Now we get into the history of banking and lending, which demands that we look at this bit of history. Note the most important component of said history: Trust.
http://en.wikipedia.org/wiki/History_of_the_Knights_Templar#Bankers
By 1150, the Order’s original mission of guarding pilgrims had changed into a mission of guarding their valuables through an innovative way of issuing letters of credit, an early precursor of modern banking. Pilgrims would visit a Templar house in their home country, depositing their deeds and valuables. The Templars would then give them a letter which would describe their holdings. Modern scholars have stated that the letters were encrypted with a cipher alphabet based on a Maltese Cross; however there is some disagreement on this, and it is possible that the code system was introduced later, and not something used by the medieval Templars themselves.[6][7][8] While traveling, the pilgrims could present the letter to other Templars along the way, to “withdraw” funds from their accounts. This kept the pilgrims safe since they were not carrying valuables, and further increased the power of the Templars.
Knights Templar playing chess, 1283.
The Knights’ involvement in banking grew over time into a new basis for money, as Templars became increasingly involved in banking activities. One indication of their powerful political connections is that the Templars’ involvement in usury did not lead to more controversy within the Order and the church at large. Officially the idea of lending money in return for interest was forbidden by the church, but the Order sidestepped this with clever loopholes, such as a stipulation that the Templars retained the rights to the production of mortgaged property. Or as one Templar researcher put it, “Since they weren’t allowed to charge interest, they charged rent instead.”[9]
Correct, absolutely correct. Free markets are based on trust. Trust is experiential, but it also reflects the natural world. When you see economic oddities for instance interest rates going down when they should be shooting up to reflect risk, you’re natural understanding of the world is broken.
Socialism breaks the natural consequences via political manipulation by those in control of government. Bets get bigger because government will intervene, hence too big to fail. That destroys trust.