Nate-
Isn't this version of Casino Capitalism how we got into this mess?
Superstition based economic systems (you know, the one's who ignore the Second Law),
are for idiots, or greedy sociopaths.

it may prove to be a knockout in another way.

So you're back to counterparty risk.

These trades have only been matched up by definition.

"In 1963 Mandelbrot published research into the distribution of cotton prices based on a very long time series which found that, contrary to the general assumption that these price movements were normally distributed, they instead followed a pareto-levy distribution. While on the surface these two distributions don’t appear to be terribly different, (many small movements, and a few large ones), the implications are significantly different, most notably the pareto-levy distribution has an infinite variance.

This implies that rather than extreme market moves being so unlikely that they make little contribution to the overall evolution, they instead come to have a very significant contribution. In a normally distributed market, crashes and booms are vanishingly rare, in a pareto-levy one crashes occur and are a significant component of the final outcome.

It has taken years for this to be taken seriously, and in the mean time financial theory has gone on using the assumption of normally distributed returns to derive such results as the Black-Scholes option pricing equation, ultimately winning an Nobel Prize in Economics for the discoverers Scholes and Merton (Black having already died), not to mention Modern Portfolio theory (also winning Nobels). That modern finance ignored Mandelbrot’s discovery and went onto honor those working under assumptions shown to be false has clearly annoyed Mandelbrot immensely and as mentioned previously he spends much of the book telling us of his prior discoveries and how he was ignored."

From Sep 26, 2006

steveedney.wordpress.com/2006/09/26/misbehavior-of-markets-mandelbrot/