The Wind and the Lion

I always worry about a Paper which has a disclaimer that it should not be cited without prior permission; it being a flag that the authors doubt their own Words, and are reluctant to face quotation for the rest of their existence. The only flaw in the Paper, as in derivatives, is the proposition that One can sell and buy Risk. You have to delve into the quality of Risk to understand that there is a complication with such a Theory. Risk used to be discussed in terms of Spread; a Concept to which We must return again. Risk cannot be bought, sold, or devolved as long as there are singular Choke-points where the Whole can fail because of the position power of One participant. The Mortgage will fail, as Case in Point, throughout all its parts if the Mortgage-Holder ceases to meet his Contract obligations. It is at this exact Point where the derivatives are supposed to function, but actually expresses its real failure. Why? If the Mortgage-Holder meets his obligations, then none of the Contracts owe anything; if the Mortgage fails, then all Contracts owe the entirety of the Contract. One debt has bloomed into multi-debts all equal in size; the Mood of the retraction bad, as the Debtors face complete loss of all Profits made from the derivatives markets at rates greater than the original Profits. This means that they have to repay the entire sum of the Mortgage, without any Gain as in their original activities; i.e., the Repayment process costs them personally the total Cost of all Profiteering originally taken, and they don’t really like it much.

Rdan at Angry Bear quotes Donald Luskin, who wants Everyone to know that the American economy is not that bad. I agree with Luskin on the technicals, but will assert that such discussion does not venture into the real area of economic injury in the United State and World. The Financials are where Everyone stored their Profits through the last Two Booms, be it by Mortgage-financed Property acquisition, or by Investment in Financials through the Equity markets. Financials had provided observable Investment potential within an environment showing only Investment in Small Business with massive Management supervision, or super-sized Investments requiring huge equity to be obtained only by Financials. The Profits from successful Economic Rewards ran to the Financials. The trouble arrived when the real Economy refused to pay Financials similar Profits as it did to actual Production capacity, and Financials reverted to a Shell Game to draft more Profits–called Derivatives. Financials suddenly was making more Money than ordinary Production by a continuous re-lending to itself simply to claim a growing source of Capital and high Profitability. The Crisis came when the Economy still would not pay more to Financials from ordinary Production operations. lgl