In God—and America—we trust

FINANCE AND ECONOMICS: “Trust: The faith that moves Mammon; Only rarely does the glue that binds the financial system come unstuck,” The Economist, 18 October 2008.

Neat piece on trust.

Credere, or credit, comes from the Latin for “trust.”

A cool bit:

That raises a question: what makes people who might not even lend to their neighbours happy to lend their life savings to unknown borrowers whom they will never meet? Put it like that, and the surprise is not that there are sometimes periodic panics, but that there are so few of them.

The key for business? A rep for honest dealings.

In the last pass on GP, I included a bit on this with regard to Development-in-a-Box™ at Steve’s request. It’s the biggest part of Enterra’s work in Kurdish Iraq—being trusted on all sides. The US Government wants boundary risks defined honestly—as in, this is where our work ends and that of the private sector steps up. Multinationals want ethical risk bounded: “You guys go be our intermediaries in this frontier setting and make clear that we cannot abide corruption.” The sovereign wealth funds want their investment risk bounded: “If we’re going in big with our money, we need to see the right sorts of controls in place.”

In short, everyone wants trust badly, especially the host nation—as in, the perception that it can deliver a reasonably trusted biz/investment climate. So what DiB provides more than anything else is trusted transaction processing.

You want as much trust in your system as possible. The IMF says that when panics and downturns occur, they are typically much worse in places with arms-length lending, because the money dries up much faster and much more profoundly.

Thus the Economist argues:

The solution may not be a retreat to old-style banking, but better mechanisms to foster trust in the new finance.

Wise thought.