What do financial markets and relationships have in common?

"Once confidence is destroyed, it's not easily restored" says Angel...

This statement is usually used in the context of a relationship when one of the partners loses trust in the other because of an incident. However, in this case, the sentence refers to the financial markets. So, what is it all about? Who is the actor in the financial market that cannot be trusted and who is the other party?

According to academics, the injection of governmental money that is offered to the banks in distress is not enough to counteract the descending trend of stocks on the market. This happens because banks are afraid that they do not hold enough information about the other players in the industry, so they have limited willingness to lend money to fellow banks.

To use the relationship metaphor again, let's imagine that one of the partners does something immoral, which makes the other one to lose confidence. After such an event it takes significant time and efforts from both sides for the trust to be reinforced again. Furthermore, the next time you will be even more careful knowing what it can happen. As the saying goes " after you got burned with soup, you will blow even in yoghurt".

Back to the financial markets. What does this mean? Basically, as long as banks don't start trusting one another and start to lend money to each other (credits), we risk not to have enough liquidity on the market. This can happen despite all the bad asset purchases made by the governments and despite all the insurances which governments now give to the financial players.

So, is it accurate to compare the relationships among banks with interpersonal relationships?

Probably the complexity of both lies in different aspects, but they seem to have some things in common, namely the need for:

- trust / confidence
- open communication and information exchange
- long term benefit orientation