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.