Transcript
As we have discussed many times, finance is largely built on trust. In the past, institutions like banks and governments have served as the guarantors of trust in the financial world. But whether as a cause or effect, trust in institutions has diminished significantly in many countries over the past decade.
Probably the best recent example of a cause for distrust in the financial world is the global financial crisis, including all the major financial scandals that were exposed as a result of the crisis. Now, for most of us, we had to stand by and powerlessly watch as the global financial system nearly collapsed. We had a daily reminder of how flippantly certain members of the global financial community pursued profits at the expense of their customers and how government regulators were not really sufficiently protecting us.
Millions of people around the world lost their homes, their savings and essentially their futures. In the US alone, it is estimated that American households lost approximately $20 trillion in wealth as a result of the financial crisis. As a result, it is no surprise that many of these people began to de-trust the very institutions that were meant to protect and serve them.
Now, as a personal example, David Bishop and his wife bought their first house the year he graduated from law school which was 2005. Obviously, they didn’t know that they were buying at the worst time possible with the financial crisis decimating the real estate market only two years after the purchase. When the market crashed, the value of the home dropped by over 30% and it took a really long time to recover. His family recently sold the house about 13 years after they purchased it. The selling price? Exactly the same amount that they purchased it for back in 2005. While they were grateful that they didn’t lose any money, there was a lost decade where many people around the world lost most of their net worth and have struggled to recover ever since.
Let’s be honest, many large financial institutions have not done much since the financial crisis to reduce our concerns. As noted earlier, banks such as Wells Fargo have had multiple high-profile scandals that have gutted their customers’ trust. And it seems, every week there’s some sort of scandal that comes out that involves the financial institutions.
