Secret Sovereigns

The risk is anything but uncertain from the inside. It is what "makes the market." Arbitrage (manipulation of the risk, which is what hedge funds essentially do), is dependant on what you know and when you know it.

Liability, by no coincidence, is also dependant on what you know and when you know it, as well as what you do and when you did it.

Long-short funds (hedge funds) intend to cause risk and profit from it. Their defense to having benefited by causing a detriment is that they did not create the risk, which is true. Risk cannot be created because it is constant. Risk accumulates and distributes (increases and reduces--i.e., the long and short of it).

Since they do not create risk but manage it to an effect, hedgers assume no liability for loss that is fully assumed (there must be a counterparty to assume the risk of loss that effects the profit). Counterparties arguably assume the risk of loss, knowingly and willingly exposed to the risk presented. Counterparties are at fault if they do not properly detect signals that indicate the extent, or probable effect, of the risk.

Hedgers, however, are apt to create the illusion of risk or no risk (the long and the short of it). Counterparties are then left to distinguish true signals from false signals, which is nearly impossible without a whole lot of luck or being on the inside. This has an affinity for secret, or exclusive, channels and networks that manage the risk into classes of profitable intelligence. The more money you have, the higher your classification. In the upper class, you have the element of certain value while everyone else is guessing so that the question is not if you will lose, but when. The risk of loss is fully assumed by the practical model, and that model is characteristically Hamiltonian, culturally infused with the propriety of privilege and the savvy of secrecy on the inside.

As long as causal factors are proprietary, privileged information, the element of secrecy, and surprise, easily derives value from the extension of the risk with limited liability. While the liability is fully assumed by the perpetrator in the form of a measurable benefit, confirming it was deliberately caused by a detriment is a conjecture afforded by the element of secrecy, which is defensible as a right to personal and private property.

In America, the right to private property is culturally sacrosanct. It is the legal, and cultural, standard that measures success, failure, and the liability associated with it. While property is a measurable quantity and the causal factors of its acquisition can be plausibly inferred, the right to privacy limits extension of the liability with the risk. The difference accumulates more value (property) than distributes with the risk. Thus, the quantifiable over-extension of the risk and the crises (the accumulated liability) that predictably results (the risk fully assumed).

Since the risk is fully assumed, the accumulated value has an exculpatory expectation, culturally valued as legal and proper. The accumulated value and the accumulated risk is fully assumed by the Hamiltonian model which, as we have seen, relies on government to visibly manage with highly technical means of elite, bureaucratic authority.

The cultural extent of the risk and the limit to the liability is a legacy of the Hamiltonian model and the American Revolution. We expect the rich to be winners because they are the elite--they are just naturally suited to manage the risk for everybody. The risk of loss is fully assumed by the model for both the elite and non-elite: the non-elite expect to lose value to the elite who are entrusted to use that "austerity" value to the benefit of the Sovereign (The People). Of course, the long and the short of it is the elite continuously test the limit of "the trust."

The elite get more back long by giving back short. The risk of loss is fully assumed by the model because the elite fully intend to always push the limit of the risk coefficiency which overextends the value. Part of that surplused value is given back short to satisfy the liability (the loss of "trust") which accumulates the value, and the risk associated with it, long. The "trust" is then re-novated into "The Square Deal, The New Deal, The War On Poverty, The Contract With America, Change We Can Believe In, The Pledge to America...," just to name a few.

The long, consolidated accumulation of the risk (too big to fail, for example) always ensures the need to conserve the accumulative value against the illusion created that there is a catastrophic risk of loss. This risk is "too big" to allow. It is tantamount to being able to prevent a devastating cyclone or earthquake...it would be wrong not to prevent it.

Hedge funds and private equity argue they are managing the risk to maximize liquidity for us all, and the best return on their investments (and thus the measure of its social utility) is to merge industries and markets. Although this "inorganic" growth is largely responsible for a debt burden that grows in a too-big-to-fail proportion, it is rarely mentioned as a causal factor when debt reduction gains political priority. Instead, the middle class is commanded to work longer and cheaper to balance the budget.

Who is it that can command the Sovereign (We the People) what to do? Only the Creator can command the Sovereign, right?

The people that create jobs, or not, by risking their capital, or not, command the Sovereign. Since they consider themselves to be the creators, they argue they can--they should--legitimately command the fate of the Sovereign.

Sovereign power is legally applied by popular consent of the governed, so passing legislation, for example, in which The People know what is in it after it passes is patently illegal. Thus, the Tea Party.

In the same way, mandating austerity (applying a detriment) to the benefit of creditors (too-big-to-fail industries and markets) is an application of sovereign power. Applied from the top down, it has questionable legitimate value, but now the congress can claim a populist, Tea-Party participation, and the Tea Party members will be rewarded with elite membership that operates beyond sovereign power. They will operate with what Sarah Palin describes as "that secret knowledge" that only a few citizens are privileged to consume (privilege meaning it is like private property--it is proprietary).

The proprietary desks of large banks, for example, operate to exact the detriment through highly secretive means. It is a direct application of power over the Sovereign (easily accounted for by reduction, and expansion, of net worth in zero-sum). It is an application of power the crown would not tolerate (the sum legally belongs to the sovereign power and the risk/reward is extended as it sees fit). Thus, these supra-sovereigns had to operate in secret to avoid the sanction (the consent) of the legal sovereign which typically extended the risk beyond the reward. The extension of the risk exacted austerity, or sacrifice for the welfare of the sovereign which is now The People operating with popular consent.

By definition, these supra (secret) sovereigns are not of The People. They are the elite and are obligated, like the crown, to care for their subjects. Part and parcel of the noble (feudalistically middle-class) obligation is to give The People the appearance of self-determination to both keep the peace and limit the legal liability when the application of the detriment becomes too obvious to be kept a secret. According to middle-class values (rejecting sovereignty of the crown that does not really care about commoners except to exploit them against their will), it is your own fault if you are not upper class. Everyone has equal opportunity to pursue happiness (property) and the liberty to determine the fate (the lives) of others--life, liberty, and the pursuit of happiness, but not necessarily in that order.

The new nobility that see to the needs of The People is a middle class that aspires to the liberty enjoyed by the upper class. That liberty, just as Palin describes it (and Pelosi demonstrates), comes with a sense of being included in the inner sanctum (all be it in the outer circle) of power, and in many respects, just being ideologically conservative has an elitist self-concept by referencing to the group. Aspiring to status is a highly co-optative quality that the Tea Party delegation, for example, is likely to succumb (and that progressives tend to demonstrate as the ruling class, exercising "the liberty" to limit the liberty of the non-elite--in their self-interest, of course--in true Hamiltonian fashion).

Secret channels and networks were used during the American Revolution to identify who was a patriot or a loyalist. Not only were many of America's founding elite members of secret societies to operate against the sovereign, but to operate as scientists (empiricists) free of religious persecution. Not only did America inherit a covert culture of elite authority, but a secular authority as well.

Being secular has not dampened the puritanical spirit, however. The first thing the new Democratic congress did in '08 was increase taxes on tobacco use (a sin tax). It was a huge tax increase on lower incomes, in true Hamiltonian fashion, in the midst of a strong deflationary trend! Eating, drinking and smoking too much is not busting our economy and causing huge budget deficits. Bailing out what is too big to fail (greedy extortion) is...and that is what We the People got from so-called "liberals" in priority. That is so bad, so exceedingly hypocritical and inimical, that even Republicans look good.

Puritanically, prosperity is a measure of divine (or natural) providence (an exculpatory ontology of purpose), keep in mind, and the progressives of the previous congressional delegation were sure to provide for "too big to fail" while The People got the oversized gavel on a healthcare plan they are mandated to buy with their declining incomes. Isn't it ironic how the fate of the masses is determined by providence of a better judgment they cannot provide for themselves only because of the income elite policies and programs deprive.

A self-anointed ruling class in a democratic environment necessarily takes on the aspect of divine (natural) right. Since a mandate is not likely to be the product of a popular consent, thus the need for mandates, the legitimacy of imposing it has to come from somewhere. Public policy takes on the aspect of being divinely inspired (inherently virtuous and naturally gnostic) but secularly derived by means of public process.

While the American Revolution disestablished divine right to rule, the notion was not completely lost. It synthesized into a more secular aspect. The elite were chosen by divine providence to be the fittest to rule and it is a moral hazard to allow the sovereign (whether The People or the crown) to determine their fate. Thus the practical concept of "liberty" in the conservative sense.

In order to conserve the "natural" order of things, the elite must be at liberty to promote the general welfare; and because it must be derived from popular consent, it is necessary to operate as secret sovereigns. This political-economic modeling survives today as we come out of the Great Recession, for example, questioning the legitimacy of elite information channels and networks. To the elite, operating in secret if not with an inscrutable visibility is a patriotic duty--a legacy inherited from the spirit of the Revolution--despite the legal establishment of the natural right of The People to self-determination endowed by the Creator (natural law with the empirical confirmation of a popular consent). The contradiction of values is reconciled by a conservative philosophy that, for example, has resulted in a two-party system in which The People have a choice (confirmation) that conserves (validates) the stakes over time--of, by, and for The People.

Take quantitative easing, for example.

The Great Recession resulted in a massive consolidation of wealth. The detriment exacted is massive, and if that is not enough, The People are being told they must sacrifice even more (make the accumulative benefit even greater) in order to achieve the general welfare.

Of course, according to elite philosophy, The People lack the secret, exclusive knowledge necessary to understand what is really in their self-interest. Like in Plato's Republic, it is necessary for the elite to secretly and inscrutably apply what The People really need, but with the appearance of legitimate popular consent (to falsely confirm the rule of the legal sovereign). That the state must bear false witness to keep the peace is not exactly the pinnacle of virtue but does provide, nevertheless, a practical measure of strength. The ends justifies the means (what a free-market mechanism easily reconciles, keep in mind, without sacrificing liberty, mind you, but by maximizing it).

Bailing out too-big-to-fail, economy-of-scale financial firms was not accomplished with overwhelming popular consent. Quite the contrary, it just adds insult to injury. The People are not so incompetent they cannot see that big, abusive firms are being profitably supported while The People go bankrupt.

While using the funding to keep The People from going bankrupt would keep the system solvent, it appears that the bailout was designed to extend the risk to The People and the reward to the perpetrators, which extends the crisis--unemployment in particular--to an expected value. Unemployment compensation will be allowed to lapse with one job available for every five applicants because it is an expected "value."

Since keeping The People solvent is considered a moral hazard, the assumed value of popular consent inherent to the elitist model (the public trust) has reached the critical limit. It is necessary at this point to appeal to technical, bureaucratic authority to arbitrate (i.e., arbitrage) the value of the risk into the expected distributive value the model assumes. (Remember that the model operates with the null hypothesis: the risk of loss is fully assumed and is discounted, or disconfirmed, to the extent of the distributive value.)

With the extent of the risk fully assumed, its distributive value is technically determined to trickle down (the defining characteristic of the Hamiltonian model along with a regressive tax burden). The central bank adds liquidity that has been consolidated into wealth, quantitatively easing the risk that the wealth will actually have to trickle down.

If the wealth has to actually trickle down, there is not only the risk of loss, but a confirmed expectation to distribute the value to avoid a liquidity crisis. The accumulation of wealth loses its too-big-to-fail, extortionist value if it is expected to reverse a deflationary trend and distribute the value consolidated. The distribution would confirm the elite hypothesis of a general benefit that the elite intentionally fully discount, to the best of their secret-sovereign ability, with the risk of loss always fully assumed by the model. The risk of loss is supposed to be successfully disconfirmed (discounted by the model), not confirmed.

Instead of the accumulated benefit trickling down to pluralize the system, the central bank provides the liquidity, conserving the accumulated value to buy up the expansion which causes the liquidity crisis that bankrupts The People. Quantitative easing occurs to conserve what is too-big-to-fail in a crisis proportion, with the risk of loss fully assumed.

If The People don't understand how conserving the detriment (like losing your job or your home, or just struggling to make ends meet) benefits them, it's because it's a secret. The secret to financial success is embedded in technical complexity so that when The People question the legitimacy of secret information channels and networks to make the market, it is too technical for them to understand how it benefits them, not that it doesn't (with the risk of loss fully assumed).

Secret channels and networks are nothing new, but the perception of it is. The elite model has become more of a debatable proposition than a natural fact of life (fully assumed). Despite the recent electoral gains of Republicans, systematically rigging the risk, and the reward, within secret channels and networks has become the risk to be avoided.

What you know and when you know it is becoming more a measure of culpability and liability than an asset applied to the general will from the top down. This reversal of a cultural sentiment (that the elite have the special privilege--the propriety--to manipulate markets to a general social benefit) confirms that the risk of liability and loss from the top down is, in fact, fully (ontologically) assumed.