Abstract

In this paper we study the financial repercussions of the destruction of twofully armed and operational moon-sized battle stations (“Death Stars”) in a4-year period and the dissolution of the galactic government in Star Wars. Theemphasis of this work is to calibrate and simulate a model of the banking andfinancial systems within the galaxy. Along these lines, we measure the level ofsystemic risk that may have been generated by the death of Emperor Palpatine andthe destruction of the second Death Star. We conclude by finding the economicresources the Rebel Alliance would need to have in reserve in order to prevent afinancial crisis from gripping the galaxy through an optimally allocated bankingbailout.

The paper takes a playful yet rigorous look at the economic consequences for a galaxy after two massive battle stations (known as Death Stars) are destroyed and the imperial government falls. Using real financial modeling techniques, the author creates an economic simulation of the Galactic Empire’s banking system and assesses the risks following these dramatic events.

1. Overview and Purpose

Objective:
The study examines how the destruction of two giant military structures (the Death Stars) and the subsequent collapse of the imperial government would affect the galaxy’s economy. The key focus is on how the financial system might react and what size of a bailout would be needed to avoid a widespread economic collapse.
Context:
Although the paper uses elements from the fictional universe of Star Wars, it employs real economic models and methods. By comparing the costs of constructing the Death Stars to major historical projects on Earth, the paper provides a sense of scale and realism to its analysis.

2. Abstract: What the Paper Sets Out to Do

Economic Impact Analysis:
The paper begins by estimating the enormous costs involved in constructing the two Death Stars. For instance, it uses analogies such as comparing the first Death Star’s cost to that of the Manhattan Project (the research and development effort behind the first atomic bomb). This helps in estimating the size of the overall Galactic economy.
Modeling the Banking Sector:
The study then builds a model of the Galactic financial system. This model includes:
- A very large institution (the Intergalactic Banking Clan), which is considered “too big to fail.”
- A network of “massive” and “big” banks that, when combined, form the backbone of the economy.
Simulating a Crisis:
With the destruction of the Death Stars and the collapse of the government, the paper simulates how government bonds would default and how losses would spread throughout the banking network. This simulation uses well-known methods from financial risk management to estimate potential economic losses.
Main Finding in the Abstract:
The analysis shows that, to prevent a catastrophic economic collapse, the Rebel Alliance (the group that overthrows the Empire) would need to have bailout funds amounting to roughly 15% to 20% of the Gross Galactic Product (a measure similar to a country’s Gross Domestic Product).

3. Introduction: Setting the Stage

Economic Analogies and Rationale:
In the introduction, the author draws parallels between the fictional scenario and real-world economic challenges. For example, the author explains that just as the Manhattan Project had a certain cost relative to the United States’ economy during World War II, the construction of the Death Stars would represent a significant portion of the Galactic economy.
Understanding Systemic Risk:
The paper explains that in any large and interconnected financial system, the failure of key institutions can trigger a domino effect. This “systemic risk” means that when one part of the financial network fails (for example, due to a government collapse), the entire system may suffer severe losses.
Political and Economic Strategy:
The introduction also reflects on Emperor Palpatine’s approach to economic warfare. The idea is that by tying the economy so closely to military projects like the Death Stars, the Empire might have intended to use economic shock as a weapon. However, the Rebel Alliance, portrayed as less focused on long-term planning, is not prepared for this kind of economic fallout.

4. Methodology and Analysis

Estimating Costs and Scale:
- Cost Estimation:
  The paper starts by estimating the cost of the Death Stars using real-world data (for example, using the cost of modern naval vessels and the price of steel).
- Galactic Economy Size:
  By comparing the cost of these projects to historical projects like the Manhattan Project, the author estimates the total economic output of the galaxy over a 20-year period.
- Modeling the Banking Network:
  The author divides the financial system into three main groups:
  - The very large bank (Intergalactic Banking Clan).
  - “Massive” banks that are important but not the largest.
  - “Big” banks that are numerous but less individually significant.Using these groupings, the paper applies models from the literature (such as the Eisenberg and Noe model) to simulate how losses would propagate through the network after a crisis.
Crisis Simulation:
The analysis incorporates several real-world-inspired assumptions:
- A significant portion of the Death Star’s cost remains unpaid at the time of its destruction.
- The loss in asset values is estimated by looking at similar real-life market drops following major shocks (for example, after the terrorist attacks on Earth).
- The simulations consider scenarios both with and without deposit insurance (a guarantee to protect depositors’ money in case a bank fails).
Risk Measures:
The paper uses concepts like “Value at Risk” (a statistical measure of how much loss might occur under adverse conditions) and “Average Value at Risk” to decide what bailout package would be sufficient to contain the crisis.

5. Findings and Key Results

Economic Losses Without Intervention:
- In simulations where no additional deposit insurance or bailout is provided, the model predicts a very significant drop in the Gross Galactic Product.
- In roughly 60% of the cases, network effects cause losses to be amplified, leading to the failure of nearly all systemically important banks.
Impact of Deposit Insurance:
- While deposit insurance (a system to protect bank depositors) can reduce losses, even with it the expected drop in the economy is around 2.5% of the Gross Galactic Product.
- The paper estimates that to make deposit insurance work effectively, the Rebel Alliance would need to have reserves amounting to about 8% to 12% of the Gross Galactic Product.
Bailout Requirements:
- To keep economic losses to less than 1% of the Gross Galactic Product on average, a bailout of over 15% of the Gross Galactic Product is necessary.
- In more adverse scenarios (measured by worst-case risk measures), the required bailout increases to around 20% of the Gross Galactic Product.
Practical Implications:
The Rebel Alliance, characterized in the paper as lacking the massive resources of the Empire, would be hard-pressed to come up with a bailout fund of such magnitude. This suggests that if the Rebel Alliance did not prepare for these economic shocks, the galaxy would face an economic depression of enormous scale.

6. Conclusion: What Does It All Mean?

Overall Conclusion:
The paper concludes that the destruction of the Death Stars and the collapse of the imperial government would not only be a military or political crisis but also an economic one. The interconnected banking system would be severely disrupted, leading to a risk of catastrophic financial collapse.
Bailout Necessity:
The analysis shows that to prevent an economic meltdown, the new rulers (the Rebel Alliance) would need to marshal bailout funds amounting to at least 15% and possibly as much as 20% of the Gross Galactic Product. Without such a bailout, the systemic risk would lead to a deep and widespread depression.
Key Takeaway:
Even in a fictional setting, the paper illustrates real economic principles: when large projects (especially military ones) are heavily financed by borrowing and the financial system is highly interconnected, the failure of one part of the system can trigger a crisis far beyond the initial shock. The study uses a humorous scenario to underscore how important it is for governments (or ruling bodies) to plan for financial contingencies.

7. Simplified Explanation of Key Concepts

Systemic Risk:
This is the danger that the failure of one important bank or financial institution could cause a chain reaction, leading to a broader collapse of the financial system. Imagine if one domino falls in a long line, eventually knocking over them all.
Gross Galactic Product (GGP):
This term is similar to a country’s total economic output (like Gross Domestic Product on Earth). It represents the total value of goods and services produced in the galaxy.
Deposit Insurance:
A guarantee to bank depositors that their money is safe even if the bank fails. In this study, the removal of deposit insurance (due to the fall of the government) plays a major role in worsening the crisis.
Value at Risk:
A statistical measure used to estimate the maximum expected loss in an investment or a financial system under normal market conditions over a set time period. It helps in understanding the potential worst-case scenario.

Final Thoughts

This paper uses a mix of humor and serious economic modeling to explore how a sudden political and military upheaval could lead to an economic crisis. By borrowing methods from real-world finance, the study illustrates the potential fallout of large-scale defaults and the importance of having enough resources (bailout funds) to stabilize the economy in times of crisis. Although set in a fictional universe, the principles discussed are directly relevant to understanding financial contagion and systemic risk in any large, interconnected economic system.

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