The Courts Should Not Enforce Gambling Debts

Lynn Stout, professor at UCLA Law School, believes that most derivatives are gambling. If our courts did not enforce gambling debts - a practice that has been recognized by most countries going back to the Romans - a major cause of the Great Recession would have been eliminated.

Stout asserts that "most of the bets on Wall Street were pure speculation. Against $15 trillion of mortgage bonds, Wall Street marketed credit default swaps in 2008 with a notional value of $67 trillion. Worldwide, traded swaps at their peak equaled $670 trillion or $100,000 for each person on the planet, vastly more than all the wealth in the world. Those numbers make it a mathematical certainty that the swaps were mostly speculation, not hedging".

Stout would not consider all derivatives as gambling. Those that are backed by hard assets would be allowed.

Good point!