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US Fed playing Monopoly with taxpayers money

25 September 2008  |  4142 views  |  4

A few years ago I was invited to a fancy dress party where invitees were asked to come as their “favourite childhood memory”. It may sound strange, but I went as a giant Monopoly board. I have many happy memories of playing Monopoly with my younger brother. Sometimes I would win, sometimes I would lose, but it usually ended in one of us realising our empire was doomed to failure, at which point we would reluctantly declare bankruptcy and set off a path of destruction with a wave of the hand across the playing board.

The strategic maneouverings of the global banking sector in the last two weeks are not dissimilar to a giant Monopoly game, with many of us still wondering who will be the winner.

My brother and I had a theory that the player to acquire Mayfair and Park Lane would usually win Monopoly. If Lloyds TSB is Mayfair, then HBOS could be their Park Lane. It now has more market share and an ability to collect extra rent (interest rates) from tenants (customers).

With Bear Stearns and Lehman Brothers out of the game, the other players are doing what my brother and I called cheating – pilfering money from the bank to sustain their empires.

The US Federal Reserve is acting as the reluctant banker in this game, but I prefer to think of Warren Buffet as the real banker in this tale. Surely he knows his investment in Goldman Sachs will pay off as it acquires other distressed players. And he looks a little like Monopoly mascot Rich Uncle Pennybags (Mr Monopoly), which is ironic given Pennybags was loosely based on the original banking billionaire J P Morgan.

The inventor of Monopoly, Quaker woman Lizzie Phillips, would perhaps be a supporter of the US Government’s bail-out of large financial firms. Phillips was a Georgist, believing that the economic rent from land should be shared equally by society rather than falling into hands of private individuals. She invented the board game to illustrate the negative aspects of land being mostly held by private monopolies.

Of course many of today’s US taxpayers feel a little different given their tax dollars are expected to stretch a lot further than was the case in the early 1900s.

By allowing its banks to cheat at the game of Monopoly, the US Government is hoping to protect the little guy, propping up financial giants for what it has deemed the greater good. It’s no wonder people are asking if it’s the death of capitalism.

Just as Georgists like Phillips argued the earth should be the common property of humanity, perhaps it’s just a matter of time before more commentators start arguing US taxpayers should gain some equity in the financial institutions they are helping to save.

TagsRisk & regulation

Comments: (4)

Marite Ferrero - CardSwitch Technology - London | 25 September, 2008, 15:17

Well, U.S. taxpayers are angry and they have the right to be. I've read that this specific AIG bailout will cost each american taxpayer, approximately $300.00 per year for the next 10 years.  Quite bad timing to propose a bailout, although one can't really choose a good time for such a disaster. It's election year and both parties are receiving angry fax, email messages from their constituents. This bailout isn't going to be voted on during the next 7 days.

Besides, Mr. Paulson's and Bernanke's proposition really needs a lot of work. Mr. Bernanke proposed that these illiquid and toxic assets be bought by the U.S. Treasury based on their maturity value and not the current mark to market valuation. P and B are saying that the solution given by such a bailout plan tantamounts to creating a market for these toxic assets. They say that a reverse auction, in which the U.S. Treasury is the only buyer, will create such a market and will then halt the spiral of falling prices & bankruptcies.

Its a very tough sell considering that americans are losing their jobs and their homes. Americans, in general are over-indebted thanks to the HELOCs funding their maxed-out credit cards. Sure, everyone went wild with spending. Consumers, executives and politicians have all been in this one big party.  But who's really going to pay for this mess? Its all the little people who do not earn anything in comparison to the likes of Mr. Fuld of Lehman, Brad / Angelina Jolie-Pitt, VISA USA/VISA Inc... I knew the money couldn't have just evaporated!

Joseph Stiglitz, who won the Nobel Prize in Economics says it like it is. We need more people like him with just good old-fashion common sense! He says that " We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is "too big to fail." If it is that big, it should be broken up."  

Well, that's not exactly going to make him popular with VISA and MC. But he speaks the truth. These card companies pump so much money into creating new credit card products (cash-back, loyalty points, 'keep the change') in order to promote a sense of 'earning something' while one overspends using their credit cards. Americans were certainly overspending with their numerous credit cards, just as designed and planned by the credit card companies. I truly believe that consumer protection agencies in the U.S. (such as the truly powerful ones in France like Quel Choisir) can play a big role in correcting the over-indebtedness of Americans. Some critics deride this as a socialistic intervention. But hey, who's paying for this bailout anyway? 

Paul Penrose - Finextra - London | 26 September, 2008, 13:33

And the 'go directly to jail' card goes to....?

Paul Penrose - Finextra - London | 26 September, 2008, 13:47

Maybe we should update the card deck to more accurately reflect the modern financial system. So for instance:

Bank makes error in its favour, pay $200

Life insurance matures, pay $500 lost on original deposit

Bank forecloses on you loan, hand over keys to property

Everyone must donate 10% (to bail out Wall Street)

From sale of stock, you lose everything, go directly to jail

Marite Ferrero - CardSwitch Technology - London | 26 September, 2008, 15:38

This whole notion of bailing out banks with tax dollars is just amazingly unnerving. Banks aren't there to bail out an individual from his financial mess so why should they be treated any better than how they treat consumers? Banks never gave any loan for free. US Treasury should treat them the same way.

What banks do not fully realize is the CONFIDENCE that was lost!  A whole new culture and mindset is in order. Consumers are now sick of these 'masters of the universe' who have concocted innovative and fancy derivatives that are just way too complicated even for sophisticated risk management systems to evaluate. But then again, anything so complicated usually hides something ugly underneath. I welcome the day when we all go back to basics and pure common sense.

In terms of monopoly, what happens to the game when the banker is no longer trustworthy? Is it Game Over ?

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