
Gambling Is Not a Retirement Plan - feross
https://www.bloomberg.com/opinion/articles/2020-06-02/gambling-is-not-a-retirement-plan
======
mcguire
" _In addition to my views about financial literacy, I have argued in the past
that good financial regulation would divide investments into normal ones and
dumb ones. Normal ones would be, like, index funds or whatever, and anyone
could buy them. Dumb ones would be penny stocks and private investments and,
good lord, leveraged ETNs on mortgage REITs, and also anyone could buy them.
But you’d have to get a Certificate of Dumb Investment before buying the dumb
ones. I spelled out the application process once:_

" _To get that certificate, you sign a form. The form is one page with a lot
of white space. It says in very large letters: “I want to buy a dumb
investment. I understand that the person selling it will almost certainly
steal all my money, and that I would almost certainly be better off just
buying index funds, but I want to do this dumb thing anyway. I agree that I
will never, under any circumstances, complain to anyone when this investment
inevitably goes wrong. I understand that violating this agreement is a
felony.”_

" _Then you take the form to an SEC employee, who slaps you hard across the
face and says “really???” And if you reply “yes really” then she gives you the
certificate. …_

" _If an article ever appears in the Wall Street Journal in which you (or your
lawyer) are quoted saying that you were just a simple dentist, didn’t
understand what you were buying and were swindled by the seller’s flashy sales
pitch, then you go to prison._ "

I so wish that were the procedure.

~~~
Nemo_bis
It's already the case in EU, it's called MiFID II.
[https://www.esma.europa.eu/policy-rules/mifid-ii-and-
mifir](https://www.esma.europa.eu/policy-rules/mifid-ii-and-mifir)

~~~
mcguire
Including the slapping?

~~~
Nemo_bis
I've never tried filling a MiFID II form in person at a bank counter, but I
definitely felt slapped by some of the online quizzes.

------
RcouF1uZ4gsC
> I have long argued that the most important lesson of “financial literacy,”
> one that is never taught in any “financial literacy” classes, is: If I offer
> you a 20% annual risk-free return, am I lying? The answer is yes, of course.
> UBS was not actually offering a 20% annual risk-free return—the ETN “often
> yielded 20% or more” but didn’t advertise any fixed interest rate, and it
> said right on the front page that it was risky—but just knowing that single
> core fact of financial literacy would be sufficient to guide your investment
> decision here. “Ooh fun gamble, 20% return, maybe I’ll take a chance on it”:
> Fine, great, whatever. “Hmm this seems to offer monthly income, and a 20%
> return would help my retirement, guess I should put all my savings into it”:
> No, bad, wrong.

Brilliant! So much misery would be avoided if people could be taught that
simple rule.

~~~
FabHK
Yes. It is time dependent, of course - you could get 11% on German
Bundesanleihen in the early 80s. Having said that, Levine’s rule is sound.

~~~
nradov
At the time there was a very real risk that a Soviet invasion could wipe out
your investment.

------
ken
My state government has adjacent billboards telling me to play the lottery
(odds of winning, 1 in 7000000) on the basis that I'll be able to do really
cool things with all that money, and that I should wear a mask and maintain
distance from other people to stay safe from a virus (odds of contracting, 1
in 350, odds of dying, 1 in 7000).

Is it any wonder that people make poor choices? We're training them to be bad
at math.

~~~
FabHK
1\. Not sure where you see the bad math - your state government encourages you
to do something with good (though unlikely) consequences, and encourages you
to avoid something with bad (though unlikely) consequences.

2\. It’s not only about you. Lottery proceeds are used for all sorts of good
things. Being part of an infection chain could infect and kill many people.

3\. Note that absent measures, the odds of contracting and dying would rise up
enormously.

4\. At any rate, that’s not what Levine’s excellent column is about.

~~~
playingchanges
I’m sorry but lotteries are an evil hidden tax on the poor and uneducated.
Can’t let that slide.

~~~
cafard
I was not happy when the District of Columbia instituted its lottery about
1980. I already knew people who played the numbers, one at least who thought
about what objects in her dreams meant for that. The lottery seemed to me a
regressive tax, falling mostly on those who can spare the money least.

About that time, some journal reported that a certain state lottery offered
worse odds than the old-time illegal numbers. Whether that is so, I don't
know.

The good news for legislators is that people pay that regressive tax
willingly. They will beef if you put up the taxes on property or gasoline, but
not about lottery tickets.

------
skybrian
I think legal realism as Matt Levine states it this time is not quite right.
Whether a law is meaningful depends not just on what officials do, it's about
what _most people_ do.

An example is a curfew. If the government announces a curfew and most people
stay home, then this supports the curfew, and the authorities have a better
chance of enforcing the curfew. If nobody obeyed it then it wouldn't work at
all. (At best it would give the police a justification for selective
enforcement.)

The same is true of health orders. We have seen quite a bit of cooperation,
partly due to people agreeing with the general principle of wanting to avoid
spreading the virus, and partially because many people will obey the law even
if they don't agree with it. But, this cooperation is only partial and has
seemed rather tenuous lately, due to fatigue and fairly obvious lack of
enforcement.

There are different ways people obey laws. Most people outside government have
fairly vague understandings of law and only follow the general principles. For
the _specifics_ of a law to matter, ultimately it depends on most people
accepting the authority of the courts in settling disputes. In particular, the
police accepting the courts' authority and enforcing decisions is key.

------
mshron
(I assume this is posted because of the preamble on legal realism and George
Floyd, which I'm addressing.)

I just finished _Team of Rivals_, an excellent history of Lincoln and the
Civil War. Specifically, the political and administrative side of the war,
with a lot less focus on the military aspects.

Something that really popped out at me from the book is how often public
opinion is in a feedback loop with the law. Both the formal bits and the
realist bits.

I think Levine is right when he says that the law is, more-or-less, what the
people with tear gas do. But what the people with tear gas can get away with
is partly determined by where public opinion is. And even if the laws about
restricting police and military actions are often worthless, other laws
matter. Like budgets, and procurement rules. Police can't fire tear gas if
they can't buy it.

There's no shortcut, but not all is hopeless. Don't give up.

~~~
sillysaurusx
_But what the people with tear gas can get away with is partly determined by
where public opinion is. And even if the laws about restricting police and
military actions are often worthless, other laws matter. Like budgets, and
procurement rules. Police can 't fire tear gas if they can't buy it._

The logic here goes something like: The citizens are unhappy -> The
unhappiness translates into different politicians -> Those politicians will
de-fund what made the citizens unhappy.

That logic only works if you take politicians at their word. But politics is a
sticky thing. It seems a game of musical chairs, where the last one sitting is
voted out, but the rest are sitting pretty. And there are so many chairs to
fill.

To be blunt: We don't have power. And the protests are merely a reflection of
that fact. Why would the politicians do anything but tell us what we want to
hear, and then continue to do the same things? There's no benefit, political
or otherwise, in giving us what we want.

[https://www.youtube.com/watch?v=rStL7niR7gs](https://www.youtube.com/watch?v=rStL7niR7gs)
is a nice refresher on some of the issues.

~~~
bluGill
Because you vote them out. The nra is powerful because they have voted people
out.

The truth is most people don't really care about what they say they care
about, so politicians can get away with not doing as they say. They are
careful to do what they say when they have reason to believe voters actually
care.

This week, without riots we cn get police reform through because they are
afraid if they don't will remember and vote them out. Next week if we forget
they won't. There is a reasonable conspiracy theory that the riots are
sponsored by those who want police reforms to fail, but making the police the
good guys (better than the increasing mob riot) laws won't pass. Might be
unfounded, but it is reasonable.

------
Etheryte
I think another core problem that's hinted at, but not addressed directly in
the article is understanding risk. Many people are fine with "this is a risky
investment" without really comprehending what the risk is, or even what the
ballpark of the risk is. After all, the big advertisement page says "up to N%
return" and that's what matters.

Similar to financial advisor disclaimers, it should be mandatory for every
investment instrument to come with a clearly visible warning: "N% of retail
investors trading this asset lose money".

Risk and reward are correlated, thus it shouldn't be legal to advertise the
rewards without highlighting the risk.

------
ouid
I disagree.

The structure of financial malfeasance in the presence of the limited
liability corporation is as follows:

1) become a corporation. 2) borrow a lot of money. 3) bet it on red. 4) If
lose, have the limited liability shell declare bankruptcy, no personal loss.
If win, pay back the loans and dissolve the company.

There are many laws trying to prevent this exact scenario, but there is no way
to characterize the pattern well enough to catch all of the instances of it.
Furthermore, the incentive to find such a pattern _always_ exists, so long as
the liability limiting financial instrument (LLC) does.

The pattern is, in a modern context, streamlined through insurers. Insurers,
as a rule, are businesses which lie about the applicability of the central
limit theorem to investments. Insurers are only interested in increasing the
number of policies that they cover. In the lie of the central limit theorem,
more policies is less risk. But since a lot of risk is actually correlated,
more policies is more correlated risk. Correctly identifying correlated risk
is hard, in general, and furthermore, identifying correlated risk is
explicitly against the insurance companies interest, as selling policies that
they know they can't cover is fraud, but otherwise profitable.

~~~
missedthecue
No one lends uncollateralized money to a shell corp

~~~
ouid
I think you're missing the point. This is the _structure_ of malfeasance. It
is the goal of every borrower to create a scenario which is, for lack of a
better word, homomorphic to this one.

------
airstrike
You beat me to it, but perhaps that's for the better – I tried to submit with
the title _" Matt Levine on George Floyd Protests"_ which to me is a more
accurate description of the first piece which seemed quite thought provoking.

Editorializing, maybe, but I'd say pertinent too.

------
dsalzman
Podcast link - [https://anchor.fm/talking-money-stuff/episodes/Gambling-
Is-N...](https://anchor.fm/talking-money-stuff/episodes/Gambling-Is-Not-a-
Retirement-Plan-eethks)

------
rowawey
A wealth researcher, the late Thomas J. Stanley, found that the biggest single
correlating behavior to wealth was not purchasing of lottery tickets. This
makes sense because of external locus-of-control (lack of agency), self-
control, lack of goal-setting/planning, and magical/wishful thinking.

Furthermore, other researchers found delayed gratification social experiments
with children involving more rewards later discovered those children who
waited for more rewards later were wealthier later in life. [0](Economic
background was found to be just as influential in later studies.)

Gambling (risking money with an expectation less than zero), in all forms, is
a losing behavior. It doesn't matter if its lottery tickets, slot machines,
three card monte, or financial instruments (without data).

0\.
[https://en.wikipedia.org/wiki/Stanford_marshmallow_experimen...](https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment)

~~~
Klinky
Sounds incredibly simplistic. You have to assume everyone starts from the same
spot and has equal opportunities, which is definitely not true. External
locus-of-control may very well be an accurate assessment. There are probably
people who are also "dumb", but even those are likely a product of their
environment.

So really the solution isn't "don't buy lottery tickets", it's "solve systemic
issues that lead to poor goal planning and wishful thinking, rather than goal
planning and realistic thinking with achievable goals that result in better
quality of life". That is a lot harder than just calling lotto players stupid.

~~~
tajd
Not buying lottery tickets seems like a good place to start though.

~~~
mjparrott
It depends if you think people are making their own choices in the first
place, and then that they are capable of making different ones. The "systemic"
view of the world says people aren't making choices, the system is coercing
them to make choices. Therefore individuals aren't responsible and should not
be coached to make different choices. Both views taken fundamentally seem
short sighted. You need both.

~~~
Klinky
>Therefore individuals aren't responsible and should not be coached to make
different choices.

No that's not the point either. Most people do make their own choices, but the
ways in which they come to those choices are influenced by their past
experiences. Past experience can have a drastic effect on the choices you make
in the future. Abuse/neglect/malnourishment during childhood and/or traumatic
brain injury can have profound effects on someone's decision-making abilities
later in life.

People should be held accountable for their poor choices, but with the
understanding that not all lives have had equal opportunity, and there needs
to be actual coaching available, not a bunch of finger wagging. Simply telling
someone what's wrong with their life is that they "buy too many lotto tickets"
is likely ignorant of the actual underlying problems that person may be facing
or had to deal with in the past.

