So, I see no problem with sending him all the merit I had. It's like I vouch for him. Is this a problem? Vouching for a friend?
IMO its a little harsh to nukle all of our "trust" down just because we shared our merit points with each other
Well, sharing merit is definitely frowned upon and I (and others) reserve the right to penalize it with negative trust.
With me, it's usually not such a big issue, since I tend to delete negative trust ratings after a while when I see no more need for it.
See it as a kind of "timeout" for your trust.
Also, there's a little more to the story than just what you see from the merit statistics:
This user's password was reset recently.
This user's email address was changed recently.
This user's password was reset recently.
This user recently woke up from a long period of inactivity.
These, combined with the merit trading, are usually clear warning signs of abuse.