Discussion in 'Financial Planning' started by Simon Hampel, 31st Jan, 2009.
The 7.30 Report - ABC
7.30 Report - 27-Jan-2009
Storm founder offloads blame
Im from Redcliffe where the Storm financial crisis has hit everyday people hard. The Castimastitis are trying to blame the banks ... and claims the $2m dividend withdrawn AFTER the margin calls started in December was 'regular and usual'.
Their model I have read, included 7.5% upfront gross fees! Fancy software projections (obviously only looking at the upside) and telling people their houses were 'safe' was obviously some part of the problem. Another large part is the lack of education generally on what is a FAIR and proportional fee, what is a SAFE margin lending level in normal times (i.e. 50% not 85%), and what CAN and DID happen if the stockmarket plunges.
Builders build bridges for 1 in 100 year storms so why didnt Storm build their bridge for a 1 in 100 year sharemarket event? SHEER GREED.
Black Swan events are very hard to "plan" for with any type of "system". Even leveraging in at 50% would have wiped out long term investors on a couple of occasions in the last 100 or so years.
The real lesson is not the need to set up a system for worst case scenario, it is knowing all the risks possible, and educating yourself on financial matters so you aren't leaving all decisions about your money up to someone else. I think everyone involved needs to take some responsibility for the results of their actions.
are there any other financial planning groups promoting the same strategies as storm
Margin Loans - in and of themselves are really not a major issue in terms of an investment strategy. it's how to protect the downside that's the issue. and ensuring that you do not committ more than you are able to repay in terms of repayments or even the debt in total.
That's where storm and the clients themselves are to blame, they took on WAY WAY WAY to much risk and basically gave themselves no fall back position.
Who is to blame for this situation. Many parties but in my opinion i'll rank them in this order.
1. The client themselves - they must take responsibility, if they claim they didn't understand what they where getting into, they shouldn't have signed up.
2. Storm planners - way to much risk taking, they charge crazy fees, and in some instances are blatantly dishonest. for example they charged an entry fee on MARGIN CALLS, and they called margin calls - "opportunities to enter the market" .. CRAZY.
3. the banks - to quick to try and sell down assets and demand repayments.
4. investment society/media. - generally biased and don't really know all the facts and most presenters of investment news aren't equiped to handle their own portfolio's.
That is a very good rank order, especially position number 1!
Though I'd have society and media above the banks. The bank didn't create the losses for the storm clients.
I'd blame society and the media more because no doubt society int he form of successful clients of storm pushed storm products for them due to their temporary success without advertising the risks of such a strategy. Plus the media is always going on about "guaranteed growth in the long term" it just makes high leveraging sound so attractive!
I feel a bit sorry for the Storm clients and what they are presently going through, I am sure that reading some of these posts telling them that they shouldn't have done this or that from "all knowing" investors will make them feel better.
Unfortunately some of these investors will be too old to rebuild their financial lives. They went to a financial adviser for "advice", they took advice thinking they were doing the right thing for their families.
Maybe we can rub more salt into the wound and criticise them some more.
I have LOADS of empathy for the people involved in the collapse of storm financial, but I will never give them sympathy.
I can completely appreciate why they did what they did, why they trusted storm and their system, why they are all wanting to point fingers of blame. However I believe sympathy for those that were involved in creating their own misfortune doesn't help them in the long run, it only justifies their misallocation of fault, and until they accept that the majority of the blame should be placed on the person in the mirror they will be doomed to live out the remainder of their lives achieving similar outcomes they have experienced with storm.
I'm not saying it's wrong to be temporarily angry, or look to blame others, or be disappointed, even disillusioned with life itself, but they will also need to move on from this phase and that will only be achieved when they look to reform the deficits in themselves that allowed this to happen.
I truly hope that for many this will be the eye opening experience that allows them to go on and make greater successes of themselves because will hopefully have a deeper understanding of the realities of life.
There is no such thing as too old.
I have mentioned this a few times on these forums already- here, but in my opinion retirement will go down in history as a dream of the masses in developed nations; it was never really attainable on mass scale. The reality is long, well funded, healthy retirements will be a fantasy for most, and will only be attainable by the elite few. But that's the way life goes - you can't hope to put in an average effort all your life and get above average results. I look forward to a future where people get busy living, or get busy dying.
The arrogance of youth. You can tell that to the investors from Storm who have health issues, ask the TPI bloke. Where is that ignore button?
Ahhh... the cynical stubbornness of age.
So you want me to go up to the bloke on the TPI pension and say, "you were completely justified in leveraging into the market like you did considering you had no assets or income to fall back onto. It was all Storm's and the Bank's fault, they promised you great returns in a fool proof system... poor poor you."
Live by the sword die, by the sword. I do feel sorry for a lot of people caught up in Storm, but they are not victims. We influence our own destiny, they just chose poorly. That said, hindsight is 20/20 and I'm sure if I was approached a year or two ago, I may have opted for a similar investment strategy, though if I lost my money I'd be pointing my finger at no one but myself. When you play with leverage you are gambling.
There are so many times in our lives where we pay money to people for a service and we don't understand exactly what it is they are doing.
If you took your car to the mechanic's to get your brakes done and killed someone on the way home because they failed, do you think you should be to blame at all?
I believe there are certain things in life that we shouldn't be completely outsourced to others, and that in these areas we should seek to be constantly up to date and informed. Those are your:
If you fail in anyone of these three areas the blame should be pointed at no one else before yourself. I'm not saying that the advice you pay for in these areas might be lacking from time to time, but the onus is on you to excel in these areas, not on anyone else.
I can appreciate if other people don't want to subscribe to my beliefs, but I guess I have a bit of the control freak genes running through me that prevent me completely relinquishing the most important aspects of my life to others.
I can appreciate if other people don't want to subscribe to my beliefs, but I guess I have a bit of the control freak genes running through me that prevent me completely relinquishing the most important aspects of my life to others.[/QUOTE]
I just know how easy it would be for someone to have the wool pulled over their eyes when it comes to financial matters.
People like Madoff in my opinion should be facing the death sentence! and people like storm should be facing life.
You don't say !!!!!
I can completely understand how people were bambozzeled by the idea of easy money. Most people hate numbers at the best of times, hell, I only have to mention the word economics and most people cringe with the distaste for the topic because of the big words, loads of numbers and complex relationships. You even have people on these forums, who are arguably well ahead of the curve when it comes to economic insight that refuse to want to delve into the subject at any great length. So what chance does the public have.
However just because something is difficult or complicated doesn't excuse people from doing it. If anything most of the more difficult things in life are the most necessary and often rewarding.
Unfortunately the world is structured to protect the elite and oppresses the masses, but you get that when the elite make the rules. So I'm sure slaps on the wrist will be deemed adequate punishment.
I make no apologies for this fact, nor am I embarrassed by it. I think the characteristic serves individuals well in a world that always has and always will be based on Darwinism.
I enjoy most of your posts Chris so keep them coming, but sometimes my eyes hurt.
I highly recommend people leave the building of house and cars to the experts. But as I mentioned above, I believe everyone should take responsibility for their health, wealth and relationships.
So by that I mean you can't outsource your marriage relationship, your relationship with your kids, family, friends, etc. So you may as well learn the finer arts of communication, psychology and being a decent human being (though I get the impression most of you think I would struggle in this area).
When it comes to wealth, like I have mentioned throughout this thread, getting advice is one thing, trusting it and fully understanding it and the risks involved is another. There are a million things in the finance world that I will never be an expert in and as a result I will no doubt seek to "purchase" advice on these matters, but during that process you can rest assured I'll be looking to understand the advice wholly not just pay for it and act on it without due diligence and a full understanding. I wholly believe if you don't understand it, you shouldn't be investing in it - otherwise you are gambling.
When it comes to health, of course I'm not going to operate on myself, but if I had cancer you can rest assured I'd read everything known to man on the topic to increase my chances of survival! You only have to look at the state of most developed countries and their obesity crisis to realise that average joe blow either doesn't know the first thing about health and nutrition or is intent on eating himself to death.
Yes and no.
I mean whose fault is obesity, McDonald's? Or the person that chose to eat Maccas 4 - 7 times a week?
Whose fault is the banking crisis? The banks that lent the money? Or the borrowers who borrowed the money speculating on housing growth, then spent their growth in equity on plasmas and now can't pay it back?
My point is, sure the elite might "use" and occasionally "abuse" the masses, but let's be honest, the masses aren't clueless of the agenda, they happily turn a blind eye as long as you can supply them with the essentials and keep them entertained. In exchange they will give you 40 hours a week of their working time, no questions asked. Why do you think Romans built coliseums?
The elite will always rise to the top, and as long as the masses aren't abused too much they will play along. Thus we have democracy, giving the masses the illusion of control, which uses economics rather than force as its form of socialital slavery via debt. There's nothing like a good old 30 year mortgage to tie someone into the system. If you haven't heard, apparently it's the "Great Australian Dream"!
Well I can't win em all.
I have read many of your posts Chris C, I generally like what you write, don't always agree, but it's always thought provoking. Keep up the good work.
Criminal activity likely in Storm case, former clients told
Criminal activity likely in Storm case, former clients told - ABC News (Australian Broadcasting Corporation)
News Video - 07-Apr-2009
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