Michael, are you too big to fail? On Tue, Sep 16, 2008 at 10:23 PM, Michael Perelman <[EMAIL PROTECTED]> wrote: > Suppose somebody wants to make a bet with me that the San Francisco 49ers > will win > the next two Super Bowls. He gives me $100 today, and I have to give him $100 > million in case he's right. The chances of this happening are very small, but > just > in case the impossible happens I want some backup. I buy insurance from my > next-door > neighbor. I offer to give him a nickel every week in return for his promise > to > cover my bet. > > My neighbor sees that he has a good thing going -- getting money for nothing. > After > a while he takes on more and more bets until others follow in his footsteps. > Soon, > a market develops. In effect, people can bet on bets. Eventually, the total > potential amount of money builds up into the billions and trillions of > dollars. > > Unexpectedly, the San Francisco 49ers win two Super Bowls in a row. My > neighbor > does not have $100 million on hand to cover my loss. The nickels I have been > giving > him have been wasted. I don't have $100 million either. > > Suddenly everybody in the market is worried about people's ability to back up > their > bets. The Federal Reserve steps in and takes over the market. The free world > is > saved. > -- > Michael Perelman Economics Department California State University Chico, CA > 95929 > > Tel. 530-898-5321 > E-Mail michael at ecst.csuchico.edu > michaelperelman.wordpress.com > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l >
-- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
