The promise of an ETF is diversity and liquidity. The peril of the Exchange Traded Fund is its “bundled value” (the “securitization” that identifies with the fraud associated with the Great Recession) and its actual illiquidity (the Zero-Hedge Effect, or ZHE).
(Like I said in a previous article, especially in the world of creative financial products, derivative products make it look like things happen because the fates determine it and not because there is any objective moral measure to freely will the results on demand. ZHE is the measurable result, forcing market participants to buy or sell to effectively conserve the promise by reducing the probable peril. It then appears that the participants are rationally pursuing happiness in the act of actually resisting it.
Actually trying to support the value that derives form the risk is then really the act of resisting it, which is the creative-destruction, the being and nothingness, existentialists say is the dominant feature of objective reality. Resistance is futile and the probability of surviving the hedge is effectively zero. So, like Ayn Rand said, with a Positivist tone, yielding to the numbers, expressing positive moral value, much like “being” in the spirit of Kant’s deontology–what is the fighting all about!)
Being forced to buy or sell is illegal in every state. Coercion is illegal–except when nature forces it. To make it “perfectly legal” then, it is necessary to make it look like deriving value from the risk (the risk-value) is a force of nature–and ETFs do that very well.
The Hedge Effect
In digital imaging, there is a phenomenon of scale called the edge effect. This is a fractal, geometric effect when the fundamental unit created to form the image is large enough to see at the edges. The image then looks phony, or unnatural…artificial. In other words, it does not conceal the work of art well enough to actually be a work of art that imitates life. (A really good actor, for example, makes the observer forget the actor’s real identity and believe the identity of the character actually being played.) A successful play in the financial world is a reality that can’t be seen as really being a work of art at the margin of its existence.
In the world of creating value from the risk, this is the hedge effect. Financiers know that, over time, the effective value of the risk is zero (ECV-symmetry). Since the sum “zero” is not a sum at all, financiers create a way to create “something” from it at the margin–specifically, an expanding marginal profit, which has to come from “somewhere” since, of course, something does not naturally derive from nothing.
Derivative devices like the ETF are then created to hedge the effect, continuously occupying marginal space over time. Of course, space is infinitely large, which means the hedge WILL eventually fail (resistance is “actually” futile.) The trick, then, is to make the risk TOO BIG to fail–turning it into a work of art that appears to imitate real life; but it is really just a confidence game, played to make it look like nature forces us to do the measurable harm that measures “winning the game” and like Ted Cruze says, more important, to effectively “win the argument” (the perception of what reality actually is at the margin, which is always, measurably, like Kant said, the known quantity of now).
When Sanders says that “Fraud is a business model!”–he’s not kid’n…it’s no delusion.
Isn’t NOW the time to end it!