I love this term. One of my friends at work manages trading systems (for use by actual financial experts) and we were discussing this discredited strategy recently. It's killed one or two big companies, despite being a Nobel prize winning idea.

This specifically refers to a call of strategies that are the equivalent of writing a put option. The short term cash flows from the premium are not commensurate with the tail risk. Both LTCM and CDS on subprime are examples of this type of strategy going up. Typically the options have a duration of years which raises the probability of a tail event significantly.

I believe that this was coined in the book "Dark Pools."

You are not getting it :) The beauty is you keep the profit while the lost is socialized either via bailout or bankruptcy.

That is why Wall Street is #1.

Then you start another Wall Street firm. Ben will chip in the funding for basically free if you are well connected.

(This is also why Wall Street pays out all profit to real people, instead of keeping it within the firm.)