Bob McMahon
Several days ago the pundits had changed their tune following the Centro avalanche, because the problem wasn’t confined to the domestic housing market, nor was it peculiar to the USA. Britain got clobbered. Now it’s Australia’s turn. Some of you might be puzzled as to how this meltdown could possibly be good news for Tasmania? It is good news because risk capital suddenly got much more expensive, or even impossible to get, not just in Australia but worldwide. Risk capital got a whole lot riskier if you were in the market, like the ANZ, to supply a couple of billion to finance a dodgy business in Tasmania…
“AS COLD waters to a thirsty soul, so is good news from a far country.” Thus spoke King Solomon (Proverbs 25.25). His wisdom resounds down the ages and brings good cheer to the Tamar Valley in this Christmas week of 2007.
Where is this ‘far country’ and what is the ‘good news’?
The far country is America. The beginning of the good news, the incipiently good news you might say, occurred a few months ago. That was the start of a ‘credit squeeze’ in America due to the subprime mortgage crisis.
Loan defaults in the housing market, in particular the 3.5 million ‘homeowners’ who were sold loans they had no chance of repaying over the long term, or even the short term, sparked the squeeze.
No problem for us in Australia, the local economists assured us, because we did not go in for subprime type lending, that is, reckless lending to mortgagees (or companies?) with insufficient assets or cash flow to make loan repayments. We have been altogether more circumspect in Australia. We were immune from that sort of thing we were told. No mention of companies like Centro with assets and exposure in the USA.
Several days ago the pundits had changed their tune following the Centro avalanche, because the problem wasn’t confined to the domestic housing market, nor was it peculiar to the USA.
Britain got clobbered. Now it’s Australia’s turn.
Companies, like Centro, which are highly leveraged – short term borrowing, bridging finance at high rates that have to be re-negotiated, borrowings at a high proportion of assets and earning potential etc. – are in for a rough ride. There are a lot of shareholders and investors in superannuation funds exposed to speculative property trusts which surfed in on the big wave of credit expansion, who are feeling rather sick right now. So much for our immunity.
Now the really good news flashed up red on the screen when the squeeze turned into a meltdown, which the US Federal Reserve was unable to control with interest rate cuts and wads of money shovelled into the banks to soften the impact, on them, of their own junk loans.
Once the credit squeeze ceased to be a mere liquidity problem and started to look like a money market collapse, prescient Tasmanians dared to quietly rejoice and put off their Christmas shopping for a day or two to watch the screens instead: Bloomberg, Squawk Box, Sky, ASX etc.
Some of you might be puzzled as to how this meltdown could possibly be good news for Tasmania?
It is good news because risk capital suddenly got much more expensive, or even impossible to get, not just in Australia but worldwide.
Risk capital got a whole lot riskier if you were in the market, like the ANZ, to supply a couple of billion to finance a dodgy business in Tasmania spruiked by a hurdy-gurdy of Scandinavians who had taken advantage, if the truth be known, but the Scandinavians would be the last to say so in public, of a board of dimwits.
Yes, that’s right. At a time when pulp mills all over the developed world are closing down because they can’t possibly compete with the developing world (the ‘global south’) or are being bailed out of insolvency with mountains of taxpayers’ money.
The Finns were able to flog off a stupendously smelly, long dead fish disguised as a rainbow trout flashing silver in a mountain stream, to Dad and Dave and the bastard from the bush. Taken advantage of, you might say. Pretend international players taken for a ride by real international players.
Serve them right you might say. Let them borrow their two billion, let them borrow twice as much as the company is valued on the stock market, let them be leveraged so highly the earth is dislodged from its orbit around the sun, let them build the pulp mill, because, by 2010 the world will be a meaner place with rat devouring rat and nobody will want the world’s most expensive and environmentally ghastly pulp and the company will be doomed.
I know many readers might think that is justice on about the right scale given the level of contempt shown by the pulp mill proponents (and complicit governments) for the concerns of the people.
I would disagree, but not out of any love for the company. Let it be napalmed from a great height one part of me says.
But another part of me says let it survive and be marinated in the odium of the people until such time as it changes its ways and the current board of directors is gone to where boards of directors on the dark side go, but let us not have the pulp mill, not any cost, not even at the cost of Gunns sliding off the continental shelf into the abyss.
The risk is well and truly back in risk capital where it rightfully belongs.
Many will be scorched as the subprime, slick credit and delusional accounting schemes work through the world economy, transforming world money markets into gut-shot dogs in the process. There will be an untold number of victims, deserved and undeserved and there will be a few winners as well.
The people of Tasmania are beginning to look like winners. Merry Christmas.
Bob McMahon
abetteraustralia.com
Sandra & Peter Hunter
December 23, 2007 at 12:52
As a mate of ours says, “It’s a beautiful thing!”
Merry Christmas,
Sandra & Peter H
Shirley Glen
December 23, 2007 at 13:16
Having just read Bob’s article I have this happy feeling that Mike Bolan encouraged me in his article It’s Not My Fault, to recognise and give references to. This will be one of my reference points so that I can train myself to bring joy and happiness into my heart at will. I feel sorry for all the innocents caught up in the financial mess the greedy have wrought, but bring it on for Gunns!!
john Hayward
December 23, 2007 at 22:38
Mr McMahon and his Tap-dancing, latte-sipping acolytes can rejoice all they like about global market threats. Tasmania’s proud kleptocracy neither cares nor knows.
Like Britain’s guardians during the blitz, our K-crats are prepared to lead us to the ultimate sacrifice to defend a way of life, which Tassie’s El Cid, Edmund Rouse, lauded as stupid and corrupt , as well as quintessentially Tasmanian.
For once, they are not talking b—shit. If you have been following recent news, the lads have been furiously packed up and posted the last of Tassie’s assets to mates, forwarding the charges to benefactors such as the Retirement Benefits Fund, the public, and other certified mugs. When the crunch comes, it won’t touch a bankrupt Tas.
If McMahon and Co think economic illogic will stop the dauntless Tassie K-crats, it shows their ignorance of deficit spending and private affluence in the 3rd World.
J Hayward
Brenda Rosser
December 29, 2007 at 21:03
Bob McMahon said: “..There will be an untold number of victims, deserved and undeserved and there will be a few winners as well.”
The Managed-Investment-Scheme-funded-corporate land grab should be a message to all. The winners are the bastards that have destroyed global economies. The same ones who have presented before us our collective and imminent demise.
Our Government representatives cannot be separated from the servants and reps of big corporate business. Government IS narrow vested interests. It comes at the expense of the public good.
In 1972 Charles A Reich detailed the enormous problems with developed industrial countries:
– Disorder, corruption, hypocrisy, war;
– Poverty, disordered priorities and law-making by private power;
– Uncontrolled technology and the destruction of the environment;
– Decline of democracy and liberty. Powerlessness.
– Artificiality of work and culture;
– Absence of community;
– Loss of self
[‘The Greening of America’, Charles Reich. Pages 13 – 16]
35 years later what has changed?
Shaun
December 30, 2007 at 03:47
Most seem to be forgetting that this situation (1) has been long foreseen by those who thought about it and (2) highlights everything that is wrong with a service-based economy.
A meltdown in Tasmania there may well be. But it’s far more likely to be in any of the “service” industries that don’t produce a tangible product of lasting value but rely instead on the bubble economy and consumer spending for their survival.
Tom
December 30, 2007 at 13:04
Shaun’s comment made me wonder what lasting value is, and which industry sector produces it? Is it energy, resources, banking, agriculture, pharmaceuticals, groceries, or the car industry? Or perhaps he had forestry and specifically pulp mills in mind? I also wonder which industry does not rely on consumer spending.
One of the major shortcomings of economics in my view is that it removes human emotions from its equations because they are way too complex to deal with via the simplicity of mathematics. Not unlike a whole lot of science that suffers from the same problem as neither can reliably remove or significantly reduced emotions to calculable units. Attempting to do so invariably looses so much of the picture that it is no longer an accurate reflection of reality.
For example, as a result of this reduction economics is incapable of putting real value on a simple cup of coffee beyond its three dollar price tag. For those three dollars I get a great start to my day, on some days it may increase my productivity and output by up to ten percent compared to not having one. It may not be ten, but common sense dictates that it is certainly way beyond the tree bucks I pay for it. And at the end of the day, the next three dollars connects me to my partner, family and friends, at times strangers, in ways that you can not evaluate in terms of dollars. What does “market sentiment†actually mean, where does it comes from, how is it evaluated and could it have some connection to the coffee brokers have or missed?
Do you know what I’m getting at? The service sector like all others are not merely about dollars, and trying to reduce them to that is one of the biggest wanks of economics. The potential lasting value of a cup of coffee is a shared experience, stories, laughs, emotions, a connection to others you can not put monetary value on. Yet they do add lasting value to our lives particularly if we prepared to recognice this fact. Only morons would try to reduce a cup of coffee to three bucks while ignoring its real value in the process. Yet that is what economics does, the same economics that drives the world today. It figures to me why we are lurching from one shitfight to the next!
I’m only talking about a simple cup of coffee here, not even a great family home or holiday, or that elusive perfect croissant!
I hope you will all enjoy your next cup, and while sipping it you might ponder about what I think of economics, the service sector and its links to a great cup of coffee. And even if you think that I am an idiot, I hope that it will make you smile, which in turn will add economically immeasurable value to someone else around you. If they smile back at you, than you might begin to realise what I’m getting at!
Charles and Claire Gilmour
December 30, 2007 at 23:01
Our New Years resolution is to meltdown those who think they are adorned with a crown. And oh what a crown of thorns it is.
Soldier ants devour their carcass from all fronts.
And although we believe the forest destroyers, aka, the pulp mill dreamers, will risk and over capitalize to prove to themselves they can try and win at any cost – when it affects more and more people personally, when those people recognise their water, power and food bills have been increased by selfish people who care not a hoot for the majority of people, then – it’s the water, the trees, the food, the wildlife, the secret special places for all – including you and me that becomes important.
If only people could realise how long the forest destroyers have been using and abusing so much and so many.
STOP and make the forest industry accountable. This monster of a Mill is the end result. They have finaly clearfelled their way into the city.
STOP it where it starts! Without the trees there is no mill. We wouldn’t trust Gunns or Lennon or their their media and financial advisors to tell the truth. They have proven that time and time again.
There is a need for a commitment, a free commitment to ensure LIFE is protected from the greed.
The RFA, Forestry, Gunns, the Lennon Government deserve nothing less … than to be shot down in flames … devoured like the rotten carcass it, (obviously working together) is … trodden into the ground, like they have to so much and so many. Rotten, diseased selfish mind sets need to be cut out, they need to be as abused and ridiculed as much as they have to so many.
Bugger being nice, the one’s with the hardest and consistant, from every angle, punches, lays the man down.
And we will not rest, rest assured – gunning flame throwing forestry lemons – until accountablility, transparency, honesty and good tidings for all Tasmanians, are what this government/corporate business is fairly about.
A Happy, and fighting spirit, New Year to all.
Tomas
December 31, 2007 at 13:23
This article details beautifully the inward focus of ‘A Better Australia”, which really should be exposed for yet another small anti-mill front group.
The thesis seems to be that the subprime mortgage disaster in the US is a good thing as it places more pressure on lenders here, linking in with the difficulties Centro is having, which may make financing harder to find for Gunns. Leaving aside the gloriously econimically inept joining of these dots, I find it profoundly disturbing that this group takes pleasure in the massive human misery associated with the subprime mortgage situation as well as the damage to shareholders and Centro-associated businesses – all beacause it may, questionably, make financing harder for Gunns to come by. In summary, the Better Australia people think it is a good thing for 1000s to suffer across the world so they dont have to look at a mill or a clearfill. Better Australia for who? Certainly not for many Tasmanian families who may also be looking at higher interest rates as well.
I am now back rooting for the Mill only because I find this attitude so morally offensive. I hope it is a good year for Mill construction. Maybe also for the proliferation of pontificating front groups of various kinds – which Tasmania is now becoming well known for.
Justa Bloke
December 31, 2007 at 18:19
Tom, I hope it’s fair trade coffee.
Tom
January 1, 2008 at 11:45
Just a Bloke, unfortunately that is a gamble addicts have to take, and another good example and long story about the nonsense of globalised economics of today.
It amazes me how people can change their view about an issue based on their negative emotional response to someone else’s’ view. It shows either low EIQ, or lack of a considered approach to arrive at the initial point of view in the first place. In Tomas’ case I think it could be both.
I also think that his over emphasized empathy about the sufferers of the sub prime fallout is a little misplaced. It is one of his old tricks to get upset on behalf of some other group he has never met, doesn’t know anything and doesn’t really care about. And he knows this but it serves him to change his mind about the mill. I for one do not believe it needed changing for a moment. It only needed a lame excuse.
Tomas knows well that the people who “suffer†from the fallout are mainly banks and their brokers who lent money to people they should not have. Those who took the money to buy homes without clearly adequate income to support the mortgage, invariably unemployed, will loose the house that is true, but they know themselves that they should never had one in the first place. You will find that most will go back to the rental market and say “thanks†because they didn’t have to pay rent for almost a year. Most put and had zero equity in the house in the first place, they have lost nothing other than yet another move to another house they will be renting again. The borrowers are not the main losers here, the bankers and their investors are. Anyone who lends money to the unemployed to buy a house deserves all they get. They should have known better and can afford the losses, they should view them as the bill for gaining some valuable experience.
The reasons for the crisis is well understood, expected, long time coming. A lot of equity has been looking for a home – pun intended – around the world for a long time. Some found its way to shonky lenders, that is almost normal in a credit glut. Those homes in the US are still standing being snapped up by people with real equity, and life will go on with some adjustments. It is an adjustment that the credit market did desperately need. If it helps to stop the mill, that is only icing on the cake.
For the record, because I find abhorrent and manifestly un-democratic any parliamentary process that involves creating legislation that legitimises bribery, as does section 11 of the pulp mill assessment bill, for what Gunns and it’s blind vision represents to the future of this state which I consider nothing more than economic and environmental vandalism, not surprisingly, I still and will always going to come to the same conclusion that is, I vehemently oppose the pulp mill!
Justa Bloke
January 1, 2008 at 12:44
This is a bit off the thread, but Tomas’s mention of interest rates got me wondering. Whatever happened to cooperative terminating building societies? With a mortgage from one of those I managed to pay a fixed rate of 6.3% all through the high interest rate period from the late 70s to the mid 90s, despite prolonged periods of unemployment.
Could never understand why more people didn’t take up this option or why it seems to be no longer available. No doubt there’s some valid reason, but I’d love to know what it is.
Sarah Toenin
January 2, 2008 at 18:30
It is interesting isn’t it? That $1.32 Billion in tourist dollars has been spent in Tasmania, (Mercury 2/1/08).
In contrast, Forestry failed to produce a return and is not expected to do so for 2 years. Then we have Gunn’s who will build a mill, buoyed only on massive subsidies.
Now if I wished to invest public money long term, would I invest in a profitable tourist industry or an old world resource dependant industry that struggles to compete on the world market?
tomas
January 6, 2008 at 10:52
Mr Mander – it is indeed possible that misfortune in one part of the world can play out to be good tidings in another. My point of issue is when someone takes pleasure from misofrtune in another place, or for ‘other’ people, because it may play out well for a narrow political agenda. It is that I find morally offensive as well as spectacularly inward looking.
And what amuses me further are the Tassie armchair views on how America should run its business. Now that is funny. One of the problems of living on an island I guess is that getting out to see how the rest of the world does things can sometimes be a problem.