BUG: Balance issue with banking/insurance companies related to economic status

[Trevormifur9]

I have found that it’s insanely easy to game the market for massive profits with banking and insurance companies.

Basically when the market enters a recession/depression... buy all the way down, the companies lose 90-95% of their value and then when the economy starts booming again the stock price goes through the roof.

Tonight I started with low funds, grinded for 20 years in my alcohol business to finally make $1 Billion Net worth. The stock market tanked and the largest bank dropped from $140K a share to $10,000. I leveraged my company to the gills, issued hundreds of billions in bonds, maxed out loans and by the end I had 25% of the bank. After riding it out I turned an average share price of around $14,000 into a sale of $250,000 per share, netting almost $1 Trillion cash by the end

[David]

I've forwarded this to the programmer. He will work on improving it.

[standardplayer]

How do they simulate recession/depressions on Banks and Insurance Companies?

It would make sense that Banks should suffer higher than expected credit losses (depending on portfolio credit quality) during economic downturns so they should have to increase their provision for credit losses on their income statement decreasing profits in the short term and possibly leading to losses that decrease capital. It should not lead to 80%-90% declines unless it is a once in a lifetime financial crisis and only hit that level for a month or two. A 40%-50% decline in stock price at the worst would be more realistic like we are currently at with the virus situation going on where banks are trading at or slightly below their book value which works as a support point for prices. (For Example Wells Fargo had a Provision for Credit Losses in 2008 of 15,979 Billion on 25,143 Billion in Net Interest Income ~60%+ compared to 6% or less of net interest in the most recent years)

Insurance Companies should see a decline in insurance premium growth in the short term and their investments would be affected potentially leading to bond defaults depending on what they are invested in if they are invested in high quality government and corporate bonds their investments should be fine.

Typically the overall stock market should decline:
*Market Correction: 10%-15% decline
*Recession: 20%-30% decline
*Significant Recession/Depression: 30%-50% decline (Examples: 2008 Financial Crisis and Great Depression)

[mohmaaytah]

Agreed, I was just about to create a new topic when I saw this one. There is another topic about Banks which in my game are raking money but Insurance companies are raking far more.

Putting aside the amount of money I am making, some of the side effects are strange. One person owns an internet company, telecom, 2 tv stations and 2 radio stations, worth close to 585 billion and is richest on list. Of the top 20 richest only 3 "real" ones remain, the rest are all led by banking/insurance investments.

[David]

Agreed, I was just about to create a new topic when I saw this one. There is another topic about Banks which in my game are raking money but Insurance companies are raking far more.

Putting aside the amount of money I am making, some of the side effects are strange. One person owns an internet company, telecom, 2 tv stations and 2 radio stations, worth close to 585 billion and is richest on list. Of the top 20 richest only 3 "real" ones remain, the rest are all led by banking/insurance investments.

I think each game is different depending on the economic boom-and-bust cycles and the global stock market performance which may vary a great deal from game to game. If you consistently getting the same outcome where Insurance companies are too profitable, please send me your save game file and I will check it for you.

By the way, does anyone else experience the same?

[mohmaaytah]

Thanks David, my save file is included as part of some bug reporting I have done in another thread.

https://www.capitalism2.com/forum/viewt ... =13&t=7552

Cheers

[David]

I loaded your save game and noted that you got the majority of your profit from stock investment. The game design does allow players to amass a fortune from stock investment, as in the real life.

I believe what I wrote in my last message would apply to the situation in your save game:

I think each game is different depending on the economic boom-and-bust cycles and the global stock market performance which may vary a great deal from game to game.

If you consistently get the same outcome where Insurance companies are too profitable, you may change the settings on the new game setting menu - see the attached screenshot by reducing the insurance premium or/and increasing the insurance claims.

After you have found a setting that you think is reasonable, please let me know and I will set up a poll and see if the community would like to us to change the default setting of insurance companies to the settings that you use, for a more challenging game.

[mohmaaytah]

Interesting solution, dont know how it will work in practice.

For example if I reduce the premium or increase the claims as suggested I will only be delaying the point at which the insurance company can make these high profits from dividends/selling but it will happen eventually. It will also not stop transferring whatever profits I have in the corporation to the insurance company.

I think the issue boils down to this, as a human being it takes time for me to read the stock market and make a decision on buying and selling whereas an algorithm can make the decision instantaneously. Once enough money is pumped into the insurance company and the algorithm can diversify the investment risk across multiple stocks it will effectively play itself and generate exponentially more profits.

Where it becomes detrimental to gameplay is despite the effort that goes into setting up a successful supply chain or software empire, profits will always be dwarfed by this automated system which rather defeats the purpose of the game. I remember how previously I would painstakingly setup a new product and price it to monopolize the market (hitting $1B in Cap II comes to mind) and see an incremental increase in overall revenues/profits and the challenge was to how high can I go. Money is a little too easy to come by at the moment it seems.

[David]

If you consistently get the same outcome where Insurance companies are too profitable, you may change the settings on the new game setting menu - see the attached screenshot by reducing the insurance premium or/and increasing the insurance claims.

These settings may make a difference. I would recommend that you give it a try.

[David]

I noticed that in your save game, your insurance company's average annualized return on equity in the past 30 years is only 2.90%, so it is not excessive.

Albert Einstein famously said that compound interest is the most powerful force in the universe. He said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The game year from your save game is 2118. So you have been running the game for 2118-1990 = 128 years. 128 years of compound interest did wonder to the balance sheet of your insurance company. With a massive balance sheet, it is able to generate outsized income from stock investment annually.

To have a more challenging game, I would recommend that you limit your game time to 30 years or so, and see how much you could achieve within that time frame.