The movie ‘The Big Short’ could be uncomfortable viewing for ex banker and now head of ASIC- the corporate regulator considering it raises some serious concerns about the US equivalent of ASIC- the SEC and why it was ineffective at stopping the fraudulent behaviour of Wall Street, the big banks and the financial services industry.
Set in 2008, the movie is based on Wall Street guru Michael Burry who realises that a number of subprime home loans are in danger of defaulting. Burry bets against the housing market by throwing more than $1 billion of his investors’ money into credit default swaps. His actions attract the attention of banker Jared Vennett (Ryan Gosling), hedge-fund specialist Mark Baum (Steve Carell) and other greedy opportunists. Together, these men make a fortune by taking full advantage of the impending economic collapse in America.
The book is written by the same author who exposed the high frequency traders in “Flash Boys” which showed how regulators have done little to protect everyday investors.
The most uncomfortable scene for ASIC chairman and ex banker Greg Medcraft would surely be the one by the pool where Jamie Shipley, a successful young investor realised the US property market is going to crash and has shorted the market via CDO’s (collateral debt obligations – or basically crap mortgages destined to not be repaid because they are the worst of the worst from home loans given to those without jobs in many cases).
He contacts someone who works for the SEC- the US equivalent of the ASIC. As the Securities Regulator, he believes they are surely smart, intelligent and ethical individuals able to see what’s happening and do their job to stop it.
However, the young woman from the SEC has no idea or the ability to understand the predicament. Nor does she have the motivation to do anything about it, as her sole aim is to hopefully get a job after leaving the SEC with one of the big banks such as Goldman Sachs or a large financial services company.
This raises a serious conflict of interest, as why would they target their future potential employers, thus explaining one of the reasons as to why the SEC failed as a regulator.
Another factor, also highlighted in the book is, they often are low-level people when it comes to energy, intelligence and financial IQ, so to put it bluntly- they are not the sharpest tools in the shed.
The smarter and more motivated people are already working in the private sector, as usually those wanting to work for a government department are generally not the most entrepreneurial, problem solving, creative thinkers on the planet.
So, could the ASIC be like the SEC?
Is it possible that the reason ASIC has done very little to target the big banks and the large profitable financial planning industry in Australia, which routinely rips off the average mum and dad investor and causes the most losses because:
a) Many ASIC staff have a conflict of interest since they want to ultimately get a job in the lucrative banking and financial services sector, and working for ASIC is their way into the industry?
b) Those that aren’t motivated enough to want to jump to the private sector are often the risk averse, less intelligent, barely ambitious or energetic and simply motivated by a safe secure tax payer funded existence and have no true understanding or abilities to be an effective regulator?
Many critics and observers say this has been going on for years and therefore explains why ASIC is no longer even trying to do their job.
Their sole goal is to just portray that they are doing their job.
In fact, some critics have stated that the banking and financial services industry that ASIC effectively endorse by licensing it and then telling mum and dad investors to only deal with these licensed financial planners is in fact a tool to serve the agendas of the big banks who own 90% of the financial planning industry in Australia?
They have stated there is clear evidence of this.
One critic said:
“Why do you think ASIC scare people into not investing their super in property, even though it is far safer than risky stock investments via managed funds?
“It’s solely because they are lobbied by the financial planning industry to do so because that’s how the industry makes a big fat commission for life.
“Why do they target property spruikers so much? It’s because they are competition to the financial planners and it means that financial planners miss out on their commissions from selling managed funds.
“Why do you think they hate financial educators? It’s because most financial educators teach their students not to rely on financial planners who are effectively just sales people. They focus on the importance of education and learning how to invest independently without relying on commission driven sales people who have no idea about investment, except for a two day financial planners course”.
Some critics say the market is rigged just like the movie proved with Wall Street.
“The Corporate cops such as the SEC and ASIC are either effectively corrupt (or at least conflicted) or totally incompetent, as after all it’s just a safe cushy job.
“Even a non cynic must question, why is the head of the ASIC an ex banker? Isn’t that like letting the fox guard the hen house”, said one industry observer.