A question of faith
The bubble that led up to the collapse of 2008 was based on unusually high levels of trust across the financial system. Investors trusted banks. Banks trusted each other. Everyone trusted the ratings agencies. If all this trust hadn’t existed, there is no way that so many stupidly complicated and gener-ally worthless securities could have flooded, and all but destroyed, the credit markets.
That trust didn’t disappear with the credit crunch. Instead, investors transferred their faith to their governments. The stockmarket rally since early 2009 has been based on the firm belief that govern-ments can both take on the debt of the private sector and kick their economies back into action at the same time.
We should be glad that investors found that faith – imagine what would have happened had the fear of 2008 poured into 2009 and beyond. But it leaves us in a tough situation now. Why? Because there is no back stop to governments. I shared a speaking platform with the FT’s Gillian Tett at a City lunch last week and the question we both posed – in slightly different ways – was what happens next: what happens if we lose our faith in governments to sort out the mess they somehow allowed us to get into?
• Read the full editor’s letter here:
A question of faith
Also in this week’s magazine
• Editor’s letter: A question of faith
• News: China and Taiwan sign trade pact
• News: Growth scare rattles markets
• News: Will BP really be taken over?
• Markets: US stocks set to hit the skids
• Markets: Russian stocks are cheap – and will stay that way
• Sector: Bag big pharma while it’s out of favour
• Gamble of the week: A probiotic gem
• Share tip of the week: IT outsourcer in pole position
• Turkey of the week: vulnerable hotelier
• Strategy: The shares you’ll never want to sell
• Personal view: Three solid American stocks
• Briefing: Has peak oil theory passed its peak?
• Personal finance: Switch Isas for a better rate
• Tax advice of the week: Buy agricultural property
• Funds: How to profit from the deflation scare
• Cover story: Harvest profits from agricultural growth
• Fund of the week: Big gains from small caps
• Entrepreneur: Duncan Bannatyne: £300m TV dragon
• Travel: Where to stay in Seville
• Toys: Skoda’s sporty yet practical estate
• Wine: The perfect Pinot for a summer lunch party
• Last word: Bill Bonner: Who pays?