Chapter 19. Trust

“No, sir, the first thing is character. Before money or anything else. Money cannot buy it. Because a man I do not trust could not get money from me on all the bonds in Christendom.”

J.P. Morgan, when asked in 1913 if money or property was the basis of commercial credit

Financial markets rely on trust. Uncertainty over the location of subprime losses caused a crisis of confidence in the summer of 2007. Central bank intervention averted disaster, as markets still trusted governments and central banks. But this intensified the problem of moral hazard.

“The Fed is asleep!” yelled Jim Cramer, CNBC’s pundit-in-chief. “We have Armageddon. In the fixed-income markets, we have Armageddon.” On August 3, 2007, he descended into a five-minute ...

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