A day at the races

Sir, Michael J. Mauboussin in “Flutter on mispriced US equities could prove a winner” November 24, writes “You don’t make money knowing which horse will win or lose; you make money determining which horse has odds that are mispriced”.

Absolutely, and this is as good an occasion to remind of the fact that if credit-ratings were set perfectly, all bank lending transactions would be perfect barters, and there would not longer be any profit opportunity for any side… and therefore markets and banking would slowly die out. Of course, that is not going to happen because credit-ratings are by definition always imperfect… no matter how much bank regulators want them to be perfect so that they do not have to worry about the only risk that worries them, even if this leaves the rest of the world to worry about all other risks, like the lack of jobs.

By the way, back to the races, do you know why the crisis? The handicap officers place extremely low risk-weights on the triple-A rated horses and much heavier risk-weight on the debutant or weaker BB- horses, without telling the bookies or the gamblers, and thought they were going to have a great and fair race… a total chaos that surpassed what even the Marx Brothers could have come up with in their wildest dreams ensued.

The strangest thing though is that we, bookies and gamblers, allow those same crazy handicap officers in the Basel Committee to keep on deciding the handicap system for our banks.