this post was submitted on 02 Dec 2024
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when your puny change in mortgage loan causes upwards of a billion dollars worth of ~~investments~~ gambling to fall apart
it's not gambling, it's the equivalent of you putting 60% of all of your life savings into a single stock, which then blips and implodes, making you go completely broke.
It was an incredibly risky investment strategy at the time, because the market was seen as risk negative, essentially.
If it were gambling there would be a 51-49 split in returns somewhere along the way, with hundreds of hours and putting money into machines slowly eating away the money you earn, until you're left a shriveled husk of a person with nothing to your name.
The 2008 crisis was an example of mass fraud, and I'd be happy to be proven wrong. You can't point to historical data saying your investment strategy is safe, even tho you completely changed the model. Saying "mortgages are safe" doesn't mean shit, if to compensate for demand you start handing out mortgages like candy.
I think calling it gambling is quite charitable. And ofc all the ~~scam artists~~ banks got bailed out.
The stock market in general is joke. There are so many stocks where it's an open secret they are fake. Like the Ruble, Tesla and most crypto currencies. The stock market is a world of make believe, where any random decision can change everything. It still fascinates me that the second trump won with his tarifs on EVERYTHING, the stock market grew. What's next? "Company CEO starts randomly shooting all his employees, stocks reach all time high!"
I guess it mostly depends on how you define fraud.
If i buy something from china, and on the way to the US it falls off the boat and into the sea, destroying it forever, is that fraud?
historical data has nothing to do with the safety of investment. That's like looking at the fatalities in a war, and deriving the danger from being inside of trenches.
The safety is defined as a component of risk, and stated responsibilities. An extremely safe asset would be something like land, it never moves, doesn't go anywhere, people will always want it for something. Though it's not an investment.
A safe investment would be something like a long term diversified stock portfolio, or government bonds.
Risk management is at the core of both investment and gambling. The riskier your investment, the closer it comes to just putting the money on a roulette position in practice. There are plenty of portfolios that slowly hemorrhage money and/or eat up any would-be growth via fees: those are your 51-49 splits. Also it doesn't matter if there's such a split if you decide to go all in and it goes belly up, however you slice that.
If you do risky shit with money, it's a gamble whether it pays off. Maybe I'm misunderstanding the point you're trying to make?
i would fundamentally disagree, with gambling statistically on average, you always lose. It's not mathematically possible to win.
This is the reason that things like investment work at all.
It's complicated, but there are a lot of traders that aren't very good, and there are a lot of traders that are very good, if you just let the market do it's natural thing, it has a general tendency to go up. Especially long term, you cannot functionally do this with gambling, you ALWAYS lose.
I would argue that there are risky investments, and then safer investments, and there are really risky investments. None of these are gambling, gambling would be like i said investing most of your life savings, into a particular thing expecting a particular result, with the extreme risk of "losing everything" generally investments are never going to "lose everything" that's also why you have a broader portfolio.
I think gambling is just a fundamentally different philosophical concept.
I guess theoretically nothing stops you from literally gambling with stocks, but that would be incredibly stupid.
I think you have a very specific definition of gambling which I don't share. To me, gambling is much broader. Wikipedia summarizes it well:
"Gambling thus requires three elements to be present: consideration (an amount wagered), risk (chance), and a prize."
That's it. It doesn't make an opinion whether the bet is fair. There doesn't have to be a casino involved at all. It also doesn't require you to put "most or your life savings" into it for it to be gambling.
I think you are conflating high risk, high stakes and even the precence of a casino into the same concept and call it gambling.
https://en.wikipedia.org/wiki/Gambling
That definition encompasses everything we do in life. From crossing the road, to buying a fridge, to falling in love.
Exactly! Which is why it is mad trying to outlaw or frown upon "gambling" with stocks.
There are many great wxamples in this thread already of why derivatives are necessary to a functioning society.
You are gambling whenever you get in your car and drive. You are gambling if you get out of bed. You are gambling if you spend too much time in bed.
Risk being present isn't enough. I think the definition of gambling should include a willful decision to increase the level of risk.
The problem, like with many things in life, is that there's a desire for people to place clear delineations on things for purpose of clarity and peace of mind, when it actually exists on a very fuzzy spectrum. I'd argue you do gamble a tiny percent chance of getting in a wreck every time you drive in exchange for getting places much faster. Likewise, were you to walk instead, there are unique risks and payoffs associated with that choice too.
Whether or not the risks are well known or there's a decision to increase the level of risk is a little beside the point. There are plenty of people addicted to gambling who genuinely believe they'll hit it big and retire one day, and that the reward payout is inevitable even when it's clearly not.
Some derivatives aim to lower the risk, so the active decision to buy it would be to ungamble then? Or is it just gambling wyen you choose not to buy it?
Do you have insurance on your house or do you gamble that it will be fine without it?
If you get into "The Big Short", what you'll discover is that this was effectively what the insurance on the mortgages accomplished. Buying insurance is a losing gambit (also called a hedge) wherein the underlying asset (the policy) loses money over time with the anticipation of a potential windfall at some unspecified event in the future.
What Mark Baum and Michael Burry had done was to effectively buy these insurance plans from the banks themselves, diverting the windfall from a crash into their own pockets. The banks shouldn't have been auctioning off their insurance (for the same reason you shouldn't try to sell your fire insurance claims on your house to your neighbor in an effort to turn a profit). But the investment was considered crazy precisely because these insurance plans only ever existed as a fig leaf for regulators and investors (even if we fail, we can't fail, because we have insurance!) Nobody asked who was going to pay out this insurance or who was going to collect.