Wednesday, November 02, 2011

Trust And The Financial Markets As Gambling Casinos

The role of trust in the success of financial markets has not been highlighted the way it should have been. One exception is an in interview of a former financial regulator, William Black.

Consumer trust is crucial in the day-to-day operations of any bank or investment firm. That's why banks used to have marble columns and rotundas; to show that the depositor's money would be safe.

Somehow we have forgotten almost all that. The debate now is about how uncertainty affects firms, and even there the uncertainty is defined to mean only what the governments might do. What we should talk about instead is the severe loss of trust and what can be done to bring trust back.

This links to my frequent reminders that we need proper regulations of the financial markets and proper incentives for those who gamble in them. If failing the consumers and others who rely on the markets gives you no other punishment but a golden umbrella when you leave, who cares about customer trust?