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

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