The Global Financial Crisis Is Now a Fun Game

Now just hit left, right, low kick, high punch and Warren Buffett saves your bank. Photo: J.C. Towers/Corbis

Well, not really a “game,” in the sense of a thing that is fun and ends with a winner. But the American Banker’s Barbara Rehm reports that at a recent gathering in Rye Brook, New York, a banking lobby group called the Clearing House Association spent two days putting on a 180-person, live-action simulation of the failure of a $2 trillion commercial bank, meant to replicate the actual bank failures that happened in 2008 and 2009.

“Some people played the executives who ran the failing bank while others were executives at two competing firms,” Rehm writes. “The simulation also included people filling the roles of regulators, investors, politicians and even journalists who got to throw some sand in the gears by reporting false rumors.”

The ostensible purpose of the simulation was to test whether the “Orderly Liquidation Authority,” a plan outlined in Title II of the Dodd-Frank Act that is supposed to prevent more bank bailouts by giving regulators a simple way to pull apart and shut down failing banks instead of having them go bankrupt all at once and cause massive systemic instability, actually works.

And what do you know? When a lobbying group spends “the past 10 months” preparing a simulation that is designed to result in its preferred outcome, good things happen!

[The simulation] showed the orderly liquidation authority in Title II of the Dodd-Frank Act went pretty smoothly.

“Title II works,” says Paul Saltzman, the president of The Clearing House Association, which sponsored the simulation. “We are digesting it now and will meet with regulators to share our lessons learned.”

Now, let’s not get too excited. Many, many people still doubt that the Orderly Liquidation Authority would actually work better than bankruptcy in the event of a real, non-simulated financial panic. But the results of a made-up war game held in a hotel ballroom will surely reassure regulators that they are on the right track.

Separately, the gamification of the financial crisis raises some very important questions that Rehm’s story left unanswered. Such as: Who got to play Hank Paulson? What Dick Fuld manqué got to shout, “I am not fucking giving this company away”? Was there a simulation participant whose assigned role was to sit in the corner smoking a spliff and playing bridge while his bank rapidly disintegrated?