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With no trust, world would function the same way businesses function - they sign contracts and law takes care of the rest... it punishes people who fail to follow this mutually accepted legal obligations.

In fact, this is exactly what people who lost trust in other people do. They do business only thru contracts. How could a world function without people trusting each other?

Trust does not mean 'blind trust', but deserved trust. Once a person betrays the trust, person is trusted no more.

I don't see the problem here. The root of every world problem is trust.
With or without it you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion. [1]
[1]
Fear is the root of all evil.