SECTION THREE, PART TWO

Sliding Doors, Which Reality?: One interesting development over the last week or so is the probability of a class action against Allco, one particularly notorious example in Australia in 2007 and 2008 of a number of objectionable behaviours. Just to remind ourselves what happened here; the class action, if successful, will be primarily based around the argument of material mis-statements to the majority so shareholders about the level of short term liabilities disclosed in Allco accounts. These mis-statements will stem from "review" clauses in lending conditions from some banks about the total market capitalisation that Allco had to maintain in order for the debt not to be called in for quick repayment ( or more typically a much more onerous interest rate applying to the re-set ). These types of clauses were not untypical as causing a number of debt reviews during the GFC, in particular in relation to listed property trusts ( or real estate investment trusts, REITS in some jurisdictions), but also applied to a whole range of non-property basd entities as well. Allco, I believe at the centre of this action, had a $2 billion bottom line, but the nature of falling below two billion, and having some debts recalled/reviewed had not been declared to shareholders. Fair enough, equity markets were very volatile during the downturn, and breaching market capitalisation levels on regular bases were almost de-rigeur for most companies during some of the periods of market free-fall. But what was galling about Allco was that an accelerant to the market decline was the forced margin sales of the main management and Directors as their margin loans got called in. The extent of the "margined" shares on issue, and held by the inner workings, were also not typically, or widely known, nor was the trigger points under which those margined holdings were going to forcibly appear on market. So a quick recap...shareholders were generally not aware that low market cap levels were going to breach debt agreements, and that the low market cap could be caused by senior company officials having their margined holdings sold out for under them. I would agree with the proponents of the class action that these material non-disclosures would have made a number of shareholders consider their continued investment in the company at the time if they were more widely known...and as a shareholder, these were disclosures that should have been made. Two things flow from this, however. One of the proponents of Allco has since died, and we were told at the time of his death that he was a good bloke, who did a lot of good things and helped people. He also went down with the ship in losing a lot of money in Allco. Quite apart from a couple of extremely dubious decisions that Allco made as it was slowly slipping to its death, I ( may appear uncharitable here ) did not think that individual who passed away should have been lionised at the time of his death. Forget the good, why don't we balance that with the bad....a number of shareholders....regular Joes and Joans... had their savings affected by the sleights of hand practised at Allco, and similar companies, who didn't seem at the time to feel morally affected by their non-disclosures. And as for losing a lot of wealth, since a lot of that wealth was the invented wealth of a falsely high share price, and margined up for good measure, then if the people had a rich life at all, it was garnered immorally on the backs of more restrained ownership types. The Allco fiasco is typically of a type where fundamental dishonesty ruled supreme for a while...and I ask the rhetorical question. If these people demonstrate that they will be dishonest when they are exposed to stress, who is going to ring the bell when the next period of stress begins to emerge. These people should not have been in a position of trust before, because they have demonstrated that they did not deserve to be in a position of trust in the first place. That should mark the card for a wole range of people during that period, but alas, there still seem too many survivors floating around...maybe further time needs to pass. I can only hope. But the sliding doors moments is when you think about the amount of government "printing" that has, and continues to inflate asset prices, the unknown event will be the equivalent as some trigger which will lead to a global call up of a range of "market cap" style debt agreements. Greece will not be the only example, nor will Cyprus be the only extreme case of unacceptable imposts upon populations. With the corpus of debt held by all major economies, it will not be like a Japan of the nineties. Japan could stand, because it was a one-off..the only country going through aan asset deflation of hat size at the time. This time around, ALL countries will be going through their own version of the deflation, and the issue of "in isolation" will not apply. Too many will be seeking the lifeboat, and again they will all be seeking their best bail-out structure. Again, no lionising this time....but the big question is about what we are not getting told. Allco is a metaphor for national economies this time around, and it is government revenue departments, and central bankers, who are playing the roles of the insiders. Not really too scary, is it? I want to be the leader of the class action on this one though...10% success fee should be sufficient!