Surprise, Surprise, Surprise (Part 1)

Surprise, surprise, surprise!

That’s how Gomer Pyle would respond to his beloved “Sarge” when he had something totally obvious to tell. Well that’s what’s in the news today: a surprise that’s not.

The news today is how a consortium of big banks conspired to cheat some municipalities. Apparently Bank of America, Bear Stearns, Smith Barney, and GE Capital were asked to bid on some municipal investments, called GICs—or Guaranteed Investment Contracts. Towns use these to park excess cash that they plan to use later.

The normal practice is to have banks compete for the business. But this time the government alleges that an advisory firm ran a sham auction and allowed the banks win below-market deposits in exchange for kickbacks.

This is an old story. Municipalities have some of the lowest-paid workers controlling huge amounts of capital. So it’s easy to see how a sharp operator can create a rigged game that cheats the towns and enriches himself and the banks.

Only, the banks should know better. But as bees are drawn to honey, crooks are drawn to money. And the big banks just have a bigger pool of “talent” to draw from.

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

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By | 2014-09-05T18:18:04+00:00 March 28th, 2010|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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