John Nash is smiling somewhere right now.  While the entire financial universe debated and prepared for doomsday scenarios to precipitate a near 4% drop in the S&P 500 last week, a simple analysis of game theory similar to the one I outlined in last Monday’s commentary would have yielded a conclusion that predicted ultimate cooperation among the various factions would construct a palatable deal that avoided default and arguably put deficit reduction on a path that precludes a credit downgrade from the ratings agencies.  Credit Speaker Boehner for recognizing his weaker hand and allowing Obama to keep the decisions pertaining to the debt ceiling and the budget bundled together which was necessary in reaching this ultimate resolution.

Although Mr. Boehner was rewarded with an agreement that does not include revenue enhancements enacted via new tax legislation, Continue reading »

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