Finance company: Reinvestment reliance killed us
Five Star Consumer Finance has collapsed, the seventh finance company in recent months. A comment attributed to the board of directors is revealing:
The board of directors says it has serious concerns about the state of the debenture market and the ability of the company to attract new funds and retain existing investments. The board has decided that Five Star is unable to operate in such a market.As Elijah points out,
The owners and managers are [effectively] saying "The rate of reinvestment has been cut to zero and that is why we are going under." I find this absolutely shocking!Me too. As he suggests, a finance company that requires continual reinvestment to keep its head above water is nothing more than a simple pyramid scheme,
with total reliance on using the money of new investors to repay existing ones ...with a tacit endorsement from Lianne Dalziell about this being standard business practice! Had these companies been more prudent in their lending and management there would have been no problems with redeeming investments as they fell due.