Craps and the Stock Market

If you're familiar with the game of craps, and especially gambling, you'll probably appreciate this post. If not, I'll try to explain everything the best I can.

The craps board is laid out into sections. There is the Pass/Don't Pass, the Come/Don't Come, seperate numbers, and the exotic bets section. The actual object of the game is to either (a) get the number ("point") before someone rolls a 7, or (b) get a 7 before the point is established. If you get 2, 3, or 12, that's called craps and you lose.

The way I play craps is that you have a much better chance of getting a 7 versus all of the other numbers. The people who want to win using a "point" play the Pass/Come section. The people who want to win using "7" use the Don't Pass/Don't Come section. Usually you get hostile stares when everyone's betting Pass and you put money on the Don't Pass.

For the exotic bets, people see the odds on some of these bets and figure they'll make tons of money. That's what the casino wants you to think, but they know ahead of time that these exotic bets win plenty of money for the house. The worst bet - any seven - has a house advantage of 16%, whereas a Pass/Come bet ranks about 1%.

In the stock market, too many traders, instead of making serious trades, shuffled a lot of their money into exotic bets - subprime mortgages, derivatives, etc. They were losing tons of money until the Federal Reserve agreed in principal to take over the bad bets. If I tried to take my losing craps bets and begged the casino to take them, I would be nursing serious bruises and broken bones, as the layman can't pass on his debt back to the casino (especially if they're using "markers" - loaned money to pay back the debt). The same thing happens in Wall Street: traders will use margin to buy stocks, and if they do poorly, they either meet the margin to keep on playing or give up the stocks. What happened was previous stinkeroos of bets piled on top of one another, and when one source of money ran out, traders attempted to goose other instruments, like gold and energy, to make a quick buck, then paid off their old debts.

What happened this week should be a warning to those who think they'll get rich off the stock market. Unless you like to see how sausage is made, your best bet is to stay away from it. Yes, your 401(k) you've so lovingly contributed and your company has matched should be safe, but all it takes is one stupid and irresponsible bet for your account to vanish. On the other side, those who are screaming that Wall Street is now being "socialized" is missing the entire point why the government sometimes has to step in to prevent stock market crashes from happening. In fact, some of the financial pundits should have no business being in front of a TV screen - dispensing such advice as "401(k) money is free money" (it isn't), "Stock XYZ will make a killing - buy now!" (stock starts at $10, spikes up to $50, but then ends up getting delisted and liquidated for less than a dime), and "The economy is doing fine/horrible!" (says who?)

I've been following business for a few years now. If you want to learn what happens when bad bets on Wall Street come home to roost, I suggest renting the excellent Kevin Bacon movie Quicksilver. For laughs and how to really work over the people who hate you, I heartily recommend Trading Places.