The Push-Out

Under Dodd-Frank, SIFIs must push-out (spin-off) their hedging operations.

The push-out rule is a Glass-Steagall measure. Now, however, it is a lot more complex.

Hedging, using options and futures to stabilize prices (i.e., to determine the risk), has been “modernized” via the Commodities and Futures Trade Modernization Act, signed into law by Bill Clinton, repealing Glass-Steagall, just before he left office in 1999.

Hedging operations are so complex that big financial firms can be considered too complex and interconnected to fail (the “SIFI” identity). Many big firms have already separated their hedge operations, but that does not mean the spin-off will reduce the intended effect of using them.

A prop-desk operates to use funds to position for the risk. This is done with counterparties. Even though the funds are said to be used to hedge the probable risk, they can be used to shift the risk to indirect participants (like you) who have an interest in, for example, making the mortgage payment and paying down debt (which for the proprietary desk is a re-insurable interest).

The hedge can operate to create the conditions for default (the re-insurable interest in the form of credit-risk protection schemes or derivatives), yielding to the default-risk premium, creating the conditions for the risk to occur by hedging for it (which is a racketeering scheme). When default occurs, the victims (working Americans, described as “the takers”) are told it is their own fault (taking on too much debt) when, actually, they have been positioned to take the risk by means of market manipulation.

The manipulation is a pattern of managing the risk that Senator Sanders intends to resist. He does not intend to seize your assets! That is something capitalists do on a regular basis to “make markets more efficient” (i.e., make you work more for less on demand).

The push-out rule is the arcanum that Mrs. Clinton says is too complicated to effectively deal with by using an adversarial approach, mostly because the expected pattern of resistance is regulatory arbitrage (structurally endowed, which then looks like a redounding, natural model). If she is elected, she will work with Ivy-League, Wall-Street technocrats to reinvent the problem, deliberately yielding to change we don’t really need, which makes it look like a natural pattern of resistance, no matter how much we try to push it out of existence.

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About griffithlighton

musician-composer, artist, writer, philosopher and political economist (M.A.)
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