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• Saturday, August 18, 2007 11:14 PM

  @RMP

  The difference between investing in derivatives and outright betting is the same as the difference between taking medicine and doing recreational drugs. A derivative is no more a "bet" than any investment in any company.

  Kathleen L.

  Since I first raised it, it took 18 hours for someone to stop talking about technicalities and definitions to mention fraud again.

  Retired Military Patriot

  The problem was that the discussion turned around the use of the term "betting" to describe "investment". It has been an interesting discussion to watch, though. It is taking place for two reasons: 1) people object to use of gambling language, because they seem to feel that since gambling is somehow naughty behavior, it isn't appropriate. 2) People with involvement object to the term betting apparently because they believe the term "bet" refers only to taking financial risks that have all-or-nothing payoffs.

  Or quite possibly because they do not want to think of their professions that way. It would be interesting to have a similar discussion with real estate brokers as the commenters, and find out whether they accepted the description of their "efforts to make a home affordable" as "fraud".

  Investment is betting whether or not the outcome is all or nothing. That doesn't make it seedy, but it is unrealistic to think there is no possibility of losing the bet. As for whether adroit use of technical language is sometimes fraud, I leave that to those who use it to decide.

  Kathleen L. in her attempt to separate betting and investment above, says that a derivative is no more a bet than investment in any company, and is correct. It is no less a bet, either. I found it interesting that she uses the analogy that investing is taking medicine and betting is doing recreational drugs. I find this statement very true as well -- most of the drug dependency and abuse in this country is of prescription drugs -- and therefore could be described as "taking medicine".

  Yes there was fraud on loan applications. But there was also fraud in pretending the applications had been vetted. And there was fraud in taking and bundling the subsequent mortgages and underestimating the risk.

  And there is a whole lot of fraud in failing to speak plainly and explain things, and yes, call a bet a bet, to avoid scrutiny by those outside the club. And that fraud didn't happen in small towns with poor people trying to get loans they didn't deserve. It happened in investment banks, and hedge funds, and on Wall Street.

  And it has just entered its next round as the defrauders attempt to convince the government that although they were paid handsomely for taking risks and making tough choices, the government should use the money collected from people whose productivity can actually be measured as product created per hour worked, to shield them from the consequences of the risks they took with other people's money.

  —ondelette Read ondelette's other letters
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