game theory and bailout

[rohufish]

“I suspect that part of what we’re seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,” said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.
i buy this - bankers are just playing a game of chicken in order to blackmail the nation into giving them a subsidy.
what do you all think? any data points from people you know on credit policy committees?

 

[jrs130]

it’s def game theory….if they all do nothing, they get a bailout..if one does something, they go bankrupt.
No one wants to be the first bank to take the “lead” and start lending

 

[busprof]

jrs130 Wrote:
——————————————————-
> it’s def game theory….if they all do nothing,
> they get a bailout..if one does something, they go
> bankrupt.
>
> No one wants to be the first bank to take the
> “lead” and start lending
The problem is that there’s a strong incentive to defect from the strategy of “do nothing”. If everyone else doesn’t lend, my lending would have a minimal effect on the probability of a bailout, and allows me to garner immediate profits. If other banks lend, I still might be better off lending than not.