Friday, April 03, 2009

Gaming Geithner's asset plan

Finacial Industry: "Hey, let's just buy each others crappy assets using Geithner's plan. We'll end up with the same amount of stuff, but further losses would be paid for by the government! Heads we win, tails taxpayers loose! No downside for us! Whoohooo!" (via Kevin Drum).

Joe Weisenthal at The Business Insider (via The Wonk Room):
Banks buying assets from each other to inflate their books has nothing to do with "price discovery" or any such nonsense. It's all about using taxpayer money to create bids that are higher than what the market currently prices those assets at. And if it turns out those bids were too high and the cash flows never materialize then, oh well, it's the taxpayer left holding the bag.
See also this. These guys are like me and an exploitable set of role playing game rules: they zero in on unforseen implications of the system and take advantage of them in the biggest possible way. Of course if there's a way to get free money at taxpayer's expense they're going to do it. They'd be stupid not to. In fact, they'd be remiss in their duties to their shareholders.

There's a term for this among gamers: "min-maxing". In a robust system, min-maxing should be possible to some extent, but you shouldn't have certain combinations that completely break the system. If there are, the rules need to be changed.

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