Mathemarics of Leverage Finance

The Mathematics of Misery

If you are manager of a private equity fund loaded with billions of dollars consolidated from the dot-com bubble you inflated and busted with the inequitable bid of your consolidated capital, and you hedge, or leverage, your assets for a 30 percent return, where did the profit, the capital gain, come from.

It would not come from economic growth at 2 percent. You are not investing in economic growth, but pure profit--inflation. Merely deciding to buy futures paper on commoities, for example, leverages, or magnifies, with an inequitable bid, the price of those contracts without risk, and without growth. That magnifies the leverage to a 30 percent gain that, with a favorable tax rate (a subsidy), encourages the practice and magnifies the speculative demand, and the commodity price, even more. The result is stagflation: rising prices and slow-to-no growth.

If a dollar borrowed is returned at a 30 percent added value, somebody eventually ends up having to pay it. The banks don't want to pay it. They want to keep the gain and not pay taxes on it. The game is to keep the gain without the pain, so the "plan" is to nationalize the debt into an economic rescue plan that will be managed and paid through the treasury department.

With money being leveraged, borrowed, for a 30 percent or more return until the capital is so consolidated that there is none left to finance the return--for banks to loan money to each other without the pain of paying the return without growth, the credit market locks up. The result is liquidity crisis.

Our current economic crisis is the risk devolved, trickled down, to The People with only a small gain. Most of the gain, the profit, is retained by the consolidated capital. It is over-surplused and must be borrowed to continue operation of the "real" economy, and because a large part of the economy's available credit was borrowed to entrepreneur, to investment bank--exchanging borrowed funds to profit without growth, the capital available for growth was both crowded out and consolidated so that now the capital, industry and markets are so consolidated that growth is virtually impossible without rewarding the inefficiency of allowing capital and markets to consolidate.

The hedge-fund magnifier effect is falsely argued as the multiplier effect in which consolidated economic entities and its capital multiplies (trickles down) industries and markets in support of it. Consolidation of capital and markets operates to limit economic growth in order to magnify, or multiply, the return on a limited supply provided by a limited number of suppliers with deficient investment. The result is inflation with a deflationary trend, which is what we have now.

For the vast majority of Americans, rendered dependant on the use of the consolidated capital, this is a mathematics of misery.

Leverage finance always results in deflation and rising prices. So why do we continue to allow for it? Why do we continue to reward it, like with a Wall Street bail-out plan sold as a plan to rescue us?

Are we really that stupid? No, just that oppressed by a model for tyranny of the marketplace falsely sold as the self-determination of a free market.

It's time for real freedom, a true legitimacy of self-determination that can only be truly had through ensuring the processes of pluralism in priority.

Deconsolidate the capital and reverse the regressive tax incentive that perversely supports it.

Very best wishes.