The role of trust in the 2008 financial crisis

Financial transactions require trust. This paper analyzes the role of trust in the context of the 2008 financial crisis. In order to find a role for trust, we need to find a role for trust in a standard economic model which differs from the rational expectation of the equilibrium outcome. It is argued that trust dropped dramatically in the Fall of 2008. The consequences and effects of this drop in trust are discussed.