Trust and the Banks

By: Ian Campbell | Fri, Jul 13, 2012
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Why read: Because if you haven't focused on this issue, and the possible consequences of it, you ought to.

Commentary: Over the past twenty years the world financial system has become increasing interconnected, and as that has occurred, different assets classes previously thought to be unrelated have become very interrelated, such that they all now in many banks sit in one 'basket'. This has resulted in:

Keeping that in mind, consider the following two scenarios. You are happily married, or so you think, when you find your spouse of ten years has:

Assuming, hopeful not through personal experience, the foregoing resonates with you, consider whether what has come out over the past several years and in recent weeks will, and has, either seriously harm or irreparably fracture investor, trader and general public perception of the banks and in particular, perception of the 'investment banks'.

In summary, the following things (among others) have happened since 2007 that might cause more than one person to raise their eyebrows and see the world's bankers through less-trusting eyes than they otherwise might;

Consider the possible outcomes of this maelstrom of 'bad business' in the banking sector as these and very likely more regrettable banking sector news comes forward in the next weeks and months. At least some these are likely to be that investors, traders and the general public (collectively 'non-bankers'):

While I don't think movement out of the financial markets for reasons related to such mis-trust is imminent, if I were a money manager at 'street level' this 'trust issue' is certainly one I would be concerned about.

From my perspective, this is one of the reasons I believe that the best investors and traders will assume increasing responsibility and exercise increased input in the management of their investments and trades going forward.

It is also why I have come to believe laws should be put in place to return the separation of commercial banking and investment banking, thereby segregating what are quite different risk profiles, and enabling a clearer path to fair regulation.

Topical References: Why Libor matters to Main Street, from The Globe and Mail, Joanna Slater, July 11, 2012 - reading time 3 minutes; and LIBOR Manipulation Leads to Questions Regarding Gold Manipulation, from Financial Sense, Mark O'Byrne, July 11, 2012, reading time 3 minutes.

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
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