Much of the current turbulence in world markets has been attributed to a collapse of trust between financial institutions, and loss of confidence in the value of financial instruments. So it is worth reflecting on the meaning of this term.
In the past, where humanity mainly lived in small-scale communities, the question of the trustworthiness of an individual was easier to establish. The chances were that one knew a person directly, or by reputation. Trust is really based on the assessment of another’s character, on sensitivity to the qualities of another’s consciousness – one might even say, on the ability to contact another’s soul.
In fact, trust is really an effect of one of the three great virtues identified by St Paul, namely, faith. When we have faith in another person, we believe implicitly in their words and actions, because we believe in their essential goodness. This in no way prevents us from recognising their fallibility as human beings; but the fact that people fail, from time to time, to live up to the best that is in them, does not negate the recognition of the best that is in them, which is the foundation of faith and trust.
When we think of trust in this way, it becomes clear that it is not reducible to a piece of paper, to a contract. Contracts, whether written or verbal, are legal instruments. Trust, by contrast, is a quality of relationships, and as such, can only manifest between persons. So when we say that institutions such as banks no longer ‘trust’ one another, we are perpetrating a kind of fiction. What we really mean is that people within those banks are uncertain whether the legal contracts that banks draw up with one another will be fulfilled, for reasons that probably have nothing to do with the trustworthiness of the individuals directly involved in the contract. This is especially true just now, because, for a number of reasons (briefly explored below), there is great uncertainty about the value of a number of complex financial instruments that banks and other financial institutions have been trading in extensively during the last few years. And as a result of this uncertainty, financial institutions became much more reluctant to lend money to each other1, since they don’t know if the institution they are lending to is in imminent danger of collapse. This has driven up the cost of inter-bank borrowing. Thus, some institutions which relied very heavily on this form of borrowing to finance their daily operations have gone to the wall (the British bank Northern Rock, suffered this fate; although it had the additional problem that its mortgage lending policy was also judged excessively risky).
Finance is now so global and operates at such vast speed that the possibility of making real trust between individuals the basis for financial dealings seems remote. But maybe there is a clue in this thought – maybe the time has come to slow the gyrations of money through the system, to take time to ponder how the whole may be benefited. Governments are already cooperating to tackle the current crisis, and are considering how finance can be more effectively regulated. Let us hope that the voices of people of goodwill who have specialised knowledge of this complicated area may be heeded in the governments’ discussions. And one area that seems ripe for investigation is the factor of just how complicated financial instruments and dealings have become. When the world’s richest person, Warren Buffett, can say of the instruments called derivatives that they are "financial weapons of mass destruction", then surely the time has come to think about simplification. As it is said in the Agni Yoga teachings, "To simplify or to complicate? Even a child will prefer the former." To get a better sense of what role complication has played in the current crisis, a consideration of risk is in order.
