The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

Wager or Gambling: What Is Speculation? 123
The relationship between risk monitoring and liability is disturbed. By selling
the credit risk, the bank is not reducing the macro-economic risk but increasing
it. Macro-economically, risk is not reduced but increased by CDOs because the
bank’s duty of liability and obligatory minimum ratio of equity to balance sheet
total are undermined. Moreover, there are the high costs of intermediation through
the bank’s special-purpose vehicle, which sells the CDOs to the investor for high
fees but without adding value in the sense of reducing the overall risk of credit
default. Even the principle of the financial wager is not clear in the case of the
CDO. The investor who buys the CDO is not wagering that the creditworthiness
of the debts underlying the CDO will be higher than the bank believes, because he
knows nothing whatsoever about the debtor. The sole purpose of the CDO is that of
reducing the bank’s required minimum equity to balance sheet total ratio.
The wagers that underlie futures and options imply a zero-sum game: what the
option buyer gains, the option seller loses, minus the amount retained in option fees.
Such zero-sum games on a grand scale, resulting from the proliferation of wagers
on the same underlying asset, make no sense in macro-economic terms. Given the
fees incurred, only the banks get rich, while no macro-economic value is added.
A zero-sum game after the deduction of fees becomes a negative-sum game from
which everybody ends up losing. In contrast to the wager for entertainment, this
type of betting is not even fun.
The Gambling Wager: Chance-Driven Betting
for Fun or Good Fortune
Chance-driven bets are also part of the genre of wagers, but form a class of their own.
The casino is similarly based on wagering on the outcome of the game. However,
the element of knowledge recedes here almost entirely. The game of chance depends
on luck, not on accurate knowledge of the future. In financial speculation, it is also
possible to engage in mere gambling by placing financial wagers which are not
wagers about the future values of assets made on the basis of (limited) knowledge
and rational inferences, but a game of pure chance. Even playing the state lottery is
a form of wager since it involves placing a bet on a certain set of numbers, but it is
a wager on a chance outcome.
A notable judgment in this context was that of the German Imperial Court of
Justice (Deutsches Reichsgericht) of 29 April 1882, according to which bookmaking
at the horse races and betting via the totalizator are considered to be games of
chance, although the participants consider themselves to be wagering and capable
of influencing the outcome of the wager with their “factual knowledge”.
Chance-driven betting is also a zero-sum game. However, gaming itself is perceived
as a pleasure – but often also as its counterpart, an addiction. The enjoyment
of the game can be seen as the value added. Also, it is difficult in a free society
for gambling to be prohibited by the state. The state may take steps to channel and
limit the demand for gambling, but cannot prohibit it. Addiction phenomena such as
betting addiction and gambling addiction are the exceptions to this, since they harm
the sufferers and, above all, their families.