10/21/2008

The Martingale

There is a gambling strategy called "The Martingale". This doubling game offers something for nothing—certain profits, with no risk. Hence its appeal to gamblers. In a general sense the current economic situation was caused by Wall Street using the Martingale strategy. The carefully synthesized financial instruments now seeping toxically from the hulls of multiple investment banks are vastly more complicated than the Martingale. But they suffer the same fundamental flaw: They claim to create returns out of nothing, with no attendant risk. That's not just suspicious. In many cases, it's mathematically impossible. Read the article for the gritty details. It's fascinating.

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