Wall st., Las Vegas and derivatives.

Care to buy a derivative betting on whether the governments around the world will be able to fix the mess credit derivatives got us into in the first place? The party and the gambling on Wall St. continues as the absence of regulation allows it to go on which begs the question — how are we going to fix anything if the free-wheeling Vegas style gambling goes on and on. The main differences between betting in Vegas and on Wall St. are simple to figure out.

Las Vegas is more tightly regulated. Imagine naked short selling in a casino — you borrow chips from a guy sitting next to you at a high roller table, bet with those and if you win, you get to keep the winnings and return what you borrowed. But if you lose — no biggie, just walk away, you don't have to pay back what you borrowed. Good luck with that and with making new friends with casino's security personnel. Yet it's a perfectly ok practice on NYSE. While short selling is a normal bear practice, the problem with naked short selling is — the price of a stock is being driven to the ground by essentially selling air. Which can evaporate company's capitalization and in the worst case attribute to a company's near destruction. Case in point — Bear Stearns.

Leveraging 50 fold to increase profits and trying to hedge the risk by buying and reselling derivatives like credit default swaps and other complicated and intertwined financial instruments, led to demises or nationalization (how ironic) of big and respected financial institutions, as we have seen in the last couple of months. Lehman Brothers would be a perfect example here. An over-geared hedge fund with a fancy "investment bank" title had next to nothing in equity when it was allowed to sink. Simply because there was nothing to save. And when one fails, that brings such a big ripple effect, that without swift action, it leads to a global crisis, that we are living through now. And that is the reason why tighter control is needed. I am not a proponent of over-regulation, or big government for that matter, but what started as Reagan deregulation and continued as Alan Greenspan's belief and reliance on Wall St. bankers' responsibility to govern themselves just isn't the right policy for the future.

Wall st. needs to have more oversight and a new playbook.