by Michael S. Kaplan, published on 2009/09/12 11:51 -04:00, original URI: http://blogs.msdn.com/b/michkap/archive/2009/09/12/9894533.aspx
Disclaimer: I am not an expert or even an inspired amateur in the financial world, and am not claiming to be here.
I was thinking about Las Vegas the other day.
Not the actual Las Vegas but the one from Oceans 11, which somehow seemed more real than the one of Oceans 13.
Anyway, in the movie the Nevada Gaming Commission requires every casino to have cash to cover every chip in play on the gaming floor.
I don't know if this is required in real life, though I'm gonna guess that it might not.
But then I thought about articles like this one, with interesting bits like:
“There is less leverage in the entire financial system,” said David A. Viniar, Goldman’s chief financial officer. At Goldman, $1 in capital now supports about $14 in loans and investments, compared with $24 a year ago.
Now obviously one can lose in Vegas, I have done it myself on occasion (it is why I no longer gamble in Vegas at all, actually, other than sometimes in the choice of event or party I go to!).
And obviously casinos can make money.
But what that notion of requiring a casino to have cash on hand to cover its chips does is guarantee for the people playing that if they win they will never lose anyway by being unable to redeem their chips when they are done.
Note that the financial industry has a safeguard to protect those people too, and themselves -- they have the government and the taxpayers to bail them out when they make mistakes, when they give out more chips than they can cover with their cash on hand.
The (fictional?) Vegas idea seems safer, because in that world the mistakes a player makes are the source of problems for the player, and not the mistakes of the casinos.
I never before thought of Las Vegas as being a safe bet, though in this aspect betting on a casino's ability to cover its losses is safer than betting on a brokerage house.
A regulation like requiring a casino to have the money to cover the chips has an interesting consequence, doesn't it? It means that the casino isn't gambling with the player money trying to spread the risk enough so that they never lose it all.
In other words the casinos would not be able to act like these financial institutions do.
There are differences like the odds ultimately favoring the house in Las Vegas and such. But with government propping them up, seems like the house always wins in the financial industry, too.
Of course there are nuances here that I am almost certainly missing and friends of mine like Monica are certain to talk my ear off about how I am comparing apples to bicycles.
But the notion of Vegas feeling safer is a hard one to shake, especially given the real lack of stories of casinos going out of business and customers being unable to cash in their chips, and the real plethora of stories like that in the banking industry that taxpayers are paying billions to cover.
So forget about the financial industry. I won't even do the safe bets like Vegas....
# John Cowan on 12 Sep 2009 7:51 PM:
Even if true, such a regulation has no particular economic effect, as the cash on hand may well be borrowed money. If the casino can't repay the banks, it's unlikely to redeem its chips.
# sukru on 12 Sep 2009 8:04 PM:
That's quite interesting.
Ultimately there is not "perfectly" safe was to store your money (even in the safest place, it can be victim of devaluation). Nevertheless gambling being safer than finance instruments is something people do not expect.
# Jon on 14 Nov 2009 8:53 AM:
The idea of having the cash to cover the chips is similar to the Gold Standard of the past. See http://en.wikipedia.org/wiki/Gold_standard
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