This morning in my my car I listened to Christian de Boissieu, a French economist. He explained that this crisis was different from previous ones do to a problem of lack of trust. Trust? as in our preferred topic?
The current crisis is due to banking organisms that took too high risks. Nobody was either seriously evaluation the acceptability of the risks, or worse they did not care. In other words the aversion to risks was extremely low. And of course, as we all know. The higher the risk, the higher the probability that the corresponding threat will be true. Here we are.
De Boissieu highlighted that the world had already many severe crisis. Just remember the deflating Internet bubble. Nevertheless, it never shook so much the world. Massive attempt to inject money by Central Banks have no serious impact. According to him, the banks do not anymore trust each others. This means that they do not anymore lend money each other. This lack of trust is such that they do not even dare to borrow money from central Banks. Their aversion to risk from extremely low jumped to extremely high. Thus, this lack of trust freezes money, and there is not enough available liquidity. Thus, companies have trouble to reimburse. Vicious circle.
It is strange that institutions such as banks which are among the ones that master the best security through the notion of risk management and trust fall in that deadly pitfall. Once behind us, security specialists should study this crisis to learn about mistakes. They were all about risk management (the crux of security)