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The Forum > Article Comments > Private equity, derivatives, bubbles and busts > Comments

Private equity, derivatives, bubbles and busts : Comments

By James Cumes, published 3/1/2007

When Qantas hits trouble and the bubble bursts we will wonder at the greed and how we allowed it happen.

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Any early example of the same locust phenomenon of which the Qantas takeover is a sample, was when a number of high profile people saw that the NRMA had accumulated reserves and worked out how they could get their hands on it. They succeeded in doing so by appealing to NRMA members' greed.
It was that greed that drove people to vote to turn the NRMA into a share based company. The greed that had people saying that they wanted shares rather than the roadside service provided. Well, we now have our shares and a very much degraded roadside service.
Posted by Plaza-Toro, Wednesday, 3 January 2007 9:30:20 AM
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It was good to see Macquarie Bank gets its greedy paws burned by the financial collapse of the Cross-City Tunnel. How long before the NSW rate payer has before they cop the bill is anyone's guess though.

Much of what James writes in this article can be found by reading Australian History books detailing the events leading to the 1890's depression. An interesting account can be found at http://www.anu.edu.au/polsci/marx/interventions/nineties.htm

It all sounds very familiar...
Posted by Narcissist, Wednesday, 3 January 2007 12:39:46 PM
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Yes, I think all Australians can see what's going to happen; a perfectly functioning, albeit with flaws, employer goes under private control, makes amazingly ridiculous decisions with much pomp and fanfare, then bad news hits the corporate media headlines, 'qantas in trouble'...needs public baleout, with no mention of how money was sucked out and the methods used and now long since have baled off, and looking for another 'victim' with a war chest of money to make more...

It all comes back to the word good government... Qantas was a public institution, meaning grown with our money, when it became a valued entity, meaning had assets and positive cash flow, suddenly the 'government' at the time now 'decides' it time to list it on share market, makes a good return on the books for that year in budget, then no idea what happens to the money, and we the people have lost one of our common assets...which is the definition of 'bad government'. If we wanted to sell our own assets we will do so on a national referendum, not elected politicians...at the moment we are given helpless observers status...

I agree, unbalanced greed is driving this. And to CEO getting millions in bonuses for a work that is not specified to public, inside trading at its best, the money is rotated among the owners of the money. The common people, us, see little of the profits. Our wages change little in real terms...

So if the bubble burst, let it be contained to the unbalanced greedy lot. Now we need good economists on public side with power and influence to see this through...any takers?

Sam
Posted by Sam said, Wednesday, 3 January 2007 2:01:42 PM
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Not an economist but am concerned by what I read ... derivatives bubble US$380trillion ... yes trillion ... now no one is going to let that lot unwind ... would be the end of capitalism as we know it !!

US economy floating on MEW's (Mortgage Equity Withdrawal) without this addition to GDP would show that US actually in recession for the last 4 years. Housing construction bubble easy to calculate ... 1999 unoccupied houses/apartments in US was 12,000,000 and in 2005 had risen to 18,000,000. US rental market like a huge washing machine.

China running something like US$380billion trade surplus with US and has accumulated over US$1trillion in US treasuries/securities. The US Dollar down 25% and China recently signalled it may look to reduce US Dollar denominated holdings. Bet helicopter Ben sure glad M3 numbers no longer published.
Posted by rembrandt, Wednesday, 3 January 2007 7:09:47 PM
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“Private equity, derivatives, bubbles and busts”

And “When Qantas hits trouble and the bubble bursts we will wonder at the greed and how we allowed it happen.”

One important word in these statements “Private”

Qantas is a public listed company owned by private individuals or their nominees, through superfunds etc. and subject to a few special rules of ownership which it inherited from being a one time (but no longer) “public asset”.

If the Qantas bubble were to “burst” it would be no different to Ansett bubble when it burst.

Private ownership means the public authority of Australians (government) has no hand in the decision and nor should it.

Way back when, Qantas was floated and sold. The reasoning for the sale was an economically sound one; that government, as umpire, should not simultaneously participate as owner of a playing team and that there are better qualified people around to finance airlines, rather than those who hold the strings to the public purse.

Things have been going boom and bust since before the South Seas Bubble. They will continue to go Boom and Bust into the future. We have seen the coming and going of the dot com bubble and more recently those who were known as “the smartest guys in the room” were seen to be pretty dumb and some made to stand in the naughty corner (for several years).

No point in trying to be circumspect about money, especially when it is not your money but “private equity” money.
Posted by Col Rouge, Thursday, 4 January 2007 7:22:24 AM
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I have a big problem with this;
If it were Private Enterprise as it should be, then it would be OK;
But now it is entities that produce absolutely nothing but borrowed debt.
And Executives that collect big time , I fear the 1930’s depression is not too far on the horizon;
Ominous parallels leading to that point in history are forming under our noses and no one seems to care.
Value has been removed, and demand is now the order; Sounds awfully totalitarian to me; So where do my human rights fit in?
I forgot, we don’t have any left. The Looters rule.
Posted by All-, Thursday, 4 January 2007 4:36:36 PM
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I would not wory about Qantas too much. If they are silly enough to buy
into the airline industry when peak oil is coming over the horizon then they
are welcome to it. Airlines will be the canary in the mine.
Airlines and toll roads will be the first to look bankruptcy in the face.

Anything with, like toll roads, long term loans will be up against it.
With petrol in the $5 to $10 a litre range sometime in the next five years
would you enter into aircraft purchases that need 20 years to pay off ?
BTW Macquarie Bank got out of Cross City Tunnel Road. I think they
pushed it off to some other sucker. Some of the other banks did however get caught.
Posted by Bazz, Monday, 8 January 2007 11:44:45 AM
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Bazz “I would not wory about Qantas too much. If they are silly enough to buy”

I would whole and absolutely agree with your statement.

Private individuals exercise their own choice in decided where to invest.

Be it Qantas or Telstra (IMHO - another one to steer well clear of )

The superiority of private ownership is evident when compared to public ownership (nationalized industries and government owned corporations etc).

The tax payer does not get a say in where his “investment taxes” are placed, how he benefits from what sort of return they might generate or what sort of monopolistic subsidy is provided for staff and other vested interests from the money the tax payer provides.

If Qantas were to fail, another airline would negotiate to fill the gap. I recall back a couple of decades how some other dinosaurs failed to make the transition into the rules of the modern economy. Panam and TWA have both gone from being the joint flagships of American passenger airlines to extinction in less than three decades.

Today American Airlines and Eastern seem to rule, I think Delta might still limp along and of course Virgins of differing hues offer cheap “passage” to all (so to speak).

Similarly a hundred PC and Notebook manufacturers / labelers clamber over the strategies of a once Dominant and unassailable IBM.

The world keeps on turning, oblivious to the plans of men.

Let them who take the risk benefit from the spoils and them which take the risk bear the consequences.
Posted by Col Rouge, Wednesday, 10 January 2007 2:42:04 PM
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Hello Col; When QANTAS goes belly up there will be lots of other
airlines in the same state. How would you like to be paying off a fleet
of Airbus 380s when economy fares were reaching $20,000 to $30,000 for
a ticket to London ? All this tied in with a recession.

I sold my Qantas shares but I am blowed if I know what will be a good
investment when it hits the fan. Still may have five years to think about it yet.
I wonder why uranium miners have gone through the roof ?
Hmmm. Perhaps they know something.

One suggestion is to buy good farming land around Sydney as there will
be an expansion in market gardens close to cities and towns.
The days of the 3000km salad are numbered.
Posted by Bazz, Wednesday, 10 January 2007 3:32:16 PM
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