A Socially Important Casino?
Posted on May 2, 2010
So after nearly five years, my Casino Capitalism (www.casinocapitalism.com) thesis finally has been vindicated by none other than Lloyd Blankfein. I should really have more patience with my ideas…
As quoted in a recent Bloomberg article:
Blankfein defended the role that Goldman Sachs, and Wall Street as a whole, plays in making markets.
“You could call it a casino, but if it is, it’s a very socially important casino,” he said.
Of course, the definition of “socially important” is rather vague. Gambling on stocks, and other financial instruments is surely fun (at least when you win), which I guess makes it social, but I’m not quite sure it benefits anybody in “social” sense.
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At least at a real casino, the players know the odds and there are no sleazy insider deals. Furthermore, casinos are highly regulated and players can’t play with other peoples money typically. Sad to say, but Las Vegas seems like a cleaner place to bet than Wall Street.
What would Utopian Capitalism look like?
Thomas, Good topic for discussion…Here are a few options…
I would think that a priority would be to re-introduce the concept of risk/reward into the financial system for the large banks. If you risk capital, and you lose your bet, you don’t get bailed out, especially if your bets have absolutely nothing to do with the real economy. Without risk/reward for the largest private financial institution, capitalism makes little sense. Currently, there is no risk/reward with every single big bank protected by the Fed back-stop.
A second priority would be to hold back bonuses from financial transactions until the actual “reality” of the transaction takes place. It is ludicrous to pay out bonuses to the finance sector for arranging bets based on future outcomes. It’s like a restaurant owner taking your money before you even eat your meal, or worse for a meal you may eat in five years! If AIG would have retained the “premiums” from the CDS’s instead of paying them out as bonuses, we would not have had a financial crisis.
Finally, I would tax financial bonuses at 90%, so as to divert human capital to the productive economy, and away from the financial economy.
By the way, it goes without saying that CDS should basically be outlawed.