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Confidence is Key...to Finance

As we end our last finance lecture, I would like to share a quote from Former United States Secretary of the Treasury Timothy Geithner:

“Every financial crisis is a crisis of confidence. Financial systems, after all, are built on belief. That’s why the word credit is derived from the Latin for believe, why we say we can ‘bank’ on things we believe true, why financial institutions often call themselves ‘trusts.’ Think about how a traditional bank worked. Depositors entrusted it with their money, confident it would repay them with interest at any time. The bank then lent out their money at a higher interest rate, confident that everyone wouldn’t want their money back at the same time. But when people lost confidence in a bank--sometimes because of rational concerns about its lending or leadership, sometimes not--they would all want their money back at the same time. The result was a run on the bank, like the famous scene in It’s a Wonderful Life when depositors rush to pull their money out of a Depression-era savings loan. Confidence is a fragile thing. When it evaporates, it usually evaporates quickly. And it’s hard to get back once it’s lost.”

BEAMers, if you go on to be bankers or Wall Street titans, remember to give the gift of confidence.

Chase Robbins