Friday, October 17, 2008

Shattered Faith

“The credit crisis has shattered U.S. consumers’ faith in financial institutions, ... a stunning loss of confidence in the Federal Reserve, ...” said a news dispatch from Reuters a few days ago. The words confidence, faith, trust, etc., have been used a lot of these days. Mostly the lack of them is lamented, actually.

The crux of the current crisis is the banks’ reluctance to lend money, not even to other banks - because they do not believe that the money will be repaid. That’s a stunning indictment of the financial system as it stands.

We used to trust that (the smart people who run) the banks and financial institutions know what they are doing, that the financial system works. That it is OK even if only about 10% of our deposits are kept in the bank. That I can buy a two million dollar apartment even if I only have two hundred thousand dollars. That people who take out mortgages will repay them. That people who borrow money from the bank will return them. That banks will not suddenly go bankrupt.

Suddenly we found out that these people aren’t that smart after-all. That the financial system does not always work. That the stock prices will not go on increasing. That housing prices will not keep on rising. That banks do go bankrupt. That failures of the financial system can be catastrophic.

The world cannot operate without trust. We have to trust something, or someone. But trust can be misplaced. Who would you rather trust?

Fallible people? Faulty financial markets? Money? Power? Knowledge? Love? As for me and my family, we prefer to trust the Creator of the universe. He has proven to be worthy of our confidence.

1 comment:

Kelvin said...

Yes. I also learnt a lot.