By Philip Read
In “Games at Work” we highlighted that games have certain characteristics: manipulative behaviour, paradoxical consequences, repetitiveness, contagiousness. There are payoffs in games, and one sure sign that games are being played is that everyone is pretending they are not. Unfortunately we now have a very destabilising game being played on a grand scale which we can call “Private profits, social losses”.
In this game there is a period of speculative build up, followed by a crash, followed by some kind of bailout. The dynamics of the game are as follows:
During the speculative build up one will frequently hear the following : need to repeal constricting legislation, new era, remove government interference in the market etc. During the crash and bailout one will frequently hear the following (from the same people): too big to fail, a matter of national security, need for government support all we will all suffer, necessary evil etc. And in the side there will be a game of pretending to be outraged and curb executive pay in the wake of government bailouts.
I believe this game is reaching dangerous proportions which can lead to serious social unrest if not dealt with. The degree of manipulative behviour has reached such heights in the latest iteration of this game (see for example the latest revelations regarding the role of Goldman Sachs in AIG, and the role of the New York Fed in suppressing the information), that the potential for paradoxical consequences (such as social unrest, which destroys the wealth and safety of those who appear to be getting the payoffs short term) is increasing. I note for example the attacks on the former CEO of Bank of Scotland as a small example. The private profits reaped during the last boom by Wall Street, and the scale of the bailouts paid for by society at large is now so out of proportion that it seems amazing there has not been rioting on a large scale.
This game has been played before (1989 S&L bailouts, 1992 Bank of New England, 1998 Long Term Capital Management bailout) but the scale has not been the same. In Eric Berne’s analysis of games he talks about games operating at three levels of intensity going from gentle to violent.
A first-degree game is one that is socially acceptable in the agent's circle.
A second-degree game is one from which no permanent, irremediable damage arises, but which the players would rather conceal from the public.
A third degree game is one that is played for keeps, and which ends up in the operating room, the courtroom, or the morgue. This situation might well result in a third degree game.
I hope that we all (investors, regulators, banks, citizens) find a way to construct a meaningful dialogue about this game in order to prevent its recurrence, or at least minimize the scale.