In particular, a rule known as the “insurable interest doctrine” — which first entered British law by an act of Parliament in 1746, and then became a part of the common law inherited by the American legal system — required that individuals seeking to buy insurance have a stake in the event against which they sought to be insured. A person could not, for instance, purchase a life-insurance policy to bet on the death of the prime minister, but he could purchase life insurance to protect his dependents or buy health insurance to protect himself. The aim was to prevent people from disguising gambling as legitimate insurance transactions: The rule allows a person to enter the insurance market to protect himself against financial loss, not to enable him to reap a windfall from a random event. If this rule had been applied to credit default swaps — which are mostly used to gamble on the failure of a debtor rather than to insure against it — the enormous multi-trillion-dollar CDS market would never have formed, and the financial crisis would not have been as severe.
This is fairly new to me, so you must forgive me my naivete if I am overly enthusiastic about this idea.
I do find interesting a secondary notion that comes into this essay only to support the main argument: Gambling should be forbidden because gambling erodes the legitimacy of wealth and property rights. I cannot but think of my state lottery.
His Majesty: “Lord Vader, I am surprised at you. Gambling on the death of a sovereign? I’ve had you Force-choke people for less obnoxious forms of lèse majesté.”