We trusted the auditors, and the demise of Arthur Andersen and Enron proved that trust was misplaced.
We trusted the rating agencies, and the AAA rated CMO suffered a 36% loss.
President Reagan was right - trust but verify.
It is hard to do. Auditors and credit rating agencies are professionals. It takes a lot of data and analysis to reach a correct conclusion. It takes time and effort. So we hired professionals to do the job and trusted their report and judgement. We even have regulations on insurance companies requiring bond portfolio meeting credit quality standard.
So we trusted. And they betrayed.