"If Powerball sells 1 million tickets at 2$ each, where the jackpot is worth 200,000,000$, is the size of that market 2M$ or 200 trillion $" [1]
[1] https://www.reddit.com/r/Economics/comments/3xb2xh/all_of_th...
What blows my mind is that it seems like everyone in the media has taken this obviously incorrect premise and run with it.
But as 2007 demonstrated the real world risk is not IID. And at 100x leverage a 1% movement can totally wipe out a bank.
Also it's not like the 2007 crisis was fixed in any meaningful way. The FED just bought 1.4 trillion of MBS derivatives and is now sitting on them, actual value still unclear. Probably to be paid by the tax payer through 20 years of austerity.
Their point would still stand if they sold 100MM tickets though, so as not to confuse the two issues (ie. the notional amount and the expected value), perhaps it would have been a better example that way.
Did you introduce a central bank into the example some point? Is this a repeated game? Am I missing something? If not, this reddit comment makes no sense whatsoever.