UPDATE: Will the Bailouts Really Work? A Monopoly Experiment

UPDATE: Back in the summer of 2009, I wrote this article on the bail outs and what effect they would have, if any on the economy. Fast forward to today, it is now October 2010 and the $800 billion dollar stimulus has come and gone. Now, economists are talking about a second stimulus, this time called ‘Q-E 2′ for qualitative easing. Only this time, the amount isn’t in the billions, it is in the trillions. In an article on CNBC, one economist is quoted saying that the U.S. economy needs approximately $6 or $7 trillion dollars to help it improve and gain traction.

When is enough enough? Will these bail outs ever stop? What are your thoughts on the new qualitative easing and the race to devalue around the world?  Let me know in the comments below.

The Post from Summer of 2009

I am pretty tired of hearing about bailouts for banks and big corporations as I am sure you are too.

While the bailouts are done with good intentions, it simply may not work. Why do I say this? Of course I want the bailouts to work- I think we all want something to fix the mess we are in. However, my reasoning as to why they may not work has to do with the game of Monopoly.

Monopoly is a game of acquiring assets and making positive cashflow off of the assets. Pretty straight forward. However, when a player cannot afford to pay the rent on someone else’s property, they must mortgage their assets in order to come up with the money. Now their income producing assets become liabilities. In the last couple of games that I have played, the same situation has come up. One player runs out of money and has mortgaged most of their properties to the point that they are barely getting by. To keep the game going, and to see if a bailout might work, this is what we proposed.  The bank agrees to give the debted player a cash infusion of $5,000.00 interest free. The idea is the same as the one the Government had: give the troubled companies a cash infusion in order to help them turn their liabilities into assets again.

So did it work? Well, to be honest, it didn’t. After paying off the mortgages and buying some houses to try and boost their income, it appeared that they might be able to get back into the game. However, landing on properties with hotels quickly dwindled the cash that they had and soon they were back to where they were before. This is where many people get stuck.

So How Would You Get Out of That Situation?

One way to deal with the troubled assets, as far as Monopoly goes, is to stay in debt. Why? When the board is stacked against you, you need cash reserves in order to pay out to other players. As you slowly begin to turn your liabilities back into assets, you should continue to have enough cash to pay out and to start increasing the value of your assets, i.e. buying homes. This approach works because it balances the situation. Cash is needed to pay off the debt, but more importantly it is needed to pay the current “bills,” in this case, rent to other players.

Games allow people to take risks in a safe environment. Games also show what actions people want to take in their own lives, yet may be too timid to take action.

What Are Your Thoughts?

Have you experienced a similar situation in Monopoly? Or in real life? How did you get out from under it?