Interesting to read

It was interesting to read Gosford Council general manager Peter Wilson's comments in relation to the continuing saga of the huge losses incurred by Council in the offshore CDO debacle.

I am at a complete loss over his statement that the Council commenced purchasing the infamous CDOs (Collaterised Debt Obligations) as early as 2002 and would be very interested in Council identifying the exact products it purchased at that time.

At that time when I was a councillor, those investments were never brought to my attention.

The fact is that the bulk of the $55 million in CDOs were purchased by the Council in 2005 when the NSW State Government allowed Councils to invest in Triple-A rated securities.

I was no longer a councillor at that time.

Many of these have slowly been maturing over the last 18 months with Council accruing direct losses to date of around $9 million with potentially another $36 million in CDO losses coming (GCC Corporate Services Report 1.02.11).

This is not to mention the potential losses of $21 milion from the FRN investments.

In fact, as recently as November last year, Council's auditor Haines Norton (Chartered Accountants) in its submission to Council on the general purpose financial report stated in relation to the offshore investment portfolio (ie: our rate dollars):

"At 30 June 2010, Gosford Council's investment portfolio totalling $68 million have been impacted by this market volatility.

"The impact on individual securities varies, depending on their degree of exposure to affected markets.

"Many of these securities do not have market values that are independently quoted and are not widely traded.

"Independent market valuations are not readily available, and in many, values are assessed based on estimates from issuers and/or evaluation models, for which there is limited market evidence available to verify their reasonableness.

"Further, the ongoing volatility of financial markets creates greater uncertainty to the valuation process.

"These circumstances have resulted in our inability to obtain sufficient appropriate audit evidence to satisfy ourselves as to the fair value and recoverability of $68 million of Council's total investment portfolio."

Are the alarm bells ringing?

I can't imagine that circumstances have improved over the last six months.

In fact, the current situation is probably worse.

The general manager can make all the defenses he likes but ultimately someone has to take responsibility for this massive mess.

That now infamous line "we haven't lost a red cent" is starting to look like very wishful thinking.

The very simple question is: Who made the decision to invest such an obscene amount of our money in these risky investments?

Perhaps the general manager can tell us all exactly who made that decision specifically in relation to the current batch of poor performing CDO's and FRN's.

It should be simple enough.

Debra Wales, Umina