Word: trusted
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...governments, that's real cause for concern. It might not show up in the national accounts, but trust is vital for an economy to work. When we stash wages or savings with banks, we trust they'll be safe and accessible when we need them. When we squirrel money into a pension, we trust it'll pay back when we retire. In a paper published in 2006, academics from Italy, the Netherlands and Canada even found that trust levels between citizens of two countries has a significant effect on the investment decisions of venture capital firms, even after accounting...
...trust diminishes, so too do transactions. In a Chicago Booth/Kellogg School survey carried out late last year, trust in the stock market was considerably lower among those planning to take money out of it than it was among those intent on leaving their investment alone or even increasing it. Moreover, after controlling for investors' expectations of how the market might perform in the future, trust levels had a positive influence on the decision to invest more in the markets, the survey found. (Find out 10 things to do with your money...
...Just as alarming amid falling confidence: lower levels of trust in banks make customers more likely to yank their money, according to the survey. More than a tenth of those polled said they'd done just that during the crisis, preferring instead to keep their cash at home, despite the obvious dangers of doing...
...Here's the bigger problem: hiding money underneath the mattress risks making the financial system less efficient. And withholding investment from the stock market will depress company valuations. In other words, "if trust has been significantly affected by the crisis," Howard Davies, director of the London School of Economics, said in a lecture last month, "it will have damaging consequences for investment and growth in the future." (See pictures of the financial crisis in London...
...Restoring it is now vital. Part of that responsibility lies with the lenders themselves. "Banks need to know their business," said John McFall, chairman of Britain's Treasury Select Committee, during a recent debate on trust and financial markets organized by the Fabian Society, a left-leaning London think tank. In future, bosses ought to know their CDOs from the CDSs, McFall said, and not leave such understanding to the banks' "35-year-old Ph.D.s." Reining in sky-high bonuses, boosting capital reserves and sharpening risk management won't do any harm to public trust, either...