Who were the fund manager bunnies that fell for all this? Perpetual, AXA, Commonwealth Bank and AMP. Well done guys! Now who can name the investment managers responsible so as we can all give them a wide berth?
So, the usual suspects...
[1] http://dicksmithholdings.com.au/events/dick-smith-lists-on-a...
I'm reading an economic history of the pre-industrial age, and when talking about the "la commenda" system (https://en.wikipedia.org/wiki/Limited_partnership#Concept.27...) from Medieval Italy, a concept which is one of the earliest forms of capitalism, the author mentions that this system wouldn't have taken roots if the parts involved hadn't had "a diffuse sense of honesty". Also, if one of the parts involved in the commenda contract were to show dishonesty, "after some time nobody would have given him their own savings to use as investments anymore".
800 years since those times entities like GS are as dishonest as a private entity can be, and still people and other companies choose to involve them in their financial dealings. It's, to say the least, most curious.
But regardless, the observation that parties involved must have a "diffuse sense of honesty" in order for a system to function is definitely at play on, for example, ebay, craigslist, private auto sales, yard sales, and the like -- systems where buyers have very little information about the product or reputation of the seller, other than what the seller provides them, to decide whether or not to enter into a transaction. There is a social expectation that people should be honest, I think, and while we would not be surprised to hear of people getting ripped off on craigslist or ebay, and while we encourage others to take the possibility into consideration when making purchases, we (or at least I) nonetheless place the bulk of the blame for fraud on the malicious seller, not the hapless buyer.
I agree, and find the tone of this thread interesting because it is very much reversed. In that blame seems to be falling on the buyer for not knowing better. Yet, it was the seller that seemed to manipulate the business to inflate standard business metrics at the expense of sustainability. Further, the investment banks then turned a blind eye to the state of the business and facilitated the sale.
This reminds me of the sub-prime fiasco. Ie. we had a a system where everyone optimized their own position, but overall those optimizations led to net losses. Same seems to apply here--Private equity optimized their own position, Fund managers likewise, yet the company itself is no longer viable. The long term outcome of this is a failed economy unless systemic corrections are made before that happens.
General partners [managers or Venetian sea captains] having high trust with the limited partners [investors, Venetian or otherwise] is key to making a commenda, or limited partnership, work.
However, that partnership may be formed to pursue transactions adversarial with the rest of the world.
If you and I form successive spice-merchant commendas/partnerships over the years, then you and I must continue to trust one another a lot. But we may both be incentivized to repeatedly buy low-end spices, ship them to, say, England, and laugh when they overpay for the bland herbs.
2. Regarding "entities like GS," it's hardly useful to think of them as monoliths, much less as broken partnerships.
First, GS is now a public company but used to be a partnership. However, it wasn't like a limited partnership / commenda, in the sense that it had very passive limited partners and active general partners. It was a partnership among people who worked there and the capital involved was largely their own. This is also how a lot of accounting / consulting / law practices have been structured historically. Not a good parallel to the commenda.
Second, GS is several businesses. There is a business which helps companies go public, but even that is two businesses: part is advising the company, and part is selling the shares to institutions / syndicate. Who is the customer to whom GS owes the loyalty / honesty in your mind?
Let's say company X is "worth" $10 a share in the "honest" mind of the GS corp fin team. Let's further say that the GS sales team has hugely oversubscribed interest at the top of the $8-12 range, and many more institutions want to buy at $12 or higher than are allocated shares. What would you have them do?
(Yes, there are a great many potential conflicts and corner cases here. But the idea that GS doing normal IPO flotation work is somehow intrinsically dishonest is baffling.)
(There is a decent case, in my mind, to be made for totally disentangling corp fin advisory from sales and trading, meaning not even a Chinese Wall but actual different adversarial firms working on it. But, how many more layers of middleman do you want in our financial system soaking up the fat?)
If you invested in Anchorage Capital you might be thrilled at what they managed to pull off.
If you don't know Woolworths is under immense pressure from their competitors Coles and Aldi and with their other side project aka distraction Masters also struggling they really need to focus and execute.
Closer to topic though, when buying a new TV last week my wife and I didn't even consider Dick Smith. They can't really compete with Harvey Norman, Retravision, Good Guys or JB Hi Fi.
Meanwhile, Jaycar and Altronics have slotted nicely into the hobby electronics market that used to be Dick Smith's domain.