When one bets on a sporting event the facilitator of the
bet, referred to as a bookie, charges the
winner of the bet the vigorish. The
vigorish, commonly known as the vig, is a fixed percentage of the bet that serves as compensation to the bookie
for providing numerous betting options (liquidity) and the financial surety of
collecting on winning bets.
institutions, like bookies, are intermediaries. They link borrowers with
lenders and investors and provide financial
security similar to bookies. The fees, or vig, they charge can be thought of as
a tax on capital transactions and thus a tax
on the economy. If the vig is excessive,
individuals, businesses, and the government
are unnecessarily sacrificing capital and wealth to bolster the profits of financial institutions.