What happens on Wall Street, doesn’t stay on Wall Street

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Monday, March 16, 2009
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I’ve often pondered what Las Vegas would be like if it were a soundless black-and-white scene. Without the sensory stimulant, I imagine that there would be less inclination to shell out money in the Spartan atmosphere.

The same goes for financial institutions. Imagine a bank unadorned with gilded handrails and polished wood veneer to impress people with the air of professionalism.

They’re really just a Vegas-like facade broadcasting, “Invest your money here; we know what we are doing.” But do they?

Last week, Bernard Madoff pleaded guilty to charges against his notorious ponzi scheme, which will likely be chiseled into the history books as a central theme of the current economic crisis. His role as an insider taking advantage of investors’ confidence for his own benefit has been a recurring story that is stirring an angry public sentiment.

In addition, last Thursday’s “Daily Show” on Comedy Central pitted host Jon Stewart against CNBC’s “Mad Money” host Jim Cramer in what was hyped up to be a funny feud between MBAs and the layman. But what aired was what The New York Times later described as a “cathartic ritual of indignation and castigation” of CNBC, and to a greater extent, Wall Street.

Stewart’s bold and relentless attacks peaked when he flatly chastised, “I understand you want to make finance entertaining, but it’s not a f--king game.”

And that is where he touched on my central point: It’s Americans who have been treating finance as a game, which many have now lost and are looking for reasons.

Well, I have one reason: Americans substituted the principles of investing for those of gambling.

Wall Street is not the Vegas Strip, so stop placing bets there. I’ve often heard people say that investing is a gamble — sometimes they win and sometimes they lose. The idea, however, is completely wrong, and I want to make it clear to everyone that the two are not the same.

Here’s the distinction: A sport better assesses a team’s statistical odds, analyzes components and maybe goes with a gut instinct that finally comes together in the form of a bet on the outcome.

An investor, on the other hand, assesses a team, analyzes its components and then makes a decision to sponsor its season, thus providing capital the team can use to perform better.

Pensions, futures, 401k, stocks and bonds are all rooted in sound principles of trade, not gambling. As soon as one thinks they’re gambling their capital, they must in turn forfeit the proper right to complain when the value sinks.

Though it’s sad that many people have been blindsided by dubious practices and have seen their savings and investments deteriorate, the rule remains that everyone must perform their due diligence in managing their investments.

Stewart was right for asking when Americans are “going to realize … that our wealth is work?” Investing is not a crapshoot, a slot machine or a horse race; it’s a real-time market with active trading.

Anyone who treats it like a casino with mindless bets or intuition will have house odds.

And today, seeing the executives of failed banks run away with millions, I can’t help but think that the house won.

Reach Andrew at andrew.rowen@asu.edu.