Recursion of Risk

Let's say you are the wealthiest person in the world and, admittedly, your lowest-paid employees pay more taxes than you do.

While distributing half your wealth would single-handedly pull the economy out of recession, the risk to your entire fortune is reduced (avoided) since it will recycle back to you and accumulate into a crisis proportion.

While resisting the gamma risk, you have supported the beta risk which can be arbitraged to produce more value in the form of capital gain, especially if taxed at the Bush schedule, with virtually no risk. By resisting the gamma risk, you support the current value of the risk to your account; and as that beta value accumulates, it transforms (cycles) back into a gamma risk proportion, with the assumption of risk recursively valued.

Although the risk accumulates into a gamma proportion to be politically managed, its recursion through cyclical and counter-cyclical policies renders identifying the source of risk a fractile affair of competing and infinitely innovative hypotheses.

Beyond the aggregate, the risk fractionates into infinite possibilities and circulates in the form of modeling premised on its assumption in any particular case. While it appears pluralistic, the possibilities are reduced and the probabilities determined by organized consolidation of the risk, most recently identified as "too big to fail."

Like with the circulation of water, the volume tends to accumulate at the bottom, not the top, by the natural force called gravity. Liquidity must be forced to the top where it is managed to trickle down, governing the rate of growth, currently slow to negative. The value labored to the top is the retributive value of the risk, assumed in the form of reward to the capital put at risk (which, recursively accumulated, has virtually no risk).

If you labor in the marketplace for a wage or salary, you assume the risk of rising prices, just as capital assumes the risk of loss (which is less likely with the ability to raise prices). The premise of the market model assumes no risk of liability for rising prices (and falling demand), assuming, of course, that it is a free and unconsolidated marketplace in which risk is fully (legitimately) valued, and empirically transparent without government intervention.

Virtual elimination of risk means its value is fully retributive and critically gamma. If labor, for example, was so consolidated it could command the price, its risk value would be fully retributive and critically gamma, but the market for labor is not as easily consolidated as capital.

Being more mobile, and more convertible (easily transformed into means derived to transfer the risk to unwitting parties--"the last fool standing"), capital more easily ensures a free-market price for labor than labor for capital. The differential accumulates the retributive value of the risk, perceived to be fully valued in a free-market proportion, discounted with the risk of government intervention.

Risk is always present. It can be retributively valued at any time, empirically tested and measured, on a small or large scale. It is ontologically recursive as it is being avoided, indicating the probability of crises, dependant on the action (the risk) taken. At the same time, paradoxically, the probable outcome is independant of the observer, becoming recursively retributive with action taken to avoid the risk without seeing to the fundament (much like we are doing now as we muddle along in a persistent recessionary trend).

As the risk compounds and accumulates in active, deliberate avoidance (remembering that it presents independant of the observer's perception of it), nature will correct for the accumulation of errors in the form of crises that cannot be avoided (the gamma risk is fully valued and gains critical, current presence).

The accumulation of value into an unavoidable presentation of the risk is what the framers of the Constitution sought to avoid by politically keeping the value pluralistic at the fundament. They recognized that as power becomes more consolidated, it becomes more retributive (gamma) and uncontrollable (unstable). They had the French Revolution as empirical confirmation of that hypothesis; and we currently have healthcare reform undergoing the empirical test of political pluralism with the limits of federalism being tested just as the framers knew it should if we are to conserve the value of freedom (liberation from tyranny) first.

On the one hand, there is a tendency to pluralism, on the other, the tendency to tyranny. The discussion of risk then begs the question--what is the dominant tendency?

What is the expected value of the risk?

Hamiltonians contend the elite will always define the expected value of the risk by taking it. In other words, society is risk prone, and it is the role of the elite to organize society to reduce the risk, mainly by consolidating it.

American colonists that managed the risk for the king recognized the distribution of risk-to-reward to be unjust. The king expected to take, and redistribute, the value without taking the risk, just as economies of scale are organized to do today. The king found out the risk cannot actually be avoided--it reoccurs.

If you take liberty, you assume the risk, and that is what happened when Americans declared independence. The legacy is to be verifiably risk prone, and here we are today obsessed with measures that will regulate and govern risk. We see then, a convergent tendency of being risk prone (liberal) and averse (conservative).

Synthesizing the polarity of risk results in a recursive dynamic, and many theories emerge to define its expected, absolute value.

If we follow the theory that labor and capital eventually converge to be the same thing, for example, the risk, rather than being eliminated, is consolidated and in a form that is easily manipulated and corrupted. The value of the risk could be just as retributive, retained as a vestige (a constant) that is not synthetically (dialectically) derived because it is fundamentally derivative (recursively deriving from the accumulation of value).

The gamma risk is a constant, dialectically deriving from an accumulation of value from the fundamental alpha-risk ontology. Avoiding the gamma risk requires empirical deconsolidation of the value accumulated (like our founders postulated politically and free-market economists of the Enlightenment postulated economically).

Virtual elimination of risk means its value is fully retributive and critically gamma, leading to magnanimous, philanthropic gestures to manipulate the perceived valuation of the risk.

It is the function of popular media to control the perception of assumed risk, communicating its perceived value in order to command its real, current value. The difference between the sentiment and the actual value is gravity-defying, beta-risk volatility, arbitrated (arbitraged) and pumped to the top of income class. More value is accumulated at the top over time than the value expended to accumulate it, resulting in general economic crises described by classical economists.

Neo-classically, in order to conserve the value of the risk, it must be re-assumed, or reoccur. The business cycle is augmented for the reassumption of the risk (alpha and beta risks are not innovation and growth, but the risk re-invented and reassumed). It is then the media's role to describe and expalin the conserved valuation of the risk in a binomial fashion, suggesting a pluralistic political process (along with market volatility that suggests a pluralistic economic process). The risk reassumes as either Democratic or Republican by consent of the sovereign, which presents a problem for a democratic-republic.

If the accumulation of value is consolidated, like the king did before The Revolution, empirically confirming his sovereignty, what is to keep the sovereign from claiming such a verification now? Thus presents the gamma risk and the need to recycle, or reassume, the empirical value it currently represents. The value must be continually reconfirmed in a dimension that is befitting a king, or be distributed to the legal sovereign.

Where once it was the king, The People are now the sovereign. It is absolutely critical to understand this dimension of political-economy for predictive modeling. It is what keeps the risk recursively valued in the gamma dimension.

Since The Enlightenment, it has been necessary to derive technical theories from natural law to resolve the empirical test of sovereignty. (Remember that "natural laws" are discovered by empirical process from which the concept of our "natural rights" is derived.) From an efficient-markets hypothesis and a rational actor model, to an inefficient-markets hypothesis and a model of irrationality that reduces markets to the risk assumed by the greater fool, we have just about run the gambit.

Generally, however, the more measureably consolidated the marketplace, the less empirically sovereign The People. The amount of de jure sovereignty measures the gamma risk and the degree of risk in its other forms.

Equities, for example--the current high-beta on low volume indicates a recursion of the risk in a post-accumulation phase of the cycle. What net worth remains unconsolidated is at risk of trying to recoup its losses, taking on more risk than it can actually bear--thus, the low volume. All that needs to be done to falsely signal a bull or bear market is "pump" the volume (force the liquidity to the top). The more retributive the value of the risk, the lower the volume, and at this phase of the recursion, higher volume falsely indicates reduction of retributive value and economic recovery.

Rising commodity prices, as well, will not be the signal for recovery--falling prices will. That is why this market is being described as the most difficult to predict in recent memory--because the value is so retributive. When the value becomes more distributive (with less accumulated value pumping commodity prices without fundamental demand), recovery is being indicated.

There are as many degrees of risk as there are analysts. Each actor sees the risk, and the liability associated with the risk, in a relatively different way. Bankers that were relieved of toxic assets with funds borrowed from the treasury (the larger purpose of monetary easing) see the income accrued to them as compensation for the expertise, the talent, to prevent the risk of general economic crisis (while accumulating the wealth that causes it). The victims (the people stuck with the accumulated, overleveraged, risk that accumulated the wealth) see the compensation as paying the robbers to rob them, and then having to borrow the money back from the robbers to make ends meet, with interest!

Quantitatively, the risk is recursively fractile. There is the risk that the risk will occur...and so on. It is the probability of the risk as well as its dimensional aspect that puts it at the center of analytical abstraction, always rendering the arguable quality of chance operationalized with a sub-routine of assumed risk.

Risk is infinitely recursive, and the analyst does not have to cognate all the possibilities to experience the recursion. Bankers do not have to feel the pain of the recession's victims to know their income is retributively valued. Resisiting redemption of that value is what they are paid to do--technically skilled to represent the risk in new and innovative ways that suggest an intent that is anything but criminal, like robbery. Their intention is derived from the legal fundament--a function of pursuing life, liberty, and happiness--but without, of course, assuming any liabilty.

Liability presents another degree of risk that is best limited with a recursion that appears to be an ontological and exculpatory presentation of the risk.

As risk is transferred from one dimension to another through innovative financial vehicles, it becomes evermore complex (multi-dimensional) and much easier to limit the liability of the risk.

If large, too-big-to-fail financial entities are hording cash and arbitraging the risk it represents to make a profit instead of investing it (supporting equity prices, commodity prices, and the recessionary trend), is there not a liability associated with the knowing-and-willing intent to cause the detriment that produces the benefit? There has to be a source for the profit. There is no free lunch. It has to come from somewhere.

A bank robber, for example, assumes a degree of risk beyond the reward--the risk of liability for the detriment caused by acquiring the reward. For the barrons of industry and finance, the liability for the detriment is recursively reduced to the assumed risk of the marketplace, and the value of the risk is recursively consolidated into the value of being acquired without risk, but it is, nevertheless, retributively valued, posing a political (gamma) risk.

Avoiding the gamma risk is a confidence game--a manipulation of sentiment that converts value and consolidates it.

Pensions, for example, are faltering with heavy losses of net worth and low returns following The Great Recession. Now, the accumulation of value that has been consolidated by a recursive presentation of the risk (the business cycle) can be construed as the virtue of capital formation that makes for a healthy economy, or outright thievery. Which one is it? If it is the former, the distribution will occur to abate the retributive value, with the value of the risk (including the risk of liability) recursively maintained as legitimately assumed risk.

What remains is the political risk. It is the object of gaming strategies, clogging the popular media with contentious resolve that does everything to game the risk into varying degrees, and nothing to retribute the value.