Trust: Earned or Lost

Trust is a relationship of reliance. A trusted party is presumed to seek to fulfill policies, ethical codes, law and their previous promises.  We are told hundreds of times in Scripture to "trust the Lord" and to put our trust in the Lord.  Why?  We can rely on Our Heavenly Father to look out for our best interest in the big picture even when we don’t comprehend the big picture.  Man is a different story.  Mankind will fall short in the area of trust due to the fallen nature of Adam inherent in our physical bodies.  Most of us strive to be trustworthy but have failed to be trustworthy at some point in our lives.  Man’s carnal nature is at odds with "trust".  Men rationalize their actions away to justify the seeds of untrustworthy acts.  In the Book of Romans, Chapter 7, Paul speaks of the conflict.

I recall specific times in my life when I lost the trust of others.  I did not intend to do so, hindsight is 20/20.  It took time to gain that trust back by consistent acts of love and firm commitments of consistent actions to promote relationships shaken by mistrust.  Grace, mercy and forgiveness were the key ingredients encompassed by love.  The world does not currently operate that way.  Men have used the public’s trust to gain access to vast sums of wealth.  Through manipulation and control they have exploited the world’s financial system and it is now on the brink of disaster.  Trust (or lack of) will be found at the center of this crisis.

The Financial Accounting Standards Board (FASB) adopted new guidance on fair-value accounting in illiquid markets.  Most of us had never heard of the FASB prior to this crisis.  They are the entity that provides the accounting rules that corporations use to report their earnings and financial state.  Effectively, they administer "equal weights and measures" in the current financial system.  There is an old saying: "liars figure and figures lie".  There is another corporate saying: the president asks the chief financial officer "What are our earnings for the quarter?", and the CFO answers, "What do you want them to be?"

At the center of this crisis are derivatives to the tune of over one quadrillion dollars ($1,000,000,000,000,000).  Yes there are 15 zeros!  Once the U.S. Government let Lehman Brothers collapse, Pandora’s Box was opened.  Why?  Until then, holders of derivative could internally value their derivatives rather than using a market value.  The bankruptcy of Lehman forced a liquidation of derivatives in an auction.  "The auction set a price for Lehman bonds of 8.625 cents on the dollar. Financial firms that sold credit default swaps, therefore, owe 91.375 cents on the dollar – more than Wall Street had been factoring in."   See:  This auction confirmed the worthless value of derivatives.  The market value was established.  How can you value the derivatives at "face value" when the market value is 90% less?  They are flirting with fraud.  You and I are expected to accurately report our financial states which are meager when compared to this multi-trillion dollar environment.

Over the weekend the FASB decided to relax the rules for valuing derivatives on balance sheets.  See:  This will surely cause or promote "mistrust" among the financial institutions holding these weapons of mass destruction.  This is why the credit markets have frozen up.  Who can they trust?  Which banks will return "inter-bank" borrowed funds once loan maturity has arrived?  This lack of trust is why U.S. Treasury Secretary Paulson is suggesting that the U.S. Government should guarantee inter-bank loans.  He is attempting to restore trust among the large banks.

Once the FASB starts "tinkering" with asset valuations, trust is lost.  Lack of trust causes bank runs.  Government leaders have lost public trust.  They assured the public that "all is well" as this financial crisis was brewing.  The FASB has played into the hands of the politicians.  How can we believe any numbers on financial statements and balance sheets?  I guess Enron was not an isolated event after all.

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