It’s been an interesting couple of days in the place where money and gambling intersects, otherwise known as Wall Street. Over the weekend, the Internet gambling sites PokerStars, Full Tilt Poker and Absolute Poker got taken down by Preet Bharara, the U.S. Attorney for the Southern District of New York, which among other things covers lower Manhattan, where the NYSE lives. On Monday, the stock market got taken down by Standard & Poors, which dialed back its outlook on U.S. government debt to negative from stable.
This is hypocrisy doubled down. The connection between the two events is that Wall Streeters absolutely love poker. The big tournaments in Vegas are filled with quants, bankers, traders and other Street beasts. Puritan Preet’s raid on Internet poker sites in a country where gambling is legal in all 50 states, where governments are pushing their own lottery games every day, seems a bit contradictory to say the least—and I’m willing to bet that some of Bharara’s staff have played poker. Prosecutors have to have fun, too.
The outlawing of Internet gaming has excluded a potentially large business from the U.S. that could be mined for tax revenues that could help pay off some of the debt S&P is so worried about. The American gambling industry is chomping at the bit to get a piece of this action, which is now consigned to outposts like the Isle of Mann and Antigua. Wynn Resorts already had a deal with PokerStars, but had to walk on it when two of that company’s executives, Isai Scheinberg and Paul Tate, neither of whom appears to be an American citizen, were charged with bank fraud, money laundering and illegal gambling. Good luck in extraditing them.
Granted, Bharara has to uphold U.S. law, however dumb it is, but who, exactly, is he protecting? The law the poker sites allegedly violated bars Internet gambling not already sanctioned by law. It was pushed by a couple of Republican blue noses and approved only because it was attached to a must-pass Port Security Act in 2006. So much for the Nanny State being a province of Democrats; so much for the Republican/libertarian/conservative conceit that government shouldn’t regulate our personal behavior if it doesn’t harm others. People love poker and they love to gamble. (That does not include me; I have no interest in either, given that gambling implies a negative return on investment. I’d much rather put my money in…stocks and real estate? ) But hasn’t Bharara now charged more people (11) for running poker sites that people like and that have harmed few, than he has for causing the financial collapse that has harmed all of us?
Meanwhile at S&P, whose intellectually compromised evaluations of mortgage securities helped underwrite the financial meltdown, they are now all worried about the soundness of U.S. government securities despite a rebounding economy and a Congress that, against the odds, has hammered out an agreement on spending and seems capable of doing same on our unsustainable $14.2 trillion in debt. S&P is shocked, shocked, to discover that we’ve borrowed too much to get the country out of the mess that S&P helped get us into. Thanks so much for the notice. It sent the Dow down 1.14% as investors, who last week were betting on economic recovery, went into full retreat. Did something change in the U.S. economy between Friday and Monday? Not really, and it’s interesting to note that the bond market, the folks who expect to be compensated for long term risk to the economy, pretty much shrugged off the S&P downgrade. The yield on the 10-year bond actually fell a couple of ticks.
So where does this leave us? Politics perhaps. A shot across the bow like this one tells the Obama administration that S&P still has meaning and power and that the regulators should bear this in mind. Likewise, Bhahara may be impotent against the real malefactors on Wall Street, but at the very least he can be a killjoy to one of the Street’s favorite leisure pursuits. Now they’ll have to go back to gambling with our money.