The Propriety of Risk Management

Probable risk has mathematical expression. Wall Street quants give it that expression. They quantify risk and build models like building molecules at the atomic level. Since the process uses the tools of science, the result is described as “objective reality.” Yielding value from the risk is like yielding a product from a recombined, DNA molecule. It just is what it is every time.

Quants build risk models used at the proprietary desks of big banks and insurers, essentially using your money against you. The means to ends is proprietary. It is private property. It is used to gain capital, which accumulates risk (keep in mind the pawn-broker model previously discussed), converting property on demand without risk of liability now. Although being “on demand” suggests property is converted by consent, it is actually coerced (derived) by circumstances that yield “the risk” in a macro dimension, commanded and controlled in a black box called derivatives markets, accumulating (banking) the liability (the propriety of the risk-value) into the future.

In derivatives markets, risk is banked in the future to yield value now. The risk commonly associated with owning a home is not as a deliverable commodity, but when its asset value is securitized, for example, the rent can go up while the value of the home goes down to render a risk-value in backwardation.

For the homeowner, to render the value in contango, the home would have to be sold to avoid (hedge) the probable risk and buy it back later. Not very practical unless you own another house, and if you did, it would probably be hocked to pay the rents.

A monster liability has been created. If the monster deliberately runs wild, like Republicans say it will if they don’t get what they want when they want it on demand, the liability is so scary, allowing the probable risk-value to cashier is beyond any sense of propriety.

Advertisements

About griffithlighton

musician-composer, artist, writer, philosopher and political economist (M.A.)
This entry was posted in Political-Economy and Philosophy and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s