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Investment bankers and venture capitalists

What do PM Malcolm Turnbull, Premier Mike Baird, and NZ’s PM John Key have in common?

They were all investment bankers – for Goldman Sachs, Deutsche Bank and Merrill Lynch respectively.

Like Costello, and Hockey with Medibank Private, Baird and Key have both been able to sweet talk their constituents into selling off billions of dollars’ worth of state assets to give their budgets a short term sugar hit. The fact that private investors then reap the rewards of profitable businesses, while cutting services and avoiding paying tax, does not seem to form part of the consideration any more than the loss of future revenue does.

“In banking, you’re saying to clients: here’s this transformative transaction and here’s what it can do for you,” said Alastair Walton, who ran Goldman Sachs’ investment banking business in Australia after Turnbull left the firm in 2001. Bankers know “how to sell change.”

Lobbyist Graeme Morris said, when speaking of the installation of Turnbull as PM, “The feeling was that Malcolm has that ability to talk to mums and dads about the economy and explain why certain actions have to be taken.”

This has so far not been the case, unlike his banker-turned-politician colleagues.

As Turnbull, Morrison and Cormann repeat the mantra about “mum and dad investors”, it is worth remembering how these very people have suffered from the actions of Malcolm’s previous employer.

Turnbull made his fortune as Chairman and Managing Director of Goldman Sachs Australia in 1997-2001. BRW magazine estimated his tenure at Goldman Sachs was worth $50 million.

In 2009 Matt Taibbi from Rolling Stone magazine described the firm as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

While Turnbull was boss at Goldman Sachs in Australia, his firm was key in pumping up the 1990s tech stock bubble. Taibbi quoted a prominent hedge-fund manager explaining that “their analysts were out there saying Bullshit.com is worth $100 a share.” It was clear they knew this was a fraud—everyone on the inside knew it! Nicholas Maier, the syndicate manager of Cramer & Co. said Goldman Sachs was the worst perpetrator: “They totally fuelled the bubble. And it’s specifically that kind of behaviour that has caused the market crash. They built these stocks upon an illegal foundation—manipulated up—and ultimately, it really was the small person who ended up buying in.” Turnbull personally profited from this bubble through OzEmail, the first Australian tech stock listed on the NASDAQ. He was concurrently chief at Goldman Sachs and Chairman of OzEmail Ltd in 1999 when he turned his $450,000 investment in OzEmail into $59.3 million in cash through the $520 million sale of this internet service provider to the American telecommunications juggernaut MCI WorldCom, the rapid expansion of which was a phenomenon of the tech bubble. Turnbull’s timing was good: just three years later WorldCom imploded in the largest bankruptcy in corporate history, and in 2005, iiNet acquired OzEmail for just $110 million.

Next came the subprime housing bubble leading to the massive mortgage meltdown in 2007. By the peak of this boom in 2006, Goldman Sachs was underwriting US$76.5 billion worth of mortgage-backed securities—a third of which were subprime—much of it to institutional investors including a hedge fund run by Australia’s Basis Capital, which got stuck with US$78 million worth of the notorious investment product called Timberwolf. Hundreds of Australian investors—including retirees, charities and councils—lost a fortune in Basis Capital. However, the bankers at Goldman Sachs behind the scam profited from everyone’s misery. In 2006, the bank’s payroll jumped to $16.5 billion—an average of $622,000 per employee.

In 2007-08 Goldman Sachs shifted focus from paper to commodity speculation, especially oil. They persuaded pension funds and other large institutional investors to invest in oil futures, which skyrocketed as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008. The bubble burst, Goldman Sachs made a fortune and once again the big losers were ordinary people. (Source)

No wonder they are resisting a Royal Commission into the financial sector because those “mum and dad investors, self-funded retirees and negatively geared nurses, teachers and paramedics” might be horrified to learn what really goes on in the arcane world of banks.

Along with the investment bankers, we are also seeing venture capitalists being installed in public positions, like our new Chair of Innovation Australia Bill Ferris and our new head of the CSIRO Larry Marshall. Research is no longer considered valuable or viable unless it gets the thumbs up from the investment bankers as something that can make them a quick fortune. Everything is judged by its commercial potential.

We will no doubt hear some announcements from the Coalition about restoring some of the funding they slashed from ASIC, and possibly adjusting thin capitalisation rules slightly with the compensation of also cutting company tax, but it is unlikely that any substantial reforms towards transparency, accountability and compliance will be considered.

In their haste to rush to an election to clean up corruption in the construction industry, the life insurance bill which included remuneration changes for life insurance advisers and legislation for the education standards body for financial advisers didn’t even make it to the parliament.

Speaking about the election on Tuesday, the deputy prime minister, Barnaby Joyce, said the choice was between “someone who has made a quid in their life, made a success of their life, or a nation run by Bill Shorten”.

Bill Shorten’s career as a union leader saw him fighting for better conditions for the people he represented who made their money through hard work. Malcolm Turnbull’s career was about amassing personal wealth through financial wheelings and dealings that saw many investors lose a fortune.

We do indeed have a choice as to who will lead us to a better society.

 

23 comments

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  1. John Kelly

    I think if I had to make a choice between someone who made a quid in their life and someone who forsook a high paid job to see workers got a better deal, it would be the latter.

  2. Barry Thompson.

    Good article Kaye.
    It irks me that these white collar bandits make obscene amounts of money when it’s likely most of them have not done a hard days work in their lives.
    It is a pity that articles such as this do not appear in the print media rags that undeservedly have a wider audience.

  3. Peter F

    Yes, Kaye, put simply, Barnyard said – as long as you are a ‘success’ it doesn’t matter how you arrived. As a former PM is reported as saying ‘ I would do anything except sell my arse to get the job.’ Enough!! where is the difference?

  4. Joseph Tuma

    Investment bankers are essentially slick, immaculately attired snake oil salesmen promising you the wealth of Croesus. They seldom mention that whether your spin of dice wins or loses, they always come out on top.

  5. Mercurial

    Peter F, I didn’t think Abbott’s arse was of any value – the rest of him certainly isn’t!

  6. John

    Takers ripping off the makers.
    (Lifters and leaners is so-o LNP 2014).

  7. Matters Not

    So the Banks have now bought their Regulator, otherwise known as ASIC. And it only involved ‘petty cash’ which will be easily passed on to the ‘mugs’.

    I am also informed that ‘drug dealers’ will be offered the chance to buy the Australian Federal Police for a small consideration as well.

    The Department of the Environment will be funded by Coal Companies. Approvals need to be hurried up. Murdoch will takeover the ABC – (sorry, that happened but no money changed hands – or maybe it did?)

    Why even the government is for sale. The evidence abounds.

    Here I am in Thailand contemplating things from afar and it’s hilarious. They are in panic mode writ large.

  8. Kaye Lee

    2008

    “Tony McGrath, the liquidator of defunct insurer HIH, named Mr Turnbull and his assistant Russel Pillemer in a $450 million civil action filed in 2004, before Mr Turnbull entered parliament as the member for Wentworth.”

    http://www.theaustralian.com.au/business/turnbull-done-with-hih/story-e6frg8zx-1111117505383

    2009

    Formal steps have begun to settle a $500 million damages case relating to insurer HIH’s collapse, which has been hanging over Federal Opposition Leader Malcolm Turnbull.

    Mr Turnbull is being sued as an adviser to FAI during the takeover, along with the investment bank he headed at the time, Goldman Sachs Australia.

    Executives such as Mr Turnbull are usually covered by indemnities from their employer or by corporate insurance policies.

    http://www.smh.com.au/national/creditors-to-settle-500m-fai-claim-20090706-dal3.html#ixzz46KSSUiQO

    2015

    Nearly a third of the 26 large foreign banks operating in Australia, including Goldman Sachs, JPMorgan, Lloyds and BNP Paribas, had no taxable income in 2014, data released by the Australian Taxation Office shows.

    In total, 26 foreign banks reported $29.3 billion income for 2014 through 35 tax entities, with 15 of these – a total of 43 per cent – not paying tax.

    http://www.afr.com/news/policy/tax/a-third-of-foreign-banks-in-australia-had-no-taxable-income-20160115-gm6spo#ixzz46KUq7YhL

  9. jimhaz

    if you have never read Matt Taibbi’s article that Kaye links to – make sure you do.

  10. Paolo Soprani

    I feel ill watching The Coalition in action.

  11. jimhaz

    [So the Banks have now bought their Regulator, otherwise known as ASIC]

    Yep, they know full well the “Regulatory capture” problem that all authorities seem to fall into over time.

  12. Athena

    I note that Mike Baird is another practising Christian. I could never be an investment banker because my conscience won’t allow me to rip off other people.

    I also note that the big four banks donate to both major parties, thus ensuring we’ll never see the financial sector come under scrutiny.

  13. Kaye Lee

    Bill Shorten was pilloried at the TURC because Unibuilt paid the wages of his campaign manager between February and November 2007.

    It is flabbergasting that the Liberal Party has the gall to criticise him for this.

    “A corruption inquiry has heard that property development company Brickworks continued paying for a researcher in the office of then Opposition Leader Barry O’Farrell after laws were passed in NSW banning political donations from developers.

    Robert Webster, a director of Brickworks and former minister in the Greiner government, told the Independent Commission Against Corruption on Thursday that the company was “approached by the Liberal Party to provide funding for a researcher because the leader’s office was under-staffed”.

    He said the arrangement was approved by the board in about 2008 or 2009 and $150,000 was paid over three years.”

    http://www.smh.com.au/nsw/property-developer-brickworks-continued-bankrolling-researcher-in-barry-ofarrells-office-after-developer-donations-ban-20140911-10f8cb.html#ixzz46KagQ4T7

    The researcher, Matt Crocker, is now director of policy to Premier Mike Baird.

    http://www.smh.com.au/nsw/barry-ofarrell-wooed-developer-while-it-funded-his-researcher-20140908-10dsld.html#ixzz46KeZNBWb

  14. RosemaryJ36

    Small wonder Australia’s global reputation in relation to corruption has gone down the toilet.

  15. z

    vote for the man who put people at first place, people’s job and people’s livelihood

  16. Anomander

    Baird here in NSW is a prime example of the rent-seeking, monied, merchant banker class, completely detached from reality in his constant push to privatise everything not nailed down, and hand tidy profits to his already wealthy mates.

    What makes it worse is the levels of secrecy surrounding these developments. Open and transparent government simply does not exist when it comes to the Libs, as they use every means at their disposal to hide and obfuscate their nefarious actions from public scrutiny.

    http://www.smh.com.au/nsw/documents-about-options-for-privatising-trains-buses-in-nsw-kept-hidden-20160419-go9nqe.html

  17. Terry2

    Having said that taxpayers won’t have to fund the $120 million being reinstated in ASIC’s budget and that the banks will have to front up with the lolley, the bankers have acknowledged that they only have two sources of funds, one being their customers and the other shareholders. So, it’s the old pea and thimble again : heads I win tails you lose.

    I’m just waiting for Scott Morrison to announce in the budget that we will be sending all the ready cash we can muster to the Cayman Islands to pay off Labor’s debt and deficit disaster.

    Incidentally I was reading that in the USA they are looking at taxing sports betting and online gambling to fill some budget deficits : sounds like sensible planning to me but it won’t happen here as the gambling lobby are far too entrenched.

  18. darrel nay

    Hey Terry2,

    I agree that ASIC is a bad joke, but I disagree that taxing everything under the sun is the way to go – large sectors of the world’s population are sick and tired of having the fruits of our labour siphoned off by corrupt governments. Any chance our bloated government could go on a diet?

    Cheers

  19. margcal

    KL: Everything is judged by its commercial potential.

    Worse – Everything is judged by its short-term commercial potential.

  20. totaram

    darrel nay:”large sectors of the world’s population are sick and tired of having the fruits of our labour siphoned off by corrupt governments.”

    You’ve been reading the Murdoch media and have absorbed this “meme” as a given. Or you are just trolling.

    I don’t even know where to begin to answer your question. Perhaps you need to start by asking: what do governments provide that we take for granted? Are you aware that free health care, education and infrastructure should be what governments provide? If not, then how will everyone have an equal opportunity to attain their proper potential? I’ll leave it there for the moment.

  21. stephentardrew

    Cutting clarity Kaye. All one needs to know about the head Nong.

  22. Florence nee Fedup

    How does likes Joyce judge Abbott. Never made much money before becoming MP. In fact never succeeded at any job.

    No credit given to Shorten for the many deals he negotiated with some of the biggest businessmen in this land.

    What was result of deal done over that toll road. Yes, delivered a workforce that was highly paid, which led to road coming in under time and under budget. Win win for all. (This is documented in TURC). That is a good productivity result one could say.

    Didn’t need ABCC to do so. PM claims one can’t have improved productivity and lower costs without ABCC to keep unions in line.

    Hawke years proved that when unions and bosses work together, one get good profits.

    Can’t imagine Joyce or Abbott having soem success that Shorten has. I even doubt Turnbull would.

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