Section one, Part one

Theme: MONEY FOR NOTHING ( apologies to Dire Straits ....good name for a rock group, in hindsight). Social contract allows for full, and reciprocal, obligation." I will allow you to operate, provided you recognise and agree, and comply with your part of that obligation." Money for nothing has so many manifestations since 2007, but let's concentrate on three main examples: redemption freeze; investment bank behaviour; central bank behaviour. REDEMPTION FREEZE We need to establish the ground rules. Caveat emptor says if I am stupid , I deserve to lose my money. If I am a professional investor, then it should be a battle of equals, and if you win this one, then I will get a chance to get you back on the next deal, to equal the equation. Good, totally professional game, giving full credence to the Darwinism that is financial markets....only the best survive. The "balance of the scales" is appropriate. Provided that we are playing , and supported , by the same contract. We can and should differentiate between professional, and retail based investors, with the latter having a higher duty of care...but we will come back to that shortly. To complicate matters, there are a number of forms of redemption freeze: a redemption freeze forced on the investing entity by their total inability to fund client payouts.....think Elderslie ( was that you, John Hewson? ) ; maybe a whole series of debenture funds who got caught on the illiquidity of bad investments ; maybe a whole series of funds who are designed to funnel money from unsuspecting punters into a promoter's pockets. Lots of manifestations.....the actual real effect is...I will not give you back your investment money because I can't ( as opposed to won't). This may be borderline criminal, but it is not amoral. Crooks are crooks, and these funds get shut down. These group of activities are based on making an offering to investors, and ultimately disappointing those investors. Totally supported by the system, almost validated by ASIC ( Australian audience, other jurisdictions can insert your own inert regulatory body ) , and fundamentally flawed....promoters should either go to gaol, or at the very least never work in the business again. Such penalties seem to be too seldom invoked. Criminal seems to apply to the detinue of candlesticks, not $10,000. White collar sounds so much more innocent, doesn't it? What about the " won't" . Well, this is not criminal.....well yes it is. If I told you you cannot have your money back, because I have decided not to give it back to you....for no other reason than that is my decision, well I reckon I have breached the social contract which is formed on the basis of honesty and trust. Notable examples of a few years ago: State Street Bank, in the USA. Closer to home, a whole series of funds operated by Perpetual, some property trusts, including one operated by Investa, not to mention a number of superannuation funds under the oversight of APRA. There will be a whole range of reasons adduced to justify the action...the usual bastion of the scoundrel is to claim that to keep the trust open is " not acting in the best interests of all beneficiaries ". What is galling here is that the people who made the bad decisions on how to set the fund up, or where to invest in the first place, now arbitrarily determine that they will suspend normal operations, because in effect it would be commercially inconvenient to operate. Usually, the business can continue.....the reality is that the business proponent does not want their assets effectively "scored" or "marked" at the new ruling prices.....not for the clients benefit, mind, but having the assets marked at proper transaction prices will probably mean that the business will suffer some mortal form of brand damage. Have you noticed however that the asset pool is usually not so illiquid that the proponent has to forgo their fees during the freeze. They always seem to find the money to pay themselves, while at the same time denying access to money by their clients. Arbitrary detention of money is no different to the arbitrary detention of any asset. Arbitrary detention of your money, while I continue to pay myself (usually) full freight in the form of my fees, is tantamount to theft. Again, very little formal punishment flows to these promoters, some indeed continue to pretend to be scions of society. So what is required here. Let's set the parameters of the argument. For society to operate, I need to be able to form bonds of trust. Moral obligations exist to treat people honestly, and without fraud. We have developed finely tuned judicial systems to punish thieves and fraudsters, but not so finely tuned that these do not have to be rethought in the light of the advancement in commercial practices which introduces arbitrary decision-making, which creates opportunities for me to withhold an obligation to you, for an arbitrarily determined period of time, whilst I still reward myself for doing a job on you by making those decisions, and continuing to pay myself. At the very least, I should be forced to disgorge any earnings during the suspension period, and this can be enforced as a condition of my operating license. There would be no point suing me....I can always revert to the assets of the trust to fund any actionable against me, and the fraud I am talking about is not formal fraud, but an inconvenient type of business practice which amounts to a fraud against the social contract.....the condition that I can create an set of arbitrary decisions , against your true interests, without me also suffering some commensurate financial disadvantage. The GFC exposed a number of key decision makers to some strains and pressures they had never previously experienced. What emerged was a large number of ill-thought arbitrary decisions which will continue to erode , or at least delay, the re-belief in trust. Too many persons have still not been punished for their practices, and the general public, because the decision making was so varied, vast, and manifest, did not have time to respond with their full range of preferences. Redemption freezes took a range of forms, from the obvious freeze within wholesale and retail trusts, to the style of redemption freeze implicit in the banning of short-selling listed equities. These were all decisions made where some decision-maker creates an asymmetric relationship between commercial actors, without first asking both sides. Trying to hold inquiries after the event to seek support to justify prior actions is just not good enough. We need to learn lessons, and ensure that practices re-inforce trust, not undermine it.