Substitution of the Value

Assessing the value of assets requires identifying the substitution of value derived from varying sources. For example, announcement of the Obama administration for a moratorium on mountaintop removal will, if enacted as administrative law (the bureaucratic model), reveals the subsidy (the substitution of value) that gives the profits of coal companies more value than the "actual" cost imparts to the benefit. The asset of coal reserves are thus overvalued, and the rate of substitution (Pareto Optimality) is diminished. The measure of cost/benefit efficiency is rendered an inaccurate technical valuation. The subsidy trades, or substitutes, the value of coal assets for the value of alternative energy assets.

The normative value of recognizing the "real" value of the subsitution effectively reassesses the value of the assets. The subsidy is then recognized as a "market distortion" that will be an incentive to innovate the technology to remove the coal asset to recapture the subsidy (the value-added benefit that had substituted the value-subtracted cost to produce a net inefficiency that was determined to be an asset and not a liability, determining the total assessment of the value). The result is a reassessment of market value and the "natural" incentive to minimize the cost and maximize the benefit, or to optimize the economic value to everyone's benefit. The benefit is rendered more indivisible and the marginal profit more accurately measures the marginal utility.

The subsidy is normatively "bad" because it does not allow for the incentive to attribute the value of the profit margin (the measure of marginal utility) to the value of the possible alternatives: it did not allow for a competitive multiplicity of the marketplace (a pluralistic model). Instead, the subsidy is aquired, and the substitution of value maintained, by access to political process (an elitist model), and the value ultimately retributed to its source--the value of possible free-market alternatives--by administrative law (a bureaucratic model). The value is assessed by operation of a bureaucratic model of power and political economy.

Looking at the Bernanke/Geitner plan for recapitalizing the banking system, Geitner's declaration of needing the authority to seize the assets of a failing company that is too big to fail, including non-bank firms, is a declaration of bureaucratic power that counters, or technically corrects for, the critique that the market has been rigged into a tyranny of corporate power. It is substituting for the positive effect (the optimal efficiency) that would obtain if bureaucratic power were applied to ensure in priority a free-market economics in which the economy is pluralistically not dependant on the success or failure of any one small firm, but instead is dependant on a few interlocked firms that are too big to fail and, thus, dependant on bureaucratic power to survive.

Combining the elements of elitism and pluralism, the Bernanke/Geitner plan operationalizes a legitimacy of outcome (of power) that combines the value of market efficiency (pluralism) with the absolute arbitrary value of government (elitism). The synthesis, while being an ad hoc organizational measure to allow what is a failure to succeed, is the organizational technology that can be utilized to effectively ensure free-market efficiencies and the fair and accurate valuation of assets and liabilities that is, in this case, clearly lacking and critically needed.

To incentivize, or optimize the marginal utility like a free-market would, the subsidy, the substitute, of the latest plan to lure private capital to support what is too big to fail but not too big to be government controlled (absolute arbitraty value) is, predictably, entirely at the expense (the risk) of public capital and is, predictably, consistent with the bureaucratic model of power and political economy (see the article, "Restructuring the Elements of Power" at griffithlighton.blogspot.com).

We see, then, the contradiction to be reconciled, or to be practically applied into what central bankers call "a process of resolution." While the public dollar is imparted less value than the private sector dollar, arbitration of the value is by public authority. The absolute value of public authority is substituted for the efficiency value of free-market economics, and the subsidy (and the sub-optimization) occurs.

The distribution, or retributing, of the accumulated value (the subsidy) is a necessary condition for economic recovery and growth. Without retributing the value, the means of accumulating the value (the subsidy) is not possible. It is a necessary condition of the capital, and the more value retributed without depreciating the value of the dollar (by recapitalizing from the accumulated benefit rather than monetizing the debt with a regressive tax burden--a subsidized valuation), the more profitable firms can be and the more economic expansion that can occur.

Gaming With Too Big to Fail

We will see the oversized financial firms being compensated by the public sector for wrecking the economy bargain to have it all their way with the threat of not participating in the government programs, or threatening to wreck it even more. That is what organizing to be too big to fail is for--to have it all your way. To be a tyrant.

Considering that "too big to fail" means they are indispensable, it is nothing but extortion. The fraud and abuse we have come to expect from these unexpendable economic entities is apparently not enough to demonstrate the extent of corporate hegemony.

Fascism is not the acceptable alternative to the threat of socialism.

What is too big to fail is easily cured with the public sector operating to ensure a free and unconsolidated marketplace in priority, the antithesis of "too big to fail." Fascism or socialism (another false binomial choice in which to toggle) is not the only alternative. The government action will not be ex-post-facto, it will not be a bill of attainder to punish corporates that have organized to get away with fraud, abuse and extortion. The progressive tax code needed to finance the third alternative will be to pluralize and destroy the tyranny that plagues The People.

The lack of action to progress the tax code renders the Obama administration's Keynesian stimulus plan equally unstimulating because it depreciates the value of the dollar. Energy and food prices will rise with a depreciating dollar, deflating the economy, what the stimulus spending is supposed to cure.

Understand that being able to dictate the cause-effect relationship of the dollar's value coupled with consumer prices is accomplished by organizing to be too big to fail, mainly by being able to restrict supply and thereby determine demand (deflation).

Being too big to fail does not suffer from deflation. It is a winner on the up cycle and the down cycle. It is being too small to survive that incurs all the detriment, and that detriment is consolidated into the benefit of being able to dictate the relationship, the ability to assess the value, control the bid, of commodities and currencies.

Ensuring the competitive multiplicity of the marketplace, financed with a progressive tax code across all jurisdictions, in priority cures this organizational problem of being too big to fail. The economy is then dominated by small firms with highly adaptable and innovative efficiencies that are as much concerned with low prices, full employment and adding supply (a strong dollar) by default of the system than just making a profit and deflating the economy by default.

Large, too-big-to-fail corporates benefit from deflation. It is profitable. It strengthens the ability to tyrannize the marketplace. The favorable terms for the corporate to be offered by treasury secretary, Geitner to recapitalize the financial market is a demonstration of "success" of the business model that Federal Reserve chairman, Bernanke describes as inimical but inevitable. Tyranny is the efficiency that a consolidated and collusive corporate achieves (and that can be a socialist legitimacy as well) at the expense of all other efficiencies.

Arguing that the large size, and big profits, of the large corporate allows for risk taking that would not otherwise occur, providing productive and innovative efficiency that only organizing to be too big to fail can provide, is an empirically nulled hypothesis. Maintaining the argument at this point is just a lie intended to conserve the means of tyranny (the elitist model of power and political economy).

The treasury secretary's plan to recapitalize "too big to fail" (remember, huge profits were made and converted into private equity before big financial firms "failed" with the probability of global economic collapse, which means that they--what is inimical--really should be allowed to fail) will be a demonstration of the power of the corporate that will confirm by false induction the Hamiltonian model as the only possible alternative: the private sector's too-big-to-fail corporate structure trumps the value of government (the sovereignty of The People). The empirical measure of superior value will be the assessed value of return on investment for one private enterprise dollar over a government (The People's) dollar. According to Geitner's plan, "The Public-Private Investment Program," The People's dollar only has a fraction of the value a hedge-fund, private-equity dollar of the private sector. The value of the private sector's dollar is considered, and validated, as supra-sovereign, and in the same way, as Nietzsche describes it, the inexorable "will to power" that is "beyond good and evil."

The difference between the public and private sector's return on the investment is the reward, the vigorish, of the will to power (to organize to be too big to fail). The struggle for political-economic dominance, hegemony of power, is the reason for being and existence again being played out and verified by the gaming we see now in progress. If we want to be verified existential moral deficients, we buy into this philosophical construct and practical modeling of power.

If we want to ensure the good life (a moral existence), we should try the third alternative: ensuring the competitive multiplicity of the marketplace, financed with a progressive tax code across all jurisdictions, in priority to cure the organizational problem of being too big to fail.

Public Policy and the Art of Arbitrage

The announcement of Federal Reserve chairman, Bernanke to adjust mark-to-market accounting rules employs a financial tool that determines asset valuations at a particular time. When he suggested that the rule would be eased to facilitate selling the bad assets with a quick and favorable valuation, the stock market rallied on what made the assets bad to begin with.

Bernanke is acting to make good the organizational model that makes the assets bad by making the assets good, manipulating an abstract accounting trick that gives the assets arbitrage value. The fundamental value of the assets--the lack of value due to a lack of income to pay the underlying mortgage debt obligation--is still bad because that value was leveraged into a securitized debt obligation and sold, marked to market, when it was overvalued. The investment made was an arbitrage that did not give value to the fundament. When the leverage unwound, the debt renderred worthless was being hidden off balance sheet to avoid being marked to the market valuation. By easing the rule, the Federal Reserve Bank is attemting to reveal the hidden valuation, give it value and liquidity.

The measure is Hamiltonian. It operates to save the organized dimension of "too big to fail" argued as the result of a free market mechanics, rewarding success in the marketplace with the large size that defeats the function of the free market in which firms inimical to the public welfare will fail. It is a measure that causes the demand for government, not prevent the need for government that the premise of his action advances in support of the free-market mechanism.

While it is politically elegant to lend survivability to a failed model of organizational power, within the Ivy-League list of possible alternatives, economically it is pure junk!

Public policy that confirms the practices of private power that has led to the current crisis will not save it. It will make it worse and the effect will be to discredit what will both prevent crises and the need for government--free-market economics.

When the Federal Reserve announces it will only act to promote ensuring a competitive multiplicity (pluralism) of the marketplace, organizing the economy to prevent economic entities that are too big to fail and threaten the stability of the entire economic structure, is when we will have a technical support for solving our problems rather than saving them.

The Federal Reserve's announcement to increase oversight of banking and lending will combine with Treasury's announcement next week on what will be done to dispose of the bad assets.

Treasury secretary, Geitner looks to attract private capital to buy the bad debt, rather than a public debt to be paid with a more progressive tax code, which will need to be more than worthless at the time of sale and resale. That will be by manipulation of the accounting rules at any particular time or point of the arbitrage transaction that determines the taxable gain on the capital invested in the banks by buying their bad debt, giving liquidity to the leverage that caused the bad debt, and giving us the political-economic phenomenology of successfully failing (see the article, "Restructuring the Elements of Power" at griffithlighton.blogspot.com).

At the same time, congressman, Barney Franks has proposed reactivating the "uptick rule." If arbitrageurs must wait for an uptick to sell short, there is an indication that values are being manipulated on the bid and shorting the bad assets is less likely to occur. That would help give value to the bad debt the taxpayer bought that is essentially worthless because the fundament of its value--the income necessary to pay the debt--has not been supported. Its secondary, derivative value--its leveraged, arbitrage value--is getting the technical support.

Citigroup's report of a quarterly profit provided technical support for equities that, combined with the possibility of favorable accounting rules for valuing the remaining bad debt and diminished capacity for the false technical indicators of short selling practices, comes at a time when equity ownership (the capital) has been largely consolidated.

Both measures, and the timing, to change the technical rules to support asset valuation are Hamiltonian, avoiding support at the fundament of the value--the income to pay the mortgage so that all the parties (the class elements of the power structure) benefit. Rather, the system is maintained in zero-sum in keeping with the Hamiltonian model and recovery will occur to recycle the consolidation of fundamental value with the art of the trage leading the way.

The political economy, rather than lending regulatory stability to the market, operates to add volatility, providing the medium for the art of arbitrage that gains the capital and gives liquidity to the leverage (see the article, "Rebuilding the Economy" at griffithlighton.blogspot.com).

The Stakes

The stakes are driving the "unthawing" of credit markets more than the action of coordinated central banking.

Commanding capital markets (top-down, trickle-down management) falsely suggests that management of the capital in a concentrated, centralized state is the solution and not the problem.

The capital that has been consolidated is detecting siginificant pressure to retribute the value. For concentrated capital, retributing the value is a cost to be minimized. Much better to lend the capital for a return on the accumulated private equity and lobby for keeping a regressive tax code to pay it than to allow the retributive value to accumulate with a credit deficiency. The cost, and benefit, however, is an increased debt burden.

The trick is to be sure you do not end up with the debtor (the payer) assignment, and with the regressive tax code we have now, that would be The People experiencing crisis.

The markets are sensing the sensitivity of policymakers to manage the retributive value with a quick turnaround. Another stimulus package in the U.S. (a bottom-up measure) is being floated and is likely. However, without a more progressive tax code, a bottom-up stimulus is inflationary because it swells the deficit.

Another stimulus package without a more progressive tax code, like the previous stimulus package and temporary middle class tax cuts, will not recapitalize the benefit toward a stable recovery. It reinvests the benefit to relieve the pressure for retributing the value, the power, of the benefit (accumulation of the capital) to its source, The People, without an economic rent (the interest on the debt The People pay through a regressive tax code).

The best another stimulus without a more progressive tax code will do for The People will allow for a very short-term recovery of financial assets that will likely be sold (shook out, or consolidated), still well below their highs.

Since Republicans can't win with an appeal to reason and logic, there is an emotional appeal to fear the logical tendency to a more progressive tax code as that scary monster, "socialism."

The obvious need for a more progressive tax code is not a call for socialism. The capital and means of production is not owned by the state, but is more apt to be reinvested for a more competitive multiplicity of the marketplace, pluralism, instead of consolidation of wealth and power.

If you want socialism, and you need something to fear, just stay the course of the last eight years and vote for McCain. If you want free enterprise and the fullest capacity for choosing what you want to produce and at what price: recapitalize with a more progressive tax code the high accumulation of capital that is causing, commanding, liquidity crisis, and pluralize the marketplace.

Not sharing the wealth, not "spreading the wealth around," not having an equitably distributive ownership of the capital, results in liquidity crisis and massive debt--what we have now. Stop and reversal of the deflationary trend in a timely and equitable fashion REQUIRES that the wealth be shared--recapitalized from the benefit of the last eight years. That is not socialism!

Capitalism does not require the capital be owned by a privileged few elits unless, of course, you want to deprive The People through the indirect means of crisis by establishing and maintaining a cycle of boom and bust in which The People's assets are devalued and consolidated--the business cycle.

If we are going to have socialism, it won't be because we have free enterprise, it will be because we don't. If you want the lack of free enterprise that results from consolidated capital, industry and markets causing crisis of liquidity and overwhelming debt, if you want to cause socialism, vote conservative, vote for McCain.

Obama/Biden 2008!