Classical Investing (Part 9)

Did the banks make a deal with the devil?

In the story of Faust, the protagonist makes a deal: in exchange for his soul, the devil will get him whatever he wants: money, love, or power.

A year ago, the big banks would do anything to survive. Facing runs by institutional investors, banks sold pieces of themselves to the government in exchange for asset guarantees and access to the Fed. A Depression was averted and most of the banks survived.

But now they don’t like the deal so much.

Banks face special restrictions on compensation and populist rage regarding their bonuses. How will this turn out?

In the Faust story, there are two outcomes. The traditional version has the Devil come and drag Faust’s soul to hell, illustrating that every bill must be paid. In Goethe’s text an angel intervenes to lift his soul to heaven, showing that grace can overcome the foulest bargain.

So which will it be? Will we hold a funeral for the big banks, or celebrate their assumption? Like the Faust story, much depends on what the banks do with their special powers. Goethe’s Faust was saved, but only because he dedicated himself to human progress. Is that where the big banks are headed now? I wouldn’t bet my soul on it.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2017-07-17T12:35:21+00:00 November 12th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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