The Repossession Market

Mrs. Clinton says financial regulation is so “arcane” that it does not lend itself to pop-political discussion. The repossession market is a good example.

Cash markets, in which financial assets, like bonds, are bought and sold, have undergone regulatory reform.

Still suffering the Great Recession, with a yield curve struggling not to go negative, central banking and the International Capital Management Association (ICMA) are working real hard to keep the real risk from going actual (what I refer to as “going gamma”). The regulatory regime is containment. It does not intend to reduce the probability of “the big risk” (as regulators refer to it) since that is what allows for repossession of assets to occur at a regulated rate of return, and pay the perpetrators a premium (a bonus) to do it, with efficiency, using on-demand market mechanics.

Like commodities markets, credit also operates at a rate of substitution. Financiers call this “the repo rate.”

The world economy is dependent on credit (debt). Rich people lend money (referred to as turning “their” wealth into capital, expected to return more value than put in, over time, at a market-determined rate, to maturity) so that you can have a car, a house, or just about anything.

Your property (the wealth of the nation that you may possess by extension of the debt) is really (“they” say) owned by the rich. It is actually rented to you by extension. Since this means you are entitled to accepting the debtor obligation on demand, there has to be a way to repossess “their” property from you and sell it back to you at a profit without it looking like larceny. (See articles by griffithlighton on “lending into larceny.”)

What naturally emerges is a substitute. Instead of converting property outright (like the king did), cash is king. Conversion occurs (overnight) in cash markets at the London Interbank Offered Rate (LIBOR, or “the overnight rate”), day after day.

Since people still continue to suffer the effects of the last financial crisis (i.e., the Great Recession), there has to be a way to manage the risk associated with it (to keep it from going gamma), day after day. There has to be a way to derive the risk-premium, risk free, at the offered rate, which you don’t really have a choice but to accept, day after day (at the risk-free rate of return) — but we won’t talk about that because it is too “arcane.” Or is it, really, because it blows the lid off what international credit-risk management is intending to do, which has a naturally intending, strict liability (having a naturally retributive value, existing on demand at the real, risk-free rate of return).

What “the big risk” (going actual) really is, here, is the real rate of substitution in cash markets, which is a “natural identity” that emerges to, as Objectivists describe it, claim rightful ownership (title to the property). Capitalists have to work real hard to prevent that from “just happening.” Otherwise, real property will naturally emerge, yielding to its real identity (actualizing) on demand (even without attribution of purpose), which is to know the categorical imperative.

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About griffithlighton

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