The items in truly permabanned account can effectively be called "out of circulation." They aren't wasted -- they can be considered "removed from the game". Besides, ES aren't in need of items. They have an unlimited supply of items that they can choose for any event, and can have items made specifically tailored for their events by our Item Forgers. For in-game events, items are procedurally-randomized (sorted into tiers, user gets semi-randomized tier dependent on event length and other factors) and dispersed to the event winners.

The old ES predecessors (Gamemasters) used to have something similar to this -- a bank pick items from. It sucked, so we have this system now. We won't be going back to a dated system, sorry.

Okay, fair enough