Speculation and Gambling : The need for Financial Regulation

Isaac Mostovicz writes...

Gordon Pearson describes in his book “The Rise and Fall of Management” an analogy which I find particularly pertinent for the current financial situation.

He describes the example of two brothers – one was prudent, worked hard and lived at home with his parents. The other became a proficient gambler, and lived lavishly until he lost all his money, leading him to turn to his father to bail him out. The father couldn’t afford to pay, so he began charging the working brother rent, and told his wife they’d have to tighten their belts. The brother grumbled but paid up, but the wife told her reckless son that he would have to stop gambling, get a job, repay the money and make amends.

The point Pearson makes here is that most people are like the hard working brother – although we grumble about it, we pay up. What we need to do collectively is put our foot down, like the mother in the above example, and stop the financial sector taking risks with money. But our Governments are not providing the necessary disincentives to stop the financial sector gambling, and the sector is still attracting some of the most motivated and talented people to go and work for it, much like the reckless brother in the analogy.

There is no question of whether or not this will lead to another crisis – the question is when, not if. And in the meantime, money is used for speculation rather than providing real services, and our treasuries are able to print currency without having the productive assets to back it up. This creates a bubble where prices are fixed in theory without having anything physical to back them up or tie them to – the gold standard a thing of the past – and the gambling ends up being worth trillions of dollars on paper.

Investors are safe in their assumption that they will be bailed out if their investments do not work out, and the gamblers end up making a lot of money if they win – but crucially are not held accountable if they lose – and can look forward to a comfortable retirement courtesy of their ‘golden parachutes’, a further disincentive to responsible behaviour. With no ‘mother’ putting her foot down on this speculation and gambling, the rest of us are left grumbling whilst we hand over our tax monies.

exponike says of this article...

Reason is man’s faculty for grasping the world by thought, in contradiction intelligence, which is man’s ability to manipulate the world with the help of thought.

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