Know Your ABS’s

Asset-Backed Securities

Naturally, your house is worth more if you can sell it when you want to and not if you have to. What is the advantage to you if you have to sell on demand, especially if there is plentiful supply because of a deflationary trend like the Great Recession. Now that you have to work more for less, if you can get work at all, your capacity to make demands is permanently pent up–it is “the new normal.” You have been, technically, corrected and, with supply being plentiful, delivered to the lowest bidder on demand.

After the financial crisis in 2008, homes were in plentiful supply by default. When assets are plentiful, underlying financial instruments can be used to fix the price in the futures by arbitrage. In late order, however, as we have seen, with homes having been bought by wholesale investors like Berkshire Hathaway/Bank of America, even though demand is falling homes are considered to be in short supply. This is called hording.

Hording is consolidation of assets to fix the price. Price fixing is still a crime against the state, remembering that the king was likely to behead horders.

Now we have the Commodity Futures Trade Modernization Act. People are free to horde because it makes the marketplace more efficient–it yields to natural identity.

Being modernized (free of the king’s regulatory constraints), the CFTMA (which President Clinton was glad to sign so we can take delivery of assets in plentiful supply), allows price fixing to occur in dark pools. These are pools of toxic waste; asset classes that operate to fix prices against plentiful supply–bad medicine to be taken on delivery making us sick so the best and the brightest can make us all better in the futures.

Price fixing is a crime. If you happen to be running for public office it is probably not wise to consort with firms that fix prices in the dark or seek their advice on how to fix what they are naturally prone to break by occupation!

It is best to know what is behind these dark, exclusive, asset classes. A collateralized debt obligation, for example, is supposed to make the market more efficient. It is an asset-backed security touted to be a financial market innovation that reduces the probable risk–but to what, exactly?

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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.

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