Stanley's blog

Investing or gambling?

It may be time to revisit our vocabulary in the light of the financial meltdown. “Safe as a bank” and “safe as houses”– forget them “Insure” – to guarantee or protect against a risk or loss – provided that the insurer remains solvent.

And we need to re-examine the difference between “investing” and “gambling”. To “invest” means to lay out money with the expectation of a profit. To “gamble” is to bet money on the outcome of an event. The difference is in interpretation only.

Lehman’s leverage rate of debt to capital was perhaps 35: it takes little to imagine what may happen in a severe financial downturn. Lehman’s (far from alone) were in effect betting against a severe downturn.

Derivative and other such financial instruments have been devised by whiz kids seeking to maximise profits for their institution (and themselves), which are exceedingly complex and not always fully understood by the buyers or their own management or supervisory authorities.

A thoroughly unsatisfactory state of affairs, particularly in a poorly regulated society. The successful side of capitalism can be measured by the result of failure but non-risk taking individuals are caught up in the ‘remedy’. The US authorities were right to nationalise AIG.

Worst of all for Europe, we have little control over the effects of an American financial meltdown. A highly qualified working group is needed to analyse what has happened and is happening, the lessons to be learned and what action Europe can take.

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Comments

  1. Thanks for posting the article.Ya, i agree with you that we need to examine the difference between investment and gambling.In investment we have guarantee for the money and profit,but in gambling we don’t have any guarantee.But once when we win in gambling we get unexpected profit and this is not the case with investment.
    I too agree that successful side of capitalism can be measured by the result of failure but non-risk taking individuals are caught up in the ‘remedy’.

  2. With the way the bank are behaving at the moment and giving large employee bonuses its disgraceful. The only people who are gambling are the people putting there money into some of these bank schemes. The bank is on to a sure fire winner, they cant loose no matter how much money they waste or loose, the government bail them out, if this was run as a normal company operation they would stand or fall by the way they do business and have no free hand outs from the government.

    [WORDPRESS HASHCASH] The poster sent us ‘1055386704 which is not a hashcash value.

  3. Its all gambling – and I’d include insurance under that. And the main problem is that outside of the UK, whilst investment is treated as a good thing, gambling is often illegal, or set up by the govt. to a point where prices are so uncompetitive gamblings not worth the bother. Check out http://www.right2bet .net for a petition to standardise gambling regs throughout Europe!

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