To mark ten years since the GFC, I re-watched the movie The Big Short. It highlighted to me how little has been learnt.
We still have lenders utilising RMBSs (Residential Mortgage Backed Securities), CLOs (Collateralised Loan Obligations) or whatever new acronym is now in vogue.
We also still have lenders who have lent long on shorter term funds, who will have liquidity issues if the merry-go-round stops as it did in GFC.
This bought me to the royal commission and to ask, where will we be in 10 years?
I expect it will all be soon forgotten, and we’ll be back to “same old, same old”. Just as with the GFC.
The tough issue for Mr Hayne is how to deal with the conflict between shareholder and investor interests. Quite a few non-banks like GPS have controlled shareholdings. In the case of GPS, all shareholders / primary beneficiaries get together for a meeting each evening. Its called “dinner time”.
We can take a long term view based on the premise that if we, at all times, look after the interests of investors then the rest will fall into place.
If dividends decrease or stop there will not be a panic. The senior executives and directors will not be sacked. Shareholders will not be selling the shares, dropping the share price. We will simply suck it up and get on with it.
The only joy I can see is that Mr Hayne is a much smarter person than me. I don’t know the answer other than to ban listed companies from lending money, and if such a ban was put in place it would result in economic chaos.
While this is an unusual article for this newsletter, it is important for borrowers to understand where the progress draws will come from if there is an issue in the capital markets.
I was doing some development work pre-GFC and know firsthand of the hardships caused by a lender saying, “sorry, no money”. I would not wish that on anyone.
GPS learnt and applied lessons from GFC. Our funding comes directly from investors (no intermediaries like financial planners). Our pooled funds operate as non-liquid funds. Our contributory investors are linked to the term of the loan. We don’t borrower any money to fund our lending obligations.
Let’s wait and see what Mr Hayne recommends.