Extent of Risk

In a defensive mode (having value to protect from loss), analysts assess the extent of the risk. It is both a function of keeping accounts and retributing the value to its source (including the value of any liability to the risk).

The chairman of the Federal Reserve says, for example, he will extend the extended policy of monetary easing. Bernanke says resisting deflation is job one.

Deflation presents the highest degree of risk, extending to every aspect of the economy, especially the accumulation of gamma risk that is already over-accumulated.

Our concept of risk incunabulates from the accumulated wealth of royalty. They also accumulated risk with the reward, and it was necessary to measure the extent of the risk in order to keep the wealth accumulated without discouraging the incentive to produce it, much like we do today, trading reduced risk for distribution of the reward. The trick, of course, is to reduce the extent of the risk without a proportional distribution which, of course, as the king found out, does not happen without certain, inevitable, risk.

Gamma reduction of the risk (reducing the risk of losing the ability to command and control it) is job one. It has priority or the power will be lost to a lower class (like progressives) just like the king had to share power with the bourgeoisie--a process in which the king's wealth was transformed into capital, which was transformed into the wealth of nations, displacing the rights of the king with a ruling class empowered with the natural right of The People (its subjects) to sovereign power, effectively reducing the liability of the risk.

The volume of risk, however, remains the same irrespective of the shape of the vessel that contains it and manages it to a current value.

It is necessary, then, to evaluate and delimit the extent of the risk--to keep account of assets and probable liability of their accumulation, which is largely a statistical function.

Statistical learning is fundamental to cognition, and in the human species, measuring the probability of the risk--delimiting permanence, identifying the enduring elements of generalized risk--becomes an epistemic gestalt. The objective of "taking the risk" is more than just the sum of its parts. The gestalt has to be structured into a system of rules and boundaries to delimit the objective to the reward. It must fit the level of risk, which if consolidated, clearly defines the reward (class) for all to see (the empirical measure, and the current value, of the risk) in the midst of an otherwise infinite number of probable outcomes (the interpretive property of cognition).

When the needed distribution does not occur to reduce the risk, there is an extension of the risk, increasing the number of probable outcomes (interpretations of the risk). The amount and distributional proportion of risk remains the same. It is the interpretation of the risk that changes with a resulting volatility of its current value, referred to as market sentiment, falsely inferring a popular consent, accumulating value arbitrated from the risk when a distribution is what is needed.

English royalty utilized a device called a "writ of extent" which ordered an assessment of property in payment of debt to the crown. Vestige of that writ survives in the form of defaults and foreclosures, securitized debt, collateralized debt obligations and credit default swaps. Just today, for example, CDS's on treasury securities increased to thirty percent which, of course, is perfect nonsense. While the value of the securities is elastic, the probability of default, unlike the king, is zero. The measure is an interpretation of the extent of the risk that gives it valuable volatility--value arbitraged, or derived, from the interpretation of the risk. If it measures anything, it indicates the willingness of a consolidated capital to remain illiquid.

The illiquidity extends the real value of the risk, just as it did for the king--keeping the source of the value subjected to the current interpretation of its value.

Illiquidity is a crisis mode of capitalism. It is being deliberately extended to derive current value to the point of liability. The amount of accumulated liability is being regulated by the Fed which will continue to resist deflation with inflationary policy.

While a depression will not occur (avoiding a critique of social value--delimiting solutions to the generalized interpretation of the risk), the effect is extended to dissipate the risk of liability without deconsolidating the risk from the gamma proportion. It is the Fed's job to manage the proportion of this risk, "accommodating" an interpretation that produces value without risk of liability--a privilege enjoyed by the king, accounting for the extent of the risk.