Tan Kin Lian's Blog: A nice name for big gambling

Sunday, February 14, 2010

A nice name for big gambling

When you place your chips on a specific color (i.e. red or black) in a roulette game at a casino, you are gambling. The bigger the stake, the bigger is the gamble. You can gamble all of the money that you have in one bet. If you win, you win big. If you lose, you lose all.

Gambling is considered to be bad, especially if the bet is big and a loss may lead to financial ruin.

In recent years, banks have been gambling big, very big, to the tune of billions of dollars. They can bet on currency rates or on the chance of failures of any corporation. The types of bets have proliferated under the name of financial engineering and innovation. In some cases, they can gamble large amounts representing the capital of their shareholders and the deposits of their customers as well.

When the banks make these gambles, they do not call it a gamble. They call it by more respectable names, such as "trading:" or "risk management".

Gambling is bad, if the stakes are high and may cause financial ruin. It is bad for individuals. It is bad for businesses. It is bad for banks.

Tan Kin Lian

9 comments:

Anonymous said...: This brings to mind something in which Mr. Morita, a former chairman of Sony said about how there are many industries which are in activities that create no value.
The financial industry worldwide has change its prority from serving its clients to serving its shareholders by indulging in activities that create no value to its clients. It does , however, provide employment and rewards shareholders/top employess when they do well.; February 14, 2010 8:17 AM
Anonymous said...: that is why it is no longer safe to keep your savings with just one bank.; February 14, 2010 10:19 AM
Anonymous said...: The financial institutions are by their actions, literally collecting all the wealth of investors all over the world and putting it into the hands of a select few.

In every economic cycle, it is generally, without fail, the poor Tom, Dick and Harry who looses, big or small. Right now, who do you think is doing the killing on the stock market? Sure, the fat cats also lose some during the onset of the crisis, but they are the ones most capable of recouping their losses and more.

My analogy is, the financial institutions are like casinos. Over the long term, people who gambled there looses and they win, all of it.; February 14, 2010 3:05 PM
Anonymous said...: Gambling, by any other name is bad.

But in Singapore, so far we do not have a single case of bank failures and where depositors lost all their deposits.

Yes there are recent cases of people losing all their money but it is not the savings or FD type.

So it seems at least MAS is doing a very good job in this respect and having a clean record. Just like how PAP won elections so far. Hahaha!; February 14, 2010 3:17 PM
Anonymous said...: When ntuc restructured its bonus by reducing its annual bonus and told policyholders that they will get it back at the special bonus is actually putting more of policyholders' money at risk and for taking the increased risk policyholders should be compensated with more return and not just what is cut. This is a case where insurers gamble policyholders' money at the casino.If the insurers lost then the policyholders bear it. If they make will policyholders get more? How much more?; February 14, 2010 4:19 PM
Anonymous said...: It's very important to have clarity as to what exactly is "gambling."

I would alternatively argue that some of the biggest gambles Singaporeans take are;

- property prices always go up, so a 30 year housing loan is fine

- A "steady" job is a good foundation upon which to build your financial future for the next 40 years

- my employer will be fair and honest in their dealings with me, the employee

- our leaders know what they are doing, so I don't have to think for myself. Just "Trust and Obey, for there is no other Way ..."

I'm old enough to remember a certain leader boasting (many years ago) that Singapore had stopped build 3 room flats for more than 10 years because the wealth of Singaporeans is increasing, so only larger flats will be in demand.

And today, we read about the building of rental flats and the concerns it is raising amongst the flat owners in the vicinity.

Some of the most dangerous gambles are the ones that society do not consider to be gambles. Since these are socially acceptable activities, you let your guard down and don't calculate the real risks.; February 15, 2010 10:08 AM
Anonymous said...: I once asked my risk manager why traders are the most well paid and contribute the least to society. He just smiled.; February 15, 2010 6:22 PM
Anonymous said...: Yes, it is true that employees of financial institution are rewarded handsomely.

And they do not keep their money.

They will spend it. this is what makes the economy move.

So all though we may despise gambling, we cannot deny it either.
Consumption is what drives the world now days. It is the era of consumption.; February 16, 2010 12:48 PM
SD said...: Agree! I am a trader myself, and frankly speaking, i cannot tell the difference between gambling and trading. Generally speaking, the perspective of most people is that gambling is bad, while investment/ trading is not. But is there really a difference between the two? Some argued that investing/ trading involved analyzing the company, country, whichever micro and macro factors that might affect the outcome, while gambling is just pure luck. Read somewhere that there are once a group of MIT lecturer and student who beat the casino through card counting. They did their homework and manage to beat casino, so, that I guess that is investing? Or still gambling because they go to casino? Whichever case or name it is call, a good gambler or investor always chooses places on a bet that gives the high risk/reward ratio.

Perhaps the general perspective of people need to change. Gambling might not be bad. It helps to keep your brain alive. It becomes bad when emotion controls your actions, same thing goes to trading/ investing. So, the biggest enemy is emotion, not gambling.

What is worrying is that when banks loses money, most of them never admit that they are gambling. There is always excuses that can back their buy/sell decision.; February 16, 2010 9:54 PM