gambling

Full Tilt Poker executives should have opened a bank

by on September 22, 2011 @ 8:30 am · 1 comment

in Business, Finance, Statism

Federal prosecutors have alleged in their amended complaint against Full Tilt Poker that the gambling interest was a “Ponzi scheme,” apparently in part because of the company’s level of cash reserves.

FTP owed approximately $390 million to players around the world, with $150 million owed to U.S. players. FTP only had $60 million on deposit in its bank accounts, however, meaning over $300 million is owed to players worldwide.

This was the result of FTP’s payment processing channels becoming so disrupted that “the company faced increasing difficulty attempting to collect funds from players in the United States. Rather than disclose this fact, Full Tilt Poker simply credited players’ online gambling accounts with money that had never actually been collected from the players’ bank accounts. Full Tilt Poker allowed players to gamble with — and lose to other players — this phantom money that Full Tilt Poker never actually collected or possessed.”

$390 million in liabilities and only $60 million in the bank? That means that FTP had a little more than 15% in cash reserves. According to Wikipedia,

A depository institution’s reserve requirements vary by the dollar amount of net transaction accounts held at that institution. Effective December 30, 2010, institutions with net transactions accounts:

  • Of less than $10.7 million have no minimum reserve requirement;
  • Between $10.7 million and $58.8 million must have a liquidity ratio of 3%;
  • Exceeding $58.8 million must have a liquidity ratio of 10%

So because FTP had 15% in cash reserves, the whole operation is a Ponzi scheme. If only the proprietors had started a bank of the same size, they would have only needed 10% reserves!

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How State Lotteries Make Markets Less Efficient

by on September 16, 2010 @ 10:43 am · 5 comments

in Anti-Statism, Business, Finance, Statism

Someone sent me a link to this paper yesterday.

Prof. Harris argues that skilled traders, who consistently profit, do so by taking money from people who trade for extrinsic reasons, to hedge risks, increase their savings, or simply to gamble for entertainment.  He then points out an interesting implication:

If gamblers do indeed contribute to market quality in the long run by subsidizing information acquisition, an intriguing argument can be made about public lotteries.  Lotteries would appear to compete with financial markets for gamblers willing to lose money. Lottery gamblers subsidize the state through their voluntary participation in a negative-sum game. Financial market gamblers subsidize productive information acquisition.  Perhaps prices, and ultimately economic production, would be more efficient if gamblers gambled exclusively in the financial markets.

So there you have it — state lotteries make us worse off by wasting gambling money that would otherwise be productively spent.

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