Goals for the balance sheet agent --------------------------------- I want to connect the liabilities of one balance sheet with the corresponding assets of another. Suppose one balance sheet shows a liability of "Deposit", and another shows an asset of "Deposit". Then the balance sheet holding the "Deposit" as an asset withdraws 100. I would like the software automatically attach "+ 100" to the balance sheet with "Deposit" as an asset, and also attach "- 100" to the balance sheet with "Deposit" as a liability. To handle this automatic operation, I might first tell the balance sheet with "Deposit" as an asset: "Withdraw 100 from your deposit account at the bank." Then the software would attach "+ 100" to the "Deposit" asset of that balance sheet. Then I would have the program search for the balance sheet with "Deposit" as a liability (perhaps using a unique name for the "Deposit" if there are numerous "Deposits" listed as liabilities on several balance sheets), and attach "- 100" to that "Deposit" liability. I also want to be able to instruct a balance sheet, via a natural language agent interface, that it has become illiquid or insolvent, or that it is in danger of doing so, etc. A dialog might go something like this (reflecting the slide titled "Immature Solvency Backstop" in Lecture 21-3 of the "Economics of Money and Banking, Part Two" class): --- "Investment Bank: your assets are a Hi CDS and loans. Your liabilities are Mid CDS and Lo CDS." "Shadow Bank: your assets are Hi Tranche and Hi CDS. Your liabilities are MM Funding." "Pension/Insurance: your assets are Mid Tranche and Mid CDS. Your liabilities are DB/Annuity and Capital." "Hedge Fund: your assets are Lo Tranche and Lo CDS. Your liabilities are Loans and Capital." "Insurance: your liabilities are Hi CDS and Capital." "CDO: your assets are RMBS. Your liabilities are Hi Tranche, Mid Trance, and Lo Tranche." --- Then, I might say something like: "Insurance: you go away. Investment Bank: you go away." What are the repurcussions on the remaining balance sheets? In this way, I hope to construct a model of the shadow banking system, composed of balance sheet agents interacting with each other. Each asset is some other agent's liability, so when an asset depreciates or a liability disappears, other agents will have their balance sheets modified automatically.