Bank Gets Buffeted

Warren Buffet bails out Bank of America because it is too big to fail.

The economy of scale Bank of America represents is a false efficiency. It is risk prone, and Buffet is rewarding a firm that is in the business of counterpartying the risk--the risk manipulation that led to the Great Recession, which Buffet profits from by feasting on the famine.

Banks like Bank of America and Goldman Sachs short our economy. The richest tribes among us profit long at everyone else's expense, accumulating value in the form of late-order effects that are falsely rationalized as value lost. The value is not lost, it is gained zero-sum--it is consolidated into a too-big-to-fail, economy-of-scale proportion that does not enhance the free market, but serves to defeat it.

It is easy to go long and sell the economy short if you are too big to fail. It is easy to securitize mortgages, for example, and then invest in commodity futures to consolidate the income needed to pay the mortgages--effectively going long and selling short. No risk to you if you are too big to fail. Everyone else is left holding all the risk, and Warren Buffet has confirmed that hypothesis going forward.

Consolidation is not risk averse, it is risk prone. When combined with risk-transfer technologies, the risk is offset--it is made to be experienced as late-order effects that force us into liquidation, and because the effects occur later, it is easy to argue the benefit is not caused by the detriment (which is a false valuation that accumulates political, gamma risk).

Falsely valuing the risk proportion is what people like Eric Cantor do. They feather their nests with the misery of others, serving up magic spells in the court of the donor class to mesmerize the masses with the false hope of general prosperity.

Consolidated financials manufacture risk for class consumption--they make it and we take it. For financial firms, this is what it means to be productive. Those looking to be productive are turned into a counterparty (a tribe) to take the risk being accumulated, and isn't this the problem.

Too-big-to-fail, economy-of-scale firms are designed to divest the firm of all risk and invest the firm with all the reward. The risk does not just vanish--it is bourne by anyone that is not upper class and engenders "the risk" of class (tribal) warfare.

If we don't want class warfare because it is not productive, then we have to deconsolidate so that firms are not too big to fail. Instead of deconsolidation, Bank of America is getting support, and this value is supposed to trickle down to the lesser tribes that are really just parties to consume the risk.

While we are waiting for capital to cause growth, it is being invested to prevent (bail out) further contraction (it is falsely risk-averse when it is really risk prone). It is a false valuation of the risk proportion that will result in a crisis.

Bailouts do not prevent crises, they support it. As the economy declines, the rich (the upper-class tribes) get richer.

This is not really about bailing out what is too big to fail, however. While it looks positive (risk averse) in the first order, the bailout is really a means for exacting a late-order detriment. It is to support what causes everyone else to fail and the liquidation and consolidation of their assets (i.e., turning equity into debt--increasing debt to GDP).

After we lose our jobs because big banks are investing in commodities rather than growth, Bank of America, et. al. advises its mortgagees to divest their unsecured assets to prevent foreclosure. They are not in the business of supporting their customers, they are in the business of bankrupting them--liquidating their assets and making them even more dependent on debt (public debt, for example). Yes, Bank of America is "strong and well led." Once we are reduced to nothing, we will work for even less.

Unless you are a member of the elite tribe, saying that Bank of America is a good investment because it will be around for a long time bodes really bad for everyone else.

This is not a white night galloping to the rescue. This is a black night galloping off with the booty.

Look at how feudalistic this all is. We have yet to move from tribal to civil society.