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Question how much has been "invested" in the horse race?

Answer:

$50,000 by the owner of the horse who is expecting to recoup his investment from the winnings of the horse and other future deals. Everyone else is gambling, not investing.

quibble, but if we're using this as an analogy to the mortgage meltdown, shouldn't we also add whoever lent the owner the money for the investment in the horse? And then we have the problem with the bubble in horse prices, as they go up beyond whatever they can reasonably be expected to return. The horseowner keeps on 'investing' in his horse - shiny granite trough perhaps, while also buying himself a Hummer. He does this using loans secured by the unrealistic value of the horse. Eventually it all falls apart, the horse goes to the glue factory, forfeits the race, and everybody is broke.

by MarekNYC on Fri Sep 26th, 2008 at 01:06:42 AM EST
That is the nub of the real problem here.  The gamblers have queered the pitch for real people trying to do real things - and now even productive economic activity is put at risk.

The solution, however, is not to let the gamblers write off their bad bets - thus freeing them to engage in such activities again.  They should all be declared the bankrupts and frauds and confidence tricksters that they are.

The solution is to build businesses that are not dependent on bank credit to fund their operations - and alliances between cash rich and investment intensive business types.  Expect a lot of cash rich businesses to start taking over a lot investment needing businesses at bargain basement prices.

After all, if you have money, why would you put it into a bank?

Vote McCain for war without gain

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 26th, 2008 at 06:34:05 AM EST
[ Parent ]
Well I did say the analogy was imperfect, but the more interesting part that I left out was the racetrack operator.

They get a fraction of the original $2 bet regardless of whether the horse wins or loses. One could also include the state, since many governments tax betting. The parallel in the mortgage world is registration fees or title transfer fees.

My point really is that the side bets have nothing to do with the underlying economic activity. Furthermore, the "bailout" is not addressing these things either.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Sep 26th, 2008 at 09:44:39 AM EST
[ Parent ]

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