The Leverage Leviathan

The Computer Modeling of Leverage Finance


There is a description of the crisis we are in that attributes it to the computer modeling of profiteering. The implication is that the computer modeling turned capitalism into an out-of-control leviathan of leverage finance.

At the time of the Industrial Revolution, capitalists heralded the model of finance that produced profits exponentially by representing the value of risk of investment (growth) with the highest reward (profit). Since monetarism had not been invented yet, that extra value had to come from labor. This, according to the capitalist, is a non-zero-sum game because as long as the risk is not impeded, by government authority for example, the risk to expand the economy will always be taken and labor will always benefit from growth.

While the high return, the reward, was not assured, the prospect of the reward always drives the risk, and besides, you can buy insurance to hedge the risk, like credit default swaps.

Critics of the classic model noticed that while the model created wealth, it did not share it. Doing the math, the model was a zero-sum and the exponential value represented value lost, not really gained (not a win-win) so that after running the program the model blows up at the end, kind of like what we have now.

One sure way, the capitalist learned, to hedge the risk of failure and assure the high return is to be too big to fail. Monetarism was invented and the money supply expands to produce an innovation like computer programming to manage complex derivative instruments that produce exponential profit without risk, but blows up at the end. That's ok though, because you are too big to fail, and just as in the old days of classic capitalism, the competition is too small to survive.

To imply that the computer programmers created a leverage leviathan they could not control is perfect nonsense. The outcome is the product of classic empirical capitalism. You can paint a picture of it or snap a digital image of it and it is still a big ugly monster that blows up at the end!

The reason capitalism fails its pluralist, populist legitimacy is because, while it creates wealth, it does not properly share it. It consolidates it.

Not properly sharing the wealth is why the creative creature of capitalism always turns into a big ugly monster that just gets bigger and bigger till it just blows up at the end and causes a big mess...it causes crisis.

Since not sharing the wealth is what is wromg with it, sharing the wealth is not something to be afraid of. Would someone please explain that to John McCain.

All of us need to understand that it is the consolidation of power that is the determining variable. The capital exists as long as there is an economy in operation. We are not going to be rid of The Capital. The question is, are we going to manage it for The People.

Managing The Capital for The People is to share the wealth.

Don't buy arguments that are designed to make you fear doing the right thing, and do not allow those that will make you fear the moral imperative access to power.

Vote for Obama/Biden!