The Greater Fool Theory.

Gambling at casinos is very strictly controlled by governments around the world. And yet, there is a much LARGER form of gambling that is comparatively uncontrolled. It’s referred to as “the market”. In the Market you can gamble on stocks or commodities going up or down, you can gamble on currencies, derivatives, indices… in fact the list of things you can gamble on is enormous and more options are being added every year.

You can gamble without ever leaving your home or office. You can sit on your sofa in Minnesota and gamble in Tokyo, in the middle of the night, then Hong Kong, London, New York… Every country has these gambling parlors that they call the “exchange”.

The recession and bank failures of 2008 and 2009 were precipitated by the realization that all of the Asset Backed Securities that investment houses had been packaging and reselling were really NOT backed by worthy ASSETS at all. Not only did the Investment Houses fool US, but also the investment rating services that are supposed to be the Quality Control advisors.

These markets are based on what has been called the “greater fool theory”. This is the theory that you make an investment not because you think it’s a great value, but because you think you’ll be able to make a profit later by selling it to a “bigger fool”. Whatever you bought does not have to have an inherent value. It’s value is merely that someone else will buy it from you for a higher price.

Money is made as long as there is a buyer who is bigger fool than the seller. Well, whether you and I like it or not, WE the general, taxpaying public have been ASSIGNED the role of the Bigger Fool. Yes, some of us buy stocks in companies on the exchange or shares in the banks and investment houses packaging and promoting securities… But ALL of us are being forced to BAIL OUT these greedy, opportunistic shysters at the top, when their house of cards crumbled.

There’s more than a little irony in the fact that casinos in Las Vegas or Monaco have to have cash reserves to cover “the house’s” losses… but when the supposedly legitimate financial houses that power our economy play fast and loose it’s up to the taxpayer to prop them back up again.

To a significant degree, the past year or so has shown that we really are a corporate welfare state. It’s quite a disgrace and unless we fix it, we … you and I ARE the greater fools.