Jesus Saves [in Instruments with Return > Risk Free Rate]

An Observation on God’s Financial Savvy

In Matthew 25:16 Jesus paints God as a sophisticated market participant who has assigned a long horizon investment portfolio of 5, 2, and 1 gold talents, respectively, to three fund managers.

Upon maturity, we learn, two of the managers who received the largest amounts have doubled their portfolio allocations, while the one entrusted with 1 gold talent has nothing over the initial outlay to show.

God rewards the managers who produced a two-fold return on their initial outlay, but takes away his account from the least productive manager who returned only the facevalue invested. In his defense, the least productive manager explains he thought God was a tough client, risk averse, and used to earning economic profits on projects He did not personally manage.

Chastising the witless manager, God spells out he could have used the information of His risk aversion to allocate the 1 talent entrusted him to a money lender. That money would have earned a riskless interest, within God’s investment horizon, as compensation for right to loan those funds in the interim. This would deliver a time-adjusated return on the investment via the sordid enterprise of money lending which God by no means personally managed-satisfying the constraints imposed, both, by the manager’s understanding of God’s investment objectives and God’s financial savvy.

The 1 talent taken back from the incompetent financial manager, God invests with the manager who produced the highest cash return. [though both competent managers did well in that they earned the same rate of return of 2:1 over the period, i.e. 10 talents / 5 talents = 4 talents / 2 talents = 2]. The overly risk averse manager is punished because in preserving the face value of the initial investment he has eroded its real value to the tune of the time adjusted compensation for lending a talent over the period.

The moral of the story, modulo this interpretation, is that God is a sophisticated market participant, and consequently understands that the required rate of return on a profitable investment of any given size must exceed the risk free rate of return on the same amount over the same time horizon. Also, if one hasn’t the stomach for risk,investing in risk free bonds, and securities, is a superior course of action compared to letting the money sit in a safe place, which is financial sin.

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