Why are we so cynical?

It wasn’t all that long ago American banking leaders were civic leaders as well. Because of their institutions’ size, sophistication, and quality of management, they were respected within the corporate community and also by the country as a whole. They provided arduous and detailed training programs for future generations of managers, led by faculty from major universities. Public service was also seen as an essential part of their job description.

But something happened. A series of recurring crises—the LDC loan crisis, the oil-patch crisis, the commercial real estate crisis, and especially the mortgage crisis—eroded both the financial and moral capital that the banks once enjoyed.

But rather than shrinking in size and status, as other industries have after miscalculating, the banks have gotten bigger and more critical to the economy. Too-big-to-fail has become bigger-to-fail!

But critical doesn’t mean respected. Indeed, public cynicism has been reinforced by the salaries of the top executives. Their pay is comparable to that of a Major League Baseball star—while their performance led the country into the housing boom and bust. Now, complex accounting rules and arcane regulations threaten to turn finance into a secret society, where only those initiated into the Deep Mysteries know the sacred texts and can speak the words to control the Beast.

How do we get out of this mess? My rule is simple: simplify. Use simple methods to avoid unintended consequences: simple trading rules, simple accounting rules, simple communication. “Keep it simple, stupid” is an approach that works. It may not restore public trust right away, but it’s a start—at least in money management.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By |2014-09-09T16:13:31+00:00April 13th, 2012|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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