Lake Wobegon Banking

In Garrison Keillor’s Lake Wobegon, all the women are strong, all the men are good looking, and all the children are above average.

Well, now we have Lake Wobegon banking, where all the banks pass the government’s stress test, no matter how poorly capitalized they are. Banking is a funny business: by gathering small deposits and making larger loans, the system places capital where it can be used productively. But when a herd-mentality takes over, the banker’s emphasis on character, capital, and cashflow can get overwhelmed in a tsunami of conditions.

That’s what happened in the early ’90s, and that’s what’s happening now. Seemingly rational lenders, borrowers, and insurers went collectively insane, betting the world’s financial system on NINJA mortgages. Well the bill has come due, and someone has to support the financial system, at least temporarily. There is no alternative, unless we want to see mega bank failures.

The genius of Lake Wobegon was how the honest work of ordinary Americans built a remarkable, welcoming culture. The irony of Lake Wobegon banking is how the greed of a few could threaten this healthy culture for millions.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-04T18:16:05+00:00 April 27th, 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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