Geithner Plan as Poker Game is an article from the New York TimAfter reading Geithner Plan as Poker Game, I have a clearer understanding of how the plan works.Poker is a form of gambling and so is investing.
Edsall starts off by stating
“Normally, a poker player has to pay full value for every chip, $1 for a $1 chip, $100 for a $100 chip, and so forth. In the Geithner game, the rules are different. A player acquiring $84 worth of “chips” only puts up $6. Of the remaining $78 which S/he owes, the FDIC would provide — in the form of a nonrecourse loan — $72, and the US Treasury would put up $6.”
Although Edsall states that the Geithner game is a little different. It actually isn’t. You can relate this concept to the concept of a poker tournament. For example, in a poker tournament such as the world series of poker, you would buy-in for $10,000.
“The remaining $200 would then be split between our talented player and US Treasury, each getting $100, good news for one and all. There are no limits on the upside: if the player has an extraordinary night and makes $10,000, s/he will get $5,000, all from an original investment of $6.”
In the poker tournament, you can also win enormous amounts of money. For your original buy-in of $10,000, your rewards can vary from $50,000- $5,000,000.
“If, however, our player has a terrible night, and loses the initial stake of $84, the downside is just $6. S/he gets to gamble $84 with the worst possible outcome being the loss of $6 — not a bad deal.”
Playing in a poker tournament has the same outcome. If a player loses a tournament, he only loses the initial $10,000 that he/she put up. But if the player wins, they can make up to $5,000,000. Like Edsall stated, “it’s not a bad deal.”
Basically, the Geithner plan is a trillion dollar project, which the U.S. government takes the role as the world’s largest hedge fund company. Their main intentions are to invest money into funds so that they can buy up the bad and toxic assets and hold on to them until the market recovers.
But the problem is that what if the economy and the market never recovers? Then the assets are not fundamentally undervalued and so if they hold on to it, how will the government make back its money?
