Macquarie's efforts appear to have been brutally efficient. Within days ASIC would impose a ban on the short selling of financial stocks - an investment strategy used to make money by punting on a share price falling further - that would halt the precipitous plummet of the bank's shares. And within weeks, the government would implement a banking deposit guarantee and a wholesale lending agreement allowing Macquarie and other banks to use the government's stronger AAA rating to borrow money when credit markets were closed. The backroom dealing began within hours of the collapse of Lehman Bros on September 15, sparking the most intense phase of the global credit squeeze. The next day, Macquarie's Trevor Burns typed a two-page email to the head of the Treasury's markets division, Jim Murphy, with the subject line marked "confidential". The email has been identified in response to a specific freedom of information request by the BusinessDay for correspondence concerning Macquarie's representations to Treasury on the state of global financial markets. Burns is well connected in the corridors of power. A former chief of staff to the Howard government minister Warwick Smith, Burns followed Smith to Macquarie, although he later moved to a consultancy with the bank.

A day later, on September 17, as global markets reeled and Macquarie shares continued to slide, a flurry of emails flew between the floors of 1 Martin Place, the old GPO building housing both Macquarie and ASIC. Another email came two days later. The existence of those emails was revealed in response to an FOI request for correspondence between Macquarie and ASIC on short selling and the state of financial markets. Appearing to show uncommon haste, ASIC acted within two days of the first email flurry. On September 19, it banned naked short selling, effectively ending the rout in Macquarie shares, which surged 9 per cent that day. Within days, it fully banned short selling on financial stocks. But Macquarie was free to continue its trading activities, including short selling shares in other companies.

By early October, the government had swung into action, guaranteeing all deposits and implementing a wholesale funding guarantee. Macquarie spared no effort to shore up support. BusinessDay understands that as part of its lobbying effort, Burns met the then financial services minister Nick Sherry to push for a ban on short selling. It is understood Macquarie's chief executive, Nicholas Moore, also met Sherry. The flurry of activity from Macquarie is starkly at odds with repeated assurances from its chief financial officer, Greg Ward, that the bank was at no stage under threat, having ample reserves to meet all obligations. But that argument overlooks the crisis in confidence engulfing Macquarie at the time, evident in its plunging share price which hit a low of $15.75. Clearly, the matter is still highly sensitive. Treasury has refused to divulge the contents of the email Trevor Burns sent to Jim Murphy in the hours after Lehmans collapsed, saying that the document "was marked as a confidential communication". Geoff Miller, Treasury's general manager of corporation and financial services, said Treasury had consulted Macquarie in deciding to reject the release of the email.

BusinessDay applied for an internal review by Treasury of its refusal to release the document, citing public interest; Australia's AAA credit rating had been lent to banks so they could obtain money on credit markets that were otherwise frozen in the crisis. BusinessDay also argued there was significant public interest in establishing Macquarie's need to use the taxpayers' credit rating because the risk remained to the taxpayer until those loans were repaid. Incredibly, the Treasury official who conducted the internal review of the department's rejection of the BusinessDay request was the same executive who received the initial email from Macquarie. The Treasury executive director, Jim Murphy, rejected BusinessDay's appeal for the release of Burns's email, saying its release "could reasonably be expected to adversely affect the Macquarie Group". He detailed a "long-standing understanding" and a "mutual understanding" between Treasury and Macquarie that correspondence was confidential. "I find that the information was communicated within the context of a mutual understanding that Treasury would treat it as confidential," Murphy wrote. "The email was sent from Mr T. Burns, Macquarie Group, to me. There is a longstanding understanding with the Macquarie Group that correspondence sent to me in confidence is received in confidence." Murphy rejected the argument that marking correspondence confidential did not guarantee its protection. "While I am aware that the marking of documents as 'confidential' is not in itself sufficient to show that information was communicated and received in confidence, there is a long-standing understanding between the Treasury and Macquarie Bank that communications marked in confidence and sent to particular people in the Treasury, including me, will be treated confidentially."

Murphy is one of the highest ranking officials in Treasury and has responsibility for policy relating to the financial system, including prudential and corporate regulation. He has been an adviser to the IMF in Washington and has held senior government positions, including head of budget policy with the Department of Finance. BusinessDay is appealing against Murphy's rejection of its request to the federal ombudsman. Macquarie did not just target government officials. A day after Burns wrote to Treasury, the millionaires' factory turned its attention to the corporate regulator. In response to an FOI request, the Herald has been provided with a schedule of emails between Macquarie and ASIC. Unlike Treasury's response, ASIC has revealed neither the identity of the Macquarie emailer nor the identity of the recipient at ASIC. But the scope of BusinessDay's request to ASIC specifically sought representations involving short selling. ASIC's FOI officer, Mirijana Soldatic, told BusinessDay she identified 14 documents fitting the FOI request. Macquarie emailed ASIC three times on September 1 as markets tightened before the Lehmans collapse, first with a 17-page attachment, then a 34-page attachment, and then a 92-page attachment.

But it was not until September 17, after the Lehman Bros collapse, that the pace quickened. Seven emails were identified under the FOI coming from Macquarie to ASIC on the state of markets and short selling. In a letter responding to the BusinessDay application to make the documents available, Ms Soldatic said she would release none. She said the first document "is an email from ASIC to Macquarie concerning short selling and false market rumours". The remaining 13 documents "contain further correspondence between Macquarie and ASIC concerning the matters contained in document 1". BusinessDay is applying for an internal review of ASIC's rejection of the release of the emails. Macquarie was one of the biggest users of the government's offshore funding guarantee, raising nearly $20 billion, and established a unit under the direction of the trusted Packer-family banker Ben Brazil. Macquarie's strategy, revealed in BusinessDay last year, to raise funds under the federal government guarantee and to then lend it at a higher rate to foreign companies, is understood to have enraged the Treasurer, Wayne Swan. Ward has always maintained Macquarie had adequate reserves and was never in danger of collapse.

In early 2009, the Deutsche Bank analyst Ross Brown quipped to Ward at Macquarie's earnings result: "If it wasn't for government guarantees we might not be sitting here having this conversation". In a letter to the editor of the Sydney Morning Herald earlier this year, Ward wrote: "Macquarie Group strongly rejects the claim that in 2008 Macquarie 'was in danger of collapse'. Throughout the crisis Macquarie remained profitable with significant excess liquidity and surplus capital. "The federal government introduced a guarantee as part of a global response to the financial crisis. To suggest its actions were initiated for the benefit of a single institution is misleading and wrong. More than 200 financial institutions - not all banks - have been covered by the guarantee. For accessing it, Macquarie pays the government an annual fee, currently more than $200 million." While that may be true, the run on Macquarie's share price was turning into a self-fulfilling prophecy and was threatening to trigger margin loans among senior executives. On another front, a reported run on Macquarie's Cash Management Trust - which was not included on Macquarie's balance sheet - was draining funds. Figures have never been released on how much money left the business during that period, but in the aftermath of the financial crisis, the bank made a decision to shut down the business and to shift those deposits into other accounts on the Macquarie balance sheet.

At its peak Macquarie's CMT business had close to $18 billion under management. By February this year it was down to $10.7 billion. Ironically, an ASIC investigation into market rumours - dubbed Project Mint - only claimed one scalp, a former Macquarie staffer who was banned for several years for sending an email suggesting there was a run on the cash management business. Macquarie's spokeswoman, Lisa Jamieson, declined to comment. Loading Do you know more?

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