Where did all the trust go?

When we buy something from the Internet we often give our credit card details, we trust that the company will only charge us with the amount agreed and most importantly that our details will not end up in the wrong hands. Companies accepting credit cards trust that they will be compensated by the credit card companies and that their clients will not dispute the transaction and falsely accuse them for fraud. Practically any form of transaction using a credit card is based on trust. The same more or less applies for transactions made with cheques or even cash. The currency we use is guarantied by the state that issued it. When we accept it and retain it, even for short periods of time, we trust that its value will not disappear the next day due to hyperinflation or the central bank going bust.


In my humble opinion the stock market’s fundamental fault is that big companies ask simple people that know little or nothing about the financial markets to trust them, invest their savings and assume risks that are just way beyond them. The vast majority of shareholders has very little or no say at all on what strategy a company should follow, how it should manage its assets and compensate its stuff. However they still trust the companies issuing the stock and hope that their endeavor will pay off. Without this blind trust markets would crumble and would eventually become elitist clubs of the rich.

In any form of business trust is a fundamental thing without which no deal would ever take place. In business deals, even the most simple, humans basically trust either that there is mutual interest and that both parties will gain from the deal or they just trust their ability to extract profit from the other party at its expense, in other words “rip off” the other party. Yes even fraud is based on trust, some say that it is based on people being naive, when you trust the wrong person you are labeled naïve. On the other hand how can you know the other person’s true intentions?


All major institutions in modern societies are based on trust. People in most of their disputes trust the legal system. They trust their lawyer will serve their interests to the best of his or her abilities and that that the judiciary will be impartial and fair in its decisions. If this trust was lost everybody would take the law in his or her own hands and the law of the strongest would always prevail. Some people argue that the latter is a reality as we speak.

One cannot become a true leader without the trust of his followers. In times of war soldiers trust their officers with their lives to lead them into battle and if they get injured they trust their doctors will do anything possible to help them recover. Wars and basically all types of conflict are fundamentally based on mistrust. This is the case if we assume that it is a common interest for all humans to cooperate and live in harmony with each other.


People participate in a democracy because they trust that the politicians they vote to represent them will honor their commitments and serve honestly and wisely their communities. Citizens pay taxes because they trust that money will be spend in improving the infrastructure and providing education, national insurance and public safety and order. Government corruption, scandals, wasteful spending and bad public services will motivate people to cheat the government and avoid paying taxes. Simple people often have the feeling that the rich never assume their responsibility towards the society they profit so much from and that most of the tax burden is carried by the poor and those that have no means of finding loopholes in the tax system.

Working people pay towards their national insurance and/or pension fund scheme trusting that this money will be well managed and that one day they will be able to retire in dignity. Greedy, inexperienced pension fund managers in deregulated financial markets may easily dishonor this trust with catastrophic consequences. The same applies for bankers and mutual fund managers managing funds and assets that are not only based on contributions from the rich.


My personal opinion is that a company can never be too big to fail, there is always a risk when you invest in something. Even government insured bonds have a risk. You can never be too informed, in the end you have to trust your judgment and manage the risk appropriately. There are no magic recipes or sure bets. People trust the “modern wizards of finance” and often seek professional advice from stock brokers and bankers. My question is if they had all the answers then why would they share the knowledge? How much can you trust modern information networks providing information about the markets that are full of advertisements and sponsorships from the companies they provide information for? This apparent conflict of interest is bound to diminish people’s trust and raise questions on the ethics of such practices.


The recent economic crisis has damaged ordinary people’s confidence and trust on the modern capitalist system.They feel more and more that the system was designed to benefit few. They feel that their trust was mishandled by greedy people that pushed for more deregulation. They preached that deregulation was equivalent to freedom and forgot to mention that regulations exist to minimise the risk and protect the weak.


The freedom provided to big companies in terms of creative accounting and asset management has undermined transparency and has made it extremely difficult to register assets and liabilities of large corporations that have failed. The accounting mess that is around the market, which is inflated by dodgy mergers and acquisitions, will take years to clear up and I very much doubt there is sincere will by the “big bosses” to do so. Plenty of investors fear that everybody is trying to berry the tracks that lead to those that were responsible for the mess, nobody wants to register the true size of their damages, and plenty of bad loans are still measured as potential assets. In the absence of honesty and accountability trust is quickly fading away.


Total freedom means total trust .such a thing in order to work would need all of us to be not just good, honest, law obedient citizens but saints. It is clear that risk and trust go together and both should be well thought. Those arguing for more regulation and state responsibility are not necessarily communists and/or weak, they just are a bit more conservative in terms of financial risk.


With deregulation often come great business opportunities the majority of which unfortunately is based on blind trust and excessive risk. Deregulation made it possible for big financial institutions to design and trade exotic, complex, high-risk financial products. These products brought quick, high short-term profits and fueled up the greed for more regardless the risk. Now that the bubble has burst it is again the ordinary people that suffered the most, the backbone of the tax system, which will pay for the mess to be cleaned up. It is much expected that the strong players will some how be bailed out, the excuse given is that they are crucial to the systemic structure of the markets. Sorry but I disagree, bailing them out is just plainly not fair and sets a bad example that puts the foundations of the system into doubt. Efforts should be coordinated into providing assistantship to the weak, those that are least responsible for what has happened.


So far I have not seen much evidence of regret from those that are truly responsible for the mess. Instead I have heard plenty of privileged blaming the poor fellows that were not able to pay their mortgages. They argue that the poor should have no dream of owning a home no matter how hard they work and try because they just not efficient or wise enough to do so. Blaming the poor and the middle class that do not have enough air to breathe for not providing enough air to maintain your financial babble I do not believe is a wise strategy for restoring trust. On the other hand returning some of the hefty bonuses they received in the past would probably be a good start in restoring some of the lost trust. I still believe that the wealthy and those in power, however strong they are, they still require a minimum public trust. This, I hope, will prevent them from becoming too greedy and irresponsible before it is too late.


After a major financial crisis we often listen to the “financial wizards” advising us that if we could not bear the loss we should not have invested in the stock market or other financial products. Thanks for the good advice but honestly where were you when things were going well, did you advise us then to be more cautious. The value of advice and information given is directly related to the time it is given. If you loose a bet you need no preaching about how bad a decision your bet was. Instead of discussing how bad things are efforts should be coordinated in fixing things and preventing similar catastrophes in the future. Sure lessons should be learnt from what has happened but it is rather hypocritical to simply punish and humiliate those that suffered the most because they showed excessive amounts of trust in a fundamentally flawed system.


People need to trust each other. Otherwise no form of functional society would be possible. In real life people make decisions based on trust every day and they fundamentally have faith on the honesty of others, otherwise they would not interact with each other. People accept that they do not live in an idealistic society but still need to believe that the “bad people”, their enemies are a minority and that the majority of people would respect them and be fair towards them.


All the above was written in good faith… just trust me.