Gosford Council losses 40 million

[midfielder]

Taken from the 7:30 report Gosford Council has lost 40 million ... man what can you say ... it beggars disbelief ... only good part of this story was some good water shots..

http://www.youtube.com/watch?v=Z58Otz8bWFQ

 

[Jesus]

Taken from the 7:30 report Gosford Council has lost 40 million ... man what can you say ... it beggars disbelief ... only good part of this story was some good water shots..

http://www.youtube.com/watch?v=Z58Otz8bWFQ

I dont have 10minutes to watch at the moment. Was it the money they lost in the us supprime, or is this new money lost?

 

[midfielder]

The supprime stuff..

 

[dibo]

i think you mean 'beggars belief', but anyway...

Jesus - it's the subprime money.

they're hardly alone in getting stung on CDOs. something that's hilarious is developers having a go at the council.

it's worth thinking about what CDOs are. they are a security where mortgages are packaged together into a bundle. any individual mortgage carries with it a particular level of risk. when bundled together in the right way, the risk can be diversified out so that in the end the bundle of mortgages it becomes close to a risk-free asset. problem is that the market didn't work the way that was assumed.

behind this are two things:

- banks keen to lend further and further down the market to riskier and riskier prospects. these are 'subprime' mortgages because the borrowers are less than 'prime' prospects. also known as NINJA mortgages: No Income, No Job, Assets...

- developers happy to accomodate the flood of cheap credit with property. these mortgages are the mortgages that get sold on to invesrtment banks to bundle into CDOs. the developers fund the development projects in part through capital raised by investment banks through selling these same CDOs...

it's all free money, until it all goes wrong. when the default rate is higher than expected* the level of risk and return don't meet the model's predictions and the CDOs aren't worth shit.

like the story said, GCC isn't the only council in on the CDO thing. they're just in deepest. i'm happy as anything to see chris holstein squirm on TV, but he and the council aren't exactly robinson crusoe here.

you can no more blame GCC for getting stung by CDOs than you can blame anyone whose super has tanked or share portfolio has bombed. plenty of smarter and better advised people than GCC have lost big on this, including the people who originally wrote the modelling for the CDO packages. GCC is just the most visible to us.

* because far more people than expected simply walked away from their loans and took the loss on the chin than was ever expected, leading to the market tanking and the mortgages being worth a fraction of their original paper value.

 

[Jorome Alexander Bennett]

Wyong Shire FTW

 

[Jesus]

Wyong Shire FTW

Wyong lost like 20mil didnt they? I remember reading the top losing councils and both coast councils being in the top 10

 

[Paolo]

Rofl at the majority of the report..

 

[Part_Timer]

Rofl at the majority of the report..

inside info

 

[Jimmy]

Wyong Shire FTW

Wyong lost like 20mil didnt they? I remember reading the top losing councils and both coast councils being in the top 10

Heard on the radio the other day that they didn't, which threw me a bit, cause I was sure they did.

 

[Paolo]

Councils arnt immune to the financial crisis...that said I can confirm the majority of the 'facts' in that report are bollocks

 

[FFC Mariner]

Councils could also not invest ratepayers money in derivatives.

If the investment return from quality mortgages is (say) 6%, then anyone offering 7 or 8 from the same asset class is either asking you to take on too much risk or bullshitting.

Sadly for our councils, it was both.

 

[Paolo]

All investments are in accordance with the local government act and ministers order of investments. Noone complained in the past when investments made money...like I said, councils are not immune

 

[dibo]

paolo - that's a disturbing level of analysis from you.

FFC - remember that these products were sold by people who believed they really were risk free. the sellers thought they were selling rolled gold, not used sorbent.

 

[midfielder]

What I found interesting (not the right word but it will do) is the very person who sold them the bad investments is still giving advise ... remarkable is another word for it .. unbelievable is another ...

Paolo what you say is true ... but have you ever heard of "never put all your eggs in one basket" ... or what financial advisers call..." spread" ... seems to me to much faith in one form of investment 

 

[FFC Mariner]

FFC - remember that these products were sold by people who believed they really were risk free. the sellers thought they were selling rolled gold, not used sorbent.

You are joking arent you? I know people who marketed those products and none of them would have touched them with a 20ft pole.

Sadly, there are a fair few people in the financial services business who couldnt give a flying about their clients interests and only do it for the money.

Storm Financial anyone??

 

[Paolo]

Midfielder-the gentleman they mention in the report was not with the company when the investments were purchased. Also all the eggs arnt in one basket as normal service will continue to be provided,  the LGA and ministers order on investments prevents councils from over investing.

Dibo-dont act surprised, you know I had it in me

 

[jiggles]

Dibo, he works for Gosford City Council.

 

[dibo]

that explains it.