Mish posted a reference to a "Simulation of a US State Defaulting" video for a panel of "luminaries" at the Buttonwood gathering in New York. These are our leaders: From officials in the Bush and Clinton administration, these are the "top" people that were in positions to decide such things, including Robert Rubin, Josh Bolten, Glenn Hubbard, Laurence Meyer, and Laura Tyson.

In their advisory role to the President, including roles representing the US Treasury and the Federal Reserve, they discussed for a couple hours what to recommend to the President regarding assistance to the fictional US State of New Jefferson that will be unable to make a $1.5B municipal bond payment in 48 hours.

Long story short: I watched the whole thing. The entire video. A couple hours. I am now faced with the irksome question as to whether a "well adjusted" person would act out aggression upon himself or upon those around him.

Summary: Although the scenario at times had bits of interesting dynamics (if you're interested in back-room discussion as to what happens in such meetings), after you lose a couple hours of your life watching them banter, they decided to recommend to the President (a fictional female in this scenario) that the US Treasury extend a 30-day loan to the fictional state of New Jefferson in exchange for the state promising to be good in the future, and possibly cede sovereignty to the Federal Government.

My conclusions:

After significant preparation time for this scenario, it is clear they did not have mastery of the situation dynamics, liabilities, and issues. They sure seem to love the process, though, and the only thing missing from the meeting were delectable snacks. It is easy to conclude none of these persons are geniuses. While geniuses are rare, they exist; unfortunately, everyone on the panel ranks somewhere between Cliff Clavin and Doctor Nick. While this simulation is fictional, the panelists are not. These are your actual political and executive central planners, at work for all to see. None of the individuals fundamentally understand the problem, and no "actual" solution was proposed, nor even discussed, nor even raised as a possible topic. We're doomed.

The ZH readership includes healthy groups of individuals that debate whether these financial crises are "planned", or are mere consequences from permitting us all to be ruled by central planners with child-like mental capacity and non-childlike neuroses and psychoses. However, whether planned or not, the stochastic component has always been the random actions of political elites (influenced by the electorate), and the (in-)competence of their administrative staff. We see here those administrative central planners on their full glory. And, it is glory like a thousand setting suns.

The issue with New Jefferson (a fictional US State, holding no resemblance whatsoever to California, New York, Illinois, nor even the US Federal Government) is one of excessive leverage. The answer, of course, is more leverage. And, it would be really nice if the Federal Reserve would simply print money to "clean it up". (Yes, they actually said that. Multiple times. Not a problem, though, the Federal Reserve said it wouldn't. Unless it decided it needed to do so.) Another panelist proposed more US Treasury aid to all the States in the future, as that (of course) would be spent wisely, helping other states avoid such problems in the future. In fact, the problem with New Jefferson now is merely that the US Federal Government didn't in the recent past provide more money to New Jefferson.

None of them raised the issue of leverage. None of them discussed how extending further leverage will actually make the problem worse. Rather, like machinations regarding Greece, if we merely kick the can out another 30 days, we will have time to appoint a task force to "deal with it". (No suggestions are made as to "how" to deal with it, because that's not their job, that would be a job for the yet-to-be-appointed task force. Rather, the only job now is to decide whether to extend 30-day loans to New Jefferson without Congressional input if we think New Jefferson will in-the-future cede sovereignty.)

As much as it's fun to conclude an evil authority is central-planning the worldwide march to a single world government and single world currency, and as much as these panelists would probably support such a thing, their painful-to-watch performance in these couple hours merely illustrate that Dr. Evil would never ever ever ever ever ever ever ever ever ever invite them to be a part of the plan.