John Law, with a Tulip, in the South Seas: Gambling and the Regulation of Euphoric Market Transactions

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This Article articulates and explores the intuition that many modern financial market transactions are strongly reminiscent of gambling. The author begins by categorizing several types of euphoric transactions that appear to be present in modern financial markets and then compares them to an arguably more socially destructive form of gambling. The Article then provides a brief summary of the regulation of financial markets and the regulation of gambling. Next, the author provides an overview of the prevailing economic models used to describe at least some of the functions of the financial markets and of the justifications for and against regulating both the financial markets and the activity of gambling. The author then argues that none of the prevailing models is capable of addressing euphoric markets in any immediately meaningful way and then invokes the lessons of gambling regulation in the context of financial markets. The author concludes that the high market prices to which euphoric market transactions are linked, present dangers that are more significant than those that would be presented by completely unregulated gambling. Furthermore, the Article posits the proposition that extreme cases of buying the public fancy, including most day trading, present those types of significant dangers and are the least likely to produce benefits. Extending the analogy to gambling, the Article concludes by suggesting a number of regulatory measures that might be employed to limit the number and extremity of financial transactions involving buying the public fancy.

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