Friday, August 5, 2011

storming on

An interesting update at macrobusiness on Storm Financial. When I sold my Toyota a few years ago I always recall the buyer, a technical professional, extolling a seminar where she was being flogged by Storm (pre gfc) and was particularly impressed by the fishtanks in the office. If there are fishtanks walk away ........

As a resident of Townsville in North Queensland during the pre-GFC stock market frenzy I witnessed first hand the madness that was Storm Financial. Many of my colleagues would strut around the office spruiking about their wealth and their up-and-coming all expenses paid holiday to Europe where Tina Arena would be doing a personal concert for them in a 800 year old castle ( I’m not making that up ).

The foolproof plan went something like this:

1.Go to the bank and get loan against any existing assets, usually your home.

2.Give all that money to storm financial

3.Storm financial would buy shares on your behalf

4.When the value of your shares goes up you go back to the bank and get a bigger loan

5.Go back to step 2, until you retire a zillionaire.

It all sounds mad and was obviously too good to be true but when “you can’t lose” and “everyone is doing it” it turns out is is easy to find willing participants. From 2004 until that faithful day in November 2007 more than 14,000 people ballooned the storm financial investment fund to a value of $4.8 billion with nearly 40% funded by margin lending. The rest is history.

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