Market Monopoly

With the Olympics and the summer drawing to a close, it's now time for market participants to get themselves back from the beach, turn off the TV, and focus on making money for the four-and-bit months that remain of 2008. Yet the Olympic spirit lives on, and many of us would love to channel our inner Usain Bolt or Michael Phelps.

Indeed, over the course of his career Macro Man has met many market people who are just as competitive as Bolt, Phelps, or Tiger Woods, for that matter. Sadly, while the mind is willing, the flesh is all too often weak (in this case, literally.) How, then, can desk-driving market people bring out the Olympian that lurks within us all and keep the competitive fires burning?

Macro Man has hit upon the answer: Monopoly. The game requires no discernible athletic ability and is predicated upon acquiring assets as cheaply as possible, levering them up, and separating other players from their cash. It's a skill set with which many (but by no means all) market punters are well-acquainted.

Of course, in Monopoly, as in life, chance can play a significant role in determining winners and losers. In real life, these slings and arrows of outrageous fortune can come from anywhere, but in Monopoly they derive from the dice and the Chance/Community Chest cards. Come to think of it, it looks like the game of Market Monopoly has already started, because some of the cards have already been drawn. Consider who's already holding the following (vintage) Monopoly cards:

ADIA, CIC, and Temasek holdings. These SWFs already own very significant stakes in a number of banks in the US and Europe, in many cases via high-yielding preferred shares. Though it may be a case of thrice bitten, four times shy, Macro Man can't help but think that at the end of the dilutive capital-raising process, these guys will be the only ones left with enough equity to get paid any meaningful dividend income.

Counterparties of Merrill Lynch and Lehman Brothers
in the structured credit space appear to have quite a few of these cards up their sleeve.

Holders of 2007 vintage AA-rated ABX. Unfortunately, to collect the prize, they have to tender $100 of face. (Since this vintage card was printed, prices have fallen further. In the modern editions of Monopoly, second prize winners only get $10.)

John Thain. Mr. Thain's tenure at the helm of Merrill Lynch has been characterized by three things: large write-downs, a fire sale of assets to clean up the balance sheet, and Merrill itself providing the funding to the buyers in the aforementioned fire sale. Alternatively, this card could represent Merrill's settlement of its part of the auction rate securities fiasco.

Give this one to Macro Man, as he still can't get rid of this %*&£ing cold.

Trustafarians. With the UK mortgage market imploding and the bid from City whiz kids a thing of the past, trust fund babies represent the only remaining source of demand for £2 million London properties, which are too expensive for ordinary people and too small for any self-respecting sheikh or kleptocrat.

Mrs. Watanabe. Not that long ago, flow in the Tokyo foreign exchange market was dominated by Japanese life insurance companies, whose investment and hedging patterns drove price action in the yen. All available evidence suggests that Mrs. Watanabe and other Japanese housewives have cashed in their insurance policies and used the proceeds to buy NZD/JPY on

Actually, this card appears to have been lost; it doesn't look like anyone's getting paid off on real estate investments these days.

Warren Buffet. The Oracle of Omaha's foray into Burlington Northern last year made headlines, with some analysts wondering what Berkshire Hathaway could see in the apparently unexciting railroad business. So far this year, the Dow Transport Index is up 9.1% despite the sluggish economy and the credit crisis. Warren's already passed "Go" a few times on this one- BNI's up 24% y-t-d.

Freddie Mac shareholders who started the year with $375 worth of stock and finally sold it at yesterday's close. In a few months, Parker Brothers will re-issue this card as "Your Agency debt is bailed out. Collect $100."

Hedge fund managers with kids in Manhattan and central London. Credit crisis? Bear market? Recession? Tell that to the proprietors of private schools, who inhabit The Land of Eternal Inflation. The card, of course, is a misprint; it should say "fees" instead of "tax", and there seems to be a "k" missing....

Residents of New York state,
who will no doubt be taxed to spruce up the public infrastructure before the state government flogs it off to the highest bidder.

The American taxpayer.
Unfortunately, after the forthcoming GSE bailout, there won't be much money left over for the next stimulus package.

Investment bank employees, many of whom get paid their annual bonuses around Christmas time. This year, most have little prospect of getting paid much more than $100 in cash unless there really is a Santa Claus.

Anyone who turns state's evidence in the orgy of prosecution and litigation that is inevitable outcome of the subprime crisis. Predatory brokers? Fraudulent borrowers? Conflicted ratings agencies? Corrupt mortgage lenders? All are angling for one of these cards. Those who don't manage to get one will be left with the card below.

Too many to list. Apparently, Parker Brothers has enlisted the US mint to help expedite the printing of these cards, which will be allocated to all of the aforementioned crooks who don't manage to snag a Get Out of Jail Free Card. Readers should feel welcome to supply their own nominees, or indeed suggestions for who's drawn some of the other Monopoly cards.
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Click here for comments
August 27, 2008 at 10:56 AM ×

Brilliant post. Disagree with there being 'too many to list' for the go directly to jail card though. Too many bankers appear to have gotten away with this!


August 27, 2008 at 5:11 PM ×

MM- Post was both humorous and painful, verily a sign of the times. I read your comment about IB pay just after reading a WSJ piece about IB compensation and the need to adjust it downwards to address both bottom line and image concerns. Re image concerns relative to compensation, IBanks may be able to learn from the US Senate. Rather than vote to increase their salaries (not PC) this institution voted to give itself liberally defined cost of living increases each year, more generous travel expense allowances, higher staff allowances (which start at $2 million/yr) and other benefits. (Note the hair plugs and eye lifts in the Senate chambers.) Accordingly, they can appear to be thrifty (haven't voted for a salary increase in ever so long!) whilst still achieving an expanded comp package. Cheers- Anon

Macro Man
August 27, 2008 at 5:17 PM ×

I'm glad you guys enjoyed it. Anon, your comments bring to mind the old saying:

You can always tell when a politician is lying to you: his lips move.

August 27, 2008 at 6:03 PM ×

As a lifelong Monopolist, I enjoyed today's blog. The income tax refund card struck me as especially poignant in light of likely income , cap gain and inheritance tax rate increases in the US. Also, Dems' plans call for charging Social Security tax (up to 12.4%) on cap gains. I think these plans call for a new Monopoly card reading-- Do not pass Go: Do not Collect $200; Turn over all your income to the US Treasury. More positively-- I hope your cold will be defeated soon!