We use cookies to track usage and preferences. See Cookie Policy
Pocketmags Digital Magazines
IT
Pocketmags Digital Magazines
   You are currently viewing the Italy version of the site.
Would you like to switch to your local site?
Digital Subscriptions > Prospect Magazine > April 2017 > Casino capitalism

Casino capitalism

Gambling has always been part of financial markets, from their origins in 17th-century coffee houses to the Great Crash of 2008. It’s not a bug, it’s a feature

In a modern capitalist economy, almost everything is for sale, including risks. Markets can transfer known risks to people or institutions who can handle the risk more effectively. The cost of rebuilding my house if it is destroyed by fire is beyond my means. For an insurance company with many properties on its books and many shareholders, by contrast, the loss is easily manageable.

Trade in risk may be motivated by such insurance—the prudent management of risk—but it may also be about wagering: that is, individuals backing their own, distinctive, perception of the nature and likelihood of an event. People trade risk because they see the same risk differently. I think Arsenal will win the match, but you favour Chelsea. So we take bets on the outcome, and one of us will win and the other will lose. We have divergent opinions, or information, or we believe we do. In the long run, of course, it is only the bookmaker, or the house, that wins.

Financial markets accommodate both prudent insurers and reckless gamblers. They provide investors with an opportunity to diversify their portfolios, and allow gamblers to bet on future movements in interest rates. The coexistence of the two can allow speculators to make profits by stabilising prices—buying when markets are fearful, and selling when they are greedy. But when the gambling motive overwhelms the insurance motive, speculation becomes destabilising and then risk, far from being minimised by careful management, becomes concentrated in the hands of those who understand least what they are doing. And when regulators perceive insurance when they should see wagering, their actions magnify a crisis rather than minimise it. Such destabilising speculation, mischaracterised by regulatory authorities as prudent risk assessment, is what caused the global financial crisis of 2008.

The coexistence of insurance and gambling goes back to the earliest days of markets in risk, and the interaction of the two has been central to financial history. But it was four developments in the second half of the 17th century that combined to frame the way we think about risk, and the institutions we have for dealing with it, through to the present day.

Coffee is thought to originate in Arabia, and was introduced to Europe in the 16th century. Coffee houses were found in Venice before 1650, but the Grand Café on Oxford High Street, which opened in 1654 (and is still a coffee shop today) was the first in England. The fashion spread: English gentlemen gathered in coffee shops to talk and do business—and to wager.

READ MORE
Purchase options below
Find the complete article and many more in this issue of Prospect Magazine - April 2017
If you own the issue, Login to read the full article now.
Single Issue - April 2017
€5,49
Or 549 points
Annual Digital Subscription
Only € 2,25 per issue
SAVE
59%
Was €38,99
Now €26,99
Monthly Digital Subscription
Only € 3,49 per issue
SAVE
36%
€3,49
Or 349 points

View Issues

About Prospect Magazine

In Prospect’s April issue: Ross McKibbin, John Curtice and Lisa Nandy examine the state of the Labour Party and question its survival at the next general election. McKibbin takes a long view and suggests that the party’s problems started long before Jeremy Corbyn, Curtice argues that breaking the party is unlikely to go as well as some may think and Nandy argues that tackling unaccountable power could help restore faith in the party. Nicholas Timmins says the NHS has always experienced financial crises so is this time any different? Lucy Wadham charts the rise of France’s Front National. Also in this issue: Owen Hatherley explores Edinburgh’s architectural conundrum, Freya Johnston on Jane Austen and Avi Shlaim on the tragedy of Yitzhak Rabin—the last best hope for peace.
Modalità di pagamento Pocketmags Payment Types
A Pocketmags si ottiene Fatturazione sicura Ultime offerte HTML Reader Regali Loyalty Points