In God we Trust?

Yesterday I was reading the new edition of The Economist and found a quite interasting article about the way economy moves around the world. The article's name is "The faith that moves Mammon". I'll share some of the ideas I underlined while reading it.

It starts as every other economy article does right now, by referring to the actual collapse of the banking system. Some lines below there starts the main idea: "The glue that binds the whole system together is trust". By system they're obviously looking at the economic one spread all over the world. Later: "Suppliers gamble the rewards from the future commerce for a short-term gain when they bilk their customers". And continues: "Trust in banks depends on an illusion that funds are readily accesible, when most are tied up in long-term loans. It is an illusion that depositors play along with because they know that, absent a panic, not many of them will ever need to withdraw cash at the same time". So everything turns to be an illusion, just like the Matrix, just like Plato's Cave Allegory. And this illusion holds up our money in the banks, while the banks are using it we don't know how nor when and maybe losing it. Before the actual banking crisis started most of the people where some way aware of it, but I don't think anyone imagined the effects of the actual gambling crisis. I continue with the text: "Although the banking illusion has benn unsteady, the illusion behind fiat money seems to have a tenacious hold. (...) Although trust in banks can be salvaged [How?] by state backstops, faith in the financial system may be harder to repair. For many, the crisis is the result of a shift from traditional "relationship banking", where borrowers are well known to lenders, to a new system of arms-lenght finance, where investors buy bundles of anonymous loans package in security". I am not aware of how people financed themselves elsewhere, but here in Mexico there started a crisis, before the banking crisis, of personal finance. Banks where gifting credit cards to everyone --wanted or not-- that led to big amounts of debt one single person cannot pay. And even with the debt, they where still calling to send you their new credit card. This has to do with the "relationship banking". I hope this also changes peoples way to look at money --and no-money--. Finally, the article concludes: "Trust in strangers may be at odds with some of our instincts, but it is a price worth paying for richer life". The question rising from this final statement is: Are we really getting richer? How many people do thanks to that "trust"?

1 comentario:

Rodricus dijo...

I´m not sure banks are to be blamed on the global economic crisis. Working where I work my jugdgement can be tainted, I know.

You have a point: trust is very important for the banks. But probably not trust for the funds to be available, as the article you refer states, but trust that the people can pay their debts. Trust is what makes "credit" possible.

Maybe relationship banking will change. But this whole crisis is not because the financial system. It is because the existance of greed.