The Senate Economics Committee has today released its report into the collapse of forestry MIS in Australia, detailing the rise and fall of a $4 billion Ponzi scheme.
Greens spokesperson for Finance, Senator Peter Whish-Wilson, who initiated the inquiry in 2014, called forestry MIS “Australia’s GFC moment” and “an almost perfect reflection of the boom and bust in the United States mortgage market”.
“The core ingredients are all there” Senator Whish-Wilson said. “Political backing, excessive commissions, bad financial advice, irresponsible lending, an under resourced regulator asleep at the wheel, conflicted ratings agencies and artificially inflated asset prices. Along the way alarm bells went unheeded by successive governments.”
However, Senator Whish-Wilson has criticised the Committee Report for failing to make clear recommendations regarding the tax incentives that sat at the heart of the forestry MIS bubble.
Senator Whish-Wilson authored a Dissenting Report, and stated that “new tax-driven investors were required to keep up the charade, to keep cash flowing. The business model was fundamentally flawed. Forestry MIS was a Ponzi scheme.”“
It is clear that upfront deductibility encouraged investment in unviable plantations. The result was that too much was paid for land on which trees didn’t grow. And then the cards came tumbling down.”
Senator Whish-Wilson took the opportunity to again call for a Royal Commission into the financial services sector, saying that “the grounds are irrefutable, for the sake of the hundreds of thousands who have been affected, and for the integrity of the financial system.”
“The Senate Committee was unwilling or unable to compel former Ministers, company management, accountants, financial planners or rating agencies to appear at public hearings to understand who exactly was to blame. A Royal Commission, with all of its coercive powers, is the only way we can get to the bottom of why mums and dads were allowed to be duped, and why farming communities were dislocated.”
Senator Whish-Wilson also commented on the bizarre inclusion in the Committee Report of a recommendation to make changes the school curriculum. This recommendation has been made in response to an inquiry into agribusiness MIS, which was described to the committee by the Financial Planning Association as a “particularly complex” product “at the higher end of the risk spectrum”. ASIC also gave evidence to the committee that forestry MIS “has not been an investment class that retail investors could have confidence in.”
Senator Whish-Wilson said that “while I have every faith in the ability of the next generation of Australians, the highly complicated financial engineering behind this Ponzi scheme would test the skills of most economics professors. Changes to the school curriculum will not stop another forestry MIS, but the recommendation might help the Shadow Parliamentary Secretary for School Education get his quote for the day”.
• The MIS Senate Inquiry report including the Greens dissenting report can be found HERE