Reverse Leveraging

Economic analysts generally identify a de-leveraging underway, which is the deflationary trend the Fed is planning to counter with more quantitative easing (QE). This also means that, at the same time, a re-leveraging is underway.

The first round of QE did not trickle down. Instead, like the chairman of the Fed said recently, we have a massive, economy-of-scale rush to foreclose housing properties, for example, that has led to large-scale impropriety.

Bank of America leads the predatory acquisition of property (the deleveraging underway of overvalued collateral that was securitized into debt obligations; the collateral fell below the value of debt obligation due to systemic risk). Bank of America says its bank is "investing in our communities" while it rushes to foreclose as much as possible. The foreclosures also reduce credit scores as much as possible. Bank of America can then charge the highest possible interest rate for debt needed to cover costs that continue to rise while middle-class incomes fall (the systemic, deflationary risk that Bank of America is literally banking on by directing its credit facility to support the risk, like dumping QE funds into commodities).

Evaluating the risk leads the middle class to question whether the credit score (the risk of default) determines systemic risk, or whether systemic risk determines the score.

The action of the bank scores the risk. Credit scoring not only measures risk, it determines it; and debtors are scored on risk that is attributed and paid by them, but they cannot control. Attribution without control results in retribution; and accumulated wealth that is retributively valued must be managed--manipulated--to appear as the consent (the self-determination) of the governed.

To mitigate the outrage (the retributive value) without sacrificing beneficial value accumulated from the detriment, a short sale is offered instead of a foreclosure, which is deleveraging in a different mode. The effect (the benefit-to-detriment value) is essentially the same with the homeowner suffering the loss of deflated asset value, forced then to borrow the consolidation of that value from the bank at the highest possible cost (at the lowest possible price for the bank). The zero-sum accumulation of value and subsequent debt-distribution of the benefit determines the systemic risk (credit scores confirmed by income class). For average incomes, a detriment is suffered on both the accumulation and distribution sides of the business cycle, resulting in a deepening deflationary trend.

A better option for all parties is to reverse-leverage these assets. If one in five homeowners owe more than there home is worth, that negative equity is value to be consolidated by the bank whether it is a foreclosure or a short sale.

The Fed says it is taking a close look at foreclosure procedures and practices. It will find that they are largely predatory--intended to profit by exacting the greatest detriment which supports the deflationary trend.

Since the Fed has declared war on deflation, its mission is to then prosecute the normal course of the business cycle that consolidates the wealth. If the leverage is not reversed, QE will support the deflationary trend with the added money supply actively pushing up commodity prices. The scenario, then, is engineered to be the worst possible case. Middle-class incomes and net worth (aggregate demand) reduces while commodity prices increase to support core inflation.

The Fed will get the inflation it is opting for, but it will have a deflationary effect, achieving that "oops" scenario in which the engineers claim a limitation of its tools to fix the problem. Let's keep in mind, however, that the limitation is engineered a priori--it is an expected value--to produce the effect with an exculpatory property.

If we want to reverse the deflationary trend without inflation (reverse the "direction" of the business cycle--the systemic risk literally being directed, deleveraged and releveraged, to make a profit by causing massive detriment), reverse leverage is in order.

It is critical to keep in mind that just because the business cycle is a system-wide phenomenon does not mean it is an unintended, undirected consequence (merely an observable ontology like observing the weather and making predictions). Bank of America's hasty foreclosure of Countrywide's book anticipates another round of QE since it has done little to resist the deflationary trend. Foreclosure provides the detriment to be quantitatively eased, which provides the customers needing to refinance back into the system (releveraging) with liquidity (QE) the bank will provide. The profit from supporting the detriment is huge. Countering the cyclical trend will not occur until the system has been fully positioned (directed) to deliver that huge profit which will be distributed to the top two percent of income class. The system is then set up for the next round of leveraging risk into default. That risk of default is increased as income is consolidated into the upper class, and into a crisis.

QE that reverses the leverage, positioning average incomes for solvency rather than insolvency, reverses the macro trending that deliberately recirculates debt into crises. It is just as easy and far less hazardous to recirculate liquidity into growth and rising middle-class incomes, beginning with writing down the deflated, negative equity on the books of central banks. That huge loss will be a huge gain for the middle class, and that gain will be multiplied with less debt on the micro and macro scale, reducing tax rates, deficits, and the need for government.

It is not simply a question of whether we have QE, but what we do with it. If it is going to be directed into commodities to support the deflationary trend (reducing middle-class incomes with higher prices but at lower interest rates that they, therefore, cannot successfully score), then we need political-economic technicians with both the technical means and moral capacity "for a change."

Politicians and technocrats that advocate for reverse leveraging are representing the middle class--the common good. It deserves a positive, empirical vote--the consent of the governed.

An ontological legitimacy of systemic risk/reward is not empirically verifiable until the risk is deconsolidated and a free market is ensured in priority. Reverse the leverage and a free market (consent of the governed) will emerge. Instead of being held accountable by Bank of America, being made a slave to your credit score, Bank of America will be held accountable to you.