Monday, March 22, 2010

Report: Economy suffering from lack of financial trust; So why is Washington covering up for high level crooks instead of prosecuting them?

People Now Trust Bankers Less than Random People on the Street
(Washington's Blog) --

As I have repeatedly written, the economy will not recover until trust is restored.

Now, a distinguished international group of economists (Giancarlo Corsetti, Michael P. Devereux, Luigi Guiso, John Hassler, Gilles Saint-Paul, Hans-Werner Sinn, Jan-Egbert Sturm and Xavier Vives) have written a brief essay arguing:

"Public distrust of bankers and financial markets has risen dramatically with the financial crisis. This column argues that this loss of trust in the financial system played a critical role in the collapse of economic activity that followed. To undo the damage, financial regulation needs to focus on restoring that trust."

They note:

"Trust is crucial in many transactions and certainly in those involving financial exchanges. The massive drop in trust associated with this crisis will therefore have important implications for the future of financial markets. Data show that in the late 1970s, the percentage of people who reported having full trust in banks, brokers, mutual funds or the stock market was around 40%; it had sunk to around 30% just before the crisis hit, and collapsed to barely 5% afterwards. It is now even lower than the trust people have in other people (randomly selected of course). In other words, people now trust bankers less than random people on the street."

They point out:

"Trust was destroyed in large measure by the revelation of opportunistic behaviour that the crisis brought to light, of which the Bernard Madoff case is emblematic. Indeed, the data examined shows that in states where the number of Madoff victims was higher, the level of trust towards bankers, brokers and mutual funds has fallen more than in those states with a lower concentration of Madoff victims."...

The distinguished international group of economists suggest various ways to restore trust in banks. But they miss the core truth: trust will not be restored unless the fraud is actually stopped.

And an important first step in stopping new fraud is prosecuting past criminal wrongdoing which led to the financial crisis.

But instead of trying to stop the fraud and prosecute the con artists who got us into this mess, Summers, Bernanke, Geithner and the rest of the boys are doing everything they can to cover it up and protect their buddies on Wall Street.

And in doing so, they are destroying the people's trust not only in Wall Street, but in the government, as well...MORE...LINK

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