The Trust Recession

We are in a trust recession.

That has two meanings. Most evident is that the level of trust has fallen among constituents—customers, consumers, voters.

Less evident is that the fall in trust is a direct result of the reduced trustworthiness of providers—sellers, financial and other businesses, and government.

To paraphrase Obama: whoever thought that “trust” was fluffy; whoever thought it inconsequential; and whoever thought trust had long been superseded by risk models—today’s trust recession is your answer.

Following is a small list of what’s been lost to the trust recession:

• Banks no longer trust other banks’ balance sheets, freezing interbank loans;
• Investors distrust most financial asset classes outside of US short-term treasury notes, driving those rates down toward zero;
• US voters don’t trust their government to handle a bailout competently, openly and fairly;
• Financial asset managers don’t trust risk models–neither do investors;
• The investing public doesn’t trust accounting firms to identify shareholder risk (I know, it’s arguably not their job…);
• Financial asset ratings agencies’ trustworthiness has been gravely wounded;
• Municipal and non-profit agencies have lost trust in hedge funds and 30:1 leveraged business models—with good reason;
• CEOs have lost trustworthiness when they say their companies are healthy;
• We no longer believe that lenders wouldn’t lend to un-creditworthy consumers–because they did;
• Regulators (SEC, FHFA, FEMA) lost significant trust because they failed to regulate;
• Other regulators—FDA, FTC, EPA, et al—lose trust as a knock-on effect from the others’ failures;
• Consumers who believed markets would self-generate trust lost some trust in that idea;
• The unemployment rate is rapidly increasing in many countries, because employers do not trust they’ll be able to sell;
• The specter of deflation got mentioned in the NYTimes — deflation being endemic mistrust so bad that people hide money in mattresses;
• Roosevelt could rely on trust in government when he came to power in a time of crisis, hence could propose bold ideas–Obama does not have that luxury.

This Saturday in Heathrow Airport the currency exchange window person declined to exchange either my dollars or pounds for Brazilian Reais. “We haven’t been doing that for about a week now,” the person told me, and not very apologetically either.

I’m seeing massive increases in the number of articles and blog posts on the subject of trust. Mostly this is because the evidence of low trust is becoming manifestly solid, economically real, and hard to ignore.

Let’s take this learning opportunity and note that where there’s smoke there’s fire. The desire to trust is wired deeply into our genetic make-up. When trust fails, it is generally because trust was abused. Those who would/should be trusted weren’t.

For the most part, it takes time to rebuild trust. It also takes a willingness to notice from whence the fall came, and to learn from it.



1 reply
  1. Stewart Hirsch
    Stewart Hirsch says:


    Your short list of what’s been lost in the "trust recession" rings true. My guess is that many of the trust issues you cite have been around in one form or another for a while. This topic brings to mind Malcolm Gladwell’s book, The Tipping Point, and how a number of things, taken together, and bring about great changes.It took a while to get here, and by crossing the threshold over the tipping point, we have a dearth of trust, and a big job ahead.

    I suspect the desire to trust that you note allowed us as a society to trust without paying attention to why we were trusting. Rebuilding trust probably means that we need to apply a set of standards or principles for trust – both individuals and institutions – in terms of both what they say and how they act.


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