Assumption of Risk: Internalizing the Debt

Externalizing risk also externalizes debt.

The Hamiltonian model, for example, is expected to yield the certain value of risk in the form of public debt. The risk to the accumulated value is assumed by the full faith and credit of the government. It is the perfect environment for externalizing risk and an accumulation of debt to manage the externalities.

Both the public debt and the authority to pay it has an absolute value. The risk, and the valuation of the risk, goes gamma, and if it is not purposefully managed into an alpha-risk ontology, the externalized gamma risk accumulates into a crisis ontology (The Iron Law).

British Petroleum, for example, intends to maximize the government's assumption of the risk and limit its liability for the Deep Horizon disaster with the economy-of-scale proportion of its firm.

The U.S. has a big appetitie for the oil BP produces, and an inelastic demand supports dependance on large firms like BP, rendering them too big to fail. Despite the government's resistance to assume the risk, the damage will be rendered an externality that falls in the public domain. Debt externalizes with the risk--a perfect fit to the Hamiltonian model.

Public debt on the externality reduces the risk to BP's margin.

Contrary to its described efficiency, the amount of risk assumed by an economy-of-scale reduces rather than increases. The result is a false coefficiency of private profit to public benefit.

The public both assumes the risk and pays the debt bought by income valued with externalized risk. The market is rigged for accumulation of debt that conserves the value of assumed risk--the higher the income, the less risk assumed.

Debt to be paid by the risk-holders (risk being determined by the regressive value of income, or the economy-of-scale coefficiency), renders the risk-holders with non-elite income devalued with the assumption of risk. Contrary to the legitimate risk/reward hypothesis, the party with the least risk (the economy of scale) gains the most reward, conforming to a model of assumed risk (the value of risk) that is descriptively Hamiltonian.

Income is either elite (internal and private) or non-elite (external and public) to support the value of the risk in zero-sum. The sum is accumulated with the legitimacy of providing the funding (the externalized debt) the non-elite need to survive economic distress (the externality of assumed risk) without sacrificing the capital (the internalized benefit of the externality) needed to relieve the stress.

In order to participate in the economy, there is an assumption of risk, and if risk is being externalized (transferred) and accumulated into an economy-of-scale crisis proportion, resulting in a budget deficit (like we have now), the participant also assumes the debt in proportion to income. The debt externalizes with the risk.

The simple, easily accomplished solution that requires very little government intervention is to internalize the debt, realigning the assumption of risk with firm risk.

Aligning externalities with firm risk will revalue both the debt and the-risk-to-the-debt to reflect both the source of the risk and the reward associated with it. Mortgages, for example, that do not reflect the present value of externalized risk (the ability to pay it) will default in a crisis proportion. The "austerity" required to give value to the debt (the reward) is then retributively valued, presenting a high level of gamma risk with beta-risk volatility. The beta re-presents the retributive value in variuos forms to mask the true source of the value (the externalized assumption of risk).

The same valuation-of-risk dynamic occurs with the sovereign-debt crisis, now fully involved with identifying the debtors (the party that assumes the risk) and the creditors (the party that collects the reward of the risk assumed). Since the risk is externalized, and the reward is detached from the risk taker, the value of the risk/reward is an arbitraged value of uncertainty to avert the value being transformed into the certain value of a redeemable gamma risk (the present value of margin without growth, or the amount of risk externalized into debt).

Internalizing the debt with the assumption of risk, uncertainty will reduce to the value of firm risk and distribute the "austerity" needed to give the debt value a disinflationary presence rather than a destabilizing, deflationary trend.

Internalizing the Risk

When alpha risk is externalized and accumulated into a gamma-risk ontology (managed by government authority, like bailing out the financial system to avert collapse), the value of the risk is highly uncertain.

Extreme beta volatility results from the more uncertain value of the risk.

What is the risk discount or premium of any particular firm in any particular sector going forward?

The present value (based on expected future value) is uncertain because the risk is externalized and accumulated into a gamma-risk, economy-of-scale proportion.

By consolidating risk in the public domain, systemic, gamma-risk management is subject to political sentiment and regulatory arbitrage. Despite the effort assumed to reduce the beta, the value of the risk is nevertheless unstable, which provides fertile ground to arbitrage the risk (the derivatives market).

The source of the instability is not the public sector, it is the private sector. The public sector is the problem post hoc, empowered with the popular demand for economic stability the private sector does not provide because it is allowed to externalize the risk.

Rather than being a post-hoc extension of the problem, if the public sector were to respond with reform that internalizes the risk, the problem will be solved.

Instead, risk is stabilized with pro-cyclical value. The beta is transformed into a gamma-risk ontology, rather than alpha-risk. The gamma ontology algorythmically provides both the value of certainty and the appearance of legitimate process at the same time.

The risk appears to be an unstoppable, cyclical ontology. The best we can do, then, according to economy-of-scale proponents, is externalize and consolidate risk into "the systemic risk." Government authority is then empowered to manage the externalized risk into the stability of an expected value (what we have now).

It is necessary to be "big" in order to protect productive capacity (economic growth) from all that external risk. Small firms are at a disadvantage to management of external risk (the operation of government authority).

An ontology of externailzed risk is created that rigs the market to favor firms that are too big to fail and externalize the risk.

Not only are small firms that create jobs put at a disadvantage, but the mechanism that internalizes risk--free-market economics--is de-operationalized.

The bailout subsidized beta risk, so we have more of it, which accumulates into a gamma-risk ontology. The result is a risk "tautology" that recycles risk from beta to gamma, falsely argued to be a free-market ontology.

If there was a free-market ontology in operation, the risk would be internalized alpha risk. Firms would be allowed to fail without "fear" (the risk) of systemic failure.

In a free-market system, the corrupt always operate with the fear of failure. In order to succeed with abusive, corrupt and otherwise unproductive practices that result in a zero-sum game, it is necessary to externalize the risk. The effect is a tautology of risk in the guise of an unavoidable, natural ontology that supports "The Iron Law of Oligarchy."

Government that is constitutionally empowered to ensure the general welfare does not operate to support oligarchs, as Alexander Hamilton contended it should. It allows everyone to assume the risk of life, liberty and the pursuit of happiness without being enslaved to tyrants who operate without fear of failure with the force and legitimacy of government authority (the gamma risk ontology).

Sovereign authority does not have to operate for consolidation of power and the accumulation of risk. It can be for deconsolidation of power and the disaggregation of risk.

An alpha risk ontology can be established and conserved with the force and legitimacy of sovereign (gamma risk) authority, endowed by Nature, forming a power structure in which aspiring elites operate only by the will of the non-elite. We then achieve the ideal, republican form of government Thomas Jefferson envisioned, allowing for a natural ontology that neither operates despite free will, or assumes the value of a more competent elite, but authentically empowers free will right down to each and every individual with value that is all but uncertain.

The sooner we start internalizing the risk, the sooner we realize the value of freedom and responsibility, rendering what appears to be an improbable ontology, like "the meek shall inheret the earth," the empirical value of a testable hypothesis, rather than the mere muse of moral sentiment.

Internalizing the risk, ensuring the ontology of alpha risk in priority, will smooth the risk volatility and provide the certainty needed for pro-growth investment. Risk will then be valued more on growth (pluralistic expansion) than the value of consolidation (economy-of-scale contraction).

With the more certain value of internalized risk, the small business is more likely to assume the risk for economic expansion.

Externalizing the Risk

The formula for maximizing margin is to minimize the risk to that margin.

As an economy consolidates into economies of scale to reduce the alpha risk, the risk accumulates into beta and gamma risk. Since the risk has been detached from the alpha fundament, and it has to go somewhere, the formula for maximizing margin then becomes: internalize the profit and externalize the risk. The result is the economic condition we are in now with large, consolidated corporates accumulating profit and distributing the risk.

Profit is detached from the risk, increasing the marginal profit. The risk is transformed, not reduced, and redistributed without the profit. The risk is transformed into crises that cyclically occur at a depth and frequency of the distribution. Currently, the risk has become so external to the profit we now see the prospect of a lengthy recession and a possible double dip with the threat of deflation.

When the profit does not distribute with the risk, gamma risk accumulates and crisis will occur.

In the form of alpha risk, profit distributes with the risk, providing a disinflationary, distributive, pluralistic benefit to the market.

Accumulation of value, on the other hand, like we see with an economy-of-scale efficiency, provides a non-distributive, non-pluralistic, inflationary benefit (the marginal profit). The accumulated benefit harbors the risk of deflation--negative growth, unemployment and declining prices (general economic crisis that causes the need for authoritarian management of the risk, or The Iron Law of Oligarchy and emergence of The Iron Triangle form of government).

By ensuring an alpha-risk distribution, pursuit of profit not only externalizes as reciprocal value, providing goods and services with good and adequate consideration, but also imparts a distributive value that stabilizes prices with adequate, disinflationary liquidity. The result is positive growth with declining unemployment, debt reduction, and reduction of systemic risk at the unaccumulated fundament.

Alpha management of accumulated (externalized) gamma risk is a strategy that could have been easily employed by the Obama Administration and a Democratic congress.

Instead, the government (The Iron Triangle) engaged an inflationary risk-management program (described as "Keynesian") that has kept the risk external to the profit (thus, the bull market up to now, and the false signal of being descriptively pro-growth).

A top-down, trickle-down Hamiltonian model is to command and control systemic-risk (business cycle volatility), not reduce it.

Employed by the Obama administration and Congress, the Hamiltonian model of finance has supported a recessionary trend and increases the probability of a deflationary dip (lack of demand to support growth). Instead of alpha-risk stability, they achieved beta-risk volatility--exactly what we do not need.

In the alpha form, risk to the profit margin inherently distributes with the benefit. The margin is then at verifiable risk, accountable, to the free choice of market participants. When that choice is minimized by organized consolidation, internalizing the profit by externalizing the risk, the risk goes gamma.

With organized consolidation of the risk, managed in the aggregate (externalized) independant of the profit margin, the present value of the risk goes beta. Its marginal value becomes more dependant on political sentiment. It is more difficult to measure and, with a more uncertain future value, more volatile.

A speculative market (regulatory arbitrage) then emerges to command and control the gamma risk, and the beta volatility, in the guise of reducing it.

The bureaucratic model of power and political economy emerges (The Iron Triangle) to conserve the distributive value of the Hamiltonian model. This neo-conservative, post-industrial innovation of the model, especially after the Great Depression, provides "the risk" with a predictable presence of value.

The purpose of the neo-conservative model is to phenomenologize a legitimacy of internalized risk. It is a false legitimacy with power literally being a top-down "derivative."

The risk to gaining power and keeping it is not a pluralistic ontology, like a free-market legitimacy, derived from the bottom up. It is being imposed from the top down.

Alpha-risk modeling that ensures a free-market mechanism is what genuinely internalizes "the risk" so we are not slaves to the Iron Law.

Conserving the Value of the Risk

Pending financial reform will conserve the present value of the risk in a fractile, chaotic oscillation.

In order to forge order from the chaos, fitting the assumptions of the Hamiltonian model, the fractile dynamic demands an economy-of-scale efficiency. Reform is designed to conserve a financial system with an efficiency for "making markets" to command the risk.

According to lawmakers and the executive, the reform provides protection for everybody. Main Street is protected from Wall Street, and Wall Street is protected from Main Street.

It is assumed that as long as the risk of systemic failure can be controlled, big financial firms will "make the market" so that the consolidation of risk has useful value other than generating profit without growth--the source of the risk.

The reform does not consider hedge-funds and private equity firms a source of systemic risk, but a source of disinflationary capital, providing financing for small businesses.

The assessement is entirely incorrect. Reform, however, protects tax breaks for hedge-funds and private equity, for example, that do most of their business with Goldman Sachs, and will surely cultivate the next crisis reformers correctly predict, but incorrectly support.

Since pro-growth capital is not likely, having no mandate because the risk of failure will supposedly prevent overleveraging, the reform provides a fail-safe mechanism to protect the public from overaccumulated amounts of leveraged risk. At the same time, the accumulated reward of the risk is protected from the accrued retributive value, conserving the value of the risk.

As financial reform nears reconciliation, support for financial equities supports the hypothesis of conserved risk value.

It was an easy call, clearly indicated by an unwillingness to disaggregate the risk. Instead, reform measures will consolidate financial markets further
in the event of an overleveraged crisis of fractile risk that the Senate Banking Committee chairman says will surely happen.

Despite reform that calls for the orderly resolution of fractile risk, the causal factors of accumulated risk are conserved and supported by the resolution authority, which is exacly what we do not need.

The reform buys-in to the use-value of conserving the risk and the too-big-to-fail organizations that both create the risk and value the presence of the risk into a fractile, chaotic volatility. As the risk compounds and accumulates into a crisis proportion, the technical expertise of big-bank executives and staff that get it there will then resolve the risk and consolidate it into a bigger, too-big-to-fail economy of scale. It is the problem offered as the solution and, again, an easy call.

Despite the authority reform will endow to resolve firms that overleverage the capital into crisis, the cost of unemployment, for example, and lost productivity is not included in the concept of not providing a bailout. These costs are just as much a bailout for too-big-to-fail firms because they benefit from it in addition to the big profits made causing them. The value of the "big risk" is every bit conserved.

Investors can expect the risk differentials to be essentially the same. The daily narrative of present value will set up sudden inversions that require a close monitor of massive accumulation and distribution of capital that manipulate future value with an aversive sentiment.

The reform is not risk averse. It is risk prone, which drives market sentiment into sudden and salient oscillations of greed and fear that support the profitability of too-big-to-fail financial firms, hedge-funds, and private equity adjuncts.

Unfortunately, financial reform will give the problem to be solved the legitimacy of deliberative public process toward securing the general welfare. It will force us into adverse choices that economies of scale bundle (oligopolize) into what only appear to be a bargain in the absence of a free-market, alpha-risk ontology.

Deficiency of the Use-Value Argument

Deficiency of the use-value argument is readily apparent. The capital is absorbed into hedging the risk caused by not being invested in economic growth and stability.

Continuous use of the capital to hedge the risk--the industry of making markets through derivatives--causes the fractile transformation of risk that justifies the valuable use of consolidating it into an economy-of-scale efficiency. That is, the risk becomes so complex that it must be managed into a form that is characteristically too big to fail.

The use-value of the argument is essentially this: failure cannot occur because the risk is "too big." The argument falsely implies that resolving with alpha risk is tantamount to allowing failure, which if allowed will result in systemic failure (failure in a gamma-risk proportion).

The argument is entirely false. Alpha risk does not exist in gamma-risk proportion. It is unaccumulated risk. The risk is spread to avert accumulation, and if accumulation does occur, it will likely fail if it is an abuse of power in the alpha form without failing the whole system.

No bailouts are needed to conserve the value of alpha risk--the risk of failure. An alpha-risk system (ensuring a free-market legitimacy) is inherently risk averse.

The system we have now is verifiably risk prone.

The risk is caused by hedging it so that causing risk, rather than hedging it, is the reward. Risk becomes fractile and cumulatively unstable with risk being compounded on the probability of the risk. Risk then becomes so overweight that the probability of default is 100 percent (what Germany is trying to avert by inverting the risk hypothesis, or the expected, directed value of the risk).

Timing a market space is then a function of tracking the transference of risk, and who exactly is qualified to do that without gambling with the capital?

If you are not a favorable credit score, you are likely to lose by being positioned to intersect with the transference of risk (by always being "put at risk").

Always being put at risk, or in harm's way, naturally accumulates risk at a higher level that requires a high level of power to manage. The benefit becomes retributively valued and the risk to that value gains a gamma proportion that requires either force or finesse to conserve.

Exercising power in zero-sum does not require political finesse if it is absolute. An inscrutible derivatives market combined with the legitimacy of free-market economics provides finesse where absolute power is not legitimate, like in America where The Revolution rendered absolute power not only crude, obsolete, and unproductive, but illegal.

In the case of a free-market legitimacy, finesse is required where force cannot be legally accomplished without a risk of liability on the zero-sum. Economies of scale, however, operate with impunity because they are too big to fail, which also means they can operate with illegitimate force and stay in business. That is, economies of scale operate with minimal alpha-risk accountability. The risk is transferred, or transformed, into beta and gamma risk.

Financials are currently high beta because they are the target of regulatory reform, having accumulated excessive gamma risk (having excessively reduced the alpha-risk, cost/price-to-accountability coefficient). This is the space where finesse critically operates to prevent disaggregation of the risk to correct for an abuse of the market mechanism (the over-accumulation of risk).

Instruments used to transfer risk accumulate the risk into a bubble. Inflation and deflation of bubbles is accomplished by bundling (combining) the causal factors into the control of the elite insiders, who bundle the products to define the risk. The risk can then be inverted at will, at any particular time, in any particular space, to score a profit. The score is what makes the elite insider more credit worthy, providing the liquidity to hedge, or define, the level of "perceived" risk.

Prop desks of big banks, for example, positioned against bonds they issued for municipals, putting the bonds at higher risk, "making" a short-term profit differential at the expense of both buyers and sellers. The profit generated can only be considered legitimate if the abusive practice can be considered useful, mitigating the perceived loss in zero-sum.

The illegitimately gained benefit actually belongs to the loser, less the useful value which will largely be realized by having reduced the alpha risk. The abuse will survive the marketpace as beneficial because it is "too big" to fail. The abusive firms are not smarter than the losers, just bigger.

While economies of scale are much more credit-worthy, they are much less trustworthy. Replevin is considered to be revenge since they have "successfully" transformed alpha into beta risk. The risk of liability accumulates and transfers into the space of gamma-risk authority where it is managed to legally mitigate the possible loss to the gain, accumulating the gamma risk to a crisis proportion over time.

The perceived risk and market sentiment can be technically changed in a flash. Effective financial reform will have to deconsolidate the risk in order to keep the risk-transfer market being re-made faster than reform.

Accumulated risk must be transformed into an alpha-risk ontology in which the technical indicators reflect the fundamentals rather than the beta-risk mainpulations of collusively consolidated financial entities.

The question is then, will the specific measures offered for financial reform devolve the risk into a more fundamental form of risk ontology, utilizing the collective wisdom of a free marketplace rather than the elite manipulations of plutocracy?

Transferring Risk: Aversion and Inversion

Transferring risk is a mega industry. Not only are financial markets made to reduce perceived risk, but capital is invested to reduce fundamental, firm risk (the alpha risk).

Aversion to risk has developed into a highly technical means that results in an unexpected inversion of its indicators. The price of gold, for example, has been in an overbought condition despite the risk of inflation being low with a strong recessionary, if not a deflationary, trend.

Buying gold with the massive infusion of liquidity to resist deflation has supported both the recessionary trend and the price of gold into a market (beta-risk) bubble.

If a "market maker" wants to support the recessionary trend (unemployment) and gain capital at the same time, support commodities. The support suggests both a jobless recovery and a recovery indicated by rising commodities prices at the same time.

Rising commodity prices have been a false positive. Now, markets are worried about deflation. How can that be? The global economy is flush with anti-deflationary liquidity. The risk indicators are inverted.

If you are assessing the risk to do business, you will notice that the uncertainty (volatility of markets) does not stem from the public sector. It is doing what is fully expected--averting deflationary risk with inflation (currency devaluation). The source of uncertainty is from a consolidation of capital and risk in the hands of a few corporates in the private sector that far exceeds the monetary muscle of government spending.

According to the CFTC, the futures market is approximately a $34 trillion capital market. So, it is you versus trillions of dollars of market-making risk that can literally turn in a flash, likely determined by whatever position you have--if you are long, they are short...until you are trapped. Thus, for example, a government will protect its public policy position with the application of gamma-risk authority. Like Germany recently protecting (averting the risk to) devaluation of the Euro, by banning naked shorts on its largest financial corporates.

Germany is averse to the risk of infused capital (its devalued currency) being trapped in a speculative bubble rather than being trickled down. While the action is too late, it indicates the source of the uncertainty and instability.

Germany is also acting to invert the risk directed by the big demand for derivative-driven, risk-transfer products. In an effort to cause growth and economic stability, giving real support to the value of European debt, German authorities are doing what derivative markets purport to do.

The public and private sector are at odds (the risk aversion and inversion), struggling over who determines the distribution and timing of value (aversion), and the direction of the risk (inversion), causing a high level of uncertainty.

The aversion to, and inversion of risk (the uncertainty) has been transferred to gold, and will be transferred to other commodities with the assistance of highly technical, difficult to discern risk-transfer vehicles. The market for these aversion/inversion vehicles is made with the derivative/futures markets, which largely exist in the dark.

These denizens of the dark sneak up behind you and... surprise! The risk is suddenly reversed.

Black boxed, with the risk only apparent and available for manipulation to elite insiders who have the most credit-worthy access to the discount window, the market-risk makers command and control the distribution of the risk. Just as important is to control the narrative that explains the shifting patterns of risk, which controls both the direction of the risk and, even more important, mitigates what is otherwise a questionable free-market legitimacy.

The testable hypothesis of a free-market legitimacy is the only remaining liability of the averted (re-directed) alpha risk--the risk of accountability the averted alpha risk would otherwise provide without question, and without lengthy legal process. The more time spent applying accountability in public process, the more disconfirmed the free-market hypothesis.

To mitigate the probable risk of liability, market makers argue the use-value of making markets.

(Keep in mind that legitimacy is a critical function of power, and the exercise of power to a detriment without complaint or fear of reprisal is a measure of power. Use-value is an eristic for reconciling theory with practice; contending, for example, that reduction of alpha risk produces more useable value than the legitimacy of its full, theoretical value.)

Markets are made to hedge shifting patterns of alpha risk (that it averts) and beta risk (that it inverts). If markets are not made to absorb the risk, market makers contend, with trillions of dollars to manipulate the market, capital investment would be sub-optimal because there would be too much risk. They liquify markets by reducing the level of risk (by transferring the risk).

Pending financial reform will do well to redefine the problem by questioning the use-value of transferring risk.

Reform has been so far dominated with negotiating what the problem is, which indicates an aversion for inverting the current risk hypothesis to a more useful form of legitimate risk that distributes the austerity of the debt into a peaceful and prosperous pluralism.

Prosperity comes through retransformation of systemic risk into an alpha risk ontology, giving risk a real and present value that is peacefully verifiable.

Rather than conserving a fractile, geometric progression that appears to be the ontological legitimacy of a random walk, financial reform must consider the deficiency of the use-value eristic that falsely characterizes consolidation of risk being analagous to the legitimacy of an alpha-risk ontology.

Naked Shorts and Present Value

Naked shorts on German banks have been banned to stanch valuation of risk in derivative markets as the Euro undergoes devaluation.

Naked shorts, rather than making the market to provide liquidity, reduce the benefit of the Euro's devaluation (economic growth) and its present value.

The German economy stands to benefit significantly from a weak Euro, reducing the risk of default on loans to other EU members with a higher debt to GDP, increasing the prospect of higher economic growth for the Community.

The differential between the future and present value can be increased by naked shorts on bank equities and credit default swaps. Banks that are short, including European banks, gain capital, yielding a lower probability for economic growth which is, in turn, reflected in the current value, depreciating the positive value of its currency devaluation.

The spiraling depreciation results in the need for an even larger infusion of capital. Derivative markets (naked short interest and swaps) would then be providing liquidity to the marketplace, but by reducing present value.

Capital that operates with an economy of scale, buying insurance on the risk it commands, indicated through the "laws" (the measures) of supply and demand, taking a big short interest indicates a higher risk of default. The result is a capital gain without the growth that would reduce the probability of default.

Proponents of derivative markets posit they act to provide the liquidity for growth. The added liquidity to cover the lost presence of value will cause even more growth than would otherwise occur in the future. The argument fractionates the risk into a highly inscrutible liability with the outcome empirically verified by the debt amortized into equity value which is owned by, and visible to, the public, fully internalizing the risk and the reward.

Although the risk does undergo transference and accumulates in the public sector, derivative proponents argue, it distributes to the public with the reward derived from future fundamental value, present in the more accurate empiric of an oscillating current value representing changing market sentiment.

Rather than being externalized, and subject to regulatory authority, the risk is genuinely authored and internalized by the derivative value.

To the market observer, the argument for a useful derivatives market has a plausibly convincing, if not a forgiving quality.

Flush with liquidity, the lack of growth is then falsely attributed to a lack of economic austerity rather than the gross application of greed at the expense of growth, destabilizing markets and increasing risk to justify making the market for derivatives.

Rather than creating market stability, derivatives are being used to rig the market.

Market rigging is illegal because it is destabilizing. Instead of reducing risk, it increases it.

Being naked short on German Banks is being banned because it is market rigging, supporting speculative demand, resisting the economic growth needed to give real value to the debt. It is a zero-sum detriment that, at this point, has little-to-no risk of liability.

The tendency to short the Euro naked signals the will to deflate the global economy. Capital infusions to liquify markets after the Great Recession have been consolidated. Accumulation of the capital, rather than its benefical distribution, has a deflationary effect; and deflation of commodities, rather than inflation, will then signal a recovery.

The differential is in who controls the distribution of the value on the accumulated risk, which is what "making markets" with derivative, risk-transfer products is all about. (See recent articles about transfer and transformation of risk at griffithlighton.blogspot.com).

If the positive value of devaluation is denuded by a short interest in nothing but the value of the risk as determined by merely having that position, the market is being rigged to cause a loss in zero-sum. It is intended to liquidate the market, not liquify the market for economic growth.

Being naked short is being considered a financial obscenity because it produces a highly restricted value that distributes to too-big-to-fail economies of scale, which includes the banks being protected by the ban.

Ironically, banning naked shorts will do more to prevent nationalizing what is too big to fail than what being too big to fail is intended to prevent--socializing both the risk AND the reward into a present value.