< meta name="DC.Date.Valid.End" content="20050825"> Amendment Nine: Perverse Incentive Situation

Monday, July 18, 2005

Perverse Incentive Situation

P.I.S. You'll hear vulture traders swear this way a lot. The rules pre-bankruptcy get turned upside down post-bankruptcy and there is plenty of room for finding perverse incentive situations... "I'm stuck in a pisser!" being a favorite of mine.

One that a lot of people haven't commented on is the PIS facing the insurgency in Iraq. We all know about the PIS facing us, the more we "take it to the enemy", the higher the price of oil, the more likely that more money finds its way back to the enemy. The same sort of PIS faces the insurgency though... they are trying to get rid of S. Arabia's ruling family (and its ilk), so they strike the pipelines to disrupt supply (yielding what they hope is a shadow OPEC). But the more they disrupt supply, the higher the price of oil, and the more capital is available to stabilize and reinforce the regimes they intend to topple.

How do you solve a PIS? The easiest way is to remove the offending rule, but for the insurgency, J. Robb has a different idea, change the target. This will take some time for traders to catch on to though, dampening the effect. Though, in the near term, this could be an interesting short opportunity.

All this leads me to a different point, however, which from the Al Qaeda point of view is certainly an alarming development. Both the US and Al Qaeda have significant interest in low average oil prices for the long term. PISser for Bin Laden eh?