Sunday, November 20, 2011

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!

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