Tuesday, March 17, 2009

My favorite ongoing Ponzi scheme

Bernie Madoff is small potatoes and oh so yesterday. The biggest and best Ponzi scheme began life Down Under and is still flourishing. Where else, after all, can you get steady high returns in this bear market?

Not to mention that this scheme (schemes?) has the world's infrastructure as hostage.

These Ponzi schemes are masked as the safest possible type of investments: the infrastructure fund, particularly those sponsored by Macquarie Bank. Infrastructure (tolls, bridges, airports) are safe, steady streams of revenue, right? So why wouldn't my returns also be safe and steady?? Well, in a good world, they would be safe, steady and very low. In our world, they are steady, ridiculously high, and, I am afraid, not safe at all.

I learned about these funds back in April 2007 at the Global Finance Conference, hosted by LaTrobe University in Melbourne. So this has been at least semi-public for a long time (as was, apparently, the Madoff scheme). Apparently, the reason they are so problematic is that the funds have: an opaque governance structure, management fees that on occasion exceed the revenue stream from the underlying assets, and dividend payouts that come, in part, from new investors...

And it is all documented here, though you have to log in to get the report. And a very scary thing: Australia's superannuation funds are apparently very invested in these buggers. Low volatility and all. So when it all comes tumbling down, the Aussie privatized pension scheme could well come down (even further) with it.

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