Busted: Bankers and The Global Economy

April 24, 2008

Bankers Trust But Verify?

Filed under: banking, federal reserve, investment, money — Tags: , , , , , , , — digitaleconomy @ 8:45 am

Recently Federal Reserve Governor Randall S. Kroszner noted that “market participants must perform due diligence, a process to gather and assess relevant sources of information to evaluate that product. Due diligence is critical because market participants must trust but verify the market-provided information. Potential purchasers, for example, might engage in various activities, ranging from assessing risk exposures through stress testing to assessing the enforceability of contracts that define the requirements of investors, trustees, guarantors, and originators.”

The idea of “trust but verify” is a noble and seemingly well-intentioned idea. However, considering the recent admissions regarding the lack of financial literacy even among the mainstream banking and investment community, the idea of “trust but verify” rings hollow.

What does verify mean? What steps could a banker or investor go through to verify? What should you verify? Verify engenders the thought of quickly calling up and talking with a “knowledgeable person”. Verify engenders the idea of scanning over a prospectus with a brief summary of investment details. The idea of stress testing is based on existing valid knowledge and very often, financial theory. None of these, together or separately, is sufficient to protect a national banking system, let alone allow to impact a global one.

Trust is to be earned. Not a person in the banking and finance world has the human dignity or collateral of trust at this time. In fact, the opposite is true. Especially in the United States, banking avarice has run from top to bottom. This is fact, not fiction. Therefore, the ability to trust is a foregone conclusion because the banking system is not trustworthy.

Because of this truth, the idea of trust has become a quaint old-fashioned idea from the past. How can a banker trust a banker when a banker knows in his heart that he can’t trust himself? That is the hell that bankers, financial managers and investment brokers across the nation and the world face.

Who is trustworthy? Not a single person connected to the United States should be. The idea of “trust but verify” is a recipe for destruction, little better than buying investments “off the shelf” without a question because the investment rating looks good.

Remember that banking and finance does marketing like everyone else. To bankers, trust is a marketing concept. Until trust becomes more than confidence and marketing, trusting is impossible. Only years of rebuilding will rebuild any measure of real trust. Building real trust is a long hard road.

Jon, the coffeeblogger isn’t a bad man. He isn’t a banker either. ~ E.M.


1 Comment

  1. You are right. What is there to verify if you really don’t know what to do? This piece is excellent and so loaded with thought provoking material.

    Pingback by bgritfinance — April 24, 2008 @ 9:19 am

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