Answers still needed on CDO scandal

Gosford Council's finance director Nic Pasternatsky seems to have forgotten that I was a Gosford City councillor from 1999 to March 2004 when Council's $90 million of public funds were safely invested in the big four banks in term deposits and Government Bonds.

It wasn't until 2005 that the State Government permitted Councils to invest their funds in other Triple-A rated investments.

Gosford Council sank more than $100 million into these new types of investment, promising higher returns than the traditional government bonds.

Of all the Councils in NSW, Gosford Council invested the most in risky collateralised debt obligations (CDOs) which were complex mortgage-based products marketed across Australia by the now defunct, Lehman Brothers bank.

A CDO is a bond that slices up ownership to about 1000 mortgages, where maybe 100 of them are going to fail, up to 200 maximum is what the purveyors were telling unsuspecting investors and their statistics were wrong.

Rather than 20 per cent failing and the 80 per cent being safe, most of them failed up to 80 per cent with billions of dollars being lost.

To quote Steven Keen, Professor of Economics at the University of Western Sydney, "the rating was based on faulty maths and I think they're toast".

The question has to be asked: When other Councils risked only minimal amounts on these risky products (or in Wyong Council's case none at all, because they thought it was too risky), why did Gosford Council risk $100 million of public funds?

And yet, no one is held accountable.

The most disturbing fact is that we had mayor Cr Chris Holstein stating "the best news is we haven't lost one red cent. There has been no loss to Council."

We now find out that we have lost $9 million of ratepayers funds with the $55 million invested in CDO's now worth only $14 million if we're lucky.

So much for the "best news".

It's a scandal and we deserve answers.

Email, 3 Mar 2011 Debra Wales, Umina