Financial crisis is a decrease in trust

Braindump:

Bank is an entity that makes profits on the mismatch of Lenders (deposits) and Borrowers (loans). A bank will match the cash in-flow to the cash-outflow and take the haircut as profits. If the borrowers are trustworthy then the collateral will be low (or zero) and so that amount of money can be used the get more resource (the for borrowers).

The event of mass defaults shook the banks and the lending system at the core, now each entity will demand more collateral and return, hence make the system much less efficient, which then results in decrease ability to produce goods and services.

In summary: Someone very rich misplaced the bet and went bankrupt, everybody is linked to that person, nobody wants to lend money (fear), economy grinds to a halt.

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