Extension of Credit and Subordination of Risk

Credit is extended, supposedly, in everyone's self-interest. Keep in mind, however, that "the market can wait longer than you have money."

Those fittest to survive are entities that are too big to fail (and the most likely to be abusive). Operating with an economy-of-scale efficiency, these firms ("people" operating in the marketplace with limited liability, which is not a free market at all, but a command structure that, of course, renders credit worthiness) borrow from the reserve without risk of default. The risk, instead, is consumed by average incomes (people with the lowest credit scores) expressing upper-class ambition.

Operating with an upper-class identity that gives us the objective identity of a "consumer society," the average consumer relies on the extension of credit, or economic rent (renting the money needed to participate in the marketplace). When the rent exceeds the ability to pay, which is why average consumers pay more rent-to-income in the first place, the risk of default accumulates.

If the risk is positioned to be consumed by those least able to consume it, which results in default, then it is unreasonable to expect anything else, and that is far from the natural condition of self-determination.

The value of the prudent regulator is objectively identified by modern economics as a "consumer," not a "renter," which is a more classical classification of the risk-taker. Nevertheless, it is an accurate description of the risk. Clearly, the more rent you have to pay to participate (to self-determine), the more at risk you naturally are.

Living in a consumer, on-demand society, eager to demonstrate an aristocratic, self-determined, unsubordinated identity, the middle class tends to be a spender rather than a saver making enough money to hold value in reserve. Its equity share always tends to turn negative (into subordinated debt) because it does not have the value in surplus necessary to prevent confiscation of their property by predatory capitalists operating with the risk of default (being too-big-to-fail) always in their favor.

According to capitalists, equity liquidates into debt because consumers are essentially imprudent (which causes them to be naturally subordinate despite the aristocratic ambitions "We the People" may have to declare independence). We can't control our appetites, and so we cause inflation, and because we selfishly want to be paid more for doing less, capitalism naturally unemploys people to prevent shortages (controlling demand by raising prices against falling income).

The ability to prudently regulate is being held in reserve. It is being horded, grossed, in the dark, centrally planned, supposedly in the public interest.

With a centrally managed economy operating in the dark with a presumed free-market legitimacy, and a consolidated, regulatory authority presumed to operate in public trust (acting sub rosa to ensure markets are free and open by committee), class warfare can be the only reasonable expectation.

Self-interest is being held in reserve. It is held in the dark because it is private stock exclusively managed by its proprietors. While "We the People" have the political right to freely protest, economic fate is literally owned (subordinated) by the top one percent with the right to use private property as they see fit. The right to determine the "self" (your "self") is Constitutionally endowed.

Profit and loss (the risk subordinated to self-interest) in zero-sum outside the alpha-risk dimension accumulates risk that must be somehow managed or it will burst and reoccupy the alpha dimension. This reoccupation, remember, is the risk of loss fully assumed (the retributive value) in priority--it always exists with a 100 percent probability, meaning that the 99-and-1 risk proportion is not sustainable.

The corporate currently manages the 99-and-1 risk proportion (keeping in mind that its stock--your self-interest--is publicly traded but privately owned). The Federal Reserve System is its prudential regulator, not you, not me ("We" are subordinate to the corporate body), and as discussed in previous articles, the Fed holds value (what is neo-classically referred to as consumer demand) in reserve and distributes that value (applies accumulated risk) to resist the declining rate of profit.

Recent action by the Fed to redirect accumulating risk associated with the Euro crisis, for example, along with five other central banks, involves the use of liquidity swaps. This is a way to manipulate interest rates (the economic rent) to contain the classic crisis of overproduction (declining consumer demand concomitant to declining income, which means insufficient funds to support the profit margin, and means the property owner ends up paying the rent--the interest on the debt that is swapped to avoid, but not prevent, being subordinated to the risk). Since this "market" is notoriously dark, accompanied by a shadow banking system that is even darker, what is the value of the risk and where is it located?

If you are on the inside, directing the position of the risk at any particular time within a particular policy space, like lowering what commercial banks are charged for short-term dollar loans, is critical information for determining the counterparty to the risk (who takes it) and the philosophy of its general utility (who makes it). Generating this critical information by creating the conditions for it and then using it (swapping it) falsely induces the evidence to support its utility with an organized tautology. It is a deliberate deceit giving the appearance of a naturally occurring, organized, structural valence that vigorously resists deflationary risk (the declining rate of profit) with added liquidity. It is a kind of autonomic nervous system that keeps capitalism alive in spite of itself.

When Goldman Sachs sets Greece up with bonded debt (added liquidity), it is not "betting" on anything. Sure, there is some risk, but it is subordinated (gamma)--the house wins most of the time (with the force and legitimacy of government--sovereign debt--authority).

Bear in mind that the added liquidity does not add supply (it is risk avoidance, not risk prevention, by means of public authority). Instead of disinflation (controlling prices with added supply, which increases income and the capacity to self-determine, or prudently regulate without elite authority), we see, for example, the added liquidity bidding up energy futures, which is deflationary.

While monetary expansion is supposed to add supply to reduce inflation and unemployment, these monetary mandates are defeated in dark markets.

Monetary expansion is being used to support the profit margin (through the CFTMA, for example), which adds inflation and unemployment. The argument is then made, post hoc, that monetary and fiscal policy (government intervention) causes the derived detriment (inflation and unemployment) and that the derivatives market provides the liquidity necessary to pull us out of recession when it is actually being used to cause it. With this kind of twisted analyses occupying the policy space, we can only expect the worst while hoping for the best, which is what Fed chairman, Bernanke, essentially told a congressional committee today.

While corporate earnings get support by adding negative equity, resistance is at the same time being added to forestall immediate consumption of the fully assumed risk proportion. Classic, recurrent crises that otherwise threatens the very existence of capitalism is neo-classically designed and administered for its "prudential regulation" in the gamma-risk dimension.

Credit is continuously extended, and risk subordinated to it, in the form of sovereign debt (economic rent) bonded to "We the People" on-command in dark markets rather than legitimately on-demand with the full accountability needed to prudently regulate it. Instead of freedom, "We" are bonded to the detriment, condemned to the angst of being slaves to what appears a random walk misdirected with the force and legitimacy of public authority.

Instead of low volatility and the predictive utility (low angst) a free market provides in the light of day, we are subordinated to risk that is contrived to appear self-determined in the dark. If that isn't complicated enough, determination of the "self" is confounded with the added volatility of government intervention (and remember, this does not add risk, but can add angst by trying to reduce it).

Government is added to subordinate the risk to the appearance of its prudent, consensual regulation (retributing its value) without deconsolidation.

Without really deconsolidating the risk to achieve a pluralistic, alpha-risk proportion, risk is allowed to accumulate in dark markets where it is recycled (swapped, for example) to derive detriment. The derived detriment adds volatility--it adds angst, an emotional reaction that is likely to misattribute the quantum "risk" to be retributed.

We lose the rational vision--the fundamental attribution of risk--that a free market provides by always trying to avoid it with economy-of-scale efficiency that achieves an aristocratic identity of unaccountability (of not being subordinated to the risk). Without deconsolidating to ensure a free market in priority, the risk-value will not retribute. Crises are not to be prevented if maintained in a too-big-to-fail proportion.

Risk is likely to yield an emotional response that is easily used to subordinate people to its accumulative management. Risk easily takes an emotional valuation, dialectically conserving the value in historical perspective, irrationally anchoring its accumulation to reducing the angst it technically adds by organizational design.

Credit is rationally extended, supposedly, in everyone's self-interest, but the market is organized for an emotional response--it can wait longer than you have the nerve to risk your money, and that reaction is, technically, the result of beta volatility, what E-Wave analysts, for example, rationally refer to as "impulsive" and "corrective" waves.