The Toxic NCAA Bracket
By Arnold Kling
Suppose that a week ago I had entered a March Madness pool, paid $10, and filled out a bracket.
Suppose that right now my bracket is looking weak, with only about half the teams I picked to make the sweet 16 still in the tournament. I have not been mathematically eliminated from winning the pool, but I need extremely good luck the rest of the way. (Incidentally, this example is hypothetical. I don’t follow college basketball, and I don’t enter any pools.)
At this point, my entry is no longer worth $10. If I were to sell it, I might get fifteen cents for it. If I were a bank, my bracket would be a toxic asset.
Now, along comes Tim Geithner with a fistful of taxpayer dollars. The way his plan works, you can put up a nickel to get a share of my bracket, and Tim will lend you forty-five cents, which you do not have to pay back if you lose. If you win, you and Tim split the proceeds. You’re happy, because for a nickel you’re picking up half a share of a bracket worth fifteen cents. I’m happy, because I sell my toxic bracket for fifty cents instead of fifteen cents. Somebody should be unhappy. Guess who?
Unfortunately, the stock market’s huge cheer for the plan means that those of us who oppose it are unlikely to get any traction.
UPDATE: More from Simon Johnson and James Kwak.