Well, there goes my political career. A statement like, “Fraud is not a bad thing,” can follow you around like Gordon Gekko’s, “Greed, for lack of a better word, is good.” But as someone who prepares auditors to prevent and detect fraud, I want to make a case for why I believe fraud is a symptom of something good.
Fraud does not happen in a vacuum. Fraud can only take place when there is trust between parties, since fraud involves the intent to deceive. You cannot readily deceive someone who does not trust you. But trust is necessary for personal relationships and business relationships.
Divorce and infidelity happen, too. Infidelity involves a kind of fraud, but it is largely able to happen because spouses trust one another. If they had detectives monitoring each other 24 hours a day, it would be expensive, but you would have a lot less infidelity. There would also be a lot fewer people getting married. Divorce is not a good thing, but it is an inevitable by-product of a good thing, the long-term commitment of a trust relationship called marriage.
What has happened in the American economic marketplace has led to an environment that is exceptionally low in trust. If you want to avoid infidelity, don’t get married. If you want to avoid fraudulent loans, don’t lend money at all. The government pumped money into banks and banks would not lend it out. People were infuriated. But banks had just been excoriated for making all kinds of liar loans in a real estate bubble, and doing so had endangered their capital levels. Why start dating again so soon when you have been burned?
The market was well lubricated with trust (and had a few bad incentives mixed in), and that provided a significant opportunity for fraud. Long-term economic success will do that. But in addition to high levels of trust, people were involved in transactions they didn’t understand, like derivatives and mortgage-backed securities. When people trust and they are poorly informed about something, there is frequently someone willing to take advantage of them.
Trust is the lubricant for markets. It can only be maintained when there is a habit of truth-telling in a market, whether that market is for love or money. If everyone is lying, immense resources are consumed verifying the truth from outside sources. And when lying is revealed in the form of fraud, it takes a while to recover.
Of course, banks could do a much better job verifying income, and in some cases verifying it at all. And people could do a lot better job verifying the character of the people they marry before they marry them.
Fraud does not make me feel good, and neither does divorce. But both of them signal something positive, the existence of a trusting atmosphere based on the goodwill that derives from a habit of truth-telling. And if you don’t interfere and turn either markets or marriage into a police state, you can be pretty sure that, given freedom, people’s desire for love and money will insure healthy markets for both.
Fraud is not a good thing. But as a guy who has studied it for a long time, I have to say that, much like marriage, the risk of trusting is worth the return.
Trust does not mean I blindly accept what the other person says or that we don’t ask the hard questions of another. If we are self-deceived, we may think we are being honest but we are not and may need other people to gently correct us in the case of love or an outside auditor in the case of business matters.
Living in a country where there is no legal divorce (as I have for over twenty years) puts a different slant on the issue. A well intentioned law has led to many hidden (and not so hidden) second families with all the baggage of lies and deceptions that are necessary to perpetuate the falsehoods.
What role does trust have in the enforcement of laws?
David, you ask a great question. In general, laws represent an inability to trust. The same is true with audits. As an auditor you have two basic choices–trust or audit. If you don’t audit some part of the financial statements, you are trusting your client to tell the truth.
Governments tend to put rigid laws in place where they don’t believe they can trust people as well. This happened in the U.S. with the Sarbanes-Oxley Act, passed as a direct reaction to a series of scandals culminated by Enron and WorldCom. In fact, it only took about five weeks after WorldCom broke for the Sarbanes-Oxley Act to be ready for the president’s signature.
I understand what you are saying, and I agree that we should not be naive and blindly trust without asking hard questions. But it seems that at some point you either trust or you don’t. You may have a subjective evaluation that you are 90% confident that you can leave your car at a repair shop and be treated fairly. But the decision to leave it is 0/1. You either leave it or you don’t.
Speed traps are set up where the police feel it is most likely that people will speed, where they have the lowest level of trust that people will heed the signs. (It is also the most profitable place to set up a speed trap.) Low trust, high regulation.
Your example of living in a country where there is no legal divorce is an interesting one, and I am guessing there is a lot more to the issue than I have discussed here. I would be interested in knowing more.
Thanks for the comment!
When I saw the title of this, I was intrigued because it didn’t sound like something that would come from Dr. Shaub! However, as I read through it, you make a very interesting point. I never thought about how fraud or even divorce really is a negative consequence of what should be a good thing. Although trust is obviously a good quality to possess and everyone wants to be able to trust their business or personal relationships, where do you draw the line between blindly trusting the client and getting burned, or being too suspicious and ruin a working relationship? I’m sure this varies depending on the circumstances, it just seems like there is a delicate balance there between trusting too much and not having enough trust in someone.
I agree that fraud is the by-product of trust and this trusting atmosphere provides evidence that we are not all liars.
I feel like fraud is part of the reason why we have cycles in the market. A very trusting market will probably increase
their investments, borrow more money and spend. On the flip-side when events like Enron and Worldcom happen
the market becomes more cautious. We spend less and increase savings. I feel like fraud is a necessary evil, but yet
I sometimes wonder what it would be like to live in a world without fraud. If we all trusted each other and everyone
were to uphold the virtue of honesty, would we have a more consistent market economy (without the highs and lows)?
Income used to pay for government operations, excluding periods of war, never exceeded 12 percent prior to 1929. By 1980, it was over 40 percent. I’ll have to watch some scary movies to build up the nerve to look at the percentages after 1990. If you want to make the comparison really scary you can factor in the growth in our debt, which is also used to finance government regulation. The conclusion, then, is that we have become drastically less trusting as a country over the years, or that the expense of administering regulation has grown astronomically. Unfortunately, I’d bet on the former.
I had never considered fraud as the negative side effect of trust, nor compared it to marital relationships. I can see how a trusting relationship of any kind inevitably opens the door to deceit. So, I can also follow that can be seen as a cause and effect relationship (trust causes opportunity for fraud). However, my concerns are related to rjones. How do we find the balance between the positive attributes of a trusting business relationship and the potential for deceit that bring fraud to a tolerable level? Moreover, when we, as auditors, are required to have professional skepticism, we start all business relationships limiting the amount of trust allowed. Professional skepticism does not interpret into zero trust, but limited trust. I guess my biggest concern is that to have the positive side of trusting business relationships we open ourselves up to huge legal battles. If a fraud is found, despite using professional skepticism, no one in a jury or the shareholders will agree that fraud can be good because it is from a trusting relationship. How can that be defended to those affected?
Agreed…fraud is the negative by-product of a positive trusting relationship. However, I believe the question here is how do we better ensure that the relationship we are in is one worthy of trust? As I think can be agreed by most, blind trust almost always leads to negative consequences. So how do we protect ourselves from getting into trusting relationships that turn out to be not-so-trustworthy? My answer….skepticism. Now, don’t get me wrong…I’m not trying to say that we should all be suspicious of each other 100% of the time. However, whether you are in a business relationship or a marital one, I believe a healthy amount of skeptism is positive. Should the amount of skepticism change depending on whether you are talking to your spouse or your business associate? Yes, I believe it should. Now the hard question…How much skeptism is considered a healthy amount? To that, I honestly don’t know.
Upon reading this post, I immediately drew to a passage in C.S. Lewis’s Mere Christianity that states, “Goodness is, so to speak, itself: badness is only spoiled goodness. And there must be something good first before it can be spoiled.” Like you said Dr. Shaub, due to the definition of fraud, fraud can only exist with the presence of a trusting relationship. Thus, fraud is the result of one or more persons spoiling this relationship with his or her actions. Consequently, there is a simple tactic that could eliminate fraud once and for all: quit trusting people. But what kind of world would that create? Despite our instruction as auditors to be professionally skeptical, I believe most auditors lean toward the trusting side until they are given some sort of hint that this behavior is unwarranted. That’s not to say they initially let themselves be completely oblivious to all suspicious activities, but if people don’t primarily have faith in others, how do trusting relationships evolve in the first place?
I agree with the statement that fraud is the result of trust in both personal and professional relationships. One does need to enter into a trusting relationship knowing that at some point you could be cheated or decieved though. Most of the time when people trust they are nieve about the negative by-products of putting down their “security wall” and are almost too trusting in the fact that they don’t really try to understand what it is they are getting themselves into. Without trusting relationships you won’t get the return that you are seeking, but at the same time you need to be aware of the likely downfalls that are possible as well. To trust after being burned once or even multiple times is each individuals choice, but without trusting, you won’t know what opportunities you are missing out on.
While I agree that trust is vital for personal and professional relationships to suceed, I also believe that a person must maintain a healthy amount of skepticism when someone claims something that seems too good to be true. Many frauds lure people in with the promise of ridiculously high returns on their investments. The people who have conducted the most sucessful frauds are also people who were highly regarded and trusted in the community. In my opinion, if someone came to me and told me I could make a return much higher than anyone else in the market was making just by investing with that person, I think I would do a little bit of research into that person and their fund before I actually invested with them regardless of how much they were trusted because their claim just seems too good to be true. As one politicain once put it (I think Reagan?), “Trust, but Verify”.
I understand and agree that fraud is a by-product of trusting relationships, and is many times inevitable. I have never viewed marriage involving a high risk of infidelity due to the trusting nature necessary for a healthy marriage to exist… what an interesting though. To me this only magnifies the importance of unconditional love because both people are willing to accept the high risk of infidelity in favor of pursuing their relationship. As far as the fraud part goes… my concerns are with KMares10 statement regarding “bring[ing] fraud to a tolerable level”. How do you define the optimal level of fraud within a marketplace? If we are able to determine this “optimal” level of fraud, does it only indicate healthiness? Somehow it seems like there must be something more to the equation in evaluating a healthy market. I just don’t understand how it is possible to find the level of fraud that is desirable in a market.
I think this is a very interesting argument. Comparing marraige and fraud is something I probably never would have pieced together. I think it is a sad world we live in when things such as fraud and infidelity are inevitable. I think it is also sad that they can be justified by saying that the good would not exist without the bad, so wouldn’t you rather at least have some good and some bad than no good at all? When looking at a business relationship you can argue that trust is a healthy thing to have in a client relationship. I agree, I think it would be unwise to constantly be openly questioning the CFO of a large company and not be able to believe anything he or she says. But I do think a more healthy approach than trust alone is one involving a hint of skepticism. Keep your client close, but leave just enough space between the two of you that you wouldnt be blinded by trust to their poor behavior or actions.
This reminds me a lot of C.S. Lewis’ comments after losing his wife, “to have and to of lost is better than not of having at all.” Life is risky, love is risky, and making money can be risky. We risk being hurt but stand to gain something so good that never would have been possible unless we risked something. But just because such risk in inevitable doesn’t mean we have to accept it without reserve. It makes since to carefully guard your love and your investments from fraudulent or shady characters. Love and money really make for a great comparison because with love, we don’t want some third party oversight group regulating who we should or shouldn’t associate with, we want to be self regulated. It would be the best world if every financial institution would give due diligence to loaning to acceptable people and not try and cut corners through various methods. But this isn’t the world we live in and now regulators have taken it upon themselves to determine what the most tolerable level for fraud is. I just hope someone doesn’t start regulating love…
Another possible positive aspect of fraud is that for every one we catch that is more that we learn about fraud and more we can prevent in the future. Who knows how many, possible in total more costly, frauds were uncovered in the wake of scandals like WorldCom or Enron, so even though these are horrible things, good things have come from them. By the same token, with each passing high-profile fraud case, the consequences of fraud are also shown, which may lead some people to think twice about comitting fraud.
As far as the Love angle goes, I think the kind of relationships that end in infidelity are more like infatuation than true love. So maybe what we need to look for in our financial relations is that feeling of safety and comfort from a good relationship, and not that sense of too good to be true from a bad one.
I love the last paragraph of this blog. I agree that the risk is definitely worth the potential reward in both of those scenarios. Trust is a delicate thing that is irreplaceable once developed, and nearly irreparable once broken.
The blog definitely had an eye-catching title, and was well-supported throughout. The key to it all was trust, and it’s sad that trust is broken so often that things such as divorce and fraud are witnessed as much as they are. I know my effort to fight against such things will start with being the most trustworthy man as possible, and make conscious efforts to keep that reputation from being tarnished.
I believe trust is one of the hardest things to give a person. As I have progressed through college, I have made my fair share of mistakes and they all stem from trusting individuals too much. I tend to always look for the positive side of things, which has led me to trust people too easily. I have learned that trust is something that must be earned by another individual through both their actions and words. There is more emphasis on actions because someone’s words can only take you so far.
I think that you make a very interesting point in this blog post. I have never thought about fraud this way, and I appreciate this new viewpoint. That being said, I completely agree. But I can’t help but wonder, what do you do when that trust is betrayed? I realize that in a marriage it depends on the couple, but what about the business world? Do you think that calls for more regulatory legislation? Or do we need to get to a place where the spirit of the law is upheld, rather than the content? I know that I’m perpetually asking questions, but I think that as long as the content of the law is what’s most important, then people will always be looking for loopholes. If we can somehow get to a place where the spirit in which the law was written is what guides us, then I think that we will be much better off.
The issue of banks and the TARP funds is quite interesting to me. Big banks, such as Merrill Lynch used $3.62 billion of the $10 billion TARP funds it received to award bonuses to its executives. Is this unethical and in direct violation of the people’s and government’s trust? Absolutely. The TARP funds were supposed to help alleviate losses so the banks could start to lend again, not so they could award executives for doing a terrible job running the company. I tried to Google whether the SEC or the government punished Merrill in any sort of manner, and as far as I can tell, no consequences were ever announced. How can we the people expect the banking industry to learn from its mistakes if they are not punished accordingly?
I find the comparison between marriage/dating and fraud interesting. I am still amazed at how quickly people got back into the financial market “dating scene” after the collapse – the markets are still briskly rising to this day. Just like after a breakup, is the recent stock market rise just a quick “rebound” doomed to fail?
I would agree that trusting is worth the risk. You can’t live your live scared of what the outcomes might be. Each day we take risks that may or may not hurt us.
The housing market was one of the biggest failures of trust I have seen. The banks were allowing loans that people could afford at the time. They based the loans on the fact that people could make their minimum payment and house values hadn’t decreased in years if not decades. With these two factors, banks felt comfortable to believing people would be able to afford their house and get out of it if they needed without a big loss. However, a series of events in the economy, starting with 9/11 and including many cases of fraud, caused interest rates to increase and house prices to increase. People who could originally afford those houses were able to make their original payment but then their interest rates increased so high they were only paying interest and not any principle. People are now more skeptical of buying a house and banks are more strict on their loans. Looking back this was a horrible event because it ruined so many lives. However, I do believe an event like this was inevitable. This was going to happen sooner or later because house values can’t increase forever and not everyone can afford to own a house. I wish it had not of happened to so many people and so dramatically. The government is taking actions to help house prices increase but if these work is still to be seen.
Looking back on many events of fraud that have occurred in the past couple of years it is probably a good thing. It’s not a good thing that millions of people lost their jobs and life savings but it is good for future generations. More laws, regulations and skepticism have come out of these events which will help protect people in the future from losing their jobs or money. Its sad to say that skepticism and more laws are a good thing but they are. In a perfect world we would all be able to trust each other but obviously this world is not perfect. So yes, trusting is still worth the risk. It might not help you but it could help others.
I too found the comparison between marriage and fraud interesting. As divorce rates have increased dramatically over the past few decades, has our blind trust of corporate America also increase? I am certainly no expert on marriage and I am sure there are a lot of reasons for the increase in divorce rates, but it seems to me that people are jumping into committed relationships without really knowing the other person. They trust their new spouses even though they have nothing to base this trust on. I think that a lot of people jump into these relationships with businesses as well. I feel that I would be ignorant to join Ernst & Young without finding out as much as I can about the Lehman Brothers incident and how that was handled by the firm’s associates. It didn’t happen in my office, but it greatly affects the firm and could speak volumes about the integrity of the firm nationwide. Similarly, in the early 2000s when Enron and Worldcom were showing these incredible profits, people simply bought into it. Everyone wanted to work at each of these companies and people put life savings in their stock without ever wondering how they were making their profits. As a country, but more importantly as auditors, we need to bring our professional skepticism back to a professional level. Trust is an incredible thing that enables capital markets to work, but there are varying levels of it. We should not automatically give everyone our highest level of trust.
I like how fraud is compared to divorce. And it is interesting to see how these two are compared and do relate. Trust is something that is leaned on a lot in both scenarios. Without trust, neither of these two would be able to occur. I must say that I agree with the last statement that “the risk of trusting is worth the return.” If we are not trusting in our relationships then we will never know what could have been. There are some people that are too trusting and then those that do not trust enough. Both can be harmful, but I believe that a balanced trust must be in all auditors.
I understand and agree with your point that fraud is a byproduct of trust. However, I disagree that fraud could possibly be considered a good thing. If people would trust each other and then others would reinforce that trust by following through with their promises the world would be a much better place. I am not under the delusion that people will always follow through on there promises but I do believe it would be much easier to do business. I would argue that fraud causes people not to trust each other and the more fraud there is in an industry the less likely someone is to trust that industry.
It is hard to see that fraud is ever a good thing when you see the hurt people go through after either a financial fraud or a divorce. To me, the easiest way to relate is to look at marriage and divorce as a good thing. Yes, it is terrible when people get divorced and it causes a lot of heartache, but what comes out of it is usually worth the pain. For example, my friend’s parents have been married twenty years and are just now getting divorced. They still have three great children and a lot of wonderful memories together. I would not want to live in a society where there is no trust because without trust I think there would be a lot more greed and heartache. It takes a lifetime to build a trusting relationship but only one action to destroy it.
I really like the analogy you have provided here Dr. Shaub for relationships and trust. It’s often hard to see the good through all the bad, especially when you right in the middle of all that bad, but trust is so much greater than a good thing. Trust allows us to continue on in our society. Without trust, we would literally go nowhere. In fact, I feel without trust, we would have even more deception. If no one trusts you do to do the right thing, then after sometime, you start asking yourself why you are even still doing right? If my boyfriend never trusted me, it would be a difficult relationship, that would probably end quite quickly. I feel like people think they see trust in the business world in a different light. Reading articles about deceiving CEOs and words like “professional skepticism” and “audit,” people often jump to the conclusion that they are mindful and distrustful of businesses activities, when in fact every business transaction they enter into and every investment they make, they are trusting that company and our market and making our world go round.
Interesting analogy between fraud and divorce. I agree that trust is not a bad thing because without it there would be no credit and the economy would be a lot worst than it is today. I think it’s ok to develop trusting relationships as long as you don’t completely hang on every word the other person says. Just like in accounting, you need professional skepticism and make sure that you continually assess your relationships to see if the trust still exists. Another thing that is related to your analogy is when our trust is betrayed in marriage, sometimes the person will date less and be more careful in their upcoming relationships. Just like in economics, if a company scams us then we will be more skeptical in investing in future companies.
Old russian proverb, “doveryai, no proveryai”, trust but verify. If you do not trust the client at all then you should remove yourself from the client and make that public knowledge. For any business arrangement there has to be trust at some level between the parties to hold up their end of the bargain. But all firms must do their due diligence to make sure the other side is being honest and this is were the verification comes in.
The title “Fraud is not a bad thing” really puzzled me when I first read it but the substance of the blog really put this into perspective for me. So I do understand fraud is a by-product of a good thing. In another blog, “Seeking wisdom,” you stated “higher risk, higher return” and I agree with this statement in regards to trust. First of all, I believe everyone has a different perspective on trust and whether it is present until it is lost or if it has to be earned. Ultimately, I feel like trust should be built and worked for. I’ve always thought anything worth having is worth working for and we society treats trust as a good thing to have. But I like how you compared trust in marriages because I think that is one of the greatest life fulfillment. So trust is the big risk and the immense joy of marriage is worth the big return as you stated. Yet, I do believe that individuals should still be skeptical even in their marriage and not be naive about what people are capable of. I always say if you look for trouble, you will find trouble so your skepticism must not be the intention of finding bad, but rather don’t be naive if something may arise.
This is a very interesting take on fraud. I have never thought about something positive coming from the act of fraud. I have always focused on the bad. I like how you brought out something good from it. Also, I thought it was interesting how you compared infidelity and fraud. I believe we do have a lot of trust in people that is why I am glad that ethics is a required class. I feel that it has been an eye opening class. It has taught me to be suspicious and cautious of others.
An interesting way to take two very different things and show how in reality they are similar to each other. Trust is necessary for the markets to work, and it is since the public has been betrayed by this trust that there have been more regulations and more jobs for accountants. If people had trust in the marketplace then there would be no need for auditors. It is because of the lack of trust that accountants are in high demand and need. Since there is a high divorce rate for marriages it does make me wonder how bad our judgment really is. We must be bad calculators of trust because if we get our trust broken with our spouses (those we claim to know really well) then it makes sense that our trust gets broken by the market with all of its unknowns.
This blog reminds me of a viral email that became popular in the last 5 years. The email claims to be an account of how Albert Einstein proves that God exists to a professor. The email starts with the professor asking his students whether or not God created everything. When a student replies “Yes” the professor then counters by saying this implied God also created evil. However, another student raises his hand and asks the professor a series of questions. The first question asks the professor whether cold exists. After the professor says that it obviously does, the student proves him wrong by stating that cold really represents a lack of heat. Then the student goes on to show how darkness, which the professor says exists, is truly the absence of light. Finally, the student then postulates that evil does not exist in and of itself, but is rather the absence of God.
Whether or not Albert Einstein really had that exchange with one of his professors, the theme within its story and the one in this blog are similar. There are things we appreciate such as trust, heat, and light, that given our imperfect world, often come with negative implications.
I agree trust is an amazing thing that society must have to function. Like you said, the fact that fraud and other wrong doings can only exist when our society can trust each other. My fear is that one day, all of the wrong doings will destroy trust. It seems that our society is getting less and less trusting of people and their intentions; I have to say that in many cases they have good reasons to withhold their trust. Is society letting these unethical people or instances win by reducing trust? Can you blame someone for losing trust in society after they have been burned? Is it our responsibility to maintain that trust in people despite some of our bad experiences?
This blog posting reminds me of one of the points brought up in class from one of the WERS. It was something along the lines of “if people uphold their obligations as strongly as they fight for their rights we’d all be a lot better off.” Just as fraud is a result of trust, obligations are a result of rights. Corporate leaders work so hard and fight for their right to be successful and move up the ladder but are they upholding their obligations to those titles as strongly as they fought for the success? Same for a marraige. We believe in the right to have freedom in choosing a life partner but once we have made that commitment and the right has been satisfied we need to proudly and actively adhere to the obligation of that right. I also believe that just because there is a commitment in a marraige should not be the main reasoning behind remaining faithful. I think one should remain faithful to someone because their number one desire is that person’s own happiness. If someone constantly has the desire and intention to cheat, but hasn’t yet, I do not think this still makes them ethical. If the intention and desire is both there, eventually it will happen. But if their number one desire is to make that person happy the intention and desire would never arise.
Just as fraud is an indicator of trust, disappointment is an indicator of hope. Throughout history, we have seen what impact even a minimal presence of hope can have on a devastated society. MLK, Jr. inspired hope in a society that seemed lost in hatred and ignorance. Our society’s understanding of race and equity has improved but is far from comprehensive. As accountants, investors, and productive members of society, we should inspire the public to trust a system that has tainted their perception of our industry. Relating fraud to trust is one method of rebuilding the public’s confidence in the markets.
I agree that fraud is not a bad thing. Even though it doesn’t sound politically correct, it means that we trust others. I’ve been fortunate, for the most part, to have been surrounded by good people and good friends. Being involved in sports and church, I have come across a lot of great people. However, I am not naive. I’ve not been cheated out of millions of dollars or anthing major like that, but there have been instances where I have learned that I cannot trust certain friends. Even though these were minor situations, I learned enough that it might have helped me avoid bigger situations where my trust could have been taken advantage of. However, how I’ve been burned is not what’s important. I’m just happy that I live in a place where people are not afraid to still trust in others.
As much faith as I have in Americans, I’m not sure I have that much faith in our government right now. We trusted our representatives to vote for our ideals, but the recent health care bill was passed to much of America’s dismay. Our goverment is not acting for the people as our founding fathers wanted. In the upcoming elections, I think people will be thinking about who they can trust in Washington.
I’d say it’s more that the act of fraud is a bad thing, but the opportunity for fraud is what should be considered normal. There’s an opportunity for exec’s to commit fraud in way more corporations than we can imagine. Opportunity doesn’t always materialize. Personally I invest in companies under the faith that they will identify these opportunities for fraud to be committed, and not only resist temptation, but to establish controls to prevent them in the future.
I would never have thought of fraud as a good thing before I read this article. Of course that is most of the reason that I started reading it; to see what your point was. In my opinion, you made a very valid one. While fraud is a problem, it does show that people are still willing to trust each other. Maybe willing to believe that truth (and love) still exist.
However, I kind of think that sooner or later people will stop trusting each other because of (what seems like) the frequency of fraud these days. Perhaps I am wrong and it doesn’t happen all that often. But as divorce rates also rise in this country, I think fewer and fewer people are getting married because they don’t believe that it’s worth doing it a second time, or worth being hurt again if that was what happened in the first instance.
Just a thought. Great blog though!
Sadly, the misuse of their abilities by the banks, government and ratings agencies sent the financial system to a catastrophic fall that few investors could have predicted. After the downturn, investors threw their hands up in frustration, almost losing all trust in the financial system. Since the market crisis of 2008, I have noticed a change in the mindset of individual investors.
Nowadays, shows such as Jim Cramer’s Mad Money are emphasizing doing your own research and making conclusions before you listen to the markets. In other words, listen to your own intuition and gut feeling about a company before you decide to invest in a company because we need to accept the fact that the financial system is fallible and there is always a possibility that things might go south quick based on things out of investor’s control such as the real estate bubble.
That is why as an individual investor, we must listen to our gut feeling and do our own research and draw our own conclusions before we rely on outside information. Don’t just put your full faith in the predictions made by the banks, rating agencies, companies, media, and government. Make sure that you take a unbiased look at it and make your own prediction too. The same concept applies with auditing a company. Before we are going to put are trust in this company, can we make our own conclusion about something before we decide to trust management’s word.
There are interesting consequences of trust. For one, positive consequences can develop such as loving friendships and confidants. But as you point out, negative consequences can evolve from trust as well. Your comment that “trust is the lubricant for markets” is particularly interesting. It’d be a different world if we didn’t trust in our financial system or government and after traveling abroad last summer, I realized that this isn’t all too uncommon. .