10th October 2007

Dear Investor,

The lighter side of regulation

If we may be forgiven for re-working old material, the following is a version of a satire sent in by a client, updated to reflect trends in various forms of government regulation around the globe.

  • Socialism: You have two cows. Give one to your neighbour;
  • Communism: You have two cows. The state takes them and gives you some milk;
  • Russian Communism: You have two cows. They tear down the wall between their paddock and yours, you have no land;
  • Bureaucracy: You have two cows. The state milks them and throws the milk away;
  • French Capitalism: You have two cows. Start a riot because you don’t have three;
  • British Capitalism: You have two cows. Both are mad;
  • New Zealand Capitalism: You have two cows. You swap them for an attractive sheep;
  • American Capitalism: You have two cows. Make one redundant. Force the other to produce the milk of three cows. Hire a consultant to see why it dropped dead. Pay your CEO $10 million;
  • Modern Chinese Capitalism: You have two cows. The government takes one and gives you a bull. You grow your herd and sell your milk to the world.
    Other countries close their farms;
  • Australian Capitalism: You have two cows, the market price is regulated, farm collapses are blamed on greedy farmers or lack of disclosure of the true risks of milking.

China – Not a free market

  • The China Regulatory Insurance Commission, the equivalent of our Australian Prudential Regulatory Authority (APRA), has used an industry protection fund to buy a controlling shareholding in the New China Life Insurance Company. This followed the removal of the Chairman of New China for allegedly misappropriating 13 billion Yuan ($250 million) to speculate in the property market. The industry regulator is now the largest shareholder in the country’s fourth biggest insurer;
  • There are anecdotal reports that the Chinese government effectively curbed lending to an over-heated property market by shooting certain bank managers who did not comply with their guidelines. As participants in the financial services industry, we do not encourage the adoption of this form of regulation in this country. Yet it is undeniably a different tool than the mere manipulation of interest rates, to which the Reserve Bank of Australia is forced to resort;
  • The Chinese Central Bank is to invest US$3 billion in Blackstone, a US private equity fund. While other central banks may fret over the private phenomenon, the Chinese have decided to profit from it;
  • The Chinese stock markets appear to be laced with fraud. The Economist reports that local brokers often misuse their clients’ funds. The Australian reports claim that “All the signs are there… of speculative fraud. But no one seems to care that much… the China Securities Regulatory Commission – half gatekeeper, half poacher, which micro-manages new listings – often itself stimulates ... an outcome, sometimes by pushing companies to set a low price on their floats in order to attract a strong stock market response”; and
  • The prospectus for the Bank of China, whose market listing was the largest in the world this century, contained the following: “We have not obtained formal title certificates for some of the properties we occupy”; “ our assessment of the credit risks associated with a particular customer may not be based on complete, accurate and reliable information”; “From 2001 to 2004, the former head of our Hesongjie sub-branch… allegedly conspired…”; “Mr Wang Xuebing, our former chairman and president, was convicted of accepting bribes”; “Mr Lou Jinboa, our former vice-chairman ... embezzled”; “Mr Zhao Ange, our former vice-president, accepted bribes”; “From 1993 to 2001, three successive heads of the Kaiping sub branch ... allegedly conspired to embezzle”; “In 2003, 34 criminal offences allegedly committed by our employees were reported”; “In 2004, 32 criminal offences allegedly committed by our employees were reported”; “ In 2005, 75 criminal offences allegedly committed by our employees were reported.” This float was so popular that it raised 80 times as much money as it sought.

Best regards,
Chris Andrews


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

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