Let's make it even simpler. How many of you have ever felt betrayed by a brother, sister, or even parent?
Ripple doesn't make anyone more or less trustworthy. One of its primary functions is to level the playing field currently dominated by banks.
What Ripple does in terms of evaluating trust is offer a transparent record that is resistant to manipulation. It creates an environment where there is a strong incentive to be responsible.
Avoid knee-jerk reactions that attack, ask questions to learn
Well, just one simple question, how do I figure out my level of trust of Carol if, let's say, my level of trust of Bob is 50, and Bob's level of trust of Carol is 50, yet I don't know anything about Carol at all? If I can only issue and receive IOUs from people I personally know, then perhaps I don't need Ripple IOUs at all, as we can already do things with pen and paper, and they are actually more versatile in this aspect.
Bob can exhange the Carol IOUs to Bob IOUs (Ripple should do this automagically). That's how carol can give you money without you needing to trust her directly. The resulting effect will be that Bob owns some Carol IOUs and you own some Bob IOUs. Noone trust constraint were violated and all is fine.
Above is how it could work in a "personal banking" environment. Currently ripple devs seem keen to point out that it would make more sense if everyone just trusted bitstamp and/or weexchange.
What do you mean by "automagically"? In what way is it automatic/automagic? Do I need to get Bob's explicit, informed approval when I lend money to Carol? And what would happen if Carol defaults? Thanks.
By "automagically" I mean that ripple searches for "trust paths" to make Carols payment happen. In this case the path involves Bob.
I'm no expert on ripple, but the way I understand it explicit approval from Bob is not needed. He implicitly agrees to this by trusting Carol. In case of a Carol default, you still own Bobs IOUs, he has to deal with the Carol default, because he owns her debt.
Can you get more than one intermediary in the path? And can you not later invalidate a payment which you implicitly approved? If that's the case I strongly suspect the robustness of such a system, e.g., if someone happens to be the junction point of a lot of trust paths, and suddenly accumulating a large amount of IOUs without his knowledge(it could happen if the nodes next to you happen to be a little bit better connected than average, and so are their extended ones, and so forth), his default could cause huge problems. Of course allow the setting of a threshold debt value could be very helpful, but a robust network should in the first place be designed to avoid single points of failure/negligence.
Besides, I don't think such IOUs are as versatile as their real world counterpart, with which you can specify under what conditions/when the debt is to be repaid, and under what conditions the repayment could be delayed, which are all legally enforceable.
