Turkey’s Proof That Speculation Is A Zero Sum Game


A useful little proof from the current Turkish shenannigans that speculation, as speculation itself, is a zero sum game. Whatever is made by one participant on one side of the ledger is lost by another over on the other side of that same bet. At which point we can have two views about it all, something basically harmless that we should leave alone or perhaps something wasteful as it has no use and thus something we should limit or ban.

But that it is zero sum among the speculators does not mean that it is zero sum for all. What speculation does do is transfer the risk from the market participants, those dealing in the underlying economic activity, to those speculators. That has a value of course.

To our two little stories:

A senior Barclays Plc trader has faced losses of about 15 million pounds ($19 million) on Turkish bonds over the past few days, according to people familiar with the matter.


Deutsche Bank AG fixed-income traders generated a $35 million profit in two weeks as economic turmoil in Turkey triggered a slump in assets across emerging markets, according to people with knowledge of the matter.

Fixed income and bonds are not exactly the same thing but close enough for us here outside those markets.

It isn’t true that the speculators have made massive profits out of the Turkish lira falling. What is true is that some speculators have and some speculators have lost equal and opposite amounts of money. The value the whole process has added is that some of those holders and or issuers of Turkish lira bonds have transferred their risks from themselves to those speculators.

Sure, we could argue it’s not a thing for grown men to spend their lives doing but buying life insurance is just that, a transfer of risk from the participant in life to the speculators. And we don’t generally think that’s a bad idea, do we?