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
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