This is the Cato Daily Podcast for Thursday, April 29th, 2010.

I'm Caleb Brown.

Comparing derivatives to bookmaking isn't unreasonable, in many ways they're exactly the same.

But Senator Carl Levin doesn't seem to understand the

Vig, that margin that bookies and investment bankers use to make sure they're not

taking on too much risk as they accept the wagers of their clients.

Mark Calabria, director of financial regulation studies at the Cato Institute, explains.

A lot of the comparisons that lawmakers were making when they were questioning Goldman Sachs CEOs was between

casinos and investment banking activities. I can understand that to one extent which is

Sportsbook is very very similar to

investment banking. Table games are not. Table games are the odds are all

known. You're not creating information by engaging in table games in quite the same way that you are

creating information or knowledge when it comes to creating a point spread or coming up with an interest rate to

account for risk with an investment.

I mean and that's a hundred percent the case I mean while at the time you when you might be playing poker and you figure you can't beat the house, you might think it's quite a complicated game.

The reality is that the odds are pretty well known and, you know, at least in say game theory poker is a simple game a

straightforward game even if it's not one you can win at pretty regularly and you

aren't creating knowledge you mean essentially how to play poker I mean maybe you

come up with a novel way to play but that's about the extent of what you're

creating and it really is as in most sports betting it's just to simply transfer of income from one party to the other.

On that point, the Vig. In sports book there's the Vig. That's the bookie, he wants to put himself squarely in the middle, exactly in the middle

of both sides of the wagers, he wants to put himself in the middle, and if collect some money on both sides of that wager.

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