Patrick Wood, editor of The August Review, writes:
“[The] predicted financial meltdown is upon us with a fury. Asset values are collapsing all over the world: residential and commercial real estate, stocks, all forms of credit and some $750 trillion (yes, trillion!) in the fabricated derivatives markets. The FDIC is gearing up for record-level bank failures. It’s all coming unglued.”
Note the reference to “the fabricated derivatives markets.” More than a decade ago, the CHP criticized the formation of derivatives, as well as trading in market indices, as being nothing more than gambling.
Some people call the operation of the stock market itself “gambling”, but they are wrong; while it’s certainly possible for people to use the stock market like a gambling den, the market actually serves a very useful purpose: the mobilization and monetization of investments in equity, that creates pools of capital. But derivatives-which are really just guesses about changes in the future relationships of otherwise-unrelated stock prices-and trading in stock market indices, are truly nothing more than gambling; they’re closely related to the old “numbers racket”, in which people bet on the last four digits of the next day’s total of shares traded. No capital is accumulated or monetized, and the operation of the equity market is not facilitated; it’s just gambling-the hope to “get rich quick”.
In the case of the 1995 collapse of Barings Bank; and in the more recent loss of more than $7 billion by the French Bank, Société Générale; the “rogue traders” who imperilled investors’ deposits were caught on the wrong side of betting on heavily-leveraged derivatives.
“Derivatives,” someone recently said, “are like jet fuel in the marketplace: when things are going well, they cause the market to soar; but when things go wrong, they turn it into a fireball.”
Gambling is immoral because it relies on chance, not on God or on our own efforts, to meet our needs. It is a kind of economic pornography. The tragedy of our time is that governments have become the biggest promoters of gambling: it gives them revenue without seeming to raise taxes; and it creates “slush funds” of benefits with which they can reward “friends”. And gambling is also harmful to society in that government-sponsored gambling provides a means of laundering the proceeds of crimes like prostitution and drug-dealing.
Government-promoted gambling like the lotteries are economic pornography; they prey upon those least able to afford a loss, holding out the vain hope of “a big win.”
CBC Radio’s Danny Finkleman used to call the lottery “a tax on stupidity.” Like any other kind of porn, real people are really hurt when its fantasies come unglued.