So, I haven't thought about your premise at all. So this is off the cuff.
I think that gambling about real-world events (election outcomes etc) can be a kind of futures market and are a valid kind of market. I'd want to be able to hedge against elections and so on.
Manufactured events (horse racing?) and raw probability (die rolls) are probably not valid markets, IMO.
Personally, I think that the problems we see because of financial organizations misbehaving are due to regulatory issues rather than structural issues.
Oh, I definitely wasn't passing judgment on financial firms. By "problems", I meant reducing transaction costs by bundling and/or securitizing. I was more referring to the general problem being that capital markets are not perfect (in the economic sense).
The real question is how one would actually perform a hedge in a gambling market. I guess, what it comes down to, is 1) are there hedging opportunities and 2) if not, why not?
I think that gambling about real-world events (election outcomes etc) can be a kind of futures market and are a valid kind of market. I'd want to be able to hedge against elections and so on.
Manufactured events (horse racing?) and raw probability (die rolls) are probably not valid markets, IMO.
Personally, I think that the problems we see because of financial organizations misbehaving are due to regulatory issues rather than structural issues.