Welcome to visitor 31,000 who came from Toowoomba in Queensland.
In an email to me, KVD wrote in part:
And I also wish to make the point that I have now come to think that blogs are a very good means of skimming current issues, but somehow seem to lack the ability or inclination to pursue any issue to conclusion.
Bloggers seem to flit onto the next crisis or issue du jour. And, again, no criticism -just continuing angst....
Finally, a question: is it better to assist in the resolution of one problem (however small the problem or the contribution), or to comment upon many problems, proffer solutions, but then simply move on?
Now I thought that these were fair comments. I responded:
You point about blogs as a skim is well taken, your point about not pursuing to a conclusion is even stronger. My feeling is that we bloggers, me included, go round like a flock of swallows circulating round the latest food source, the current issue.
I try to maintain a consistency over time on issues, but the blogging environment is essentially an immediate ephemeral one. This is still important because the swallow's peck does affect things. However, it does not affect a single issue unless that issue is sufficiently sustained over time or has a very particular profile to accumulate pecks.
I will come to the immediate cause of KVD's angst in a moment. First, a brief follow up comment on the strengths and weaknesses of the blogging environment.
I find blogs invaluable in keeping me in touch with the world around me. Like most time short bloggers, I tend not to read posts in detail unless there is something there that demands my immediate attention. Skim and move on.
This blog displays the same reader pattern. Thirty three of the last forty visitors came for 0.00 seconds, just long enough to scan and move on. The remaining seven stayed for periods from twelve seconds to seven minutes twelve seconds.
As I scan, I find issues repeating and also spreading to a degree between blogs, hence my analogy of a flight of swallows.
Most blogs, this one included, follow particular lines reflecting the interests and biases of their writer or writers. This affects the way we read.
I tend not to read Larvatus Prodeo, for example, because it is too much like the faithful talking to the faithful in a church to which I do not belong. Instead, I rely on others to attract my interest to LP posts that I should read. I know that the same type of thing applies to this blog.
The overall impact of blogs and blogging is difficult to measure. My feeling is that it's far greater than people realise and has been growing. However, it is the distributative (spread from one to the other) and aggregate effects that are important.
None of this is much comfort to KVD who is especially concerned with the issues raised by the Opes Prime case.
KVD is not an investor, nor does he have particular sympathy for the wealthy and high profile investors caught in the collapse. His focus is on the failure of regulation and compliance, the way in which the case appears to indicate that c0mpliance is mandatory who cannot afford to get around it.
The broad facts of the case were set out by Legal Eagle in Opes investors fail at first hurdle.
In simple terms, and as I understand it, investors "loaned" their shares to Opes Prime, using them as security for margin loans from Opes to fund share purchases. Opes then used the shares as security to borrow from the ANZ Bank and Merrill Lynch to fund the loans to its clients. Investors who exited the arrangement with Opes were provided with equivalent shares.
Opes ran into financial difficulties. The ANZ Bank and Merrill Lynch seized and then sold the shares held as security, forcing down values and creating market confusion.
I am not a lawyer, nor do I know the full facts of this case. Instead, I want to pose a few simple questions based on first principles.
To begin with, what does the case tell us about disclosure rules?
In aggregate, these were large blocks of shares, large enough for their sale to affect markets for individual stocks, large enough to trigger compulsory notification procedures
Accepting for a moment that investors did not own their shares, then who did? If Opes Prime did, and this seems to be the effect of the legal agreement signed by its clients, then it had a disclosure requirement.
However, there is a linked question. What level of interest in shares is required to trigger disclosure? The agreement between Opes Prime, ANZ and Merrill Lynch appears to have given them final control of the shares. At what point were they required to disclose this?
Regardless of questions of law, the Opes Prime case raises some important questions about the operation of the disclosure arrangements.
Turn, now, to the agreement between Opes Prime and its clients.
One of the points that KVD made was that, in law, a transferred title is only as good as the initial ownership. As a simple example, if you buy a car that is stolen , ownership remains with the original owner even if you have acted in good faith.
The agreement between Opes Prime and its clients is quite remarkable in that Opes retains ownership of the shares so long as you owe even one dollar.
Take the reported case of David Regenspurger. Having sold his house, he invested $320,000 in blue chip stocks. He also took out a loan of $100,00 from an Opes Prime affiliate. The effect was to transfer ownership of his entire portfolio to Opes Prime. His blue chip shares were seized and sold.
As best I can work out, he is now an unsecured creditor of Optus Prime for the difference between his loan and the overall value of his portfolio. I have no idea, however, just how that differential might be calculated when shares in aggregate have been seized and put on the market in a forced sale.
I suspect that the very speed of action may have created something of a legal quagmire in areas like valuation.
Mr Regenspurger's case is interesting in another way in that he is clearly not, or would appear not to be, a sophisticated investor. If he could establish this, then he might be able to claim ownership of his shares. In this event, action would be opened up against either Merrill Lynch or ANZ or both.
Now here there is another issue that I do not understand, the difference between ML and ANZ. Both seized shares, only one has so far been sued.
I think that we can simplify all this as follows.
First, the nature of the agreement between Opes Prime and its clients. Was it fair?
Secondly, the management of Opes Prime, including lack of control and the favouritism awarded certain certain clients as compared to others.
Thirdly, the relationship between Opes Prime and its lenders.
Fourthly, the responses of Opes Prime lenders to the company's problem. including the way they reacted to protect their own interests to the disregard of everything else.
In considering all this, KVD suggests that Opes Prime shows (among other things) failure of compliance at the big end of town. His view is, if I understand it correctly, that when it comes to failures like this compliance breaches often get classified as simply technical or even ignored because it is simply too difficult to unscramble the egg.
From observation, I think that he is right. This then leaves our system with just two responses. Pursue hard those elements that you can where the broader costs are not too high. Then add to regulation to patch up obvious holes.
The alternative response is to enforce compliance regardless of the costs. None one will in fact do this because our overall system would simply come to a halt. So we come back again to selective compliance across the whole sphere of law and regulation.
In my arguments about compliance I have complained not just about compliance costs, but also about the selectivity it creates. This acts to discredit not just the specific compliance area, but more broadly the law itself.
In Australia today, the judgement that we all make on a day to day basis is which areas of law or regulation to ignore. I stand to be corrected, but I doubt that there is a single Australian that has not broken a law or regulation in the last ten years.