The "Game Tree" Explains Why The "Risk Of An Ugly End Game Is Rising"

Tyler Durden's picture

Virtually all developments in Europe over the past two years can be easily explained using a simple version of three actor game theory. So can the endless delays in reaching an actionable resolution. The problem, however, as Bill Gross earlier, and now Bank of America, shows, is that the incentive to delay, based at least on one the actors' preferences - that of the market - is becoming very tenuous, and "the risk of an ugly end game is rising." By implication, this means that the goodwill of both Europe's monetary and political authorities is waning by the day, as last Thursday demonstrated so very vividly.

Bank of America explains.

The game tree: In a simplified game involving three players – a peripheral country called “Grain,” the other EU economies, and the markets – and three possible outcomes – crisis averted, bailout or default by Grain. Our work explains why Europe has been muddling through for so long and why the risk of an ugly end game is rising. The sequence of decisions is as follows: first, Grain undertakes some austerity measures. The markets then deem these actions as credible in moving toward a sustainable fiscal path, or not. If not, pressure  on Grainish debt builds to a breaking point and the core EU countries decide if they will bail out Grain or leave it to default. Keep in mind that by Grain we mean not only the Grainish government, but all of the internal players that dictate whether an austerity program works. Solving this game requires ranking the relative attractiveness of each outcome. Keep in mind the motives and perceptions of the players. These are politicians, not economists. A default by a Euro area member is the worst outcome for everyone because the ensuing recession would drive many incumbent politicians out of office. So we assumed that Grain would favor a bailout first, austerity second and default third; the EU would favor austerity first, bailout second and default third; and, for the markets, we assume speculative pressure dominates, so the market prefers default first, austerity second and bailout third.

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francis_sawyer's picture

Or... if "Grain" doesn't have a central bank & is sitting on a sea of crude, you could just declare them an "axis of evil" nation...go bomb the shit out of 'em... Install your own central bank system & turn their former citizens into tax slaves under the name of "freedom"...

Hype Alert's picture

Or a nobel peace prize winning, dubie smoking prez could, again, secretly send rebels guns while publicly promoting a UN Small Arms Ban FTW.

malikai's picture

It's for your own good.

TruthInSunshine's picture

I actually believe nothing can or will save the Eurozone, as it has existed, from essentially breaking up, even if the offical party line and claim is that it isn't breaking up, and even if some fundamentally different form o a multi-track or multi-layered currency and bond system is implemented.

There are too many competing interests with diametrically opposed interests (literally diametrically opposed) for the system to be saved.

The Eurozone never should have been implemented as it was, as it was structurally defective at its very core given the widely disparate cultures and histories of economic, fiscal and commercial practices as between the many different nations that ultimately joined it.

When I make a documentary about this break up, it will be titled:  Dark Night Riesling.

Ghordius's picture

TruthInSunshine, shucks, why are you doing this to me?! ;-) I firmly believe that you are one of the few that truly understands the concept of "money", but you are also falling in the "trap" of misunderstanding what the EUR "is about". Remember here 2675066 ?

Now I feel like FOFOA feels when people ask him to summarize his thoughts in one sentence or worse, one word. I don't know, gold?

There are many factors that are relevant, particularly during a currency war (that could take a decade to unfold): defence, trade, oil/gas, resouces and relationships. Just a few thoughts out of many:

- Any small currency (and any "leaver" would be "small", even a DM) risks dollarization. Remember, bad money drives good money away. Switzerland with it's CHF is, for all purposes, currently in the eurozone, for example. And you won't find a cb governor or politician that will "get out" just to peg to a giant. Not in this phase of the currency war.

- Any small currency risks big "hot" money speculative attacks. Remember Soros and the GBP and compare with Draghi's hint on unlimited €-retaliation on speculative attacks on eurozone key assets (which don't include the stock markets, btw).

For criminy, the article above is from Bank of America! The psychology of the central bankers, politicians and elites of the eurozone is different. And most of our industry is shaped differently. Our history is fundamentally different, for example we are not the victors of the world wars, except in some theoretical cases.

Forget culture, currently the biggest divide is between continental and US/UK, our trend is in trying to balance budgets, i.e. "to try to behave as we were on gold" - which is probably the best phrase to explain "it". Our fallback key strategic resource deliverer for oil and gas is Russia and the Stans. And we know we have to trade to keep our heads out of the water, no exorbitant privilege for us.

Nope, nothing is sure when it come to the future, but all in all, despite many sabotage acts and idiocies, the "Project Euro" is still "working as designed". Don't believe the propaganda from the banksters that is trying to paint continental policies as imbeciles, this project was never a "feel good" thing, otherwise we would have invested more "feel good" thingies in it, for example.

Ultimately, the EUR is even disposable without loss of national pride. In a pinch, it can be spent. Just asks yourself how the local national pride would suffer if the GBP or the USD would die.

TruthInSunshine's picture

Ghord, I do believe cultural differences as between EU member states are playing a significant, but not exclusive (by any means), role in the looming break-up or "reorganization" of the Eurozone.  It would be an act of denial of reality, present and past, to claim that Spain or Italy have managed their budgets in any manner similar to Germany.

As for the role of fiat currency, it's central to the turmoil, as the ECB, ostensibly being a fractional reserve banking unit, really can't create any fiat with which to lend to Eurozone banks or with which to buy Eurozone member sovereign debt (in the form of bonds), without the full backing and blessing of Germany.

As I've mentioned before, it's my belief that one of the barely mentioned yet very important disagreements that is an obstacle to any constructive resolution of the EU crisis is that England, which only went one foot into the EU, will block/interfere with attempts at any resolution of the crisis unless the deeply insolvent global banks having their domicile in London are 'bailed out' from past and even future losses by way of German taxpayer money.

That's just one of many serious impediments that makes any real resolution of the EU crisis extremely difficult, if not impossible, in terms of keeping the Eurozone as it has operated for the last decade or so, from continuing to do so.

Ghordius's picture

TIS, the question is not how Italy or Spain or even Greece (with some masterful help by the Squid) got there, the question is what the options are for the single countries. Last time we were in a similar situation we pegged to each other, remember?

Of course the EUR must be a fiat - bad money drives good away and the current global reserve currency is the greatest fiat beast that ever existed. Germany? Germany is the country most acutely aware of the need to help it's sisters nations in the whole world. With the exception of Japan, that is, from a trading prospective, hammering down a special arrangement with the EU.

But yes, it has not yet begun in earnest, the Battle for the City of London. I note you say England, not the UK. Now this either means that you are a Yank cousin or that you are aware that Scotland is contemplating the exit from that currency union, if the need should arise - which again would mean either dollarization or a peg to the EUR. Cameron went to the Council last time and even tried to talk constructively - with clear instructions printed on the FT by Clegg! The UK is having the beginning of a Muppet Riot, and many British policimakers, headed by King et al are starting to think about joining forces with the continentals in "cleaning up" the regulatory mess they are in!

Remember, for our Brit Cousins, before Tatcher's Big Bang the financial firms of the City were all about multigenerational family ties to the clients, culture and trust. Now zip forward and you'll find financial MegaCorporations with Whales from all parts of the world betting the firm for a quarter's result and star's bonuses. The Brits are starting to unsheath the "shaming" language in their press - this is a sign of the tide turning, IMHO.


by the way, imagine the Reps or the Dems signing this paper here

francis_sawyer's picture


They need a "go to" Plan B...

The Eurozone, from the start, was a NWO (one world governmnent ~ one world currency) poster child from the start... The hope was to see a flurry of economic activity from the start, get the ROW to buy in to the idea & move as quickly as possible to get everybody to sign up...

The idea tanked (mostly because the numbnuts in charge still have not figured out that, as you stated, "it was structurally defective at its very core given the widely disparate cultures"...

As much as "pseudo-intellectual" liberals want to believe in the utopia of "kumbaya" (with THEM in running things ~ for everybody's own good), the dream will NEVER be realized, because when you get to that last bridge of invading someone's own self (or the immediate 'culture' that surrounds them), you are rejected...

Dogs don't want to sleep with cats... Hell ~ 'sharks' don't even want to be friends with anybody... & so on down the line...

Now with that in mind... Go & enjoy your day :-)


Ghordius's picture

kumbayaya, kumbayaya, yes, please give us the NWO option. One government that rules them all, one currency that pays them all, one military that defends all.

give us Chimerica! ruled by Washington with Chinese political money contributions in SDRs. I never understood why this theory ever came up... must be this thing about "culture"

but of course I can't understand, we continental europeans are all imbeciles anyway, and this includes the eastern Europeans and the Russians, eh? N-W-O !! N-W-O !!

i-dog's picture

LOL ... Project much, Ghordie?

Ghordius's picture

shucks, every time I howl in those woods I get my ass bitten by the defenders of the poor sheep! Now you are probably going to point out that the Jesuits have their tentacles in China since centuries and this is the reason why the Chinese started the Currency War and are the most vocal requesters for a global SDR-based currency. Or something....

I don't buy it. This NWO currency - one for all.

You Yanks are practically already weaned out from gold. You had to deliver 1934 and were only allowed to own again in 1974 - and the very first thing you did with it is to play and make a quick bubble out of it, something that is even worse than forbidding it, from a monetary point of view.

We barbarians on the big landmass never stopped asking "how much shiny can we buy with it"?

Should you have some links for a website that explains me why "the EUR is an NWO project" in terms that I understand I'd be very grateful.

Nevertheless, we will see. ;-)

Kayman's picture


The European Common Market was a great idea, predicated partly on keeping the disparte countries of Europe from fighting amongst themselves.

The Euro, granting equal purchasing power to producers and parasites alike, has guaranteed they will be fighting amongst themselves.

Link to any library you can find.

Ghordius's picture

I disagree. It was a bunch of our dear transnational MegaBanksters that started to rate Greeks, Portugiese etc. debtors/sovereigns as having the same risk profiles as the Germans or the Dutch, in order to feed (for example) the huge money market funds thirsting for some revenue, all aided by derivatives like the blasted CDSs.

btw, I remember calculating the debt/GDP of Italy in the late '80s - it was over 100% then.

Purchasing power? PPP? Our labour markets are not that inflexible.

Anyway, this has little to do with a common currency. Again, we remember gold. That was the longest serving common currency. Economies adapt. Yes, there was a lot of folly-spending, but the landscape of it is patched.

TruthInSunshine's picture

See, now this is an intelligent discussion, with good points being made all around.

If we only had HammyWanger or MDB to add some of their keen insight to the mix, perfecto!

i-dog's picture


"point out that the Jesuits have their tentacles in China since centuries"

Indeed. Thank you for pointing that out! Even Mao himself was Jesuit-trained ... which does explain the 'Cultural Revolution' (an attempt to wipe out Confucian culture and ancestor worship ... in much the same way that you European Jesuits are using political correctness and Islamic immigration to attempt to obliterate European culture).

"I don't buy it. This NWO currency"

You will, eventually. You'll have no choice. ;-)

"You Yanks"

There you go, again ... pulling out the Brother p-Touch Labeller! Why would you say I'm a Yank? Are you just trying to be insulting?!

"make a quick bubble [of gold]"

I see no bubble ... no public scramble like in the Tulip, South Sea, Dotcom, Housing or TP bubbles. Please explain your reasoning for calling a price rise from a [government] suppressed price to a market-based historical mean (in PPP) a "bubble"?

"how much shiny can we buy with it [gold]?"

Shiny what? Shiny-seated pants? Don't tell me you're a typical bureaucrat!

"a website that explains ... in terms that I understand"

I'll have a look at 'Kindergarten Education Online' and see what I can dig up for you. Stay tuned! :)

Ghordius's picture

Whenever I jot down in haste a few words for you it ends up in something that widens the gulf of misunderstanding. Sorry for the Yank, I should have wrote at least Cousin Yank to underline a non-animosity bethind it. I meant the "quick bubble" of gold prices between 1974 (when possession was re-allowed in the US) and the '80s. And I meant: "how much gold/shiny is this new currency worth?" - something that was on the top of the minds of all EUR proposers, then.

i-dog, look, I'm fascinated by this theory of a connection between NWO and EUR. Otherwise I would not ask/bother you. It's just that it does not make sense at all, for me. I put some effort in answering in this short format to TIS and lo-and-behold there was this NWO explanation - had to kumbayaya a bit. And then you poked in, and I had little time, and I botched it.

Perhaps it all goes back in the difference of how we see "evil" and "good". Don't know. Remember our discussion about how to confront bureaucracy? You reason with them, you try to draw the goodness out of them. I prefer to just hit the fear button. My way is probably the "evil" one, your's is for sure the humanly good one. The difference between how the sheepdog and the wolf treat annoying sheep? ;-)

In my experience and worldview, it's humanly impossible to have a conscious and thoughtful conspiracy of this size. People are simply not dependable enough, particularly on the long run.

IMHO it's possible only on a different plane, the cultural. Full of unconscious and unthoughtful elements. Mao and his jihad on Chinese culture. The current culture war around family between conservatives and liberals, spearheaded by the feminists and gays. Just two examples. Empires and MegaCorps function also this way, enmeshing material interests with "culture", with unwritten rules like "approved" carrier paths. British historians are all about this "stumbling into empire", aren't they? Because there really was no central, thought-over plan to the British Empire - it evolved (fraught word) by individual action and cultural reaction.

Let me put it this way: all small currencies were headed towards dollarization. For an NWO-Currency project, all we would have had to do is to relax and let it happen.

Conrad Murray's picture

The rebels have to be Al-Qaeda for Barry Soetoro to support them. But don't you get any ideas, slave, or the NDAA will have you in the rack in no time.

francis_sawyer's picture

So I guess if I come out in support of Al-Qaeda (for being part of the rebel faction in Syria), I'm a Patriot in the eyes of this nation, but if I clamor on about 9/11 being an 'inside job', & blame for such was being laid at the doorstep of Al-Qaeda, then I'm a domestic terrist...

Is that how it goes?... I'm just trying to keep my roles straight here so that I may be considered a model citizen...

Skateboarder's picture

If you want to be a model citizen, swipe your credit cards and buy useless shit. After all, you are just a consumer.

DanDaley's picture

Stop thinking and do what you're told!

francis_sawyer's picture

It's been a long time since I used a credit card or bought useless shit... I must be on the fucking 10 Most Wanted list by now...

"We're not worthy!... We suck!"


mendolover's picture

Has anyone thought about how hard it will be for Cabela's to keep ammo on the shelves if 'they' ban internet sales of same?

PontifexMaximus's picture

........but thursday was followed by friday and the temporary mess has been cleaned up.

old naughty's picture

Did I hear last week massive puts were put on a number of stocks/ETF?

Oh was it just rumors?

MeelionDollerBogus's picture

well shit just go load up the list of stocks, options and look at the OI. Don't just ask people here to send you info that may already be a week out of date, a day out of date or if you're really lucky, MDB or MaxFischer flat out making something up to be entertained by your folly.

HD's picture

The market prefers? The only "market" is that of central banker manipulation. The second they can not paper over reality the whole damn system collapses.

i-dog's picture

... and, how did this non-sequitor find its way into the "game"?:

"A default by a Euro area member is the worst outcome for everyone because the ensuing recession"

As Goebels is reputed to have said: "Tell a lie often enough and the people will come to believe it!".

All outcomes have an ensuing recession - except that one of them is Euro-wide, the other only in certain [underwater] countries.

Capitalist10's picture

What if Portaly is playing the game at the same time as Grain?

orangegeek's picture

"Game risk is getting ugly..." is reflected is most major markets - most have already turned down (Europe/Asia) - the last to go will likely be the SP500 and Dow.


Wave 2 is still completing - drawing in every buyer possible before the turn down.

death_to_fed_tyranny's picture

Fuck You Draghi! Fuck You Ben Bernanke! And why the Fuck has John Corzine not done the perp walk yet. Hey John Corzine. Piano wire is too good for you!

mendolover's picture

Haha!  Wait until he's Treasury Secretary!


buzzsaw99's picture

usa stock market green ---> nobody cares ---> go back to sleep ---> business as usual ---> record wall street bonuses (again)

mrktwtch2's picture

when the music stope this time the usa will still be standing..we are the only country that is able to be 100% self sustaining..if 300 million ammericans vanish tomorrow the world economy collapses..if 6,7 billion people outside of the us disappeared the usa would survive ..would it be easy..?no but we have our own food oil and manufacturing remember this fact when you hear all the usa is dommed talk..

unrulian's picture

Wrong and stupid...without Ipads and a Gun behind every blade of'd kill each other until clint eastwood was last man standing

Doña K's picture

During your scenario, every self respecting American would have gone elsewhere and the only ones left would be the gov. zombies. With noone willing or able to work, production will be zero.

Nehweh Gahnin's picture

Rah Rah!!!  (Waving the flag enthusiastically...)

/sarc off


Oh brother.

MeelionDollerBogus's picture

you best be checkin' your crop failures and water shortages and lack of domestic sustainable energy supplies. Not only do you need to import oil but your nuclear stations are all aging and when they are shut down because they flat out CRACK OPEN you're gonna sing another tune.

shovelhead's picture

Sugar Daddy wanted for threesome fun.

Call M. Rajoy or M. Monti @ Craigslist Euro.

phat ho's picture

the bulk of countries would continue on just fine. it's the us of a that would be totally screwed fubar. most developing countries would barely notice there was even a burp in the world economic system.

rwe2late's picture

With the rise of the global TBTF finance system, actual control of finances has shifted away from all nations, whether they nominally control their currency or not, Petrodollar or Euro.

The tentacles of the globalist octopus reach into all nations.

The system is interlinked and integrated, with various front institutions like the World Bank and IMF, with select elite conferences acting as consultants, and with ‘stability’ backed by a globalized Pentagon/NATO police.

Exiting the Euro will prove as difficult as exiting the Petrodollar has been for Iraq, Iran, and China. There will be financial penalties, economic blacklisting, political disparagement, and possibly even military coercion. The media will present the “correct” solution as “austerity”, “privatization”, and “refinancing” the banking system.

The new boss will be the same old boss. Unless … what? Nationalize the banks? Defund the dependent military enterprise? And what sanctions would then follow?

The system is set to:

Privatize the profits, socialize the losses ( to keep the system afloat for supposedly ‘everybody‘).

Solidify financial control away from the public (leave it to the ‘experts’).

dvfco's picture

I guess I cannot paste my own graphic.  I made my own chart of "The Game Tree", but pasting here just isn't working.  If you'd like a look, it's at:

Well, I got a kick out of it.  All the lines end up in "Default". splash down into a toilet, and a new currency rolls out called the LYRO.

Then, everyone immediately gets to pass "GO" and collect 200 Lyro.

Try it - you might like it.