Organizational size is a broad indicator.
There are other indicators more specific to a particular time and organizational or policy space.
Prior to the most recent liquidity crisis, the subprime rate fell below the prime rate, for example. The rate inversion was a very clear signal of crisis within the specific time and organizational space.
The space in which capital was organized for application was both consolidating and unregulated. Combined with the timing of the rate inversion, it was easy to see a big crisis of liquidity coming. For the policy makers and analysts in control, however, the inversion was being considered a positive signal, inferring confirmation of the tax-cut hypothesis. Inferring a negative signal did not fit the hypothetical effect in time and organizational/policy space.
Financing the Bush tax cuts with a surplus of Chinese dollars was a neo-conservative policy product that did not fit America at the time given the organizational/policy space. America was primed for strong economic growth.
A budget surplus and a strong dollar, however, resists China's growth and support for the price of commodities which were key to precipitating The Great Recession and development of a financially interdependant global economy that is too big to fail.
Instead of achieving a high rate of growth, the Bush tax cuts achieved an economic contraction of monumental proportion. Consolidated corporates can now consolidate even more, gaining even more command and control over capital investment. The cyclical consolidation is a specific signal in the space of capital investment. The Chinese economy is not threatended by the possibility of a more pluralistic American economy that includes increased manufacturing jobs.
The best-and-brightest Ivy League elite were, and still are, in control of this policy space, not the American people--a highly specific indicator of crisis in political-economic time and policy space.
At the time of the Bush administration, Alan Greenspan, Chairman of the Federal Reserve, considered the budget surpluses to be too high. The policy space was then fashioned to fit what, at that time, was touted to be a mandate for neo-conservative economic policy and programs. It was a very specific indicator of crisis.
Keep in mind that the Chinese dollar surplus was the direct result of an economy-of-scale model of efficiency. Specifically, the Wal-Mart model combined with consolidation and deregulation of the financial sector. The net effect has been to drive commodity prices up (exporting our raw materials) and labor costs down (importing finished products), organizing a "global economy." The result is a high margin of profit and capital formation without growth.
The time, however, is now for a distribution on that accumulation that benefits the American people. It is an undubious benefit that goes well beyond "always the lowest prices" that supports the lowest possible wages and the highest Wall Street salaries.
Presently, as we move forward with a very clearly disconfirmed neo-conservative economic hypothesis, having been very clearly and specifically indicated with a massive liquidity crisis and unemployment, consideration of financial reform occupies the organizational/policy space toward full liquidity and full employment, not just a means of keeping Wall Street safely rich without economic growth.
Thursday, April 29, 2010
Wednesday, April 28, 2010
Crisis Indicators: Organizational Size
Much of the Senate's investigation into the role investment banks had in causing The Great Recession is to understand why they were short on their long positions.
Why, for example, did financial firms not simply sell their long positions rather than buy CDO's on the RMBS's to reduce the risk?
Either way, selling long or short, indicates a high level of risk, but shorting the economy--providing a disconnect, a timing differential, between the risk and the realization of that risk--locks in a larger profit than the zero-sum on the long position alone. The large short position is not to just simply hedge the risk, but to cause it.
Large investment banks, then, deliberately caused economic crisis to benefit from timing the trend by causing it.
It is an illegal manipulation of markets (rigging the market) to effect an equally illegitimate gain in zero-sum. The big short transactions incurred a very high risk of liability (a conflict of interest) that the banks consider an economy-of-scale efficiency that facilitates economic growth by "making markets."
A firm that goes long gives support, going short gives resistance. Going both long and short, especially operating with capital on an economy of scale, manipulates the market to fit the determined level of proprietary risk--none! The "free market" is effectively not operational and all that is left is the gamma risk.
Senator Levin, Subcommittee Chairman on Governmental Ivestigations, examining the specific case of Goldman Sachs, is incorrect to say that the financial crisis was not the result of "big size, but the big short."
Long or short, it is the size of the firms and their economy-of-scale transactions that give them the power, the reward, of systemic risk with limited or no liability. Organizational size is the source of the big profits (without growth). It provides the magnifier effect that commands trends and their sudden reversal in the exculpatory guise of undirected, cyclical trending. Since that trending is falsely attributed to the dynamics of free-market economics, and thus the need to hedge the risk of fluctuation, there is always the opportunity to cause the direction of the trend (the risk) with a very limited liability, if you are big enough.
Firms like Goldman Sachs defend their conduct as playing the game of freedom according to the rules of the game. Freedom reduces to the utility of pursuing one's self-interest. No one should be surprised, and it is no crime, to win the game in zero-sum. In fact, it is the moral good because it is the strength, the motive, to expand the pie and provide for the general welfare.
Firms like Goldman Sachs are not providing capital, they are accumulating it to a detriment. That detriment not only empirically indicates a measure of liability, but the probability of crisis. If allowed to continue doing business with a model of organized consolidation, which includes a collusively complex counterparty interdependence, the detriment and the risk of liquidity crisis is conserved, not reduced.
Being able to manipulate on a scale that causes systemic risk (and the huge profits we see big banks reaping from it) is a function of organizational size, not how ethical they are. As far as they are concerned, making as much as you can as quick as you can is the right thing to do.
In a free and unconsolidated marketplace, the level of ethical intelligence is sufficient but not necessary. People are not likely to do business with firms that cannot be trusted, unless they have to.
A genuine free market does not rely on an abstract moral intelligence, but a practical intelligence in a systematic environment that "demands" trustworthiness to survive the market in one's self-interest.
A free market freely forgives transgression, maintaining productivity in the fullest capacity. Rather than doing dirty deeds, being grilled before a congressional committee, going home and doing it all over again the next day, the transgressor learns how to survive the marketplace and contributes the desire for profit and power in the form of productive capacity (the alpha-risk distribution of power and profit).
Deconsolidation operationalizes the reduction of freedom to an ethical utility of seeking power and profit into a systemic benefit rather than a constant risk of detriment and deprivation (liquidity crises).
Deconsolidation will cause economic growth quickly and efficiently in pursuit of self-interest. It will be guided by the strength, the virtue, ensured by a high level of alpha-risk distribution rather than insured by the securitized bundling (consolidation) of risk that clearly indicates crisis.
Large banks and investment firms argue, however, that deconsolidation will put America's financial sector at a competitive disadvantage worldwide. Deconsolidation as a measure of financial reform, big banks argue, will inhibit America's ability to grow in a global economy.
Being globally competitive, they argue, requires firms with a large, economy-of-scale efficiency to command the capital necessary for large capital projects.
The argument for consolidation to achieve a competitive advantage is false both nationally and internationally.
Consolidation does not increase competition by reducing risk, it reduces competition and increases systemic risk.
Deconsolidation will increase competition and reduce risk, giving a competitively trustworthy advantage to America's capital markets. Others will follow to gain that advantage as well.
Why, for example, did financial firms not simply sell their long positions rather than buy CDO's on the RMBS's to reduce the risk?
Either way, selling long or short, indicates a high level of risk, but shorting the economy--providing a disconnect, a timing differential, between the risk and the realization of that risk--locks in a larger profit than the zero-sum on the long position alone. The large short position is not to just simply hedge the risk, but to cause it.
Large investment banks, then, deliberately caused economic crisis to benefit from timing the trend by causing it.
It is an illegal manipulation of markets (rigging the market) to effect an equally illegitimate gain in zero-sum. The big short transactions incurred a very high risk of liability (a conflict of interest) that the banks consider an economy-of-scale efficiency that facilitates economic growth by "making markets."
A firm that goes long gives support, going short gives resistance. Going both long and short, especially operating with capital on an economy of scale, manipulates the market to fit the determined level of proprietary risk--none! The "free market" is effectively not operational and all that is left is the gamma risk.
Senator Levin, Subcommittee Chairman on Governmental Ivestigations, examining the specific case of Goldman Sachs, is incorrect to say that the financial crisis was not the result of "big size, but the big short."
Long or short, it is the size of the firms and their economy-of-scale transactions that give them the power, the reward, of systemic risk with limited or no liability. Organizational size is the source of the big profits (without growth). It provides the magnifier effect that commands trends and their sudden reversal in the exculpatory guise of undirected, cyclical trending. Since that trending is falsely attributed to the dynamics of free-market economics, and thus the need to hedge the risk of fluctuation, there is always the opportunity to cause the direction of the trend (the risk) with a very limited liability, if you are big enough.
Firms like Goldman Sachs defend their conduct as playing the game of freedom according to the rules of the game. Freedom reduces to the utility of pursuing one's self-interest. No one should be surprised, and it is no crime, to win the game in zero-sum. In fact, it is the moral good because it is the strength, the motive, to expand the pie and provide for the general welfare.
Firms like Goldman Sachs are not providing capital, they are accumulating it to a detriment. That detriment not only empirically indicates a measure of liability, but the probability of crisis. If allowed to continue doing business with a model of organized consolidation, which includes a collusively complex counterparty interdependence, the detriment and the risk of liquidity crisis is conserved, not reduced.
Being able to manipulate on a scale that causes systemic risk (and the huge profits we see big banks reaping from it) is a function of organizational size, not how ethical they are. As far as they are concerned, making as much as you can as quick as you can is the right thing to do.
In a free and unconsolidated marketplace, the level of ethical intelligence is sufficient but not necessary. People are not likely to do business with firms that cannot be trusted, unless they have to.
A genuine free market does not rely on an abstract moral intelligence, but a practical intelligence in a systematic environment that "demands" trustworthiness to survive the market in one's self-interest.
A free market freely forgives transgression, maintaining productivity in the fullest capacity. Rather than doing dirty deeds, being grilled before a congressional committee, going home and doing it all over again the next day, the transgressor learns how to survive the marketplace and contributes the desire for profit and power in the form of productive capacity (the alpha-risk distribution of power and profit).
Deconsolidation operationalizes the reduction of freedom to an ethical utility of seeking power and profit into a systemic benefit rather than a constant risk of detriment and deprivation (liquidity crises).
Deconsolidation will cause economic growth quickly and efficiently in pursuit of self-interest. It will be guided by the strength, the virtue, ensured by a high level of alpha-risk distribution rather than insured by the securitized bundling (consolidation) of risk that clearly indicates crisis.
Large banks and investment firms argue, however, that deconsolidation will put America's financial sector at a competitive disadvantage worldwide. Deconsolidation as a measure of financial reform, big banks argue, will inhibit America's ability to grow in a global economy.
Being globally competitive, they argue, requires firms with a large, economy-of-scale efficiency to command the capital necessary for large capital projects.
The argument for consolidation to achieve a competitive advantage is false both nationally and internationally.
Consolidation does not increase competition by reducing risk, it reduces competition and increases systemic risk.
Deconsolidation will increase competition and reduce risk, giving a competitively trustworthy advantage to America's capital markets. Others will follow to gain that advantage as well.
Tuesday, April 27, 2010
Crisis Indicators: Reducing Risk Without Reducing Growth
We all want to reduce risk. It ensures the probability of marginal benefit over time, but it can also mean ensuring the margin itself in zero-sum with an increased risk of liability-to-the-sum accumulated (increased gamma risk that will likely result in application of government authority).
Increased liability-to-the-sum accumulated (increased probability individuals and organizations can be held liable to a retributive value) is a cumulative risk that indicates crisis. The probable risk that Goldman Sachs would incur a liability to its cumulative benefit, for example, had been steadily accumulating, presenting in the form of high profit with slow growth.
Goldman Sachs is an investment bank. Its job is to form capital ("make markets") to produce growth. Most of what investment banks do, however, in league with hedge funds, is to consolidate industry and markets into economy-of-scale efficiencies touted to increase productivity at lower cost.
What investment banks and hedge funds really do, as was again confirmed with a recessionary trend rivaled only by The Great Depression, is organize the economy to reduce the alpha risk, ensuring the margin of firms in zero-sum. As the economy-of-scale efficiency reduces the alpha risk, the risk of liability increases, along with beta-risk volatility, indicating crisis.
Ensuring the margin in zero-sum virtually eliminates the risk of loss in the form of a constant accumulation of gain over time. It always leads to crisis because expanding the margin does not depend on expanding the pie for distribution, but consolidating it for consumption. The result is both inflation AND unemployment, two attributes that are not supposed to occupy the same space, but are supposed to trade off into inflation OR unemployment.
According to conventional wisdom, business-cycle analysts say recovery from an investment-driven recession takes about five years. The value of the capital formed within that period (inflation and unemployment), and prior, will be cumulatively retributive and liable to the slow growth (the value accumulated). Without a shorter term on the cycle, the liability will be difficult to avoid and, of course, the argument will be made that growth will not occur without increased risk that can only be had by consolidation into an economy of scale.
The recession, then, according to economy-of-scale proponents, produces the means of taking the risk (the consolidation of capital) that effects growth. (The argument is, of course, post hoc because the risk taken by consolidation of capital markets caused The Great Recession.)
Is it possible to reduce risk without reducing growth?
By reducing the gamma risk, it is possible to reduce risk without reducing growth.
Reducing the zero-sum reduction of risk (reducing gamma risk accumulation) is a pro-growth measure. The two variables are coefficient: zero-sum reduction of risk equals the consumption of growth so that the rate of reducing the zero-sum reduction is coefficient to the rate of growth.
When alpha risk is in reduction, the benefit accumulated is slow growth, keeping both inflation and unemployment high. The result is a high-margin whipsaw effect. All but the highest income class is affected by the whipsaw, accumulating the gamma risk.
Health care reform, for example, will support medical costs so that a class of professionals can achieve a sustainable income of reduced alpha risk like insurance and pharmaceuticals operating with an organized economy of scale. Since this will produce a massive accumulation of wealth, and power, that will likely integrate industries and markets within the sector, the risk of general crisis is increased, not reduced, with an economy-of-scale efficiency touted to control the cost.
If the accumulation is by government authority, the liability-to-the-sum accumulated is reduced along with the alpha risk.
Having gained the force and legitimacy of ultimate, legal authority, government "reform" of the health care sector was the ultimate achievement of risk reduction. Replicating that success with financial reform is all but sure with a government authority that favors an economy-of-scale measure of efficiency across all jurisdictional boundaries, both public and private (the Hamiltonian model of political-economy in which power efficiently consolidates into the capable hands of a power elite and guides the wealth of nations toward the general welfare).
Reducing the zero-sum reduction of risk (contrary to the Hamiltonian model--deconsolidating rather than consolidating) reduces the unavoidable gamma risk by distributing it in the form of alpha risk.
Organizing to maximize, rather than minimize, the alpha risk, maximizes growth and reduces systemic risk, reversing the specific indicators of crisis.
Increased liability-to-the-sum accumulated (increased probability individuals and organizations can be held liable to a retributive value) is a cumulative risk that indicates crisis. The probable risk that Goldman Sachs would incur a liability to its cumulative benefit, for example, had been steadily accumulating, presenting in the form of high profit with slow growth.
Goldman Sachs is an investment bank. Its job is to form capital ("make markets") to produce growth. Most of what investment banks do, however, in league with hedge funds, is to consolidate industry and markets into economy-of-scale efficiencies touted to increase productivity at lower cost.
What investment banks and hedge funds really do, as was again confirmed with a recessionary trend rivaled only by The Great Depression, is organize the economy to reduce the alpha risk, ensuring the margin of firms in zero-sum. As the economy-of-scale efficiency reduces the alpha risk, the risk of liability increases, along with beta-risk volatility, indicating crisis.
Ensuring the margin in zero-sum virtually eliminates the risk of loss in the form of a constant accumulation of gain over time. It always leads to crisis because expanding the margin does not depend on expanding the pie for distribution, but consolidating it for consumption. The result is both inflation AND unemployment, two attributes that are not supposed to occupy the same space, but are supposed to trade off into inflation OR unemployment.
According to conventional wisdom, business-cycle analysts say recovery from an investment-driven recession takes about five years. The value of the capital formed within that period (inflation and unemployment), and prior, will be cumulatively retributive and liable to the slow growth (the value accumulated). Without a shorter term on the cycle, the liability will be difficult to avoid and, of course, the argument will be made that growth will not occur without increased risk that can only be had by consolidation into an economy of scale.
The recession, then, according to economy-of-scale proponents, produces the means of taking the risk (the consolidation of capital) that effects growth. (The argument is, of course, post hoc because the risk taken by consolidation of capital markets caused The Great Recession.)
Is it possible to reduce risk without reducing growth?
By reducing the gamma risk, it is possible to reduce risk without reducing growth.
Reducing the zero-sum reduction of risk (reducing gamma risk accumulation) is a pro-growth measure. The two variables are coefficient: zero-sum reduction of risk equals the consumption of growth so that the rate of reducing the zero-sum reduction is coefficient to the rate of growth.
When alpha risk is in reduction, the benefit accumulated is slow growth, keeping both inflation and unemployment high. The result is a high-margin whipsaw effect. All but the highest income class is affected by the whipsaw, accumulating the gamma risk.
Health care reform, for example, will support medical costs so that a class of professionals can achieve a sustainable income of reduced alpha risk like insurance and pharmaceuticals operating with an organized economy of scale. Since this will produce a massive accumulation of wealth, and power, that will likely integrate industries and markets within the sector, the risk of general crisis is increased, not reduced, with an economy-of-scale efficiency touted to control the cost.
If the accumulation is by government authority, the liability-to-the-sum accumulated is reduced along with the alpha risk.
Having gained the force and legitimacy of ultimate, legal authority, government "reform" of the health care sector was the ultimate achievement of risk reduction. Replicating that success with financial reform is all but sure with a government authority that favors an economy-of-scale measure of efficiency across all jurisdictional boundaries, both public and private (the Hamiltonian model of political-economy in which power efficiently consolidates into the capable hands of a power elite and guides the wealth of nations toward the general welfare).
Reducing the zero-sum reduction of risk (contrary to the Hamiltonian model--deconsolidating rather than consolidating) reduces the unavoidable gamma risk by distributing it in the form of alpha risk.
Organizing to maximize, rather than minimize, the alpha risk, maximizes growth and reduces systemic risk, reversing the specific indicators of crisis.
Sunday, April 25, 2010
Crisis Indicators and Risk Reduction
As financial reform proceeds, the most prominent argument against the Transparency and Accountability Act of 2010 will be that regulation to reduce risk will reduce growth.
Since economic growth requires taking risk, reducing the probable risk through regulatory reform will, by force of the argument, reduce probable growth.
Post hoc as the argument may be, growth will be deliberately slow because deconsolidation is not the object of reform. Failure of firms that are "too big" is the proposed objective which, if allowed, results in deflationary crisis (negative growth).
The proposed reform seems to forget that large, economy-of-scale firms cannot objectively fail "because" they are too big. (We should note here the reason this issue is so complex is because every effort is made to ignore and avoid the obvious.)
The purpose of being "too big" is, of course, to prevent catastrophic failure of these firms in the midst of systemic crises they cause in a too-big-to-fail, economy-of-scale proportion. Since the economy is generally dependant on the survival of these large firms (the objective), not allowing them to fail is considered to be the general welfare.
Senator McConnell's criticsim of the proposed reform is, then, correct: it institutionalizes bailouts which, whether publicly or privately financed, uses an accumulation of capital to support the bad behavior to be discouraged and the detrimental reliance to be avoided. The Senator then correctly challenges proof for what is essentially an illogical argument--solving the problem by supporting it.
The result will be further consolidation, which supports the problem of the economy being at systemic risk to firms organized too big to fail. The proposed reform will conserve the risk-to-growth coefficiency argument that high growth only comes with the ability to take high risk provided by an economy-of-scale efficiency. It will conserve the means of consolidating capital, wealth and power into a self-supporting crisis proportion with the exculpatory appearance of promoting growth with an unavoidable cyclical ontology.
While financial reform as proposed will conserve a false economy-of-scale efficiency, being too big to fail and the unacceptable amount of risk a failure indicates can nevertheless be deconsolidated.
Democrats, however, support the economy-of-scale efficiency hypothesis. It is the primary cost-control measure of the health care reform bill and will be the primary model of efficiency shaping financial reform. The bigger the better; it is an organizational evolution that cannot be stopped and reversed. Instead of fighting it, use it to the public good. Being "too big" is good if it can be controlled to not fail the system (the "institutionalizing" Senator McConnell objects to).
The result then, of course, is a political-economy in a steady-state of gamma risk and an inelastic demand for elits that manage the risk, keeping it from reaching a crtitical, crisis proportion. It is a system always on the brink of disaster--not exactly the model of reform.
The organizational model that accumulates risk will still be fully operational, and the product of that model is, predictably, slow growth. The argument will then follow, post hoc, that government intervention in free markets impedes growth and causes crises. Thus, the reform indicates crisis.
(Regardless, the proposed reform will be pro-cyclical. With the reform, as Senator Dodd points out, or without the reform, recurrent crises will not be prevented.
Whether cyclical crises is preventable is a hypothesis that needs to be positively tested rather than left to the contortions of rhetorical analysis.)
Right-wing conservatives (as opposed to left-wing conservatives who are offering reform) will then argue, post hoc, markets "must be free" to determine (to consolidate) the level of risk (and the indicator of probable crisis) into an economy-of-scale model of efficiency (the coefficiency argument that high risk causes growth, and the distribution that occurs is therefore not a zero-sum liability).
The regulatory "scrutiny" the president refers to that will fail firms that deserve (but are too big) to fail (conserving what is too big to fail and the crises it will cause) is otherwise the alpha risk. It is the kind of risk that, if we want to ontologically indicate what is at risk of failure, should be unfettered.
Alpha risk is to be supported, encouraged, through regulatory reform, not resisted! It is the inherent risk of an unfettered free market that operates without the need for government regulation. It comes with deconsolidation of economy-of-scale modeling.
The best way to ensure transparency and accountability is to ensure the functional efficiency of unfettered alpha risk.
Encouraging alpha risk maximizes transparency by failing firms that are not transparent. The most trustworthy and accountable firms remain.
Accountability (the alpha risk) is then the risk that both does and should survive the marketplace.
At the same time, alpha risk maximizes economic growth. Success replicates itself and that success is the accountability that ensuring a pluralistic organizational model affords. Replicaton of that success (conservation of risk in the alpha form) is dependant on practical modeling.
It is a mistake, if not a malfeasance, to resist proliferation of the alpha risk in the name of eliminating all risk. By its proliferation, the "risk of liability" is reduced to success or failure in the marketplace rather than success or failure in a court of law or any other form of government intervention.
Instead of eliminating risk, whether public or private, alpha risk should be maximized.
Maximizing alpha risk minimizes the need for government--it minimizes an accumulation of gamma risk into a crisis proportion. It not only allows for the freedom to succeed by removing barriers to entry, but the freedom to fail by eliminating what is "too big" to fail, not "the risk" of failure.
True that a multiplicity of small firms will not take the big risk of a big firm because they literally cannot afford it--they cannot afford to fail (a coefficient that demands an efficiency far in excess of the bigger firm which is likely to be much more costly and abusive because it can afford it). The smaller risk of multiple firms is equivalent to the big risk of fewer firms except the small firms cannot afford to over-leverage into a crisis proportion (the crisis indicator) because the risk, and the crisis, is limited to that one particular firm--it is limited to non-systemic alpha risk.
So, which kind of risk do we want...the big risk or the small risk? Just like health care reform, we will be stuck with the false efficiency of an economy-of-scale for financial reform too. (The needle on the crisis-indicator meter just broke!)
Maximizing alpha risk through deconsolidation is the prudential oversight needed to achieve a form of government that governs least, minimizing the probability that risk will accumulate into the form of absolute power and corruptibility (the gamma risk) whether public or private. (The alpha risk distribution is essentially the ability to say "no" in the marketplace. It is the freedom to fail.)
An economy-of-scale model beneficially reduces alpha risk for firms, but the benefit of "taking" the big risk reduces economic growth. Reduction of both alpha risk and growth (expansion of the marginal benefit to firms) increases the gamma risk in proportion to the accumulation of the benefit. The need for government regulation and intervention (a distribution by command rather than market demand, or the risk "taken") increases, like we see now with the unpopular bailout of large, financial institutions and the call for a re-established regulatory authority that was dis-established to reduce the need for government.
(Note that the risk "taken" in the latest crisis has cleverly kept the benefit accumulated, rather than distributed, on command. The result will be a longer recessionary trend with a "jobless" recovery, keeping markets sufficiently inefficient to sustain the full marginal benefit. The inefficiency is the lack of alpha risk distribution that requires a distribution occur on the accumulated benefit in command form--the need for government. If the distribution does not come from the accumulated benefit, the result is a large budget deficit and stagflation, like we have now. The argument will then be falsely made that the deficit is caused by too much government which, in turn, results in slow growth.)
Again, the conservative argument for less government is post hoc.
According to conservatives, the absence of government in the marketplace causes less need for government (the argument is fallaciously "after this, therefore because of this"). It falsely argues a temporal sequence to indicate a causal relationship.
In the current case, for example, less government in the private sector caused the need for government in a measurably large, multi-trillion dollar proportion (the TARP plus the budget deficit). The variable in which "the need for government" depends (the dependant variable) is the degree of economy-of-scale. How consolidated the marketplace is (the gamma risk accumulation) determines the degree of (the need for) government presence (the gamma risk distribution).
Reducing government is dependant, therefore, on the gamma risk distribution (financial reform) being limited to largely ensuring maximum distribution of the alpha risk, or deconsolidation of the marketplace (what too-big-to-fail, economy-of-scale organizations do not want).
Starting with an unconsolidated financial sector, a model for maximizing investment in a disinflationary, pluralistic model of growth (full employment with low inflation and a high level of direct, alpha-risk accountability that renders less need for government) is entirely possible. It is what the ground-swell sentiment for change is calling for. Not a revanch of post-depression regulations, but a modality shift.
Instead of accepting the inflationary pressure of a highly restricted supply coefficient with a slow growth pattern that proliferates the economy-of-scale model of efficiency, events have transpired to support confirmation of an alternative hypothesis to the conservative model. It is a tired model being stubbornly applied despite miserable, overwhelming failure to promote the general welfare.
For example, mark-up on the current reform legislation entails derivative markets. It is a realm of finance that few people, including legislators and regulators, fully understand. This, then, is where the conservative model will be most fully supported and stubbornly applied--through swaps and futures. It is an area of the financial market that has a high capital requirement, defining an exclusive domain for large firms to apply an economy-of-scale efficiency inimical to the interests of Main Street.
Acting with minimal alpha risk and maximum gamma risk, accumulation of capital in the futures domain, with a variety of innovatively obscure investment vehicles and a regulatory arbitrage to hide the micro motive toward a macro effect, indicates low growth and impending crisis.
Innovative proliferation of "risk-transfer products" instead of investment in alpha risk distribution will surely trend into crisis. Accumulation of capital into derivatives will not support the value of its previous repository of toxic waste. This will be very damaging to the economy and must be hidden in some way despite the effort to make it all more transparent and accountable.
Even though derivative markets may be rendered more visible, it will be a means of influence that is more visibly not understood. The effect--manipulation of markets and trends with a highly limited risk of liability (accountability) to the consequences--will be the same even after the reform.
(All the means of risk transfer may be more visible, but we won't know what we're looking at until it's too late and the deed is done, just like last time. There will, of course, be those who can read the signs without being on the inside of the trade (the risk transfer), but they will be dismissed as paranoid crackpots obsessed with conspiracy theories...just like last time.)
Popular sentiment for a practical deconsolidation of power is highly salient because the benefit of the economy-of-scale model is highly exclusive. It is equally clear that accountability proportionally diminishes with the accumulation of wealth in the form of power.
It is clear that power does not trickle-down. It consolidates. It achieves an economy of scale. The risk of liability to the reward is so diminished (so consolidated) that bad behavior is reinforced and good behavior is not fit to survive, trading the alpha risk for gamma risk ("risk-transfer" being the "product").
Advocates of too-big-to-fail, economy-of-scale efficiencies argue that the bigger the firm, the more risk can be taken. Contrary to these advocates, and proponents of reform, however, the accumulation of risk that results is not the problem to be managed, it is the size of the firms.
Supposedly, unfettered consolidation of industry and markets (falsely refered to as free-market economics) allows for a level of risk to effect a level of economic innovation and growth (achieving a greater coefficiency) than the model of pluralism (free-market economics) will allow.
It turns out, however, that economy-of-scale efficiencies accrue massive systemic risk and unemployment (slow-to-no growth). The touted coefficiency is apparently to be found elsewhere.
It is no coincidence that equities are getting support as we proceed with a jobless recovery. This is not a function of capital formation, but a zero-sum coefficiency that was very clearly indicated well before the current crisis.
When capital was being overleveraged in the name of capital formation to achieve a high level of growth and employment, but resulted in negative growth and unemployment, crisis was being indicated by the level of risk. The gamma risk (the need for government intervention and the lack of free market economics), for example, finally reached a critical, crisis proportion. Bankers and government officials met on a weekend in the middle of the night to devise an ad hoc plan to allay what was, by mainstream, Ivy-League analyses, a high level of risk that did not exist.
Even though the risk was being hidden in dark-market investment vehicles and schemes does not mean it was not detectable.
Deniable but not undetectable, the perpetrators of this enormous fraud knew about the high level of accumulated risk because they were executing it, and the victims lost value in zero-sum.
Unemployment has added value to equities that were sold off in a panic to institutional investors. That value will be retailed back to small investors at a profit looking to recoup their losses on these and other assests lost (sold off) in the recessionary trend. When added to the value of borrowing at near zero rates to buy treasuries to be retailed at three-times the rate, banks continue to gain value at the expense of smaller victims who remain to pay the public debt being bought and sold by the banks to "finance" it. The zero-sum detriment side to the "trade" of "risk-transfer products" entails a gamma risk and a lack of public trust at a level of unsustainably monumental proportion.
Despite the inherent, unavoidable accumulation of gamma risk, the Hamiltonian model is well conserved and fully operational as long as the accumulated benefit is not the source of the distribution. The means of accomplishing this undergoes innovation culminating, along with the over-accumulation of gamma risk, in regulatory reform.
The risk to conserving the current practical model is to ensure maximum alpha-risk distribution financed through a progressive tax code (reorganizing the model for pluralism financed from the accumulated benefit in a disinflationary, rather than a deflationary or inflationary, manner).
The progressive code we have now, with a public debt progressing exponentially beyond revenues, serves to conserve the problem toward application of a solution. The risk of inflation is extremely high because the distribution is coming from a budget deficit funded from money borrowed from the accumulated benefit.
It's the dog chasing its tail. The public expenditure, with interest, overruns the ability to pay the debt without either inflating or deflating the economy.
(Inflation will be the policy preference because it has a distributive quality while still accumulating gamma risk.)
The gamma risk, instead of being reduced, just keeps accumulating to a crisis proportion. That proportion, of course, anchors the mission of reform to limiting the gamma risk to a non-crisis proportion.
If the choice is adversely inflation or deflation, the risk of crisis is very clearly indicated for the near and long term, especially if we reform the financial system by conserving accumulation of risk organized into economy-of-scale efficiencies, or too big to fail, which is what the $50 billion emergency fund is for.
Since economic growth requires taking risk, reducing the probable risk through regulatory reform will, by force of the argument, reduce probable growth.
Post hoc as the argument may be, growth will be deliberately slow because deconsolidation is not the object of reform. Failure of firms that are "too big" is the proposed objective which, if allowed, results in deflationary crisis (negative growth).
The proposed reform seems to forget that large, economy-of-scale firms cannot objectively fail "because" they are too big. (We should note here the reason this issue is so complex is because every effort is made to ignore and avoid the obvious.)
The purpose of being "too big" is, of course, to prevent catastrophic failure of these firms in the midst of systemic crises they cause in a too-big-to-fail, economy-of-scale proportion. Since the economy is generally dependant on the survival of these large firms (the objective), not allowing them to fail is considered to be the general welfare.
Senator McConnell's criticsim of the proposed reform is, then, correct: it institutionalizes bailouts which, whether publicly or privately financed, uses an accumulation of capital to support the bad behavior to be discouraged and the detrimental reliance to be avoided. The Senator then correctly challenges proof for what is essentially an illogical argument--solving the problem by supporting it.
The result will be further consolidation, which supports the problem of the economy being at systemic risk to firms organized too big to fail. The proposed reform will conserve the risk-to-growth coefficiency argument that high growth only comes with the ability to take high risk provided by an economy-of-scale efficiency. It will conserve the means of consolidating capital, wealth and power into a self-supporting crisis proportion with the exculpatory appearance of promoting growth with an unavoidable cyclical ontology.
While financial reform as proposed will conserve a false economy-of-scale efficiency, being too big to fail and the unacceptable amount of risk a failure indicates can nevertheless be deconsolidated.
Democrats, however, support the economy-of-scale efficiency hypothesis. It is the primary cost-control measure of the health care reform bill and will be the primary model of efficiency shaping financial reform. The bigger the better; it is an organizational evolution that cannot be stopped and reversed. Instead of fighting it, use it to the public good. Being "too big" is good if it can be controlled to not fail the system (the "institutionalizing" Senator McConnell objects to).
The result then, of course, is a political-economy in a steady-state of gamma risk and an inelastic demand for elits that manage the risk, keeping it from reaching a crtitical, crisis proportion. It is a system always on the brink of disaster--not exactly the model of reform.
The organizational model that accumulates risk will still be fully operational, and the product of that model is, predictably, slow growth. The argument will then follow, post hoc, that government intervention in free markets impedes growth and causes crises. Thus, the reform indicates crisis.
(Regardless, the proposed reform will be pro-cyclical. With the reform, as Senator Dodd points out, or without the reform, recurrent crises will not be prevented.
Whether cyclical crises is preventable is a hypothesis that needs to be positively tested rather than left to the contortions of rhetorical analysis.)
Right-wing conservatives (as opposed to left-wing conservatives who are offering reform) will then argue, post hoc, markets "must be free" to determine (to consolidate) the level of risk (and the indicator of probable crisis) into an economy-of-scale model of efficiency (the coefficiency argument that high risk causes growth, and the distribution that occurs is therefore not a zero-sum liability).
The regulatory "scrutiny" the president refers to that will fail firms that deserve (but are too big) to fail (conserving what is too big to fail and the crises it will cause) is otherwise the alpha risk. It is the kind of risk that, if we want to ontologically indicate what is at risk of failure, should be unfettered.
Alpha risk is to be supported, encouraged, through regulatory reform, not resisted! It is the inherent risk of an unfettered free market that operates without the need for government regulation. It comes with deconsolidation of economy-of-scale modeling.
The best way to ensure transparency and accountability is to ensure the functional efficiency of unfettered alpha risk.
Encouraging alpha risk maximizes transparency by failing firms that are not transparent. The most trustworthy and accountable firms remain.
Accountability (the alpha risk) is then the risk that both does and should survive the marketplace.
At the same time, alpha risk maximizes economic growth. Success replicates itself and that success is the accountability that ensuring a pluralistic organizational model affords. Replicaton of that success (conservation of risk in the alpha form) is dependant on practical modeling.
It is a mistake, if not a malfeasance, to resist proliferation of the alpha risk in the name of eliminating all risk. By its proliferation, the "risk of liability" is reduced to success or failure in the marketplace rather than success or failure in a court of law or any other form of government intervention.
Instead of eliminating risk, whether public or private, alpha risk should be maximized.
Maximizing alpha risk minimizes the need for government--it minimizes an accumulation of gamma risk into a crisis proportion. It not only allows for the freedom to succeed by removing barriers to entry, but the freedom to fail by eliminating what is "too big" to fail, not "the risk" of failure.
True that a multiplicity of small firms will not take the big risk of a big firm because they literally cannot afford it--they cannot afford to fail (a coefficient that demands an efficiency far in excess of the bigger firm which is likely to be much more costly and abusive because it can afford it). The smaller risk of multiple firms is equivalent to the big risk of fewer firms except the small firms cannot afford to over-leverage into a crisis proportion (the crisis indicator) because the risk, and the crisis, is limited to that one particular firm--it is limited to non-systemic alpha risk.
So, which kind of risk do we want...the big risk or the small risk? Just like health care reform, we will be stuck with the false efficiency of an economy-of-scale for financial reform too. (The needle on the crisis-indicator meter just broke!)
Maximizing alpha risk through deconsolidation is the prudential oversight needed to achieve a form of government that governs least, minimizing the probability that risk will accumulate into the form of absolute power and corruptibility (the gamma risk) whether public or private. (The alpha risk distribution is essentially the ability to say "no" in the marketplace. It is the freedom to fail.)
An economy-of-scale model beneficially reduces alpha risk for firms, but the benefit of "taking" the big risk reduces economic growth. Reduction of both alpha risk and growth (expansion of the marginal benefit to firms) increases the gamma risk in proportion to the accumulation of the benefit. The need for government regulation and intervention (a distribution by command rather than market demand, or the risk "taken") increases, like we see now with the unpopular bailout of large, financial institutions and the call for a re-established regulatory authority that was dis-established to reduce the need for government.
(Note that the risk "taken" in the latest crisis has cleverly kept the benefit accumulated, rather than distributed, on command. The result will be a longer recessionary trend with a "jobless" recovery, keeping markets sufficiently inefficient to sustain the full marginal benefit. The inefficiency is the lack of alpha risk distribution that requires a distribution occur on the accumulated benefit in command form--the need for government. If the distribution does not come from the accumulated benefit, the result is a large budget deficit and stagflation, like we have now. The argument will then be falsely made that the deficit is caused by too much government which, in turn, results in slow growth.)
Again, the conservative argument for less government is post hoc.
According to conservatives, the absence of government in the marketplace causes less need for government (the argument is fallaciously "after this, therefore because of this"). It falsely argues a temporal sequence to indicate a causal relationship.
In the current case, for example, less government in the private sector caused the need for government in a measurably large, multi-trillion dollar proportion (the TARP plus the budget deficit). The variable in which "the need for government" depends (the dependant variable) is the degree of economy-of-scale. How consolidated the marketplace is (the gamma risk accumulation) determines the degree of (the need for) government presence (the gamma risk distribution).
Reducing government is dependant, therefore, on the gamma risk distribution (financial reform) being limited to largely ensuring maximum distribution of the alpha risk, or deconsolidation of the marketplace (what too-big-to-fail, economy-of-scale organizations do not want).
Starting with an unconsolidated financial sector, a model for maximizing investment in a disinflationary, pluralistic model of growth (full employment with low inflation and a high level of direct, alpha-risk accountability that renders less need for government) is entirely possible. It is what the ground-swell sentiment for change is calling for. Not a revanch of post-depression regulations, but a modality shift.
Instead of accepting the inflationary pressure of a highly restricted supply coefficient with a slow growth pattern that proliferates the economy-of-scale model of efficiency, events have transpired to support confirmation of an alternative hypothesis to the conservative model. It is a tired model being stubbornly applied despite miserable, overwhelming failure to promote the general welfare.
For example, mark-up on the current reform legislation entails derivative markets. It is a realm of finance that few people, including legislators and regulators, fully understand. This, then, is where the conservative model will be most fully supported and stubbornly applied--through swaps and futures. It is an area of the financial market that has a high capital requirement, defining an exclusive domain for large firms to apply an economy-of-scale efficiency inimical to the interests of Main Street.
Acting with minimal alpha risk and maximum gamma risk, accumulation of capital in the futures domain, with a variety of innovatively obscure investment vehicles and a regulatory arbitrage to hide the micro motive toward a macro effect, indicates low growth and impending crisis.
Innovative proliferation of "risk-transfer products" instead of investment in alpha risk distribution will surely trend into crisis. Accumulation of capital into derivatives will not support the value of its previous repository of toxic waste. This will be very damaging to the economy and must be hidden in some way despite the effort to make it all more transparent and accountable.
Even though derivative markets may be rendered more visible, it will be a means of influence that is more visibly not understood. The effect--manipulation of markets and trends with a highly limited risk of liability (accountability) to the consequences--will be the same even after the reform.
(All the means of risk transfer may be more visible, but we won't know what we're looking at until it's too late and the deed is done, just like last time. There will, of course, be those who can read the signs without being on the inside of the trade (the risk transfer), but they will be dismissed as paranoid crackpots obsessed with conspiracy theories...just like last time.)
Popular sentiment for a practical deconsolidation of power is highly salient because the benefit of the economy-of-scale model is highly exclusive. It is equally clear that accountability proportionally diminishes with the accumulation of wealth in the form of power.
It is clear that power does not trickle-down. It consolidates. It achieves an economy of scale. The risk of liability to the reward is so diminished (so consolidated) that bad behavior is reinforced and good behavior is not fit to survive, trading the alpha risk for gamma risk ("risk-transfer" being the "product").
Advocates of too-big-to-fail, economy-of-scale efficiencies argue that the bigger the firm, the more risk can be taken. Contrary to these advocates, and proponents of reform, however, the accumulation of risk that results is not the problem to be managed, it is the size of the firms.
Supposedly, unfettered consolidation of industry and markets (falsely refered to as free-market economics) allows for a level of risk to effect a level of economic innovation and growth (achieving a greater coefficiency) than the model of pluralism (free-market economics) will allow.
It turns out, however, that economy-of-scale efficiencies accrue massive systemic risk and unemployment (slow-to-no growth). The touted coefficiency is apparently to be found elsewhere.
It is no coincidence that equities are getting support as we proceed with a jobless recovery. This is not a function of capital formation, but a zero-sum coefficiency that was very clearly indicated well before the current crisis.
When capital was being overleveraged in the name of capital formation to achieve a high level of growth and employment, but resulted in negative growth and unemployment, crisis was being indicated by the level of risk. The gamma risk (the need for government intervention and the lack of free market economics), for example, finally reached a critical, crisis proportion. Bankers and government officials met on a weekend in the middle of the night to devise an ad hoc plan to allay what was, by mainstream, Ivy-League analyses, a high level of risk that did not exist.
Even though the risk was being hidden in dark-market investment vehicles and schemes does not mean it was not detectable.
Deniable but not undetectable, the perpetrators of this enormous fraud knew about the high level of accumulated risk because they were executing it, and the victims lost value in zero-sum.
Unemployment has added value to equities that were sold off in a panic to institutional investors. That value will be retailed back to small investors at a profit looking to recoup their losses on these and other assests lost (sold off) in the recessionary trend. When added to the value of borrowing at near zero rates to buy treasuries to be retailed at three-times the rate, banks continue to gain value at the expense of smaller victims who remain to pay the public debt being bought and sold by the banks to "finance" it. The zero-sum detriment side to the "trade" of "risk-transfer products" entails a gamma risk and a lack of public trust at a level of unsustainably monumental proportion.
Despite the inherent, unavoidable accumulation of gamma risk, the Hamiltonian model is well conserved and fully operational as long as the accumulated benefit is not the source of the distribution. The means of accomplishing this undergoes innovation culminating, along with the over-accumulation of gamma risk, in regulatory reform.
The risk to conserving the current practical model is to ensure maximum alpha-risk distribution financed through a progressive tax code (reorganizing the model for pluralism financed from the accumulated benefit in a disinflationary, rather than a deflationary or inflationary, manner).
The progressive code we have now, with a public debt progressing exponentially beyond revenues, serves to conserve the problem toward application of a solution. The risk of inflation is extremely high because the distribution is coming from a budget deficit funded from money borrowed from the accumulated benefit.
It's the dog chasing its tail. The public expenditure, with interest, overruns the ability to pay the debt without either inflating or deflating the economy.
(Inflation will be the policy preference because it has a distributive quality while still accumulating gamma risk.)
The gamma risk, instead of being reduced, just keeps accumulating to a crisis proportion. That proportion, of course, anchors the mission of reform to limiting the gamma risk to a non-crisis proportion.
If the choice is adversely inflation or deflation, the risk of crisis is very clearly indicated for the near and long term, especially if we reform the financial system by conserving accumulation of risk organized into economy-of-scale efficiencies, or too big to fail, which is what the $50 billion emergency fund is for.
Saturday, April 17, 2010
Crisis Indicators and Financial Regulatory Reform
Regulatory reform of financial markets is proposed to indicate the probability of crisis.
Big banks shorting the markets they are "making" is a clear signal of impending crisis, but it cannot be in the dark. If the market signals are privileged (legally private--proprietary--information), then it is not a free market.
The lack of a free market creates a coefficiency of government regulation and regulatory capture to maintain a legitimately high risk/reward to liability ratio.
Going short was an easy call going into the latest liquidity crisis. If our too-big-to-fail banks, with their economy-of-scale efficiency to raise capital for investment to achieve economic growth and full employment, were leveraging the capital into counter-party arbitrage (selling capital instruments to each other) and not growth, the legitimate use (the utilitarian legitimacy) of the capital was false. The growth--the financial support--was not there to support the collateral on the debt. The result was easily predictable--easily engineered with consolidation of industry and markets.
Efficiency of the allowed, unregulated, integration of markets and accumulation of the capital was a fraud. Its legitimacy was as synthetic as the CDO's it produced instead of economic growth.
Since consolidation produced CDO's and not growth, shorting the entire economy with trillions of dollars of overleveraged capital (a private-sector expansion of the money supply that resulted in inflation without growth but attributed to too much government spending) was an easy call because that is what this "system" of finance is designed to do.
Consolidation of wealth, and power, is the measurable liability of the fraud. The value of capital converted into private property is now being processed legislatively and judicially into a legitimate consolidation of that value.
Regulatory reform functions to confirm consolidation of the value, reduce the risk of liability (the retributive value), and validate the too-big-to-fail (economy-of-scale) organizational model that "makes" the systemic risk. Surviving that risk (being too big to fail) is, then, the model of success instead of a free-market ontological legitimacy that does not require all that government support.
When large, integrated financial firms describe their activity as beneficially "making" markets, they are in fact making (rigging) the market for their command and control in the name of free-market economics. It is a systematic, organized consolidation of industry and markets that is generally inimical to a free society and is to be prevented by first ensuring financial markets be free and un-consolidated.
An unconsolidated financial sector will maximize probable investment in a disinflationary, pluralistic model of growth. Without it, instead of a free market we have a highly restricted supply as result of a slow-growth (unemployment) pattern of consolidation, causing inflationary pressure that creates the economy-of-scale model of efficiency.
The efficiency is, then, post hoc (the fallacy of arguing, "after this, therefore because of this"). It is a false efficiency-argument because the efficiency depends on the degree of allowable consolidation (as in "we need efficiency therefore we consolidate," rather than, "we consolidate therefore we need efficiency").
Consolidation of industry and markets immediately indicates a high level of accumulated risk, not its reduction. It is a highly visible indicator of crisis (along with being illogical).
The best way to "ensure big banks pay for the mistakes they make and not taxpayers" is to ensure they are not too big. They must be de-consolidated so that the liability is equivalent to the risk as it is in a free-and-unconsolidated marketplace without all that need for government regulation.
Big banks shorting the markets they are "making" is a clear signal of impending crisis, but it cannot be in the dark. If the market signals are privileged (legally private--proprietary--information), then it is not a free market.
The lack of a free market creates a coefficiency of government regulation and regulatory capture to maintain a legitimately high risk/reward to liability ratio.
Going short was an easy call going into the latest liquidity crisis. If our too-big-to-fail banks, with their economy-of-scale efficiency to raise capital for investment to achieve economic growth and full employment, were leveraging the capital into counter-party arbitrage (selling capital instruments to each other) and not growth, the legitimate use (the utilitarian legitimacy) of the capital was false. The growth--the financial support--was not there to support the collateral on the debt. The result was easily predictable--easily engineered with consolidation of industry and markets.
Efficiency of the allowed, unregulated, integration of markets and accumulation of the capital was a fraud. Its legitimacy was as synthetic as the CDO's it produced instead of economic growth.
Since consolidation produced CDO's and not growth, shorting the entire economy with trillions of dollars of overleveraged capital (a private-sector expansion of the money supply that resulted in inflation without growth but attributed to too much government spending) was an easy call because that is what this "system" of finance is designed to do.
Consolidation of wealth, and power, is the measurable liability of the fraud. The value of capital converted into private property is now being processed legislatively and judicially into a legitimate consolidation of that value.
Regulatory reform functions to confirm consolidation of the value, reduce the risk of liability (the retributive value), and validate the too-big-to-fail (economy-of-scale) organizational model that "makes" the systemic risk. Surviving that risk (being too big to fail) is, then, the model of success instead of a free-market ontological legitimacy that does not require all that government support.
When large, integrated financial firms describe their activity as beneficially "making" markets, they are in fact making (rigging) the market for their command and control in the name of free-market economics. It is a systematic, organized consolidation of industry and markets that is generally inimical to a free society and is to be prevented by first ensuring financial markets be free and un-consolidated.
An unconsolidated financial sector will maximize probable investment in a disinflationary, pluralistic model of growth. Without it, instead of a free market we have a highly restricted supply as result of a slow-growth (unemployment) pattern of consolidation, causing inflationary pressure that creates the economy-of-scale model of efficiency.
The efficiency is, then, post hoc (the fallacy of arguing, "after this, therefore because of this"). It is a false efficiency-argument because the efficiency depends on the degree of allowable consolidation (as in "we need efficiency therefore we consolidate," rather than, "we consolidate therefore we need efficiency").
Consolidation of industry and markets immediately indicates a high level of accumulated risk, not its reduction. It is a highly visible indicator of crisis (along with being illogical).
The best way to "ensure big banks pay for the mistakes they make and not taxpayers" is to ensure they are not too big. They must be de-consolidated so that the liability is equivalent to the risk as it is in a free-and-unconsolidated marketplace without all that need for government regulation.
Thursday, April 15, 2010
Risk Coefficients and Crisis Indicators: Organizing Risk With Liability
Financial reform proponents argue for an early warning mechanism.
Since crises cannot be prevented, being the result of an organized ontology and the business cycle, warning signals, according to Democratic lawmakers, need to be incorporated into the practical model that indicate a probable-risk coefficiency. When the risk is high, measures will be taken to reduce that risk, conserving the model that accumulates it. Its efficiency is then maximized with minimal risk.
The coefficiency is descriptively a command and control, organizational teleology. However, it will be disguised as a measure for controlling the exculpatory ontology of an unfettered free-market economics. It will be sold as the means for saving the free market when it is actually minimizing it to favor an economy-of-scale coefficiency that consolidates political and economic power (accumulating risk) into a crisis proportion.
The reform is not designed to diffuse risk, but to keep it consolidated. All the accrued benefits and detriments (the Hamiltonian hierarchy of incentives) are fully conserved and operational, but with a brand new wardrobe.
The intent of reform is to disassociate risk, like systemic risk, with liability. The risk coefficient is designed to limit the liability associated with accumulation of a benefit that, if not the result of a free-market ontology, has a highly probable retributive value.
An accumulated value at very high risk is likely to be retributed if not passed through a legitimacy of due process which the reform is to provide. The process effectively organizes the risk with the liability (a coefficiency) that scores the distribution of rewards and deprivations as legitimately true and final.
The risk, however, accumulates rather than dissipates, and allowing firms to consolidate into organizatins that are too big to fail is prima facie evidence of the crisis to be avoided.
If we really want to organize the risk with liability in order to disincentivize the accumulation of risk because there is no liability, we should ensure a free-market mechanism in priority. That is the change, the reform, we need.
The free market directly sanctions the risk with liability. It is a coefficiency to be supported, not resisted with the current reform being proposed which is to allow for failure without a free-market coefficiency.
Without plurality of industry and markets, allowing for failure is catastrophic because the risk accumulates into an economy of scale, or into a crisis proportion.
Risk is limited to the liability in a free marketplace. If the risk is being accumulated and shifted to the system in the guise of an unavoidable and exculpatory ontology, like we have now, the excess of risk to liability has a crisis coefficiency of 100 percent and indicates the lack of a true and legitimate free-market ontology.
Since crises cannot be prevented, being the result of an organized ontology and the business cycle, warning signals, according to Democratic lawmakers, need to be incorporated into the practical model that indicate a probable-risk coefficiency. When the risk is high, measures will be taken to reduce that risk, conserving the model that accumulates it. Its efficiency is then maximized with minimal risk.
The coefficiency is descriptively a command and control, organizational teleology. However, it will be disguised as a measure for controlling the exculpatory ontology of an unfettered free-market economics. It will be sold as the means for saving the free market when it is actually minimizing it to favor an economy-of-scale coefficiency that consolidates political and economic power (accumulating risk) into a crisis proportion.
The reform is not designed to diffuse risk, but to keep it consolidated. All the accrued benefits and detriments (the Hamiltonian hierarchy of incentives) are fully conserved and operational, but with a brand new wardrobe.
The intent of reform is to disassociate risk, like systemic risk, with liability. The risk coefficient is designed to limit the liability associated with accumulation of a benefit that, if not the result of a free-market ontology, has a highly probable retributive value.
An accumulated value at very high risk is likely to be retributed if not passed through a legitimacy of due process which the reform is to provide. The process effectively organizes the risk with the liability (a coefficiency) that scores the distribution of rewards and deprivations as legitimately true and final.
The risk, however, accumulates rather than dissipates, and allowing firms to consolidate into organizatins that are too big to fail is prima facie evidence of the crisis to be avoided.
If we really want to organize the risk with liability in order to disincentivize the accumulation of risk because there is no liability, we should ensure a free-market mechanism in priority. That is the change, the reform, we need.
The free market directly sanctions the risk with liability. It is a coefficiency to be supported, not resisted with the current reform being proposed which is to allow for failure without a free-market coefficiency.
Without plurality of industry and markets, allowing for failure is catastrophic because the risk accumulates into an economy of scale, or into a crisis proportion.
Risk is limited to the liability in a free marketplace. If the risk is being accumulated and shifted to the system in the guise of an unavoidable and exculpatory ontology, like we have now, the excess of risk to liability has a crisis coefficiency of 100 percent and indicates the lack of a true and legitimate free-market ontology.
Financial Reform: Support and Resistance Indicators
Analysts discern the practical model being used for the development of public policy by identifying patterns and relative levels of support and resistance.
As the congressional debate proceeds on financial reform following the crisis in 2008, both parties are predictably poised to define the problem as the solution.
Democrats argue their reforms will end the too-big-to-fail organizational ontology that commands government bailouts. The Republican party, in faux opposition, contends proposed reform will "institutionalize government bailouts."
Equity valuations for large banks are getting support because the probability that any reform will end the too-big-to-fail model is virtually none.
While the Republican critique is correct, the party's solution to the problem is to stand in opposition to reform. The overall effect is to support the problem (and the associated equity valuations).
The entire reform process is in a prima facie state of regulatory capture to conserve the economy-of-scale modeling that consolidates wealth and power.
It is no coincidence that Wal Mart, in the midst of the recessionary trend, has now surpassed Exxon-Mobil at the top of the Fortune 500 list of largest companies. Consolidation into economy-of-scale "efficiencies" both precipitates the recessionary trend and validates the value of the efficiency.
As long as the means of consolidation is conserved, subsequent measures to counter its negative effects and support an economic recovery, like a more progressive tax code by letting the Bush tax cuts expire, for example, are rendered ineffective. The recessionary trend (unemployment) and equity values get support while a less accomodative monetary policy is resisted. Cheap money is available to the too-big-to-fail banks through the discount window to finance mergers and acquisitions (the economy of scale efficiency). The problem is supported, the solution is resisted.
A persistent recessionary trend will then be blamed on a progressive code and a value-added tax will be installed to finance the deficit in Hamiltonian fashion (with a regressive tax burden).
Since the tax on the value added is included in the consumer price, the tax increase will be regressive and deflationary (reducing demand), supporting the recessionary trend and the budget deficit while resisting higher interest rates.
The type and strength of support and resistance strongly indicates a persistent stagflationary trend that supports an arbitrage economy with high volatility, expertly engineered to favor firms that are too big to fail and a system of finance designed to generate profits without employment or economic growth.
While the reform debate correctly identifies the problem to be solved as organizational, it critically fails to identify that being "too big" is the determining variable. The practical model in operation is decidely, then, not pluralistic.
If analysts and policymakers rely on the pluralistic model for a predictive utility, the model will predictably fail.
Being organized "too big" will predictably fail the model of pluralism.
Government bailouts are necessary to avoid the catastrophic consequences of conserving the Hamiltonian model in a post industrial society.
The solution is to finance a more pluralistic model, not a more consolidated one.
As the congressional debate proceeds on financial reform following the crisis in 2008, both parties are predictably poised to define the problem as the solution.
Democrats argue their reforms will end the too-big-to-fail organizational ontology that commands government bailouts. The Republican party, in faux opposition, contends proposed reform will "institutionalize government bailouts."
Equity valuations for large banks are getting support because the probability that any reform will end the too-big-to-fail model is virtually none.
While the Republican critique is correct, the party's solution to the problem is to stand in opposition to reform. The overall effect is to support the problem (and the associated equity valuations).
The entire reform process is in a prima facie state of regulatory capture to conserve the economy-of-scale modeling that consolidates wealth and power.
It is no coincidence that Wal Mart, in the midst of the recessionary trend, has now surpassed Exxon-Mobil at the top of the Fortune 500 list of largest companies. Consolidation into economy-of-scale "efficiencies" both precipitates the recessionary trend and validates the value of the efficiency.
As long as the means of consolidation is conserved, subsequent measures to counter its negative effects and support an economic recovery, like a more progressive tax code by letting the Bush tax cuts expire, for example, are rendered ineffective. The recessionary trend (unemployment) and equity values get support while a less accomodative monetary policy is resisted. Cheap money is available to the too-big-to-fail banks through the discount window to finance mergers and acquisitions (the economy of scale efficiency). The problem is supported, the solution is resisted.
A persistent recessionary trend will then be blamed on a progressive code and a value-added tax will be installed to finance the deficit in Hamiltonian fashion (with a regressive tax burden).
Since the tax on the value added is included in the consumer price, the tax increase will be regressive and deflationary (reducing demand), supporting the recessionary trend and the budget deficit while resisting higher interest rates.
The type and strength of support and resistance strongly indicates a persistent stagflationary trend that supports an arbitrage economy with high volatility, expertly engineered to favor firms that are too big to fail and a system of finance designed to generate profits without employment or economic growth.
While the reform debate correctly identifies the problem to be solved as organizational, it critically fails to identify that being "too big" is the determining variable. The practical model in operation is decidely, then, not pluralistic.
If analysts and policymakers rely on the pluralistic model for a predictive utility, the model will predictably fail.
Being organized "too big" will predictably fail the model of pluralism.
Government bailouts are necessary to avoid the catastrophic consequences of conserving the Hamiltonian model in a post industrial society.
The solution is to finance a more pluralistic model, not a more consolidated one.
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