the weekend Mr Byrnes hit out at questions over the bona fides of the US hedge fund he represents - the New Hampshire Distressed Asset Fund.

On the same day, we saw this number where Macquarie asked for a reprieve:

Macquarie Group Ltd has asked to be struck off a $1.3 billion damages claim brought against it and the troubled manager of the Brisbane airport link, BrisConnections.

But Australia's biggest investment bank will have to wait to argue its case until May 6, after the matter was adjourned in the Federal Court on Monday by Justice Arthur Emmett.

While Macquarie wanted the matter attended to as quickly as possible, Justice Emmett questioned the need for urgency.

The applicant to the claim filed in the court on Friday is Sydney businessman Jim Byrnes

Only a few days after the last announcement that there might be another attempt at an investor's revolt, it seems the attempt has been scuttled before it even began.

THE banned company director Jim Byrnes's plans of leading an investor revolt at BrisConnections have run aground, after a Surfers Paradise finance company aligned with the colourful Sydney business identity scuttled the idea of being installed as the manager of the toll-road.

Less than a week after Mr Byrnes and the supposed US hedge fund he is representing called for a unit-holder meeting to vote on the installation of Armstrong Corporate Capital, the little-known firm yesterday withdrew its interest in becoming the new manager of the $4.8 billion toll-road project. In a letter obtained by the Herald, the law firm representing Mr Byrnes said Armstrong withdrew its consent "due to the recent media speculation about the uncertain future nature of the BrisConnections project".

However, another explanation could be that the supposed US-based hedge fund fronted by Mr Byrnes - the New Hampshire Distressed Asset Fund - which previously had a 15.2 per cent stake in BrisConnections no longer has the power to call a meeting.

The fund, which acquired its stake (held through Brisbane Toll Road Link Pty Ltd) for a mere $59, or 0.001 cents a unit, is believed to have been struck off as a substantial shareholder in BrisConnections. This is because it has failed to pay its $1-a-unit or $59 million share of the company's $390 million second listed instalment that was due on Wednesday.

BrisConnections sent reminders to defaulting unit holders yesterday. They are believed to include up to 170 unit holders who bought into the company after its shares dived from $1 to 0.1 cent.

However, it is believed the default could open the way to the ASX delisting BrisConnections. This is because the company will only be left with a handful of shareholders (such as the Queensland Investment Corporation) after the mass default.

BrisConnections said it had only received and processed $102 million of the $390 million payable from unitholders to fund the second instalment. While the company said some payments made by cheque had still not cleared, it is expected Macquarie and Deutsche will need to make up for the bulk of the instalment.

Macquarie meanwhile revealed this morning in its full-year accounts that it had taken a $20 million hit on its sale of the initial stake it had in the toll-road last year.

Or maybe that's just another indication that these infrastructure investments are actually a crock.

Eat The Rich

All of the market gyrations and spiral downwards has essentially exposed the so-called masters of the Universe for the questionable nut cases we always thought they were. It's nice to see that the BrisConnections problem is affecting the Macquarie Bank enough to shrink their bonuses this year.

Macquarie Group today underlined the savage impact of the global recession on its business as it reported a 52% fall from last year's record profit of $1.8 billion to just $871 million this time.

The investment banking group saw its earnings hit by write-downs of $2.5 billion on the value of its listed satellite funds and as a consequence of its involvement in the disastrous float of the Brisbane airport road builder, BrisConnections.

Couldn't say they deserve the entire pain, but then I couldn't say they deserved those bonuses in the good times either.

BrisConnections Chaos Continues

Mac Bank Earns World Of Trouble


Of course it's not going to help the sense of chaos that characterises the whole BrisConnections venture. Now, the second largest shareholder has decided to go for management control.

The company's second-largest shareholder, represented by Jim Byrnes, and a mysterious finance company in Surfers Paradise have launched a bid to secure management control.

Less than a fortnight after a proposal to wind up the project was voted down by unit holders, BrisConnections said yesterday it had a received a request from Brisbane Toll Road Link, which owns 15.2 per cent.

The request was for a second meeting to consider the appointment of Armstrong Corporate Capital to replace the BrisConnections Management Company.

Another request was for the second $390 million instalment call for BrisConnections shares, due on Wednesday, to be delayed until "Armstrong notifies members that it is due and payable".

New Hampton Distressed Asset Fund is the owner of BTR but Macquarie and advisers close to BrisConnections are questioning whether the US hedge fund exists.

But Mr Byrnes said in an email last night: "The company does exist." He provided no other information and declined to answer the Herald's questions or identify who was behind the fund. According to Australian Securities and Investments Commission documents, its address is the same as Mr Byrnes's home address. Mr Byrnes also lodged a statement of claim in his name in the Federal Court yesterday, as part of his planned $1.3 billion class action against the toll road's advisers, Macquarie Capital Advisers.

BTR director Carl Trad, an importer of luxury cars, declined to say how he became involved with the company, except: "I've had some really good advice."

When the Herald phoned the Armstrong office in Surfers Paradise, the unidentified person who answered the phone said: "I'm sorry, I'm not giving any interviews to the press, thank you."

The problem for BTR is that even if a meeting is called, the earliest date it could be held is May 12, three days after the final deadline for it to pay the second installment. A Macquarie bid to buy out 80 per cent of the unit holders would do little to solve the problem of many in dire financial circumstances if they were forced to pay the installments.

Don't you just love the way the craziness begets more craziness?

It's enough to wonder when ASIC is going to step in and fix this thing. Leaving it to the unit holders or Macquarie Bank or eve this new bunch out of Surfers Paradise is a surefire recipe for horrible repercussions where the tunnel might not get built.

Then there is the consideration whether if Brisbane really needed this tunnel in the first place, and whether Mac Bank were up to their usual tricks in inflating forecasts for just how much traffic is going to use this lousy toll road when current roads already service the airport just fine. It's certainly starting to stink of the same graft and greed routine that plagued the Sydney Cross-City tunnel fiasco all over again, and surely ASIC has to be wondering if Mac Bank was acting in good faith when it launched these partially paid units. Because so far, if the past record is anything to go by, there's a lot that "goes to character" sying they were acting in much, much, much less than good faith.

BrisConnections Disconnect

Nick Bolton Sells Out

It turns out that Nick Bolton sold out of his position in BrisConnections to the Leightons Group for the sum of $4.5m.

The rebel shareholder who pushed for a meeting of unitholders that had been expected to jeopardise the nation's biggest infrastructure project has done an about-face - and netted himself $4.5 million in the process.

Nicholas Bolton's company Australian Style Investments sold 77 million shares in BrisConnections, the builder of the $4.8 billion Brisbane airport toll road, to Theiss-John Holland.

Theiss-John Holland is a subsidiary of Leighton Holdings, the company that won the contract to build the road.

Mr Bolton was engaged in a court battle against BrisConnections. He had pushed for a meeting of unit holders that had been expected to commence wind-up proceedings today.

But he did a complete about-face, selling the shares and voting against the resolutions he had earlier pushed for - and he did not attend the meeting in person.

BrisConnections chairman Trevor Rowe told an angry meeting of unit holders that Australian Style Investments had voted against all seven resolutions when its proxies were received on Saturday.

Mr Bolton's surprise move makes it virtually impossible for retail investors to pass any resolutions that would wind up BrisConnections or its trusts.

So that goes to show his motion to wind up BrisConnections was nothing but a play to make somebody shake some money out of the tree for him. Good for Mr. Bolton, but he leaves a lot of disappointed people in his wake. Naturally, the required 75% vote for the resolution did not happen, which means all those mum-and-dad investors are stuck with the $1-per-unit obligation at the end of this month.

I imagine Mr. Bolton might have to watch his back for the rest of his life, but he now has $4.5million to keep him safe. You can't blame a guy for selling out at the right moment.  I'm not sure it's the kind of bargain most people would have made - but the $94m bill probably looked scary, and he himself probably didn't believe there would be the 75% to back his challenge. The bummer now is that things got a lot less interesting on the unit-holders' challenge front.

I've been speaking to people in the know and they they think the maths underlying the prospectus itself is incredibly dodgy, and that ASIC (for once) might wade in to see if Mac Bank really had done their due diligence by ASIC in launching such a troubled product on the market. If their forecast on the traffic is just as wrong as all the other toll road forecasts that have preceded it, then there might be a reason for ASIC to look into this thing more seriously. I mean, does anybody remember Sydney's own Cross City Tunnel fiasco?

The ABC News is also reporting that Deustche Bank and Mac Bank are not exactly seeing eye to eye on the matter of underwriting, so we'll see where all this is going to go, even without Nick Bolton's amazing challenge. So much for that.

Today's BrisConnection News

BrisConnections Underwriters Seek Payment Deal

Ever since this circus started making headlines, I've been blogging this thing for fun.  I have to confess I have no stake in any of this, except more amusement, which must make me a terrible rubbernecker in the world of high finance train-wrecks.

Here's the latest on the news vine.

BrisConnections, the Queensland toll-road builder that has tumbled 99.9% since its initial public offering in July, has requested its shares be halted from trading ahead of a potential approach to unit holders.

The company has received "material information from one of its underwriters regarding a possible approach", it said today in a statement.

Macquarie Group and Deutsche Bank are its underwriters.

Elizabeth Knight has this entry in the SMH.

Here is how the sides are lining up. Macquarie Bank is involved in almost every facet of this project; most importantly, it is a major lender. Its bridging loan will be repaid from the proceeds of the instalment receipts due from shareholders.

Deutsche Bank and Macquarie Bank have underwritten the instalment receipts, so if investors can't pay the money they owe (the first instalment is due later this week), then these two underwriters will need to make good on the shortfall.

Deutsche Bank would rather see BrisConnections wound up, because it could then avoid having to pay the shortfall on the instalment receipts.

Macquarie is happy enough to honour the underwriting agreement, because the larger institutional shareholders will be able to stump up the additional $2 liability attached to their shares and they will share any shortfall with Deutsche Bank. So on this deal the two underwriters are pitted against each other.

The third party in this is the Queensland Government. From a political perspective, it wants this project to be completed because it needs a new road from Brisbane Airport to the city, and it wants to employ local voters to build it.

It also has financial skin to lose as this project is a joint partnership, using taxpayer money.

On the other hand, the last thing the Premier, Anna Bligh, wants to deal with is lots of local shareholders being faced with debt collectors on their doorstep asking for money.

It was fortunate for Bligh that she went to the polls before this disaster blew up in her Government's face.

Nicholas Bolton may have been the catalyst for bringing this disaster into the public arena, but since this project began it has been an accident waiting to happen.

It's a classic highly-geared structure that should probably never have made it into the listed public arena.

The debt crisis that changed the feasibility of leveraged projects like this had already begun when it was listed on the Australian Stock Exchange. Getting equity funding from small shareholders who were then obliged to pay a call for further instalments was irresponsible. ASIC should have been looking at this at its conception, not its implosion.

There was no room in this project for excessive debt or rubbery forecasts for revenue and traffic use. But these are issues now coming into question.

It's funny how it's only now that the the foundations of the deal has been exposed as largely wanting that the public sphere has woken up to just how dodgy these public infrastructure deals put together by the Macquarie Bank actually are.

There are plenty of other tollways and motorways that Macquarie Bank has been shoving through development with these kinds of deals so there should be a greater lesson in it for governments. Of course the governments a re silent because it means they have to go back to the horrible prospect of actually doing these infrastructure developments from scratch by themselves, and weigh up the real needs of the population rather than throw up tollways every which way.Mac Bank shouldn't have been allowed to run loose with this stuff to begin with.

Of course the deafening silence you from the government is actually that because doing the right thing by the electorate and being accountable and making sense in how to spend public monies is hard work. Privatising deals and ripping off mom&dad retail investors, is capitalism in action and makes perfect sense, but BrisConnections shows it is an utter crock of a notion.

The 'Read'em Their Rights' Rule

It now falls incumbent upon Stockbrokers to warn investors about partially paid listed securities as a fall out of all this BrisConnetions mess. So even with an understanding that anything in the market must be caveat emptor, the ASX wants brokers to warn the small-timers.

The ASX said brokers will now be required to obtain from retail clients a signed agreement saying they are aware they have a responsibility to obtain and read a copy of a prospectus, product disclosure statement or information memorandum produced by the product issuer.

The rule will apply when small investors enter transactions to buy a partly paid security for the first time and take effect from May 1.

Client agreement rules of this kind already exist for complex products such as options, futures and warrants.

The Australian Securities and Investments Commission said the new rule for party paid securities is aimed at improving disclosure for retail investors, ensuring they are aware of potential liabilities when making such investments.

"ASIC and ASX have been in direct contact with several market participants to ensure that they have contacted their clients with current orders to buy partly paid Securities,and communicated their potential obligations,'' ASIC said in a statement.

The change to the ASX market rules was approved by federal superannuation and corporate law minister Senator Nick Sherry today.

"The government shares the concerns of ASIC and the ASX that retail investors have not fully understood their potential obligations with regard to partly paid securities,'' Senator Sherry said in a statement.

"A falling share market this year has meant that some securities that looked like a bargain actually had huge liabilities attached to them that were not understood by retail investors who purchased them.''

There are five partly paid securities listed on ASX that will be subject to the new rule.

I wonder how they'll make this work with internet share trading and the such.

More Interesting News For Business Types

The American Economy As Basketcase

A couple of weeks ago, I did point out that oligarchies do have their merits in stabilising systems. They're uncompetitive, and perhaps even anti-competitive, but a stable economy seems to be built on oligarchic sharing of market segments, rather than a genuine free for all. Part of this might be because there simply aren't enough smart people around to run a lot of tiny corporations, and in turn, there is possibly a natural pooling of talent in more stable environments which means the oligarchies tend to come out of the same social soil as the idiots who might be running these companies. With that in mind, check out this link from Pleiades.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.

Oh dear. And Wall Street really ran with it, didn't they now? The net result is the plum-pudding of financial doom we're all being collateralised into. Who came up with this lousy plan?

It's another rivetting read if you're into why this Global Financial Crisis is so f*cked, begat in f*ckedness, and delivered from and unto f*ckednss by the f*cked.

Macquarie Bank Buys Into Brisconnetions

A couple of weeks ago, we looked at Brisconnections and its amazing collapsing unit prices, the $2-per-unit that had to be paid, and how one Nick Bolton who bought into these shares as penny-dreadfuls looking for a quick buck, has now moved to wind up the trust.

This week we find Macquarie Bank has waded into this mess by buying the trust units in order to forestall the windup motion.

What started as a circus sideshow has now turned into a serious headache for the investment bank, which is attempting to protect its $325 million exposure and a future fee stream.

Macquarie was a key member in the BrisConnections consortium that won the 45-year concession to build, operate and finance the 6.7-kilometre Airport link toll road in Brisbane.

But now the bank that turned infrastructure financing into a global franchise faces having one of its bread-and-butter tollroad projects derailed in a street fight with a 26-year-old internet entrepreneur.

Macquarie's 8.1 per cent stake in BrisConnections, picked up for spare change, is aimed at thwarting Nicholas Bolton's attempt at winding-up the toll road operator. This move had been looming as the escape plan for Bolton and thousands of retail shareholders who are holding onto toxic securities that have hundreds of millions of dollars worth of debt attached.

In rosier days BrisConnections represented a fee pot for Macquarie and a clutch of investment banks linked to last year's $1.2-billion sharemarket float.

Macquarie secured a financial advisory fee of $56.1 million, a sponsor development fee of $12.5 million, and an equity underwriting fee of $28.2 million. It also stood to gain a dividend reinvestment plan underwriting fee of $14 million.

Deutsche Bank shared its equity underwriting exposure to Macquarie, and Credit Suisse and JPMorgan each had a small windfall in the underwriting fee.

Macquarie also stood to gain through an agreement that secured it as an exclusive financial adviser to BrisConnections for a decade.

Among all this is Deutsche, which is a not so disinterested bystander in proceedings. With Macquarie, Deutsche is the co-underwriter of the $390 million due to be paid on April 29. The two have a further $390 million underwriting obligation that is due again next year.

Unless there is a miraculous change in appetite for start-up infrastructure assets, the underwriters are likely to be left with the bulk of the shortfall, given the unrealistic prospect that retail shareholders will be in a position to pay for this.

Naturally, Deutsche Bank would rather not pay that sum of money just because Mac Bank floated the damn thing in a way that -pardon the pun - would sink rather than float. All very funny, and I do hope this Nick Bolton fella wins. The Mac Bank model of 'infrastructure business' is so reprehensible, they deserve this stuff to happen to them and probably more.

UPDATE: Of course  the news of the day (02-Apr-'09) is that Bolton wins the first round in court. BrisConnections can't stop him from calling  the unit holders' meeting to wind down the trust.

Rebel shareholder Nicholas Bolton has won his court battle with Brisbane toll-road builder BrisConnections.

Two planned meetings of unitholders will now go ahead, as scheduled, later this month.

The decision puts in jeopardy the future of Brisbane's $4.8 billion Airport Link toll road, the biggest infrastructure project under way in Australia. The company's unit holders will vote on a series of resolutions to have BrisConnections wound up at those meetings.

BrisConnections was seeking orders in the Victorian Supreme Court to have Bolton's company, Australian Style Investments, wound up on the grounds it was insolvent and would not be able to pay a $77 million instalment owed to BrisConnections.

BrisConnections was also seeking orders to have two meetings of unitholders - called by Mr Bolton, ASI's 26-year-old major shareholder - to be cancelled. BrisConnections told the court the meetings had been improperly called.

Justice Ross Robson found in favour of Mr Bolton and said the meetings could go ahead. "BrisConnections' objections to the meetings are not valid objections,'' he said.

The decision means that BrisConnections' small shareholders, who control somewhere between 70% and 75% of the company's stapled units, will be able to meet and vote on having the company wound up.

Whether that eventuates remains in doubt, as a special resolution to wind-up the trusts requires a 75 per cent vote.

Stay tuned. This is one interesting circus.

News That's Fit To Punt

About Time The Wider Public Knew About This

I have a friend who is in the business of consulting for governments and their urban planning. Over the years my friend has lamented that the best policy advice on the table by various parties to the government would get overlooked in favor of the policies that led to more and more private toll roads. My friend has told me that quite often, the business interests of such corporations as Macquarie Infrastructure Group would simply trump the sensible options. They would do this by inflating forecasts of just how much the public is likely to use such roads, and essentially lie and cheat to get their way.

The failures of the Cross-City Tunnel and Lane Cove Tunnel as businesses then, have come as no surprise whatsoever to my friend, and in turn I haven't been surprised by them in the least bit either. In fact I have taken some glee in seeing the absolute 'fucked-upt-itude' (how else do we describe such ineptitude of titanic proportions?) of these endeavors. Now, the SMH has this piece - It's worth reading all of it.

Three years ago, a 75 year-old academic from Sydney University, Dr John Goldberg, issued a paper claiming Australia's toll road companies were unsustainable unless the Government continued to prop them up with subsidies under its infrastructure bond scheme.

Goldberg was rubbished by the operators Transurban and Macquarie. How could all the broking analysts, institutional investors and other experts be wrong, and this bloke right? PricewaterhouseCoopers, auditor and consultant to most of the stapled infrastructure structures, was also wheeled out as an expert to debunk Goldberg's contention that the toll road model was flawed.

It got worse for Goldberg. Without telling him, the University of Sydney's Vice Chancellor Gavin Brown caved in to a demand from Macquarie to disassociate the University from Goldberg's work.

Documents obtained under Freedom of Information laws show a request to Brown from the former bank's lobbyist and Federal MP Warwick Smith: ''We request that the University of Sydney publicly disassociate itself from Dr Goldberg's paper and the grossly irresponsible remarks he made on the ABC's 7.30 Report on October 20, 2005''.

Brown duly issued a release putting distance between the uni and its academic, an honorary associate in the School of Architecture, Design Science and Planning on the grounds that he was honorary and not on salary any more.

Goldberg pressed on with his papers, predicting Sydney's Cross City Tunnel and the Lane Cove Tunnel projects would implode. They have. Overly bullish traffic forecasts and extreme debt loads were to blame, as Goldberg had forecast.

His thesis was that the projects' traffic forecasts were structured to fit with the financial model, not the other way around.

I don't know Dr. John Goldberg. He sounds like a fair and scientific minded man. It also seems like he is a man of proper convictions. It pains me to read that the person who presented the honest truth of how badly constructed these projections were, then got shafted by the University of Sydney through what can only be described as corporate interference is disgusting - but "Sydney U", is not exactly above it. More on that later. There's more:

And how's this for a response on oil price as a variable to consider over the next five decades?: "Oil price assumptions make up part of vehicle operating cost assumptions. Vehicle operating costs include many factors, such as tyres, servicing, fuel, depreciation and debt servicing etc - oil prices are not a separable assumption.

"That is a departure from the other operators whose line is, yes, oil price assumptions were factored into our traffic model but, no, we won't be revealing to the public what our oil price assumptions are because they don't matter. The price of petrol, you see, doesn't have much of an effect on motorists' behaviour and therefore toll revenues. ''Inelastic,'' apparently.

MIG in the cross-hairs
Nobody appears to have told investment bank Goldman Sachs, though, as a piece of research from last Friday on Macquarie Infrastructure Group's latest traffic numbers downgraded its recommendation thanks to ``the impact of higher petrol prices ... (and) a slowing economy''.

''Even the jewel in MIG's crown, H407, has felt the impact of higher petrol, prices having now recorded two consecutive months of negative traffic growth (-2.2% and -3.4% respectively), '' said the report.

The Toronto 407 is reputed to be the best infrastructure asset in the world, a massive highway with no regulatory constraints on raising tolls.

In its report on the same data, ''Breaking the Myth'', Citigroup wrote

''The recent under-performance from MIG's assets has broken the myth that toll-roads are largely immune to economic slowdowns.''

Macquarie Equities research too talked about the impact of ``price elasticity''. Most of the tolls had been jacked up and motorists, hit by the petrol price too, were apparently fed up.

The oil price is now $US100 above its level of three years ago. It is time the operators and Governments come out and say what their oil price assumptions are. We are talking about long-term leases here. In the case of Brisconnections, which floats in a few weeks, the concession lasts for 45 years.

In the absence of full disclosure it is tempting to suspect that a government could play fast and loose with taxpayers and ignore the long-term consequences by getting an infrastructure project up and defraying the costs to future generations.

That last bit has happened already, according to my friend. The oil price factors are not the only part of the total bogus projections used to nudge governments into making dodgy , shonky, lousy decisions. The projections of just how many cars *could* travel on the Cross-City Tunnel - what is known s 'Tunnel Capcity' - seemed to fall on deaf ears.

My friend said, "Look Art, it's like they just don't understand the notion of 'Tunnel Capacity'. Either that, or they actively don't want to hear about it. How do you explain this to the minister?"

I replied, "You tell him, 'Imagine you're naked on your bed, with your wife. And she's naked too. You have an erect penis, she has a wet vagina. You're both raring ready to have sex, but there's a problem: there's another naked guy in the room and he wants to place his erect penis into her vagina too. But she only has one vagina. Do you understand Tunnel Capacity now?'"
Anyway... I doubt my friend used that line of analogy on the minister.

What nobody in the press seems to have twigged to and my friend has been telling anybody and everybody who would listen for like 15 years now, is that those 800million to 1.2 billion dollar budgets could have/should have been spent on public transportation infrastructure. Instead, it was spent on making Macquarie Bank executives rich.

And now that oil prices have suddenly shot up to levels that these idiots did not predict and people are suddenly streaming towards Public Transport, they're saying they have a crisis. Of course they're having a crisis: they were always going to have a crisis given how faulty their reasoning had been when they went ahead with all these dumb, white-elephant roads.

And just how did they get here? By ignoring people like Dr. John Goldberg, and people like my friend. So much for common sense in this state.

More On Sydney 'Pond Scum' University
Now that we know that the University of Sydney prostitutes its good name... uh.., make that just 'name', we find that there's another article on just how crooked and greedy the Slut School of the Southern Hemisphere actually is:

Sydney Uni, meanwhile, has 50 per cent more students, four times as much building space, 10 times the campus space, half a dozen ovals (instead of none) and exponentially more gardenia bushes than UTS will ever have. Not to mention the adjoining park and pool. With it goes all the confidence (and perhaps pitfalls) of old money compared with new.

It also has several new buildings - IT, law and the catchily named Jane Foss Russell student centre (be thankful it's not her married name, Barff) with its clunky, pea-green footbridge. Not bad buildings, but guaranteed, once the new native-nazi landscape is complete, to feel more exurban office park than dreaming spires - the global campus look du jour, a bland-leading-the-bland, death-by-vanillacide catering to kids whose primary world experience is screen-mediated.

And so to Sydney's campus cravings. Apart from its main campus, it already has eight others, from Camden to downtown. But it wants more. Eveleigh, where it proposes 160,000 sqm of built space up to 18 storeys; Harold Park, if and when; Callan Park, slated for 100,000 sqm in four precincts - plus another three ovals.

This is already agreed. But the Callan Park Act bans building outside existing footprints and any for-profit education. To amend it, the argument is crucial. It hinges on Sydney's "demonstrated record, expertise and interest in heritage conservation". A year ago, maybe. But to see those fabulous sandstone gothics now, stripped of their evocative ivy-league habitat, left naked among the pitiless eucalypts, makes you wonder. How far will higher learning go to prove it is really just business?

Fucking hell, it's nauseating.