{"id":22894,"date":"2008-12-01T09:56:00","date_gmt":"2008-12-01T09:56:00","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=433"},"modified":"2008-12-01T09:56:00","modified_gmt":"2008-12-01T09:56:00","slug":"cuanto-vale-el-riesgo","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/cuanto-vale-el-riesgo\/","title":{"rendered":"How much is the risk worth?"},"content":{"rendered":"
It is clear that the political decision \u2013 whether it is the right one or not, only time will tell \u2013 is to plugging holes<\/a> and to buy up toxic assets to safeguard the system\u2019s solvency. The outcome of that decision \u2013 taken under the pressure of collapse and panic \u2013 appears to be the injection of funds via capital increases into balance sheets whose holes have turned them into Swiss cheese. Well, it is clear that intervention only takes place in those cases where imminent bankruptcy would cause direct or indirect damage that is globally unacceptable. In other words, companies whose shockwave lacks the capacity to shake truly essential foundations will go down with a bang. And the authorities will stand by and watch those in distress<\/span> a Viking burial, but without drawing on the already stretched public purse. Only when it is strictly essential will losses (a euphemism if ever there was one) and thefts be socialised \u2013 that is, when the bailout becomes a more or less globalised matter of state.<\/div>\n
\"\"<\/a>But let us focus specifically on those cases in which, for reasons of state or systemic stability, the public\u2019s money is to be used \u2013 whether or not shares are purchased as part of a rights issue \u2013 to stabilise collapsed balance sheets. The states are set to take on risk<\/span> (They\u2019ve been doing this for weeks, even months.) In other words, in exchange for public money, they\u2019re going to end up with paper that the Market \u2013 as efficient as ever \u2013 has been systematically rejecting since at least the summer of 2007. And when I say \u2018the Market\u2019, that\u2019s exactly what I mean: all of us.<\/p>\n

But be careful, because That risk only applies if we stick to the rules of the game.<\/span> In other words, if the clusters (M1, M2 and M3) are still the same as before. As we have already seen in these <\/span>four articles<\/a> As in previous instances, the credit bubble has not been accompanied by a proportionate increase in the M1 aggregate (banknotes, coins in circulation and liquid assets). And it is clear that governments\u2019 capacity to sustain public deficits is finite, whilst the scale of balance-sheet write-downs during a period of depression such as the present one seems like a veritable, quasi-infinite ocean. It therefore seems inevitable that M1 will increase dramatically, not as a result of economic growth but rather created to meet the public sector\u2019s need to purchase risk.<\/p>\n

\"\"<\/a>So, if the risk is to be paid for, at least in part, by an increase in the M1 aggregate, is it not the case that its intrinsic risk is being distorted? In other words, a security that carries a risk for which someone is willing to pay well above market value should entail a loss for the buyer that will, in all likelihood, translate into a financial loss in the future. But bear in mind, this is true only whilst the conglomerates remain in place, particularly the M1. For if governments pay for high-risk instruments (debt, capital increases, collateral, etc.) at a price above market value, using money that is to be created and which will cause the M1 aggregate to grow, that risk is diluted within the aggregate itself.<\/p>\n

\"\"<\/a>And so we come to the magic we all need: The risk will have been mitigated <\/span>Where will the risk end up? What will become of the toxic waste? How will the holes in the balance sheets be plugged? What will have become of the widespread bankruptcy?<\/p>\n

To paraphrase our dear Mr Leopoldo Abad\u00eda<\/a>, to whom I send my regards from here, when he spoke about where the money from the loan in circulation was, we would say the same thing: The risk will be \u00abMissing\u2019<\/span>\u00ab.<\/p>\n

What is clear is that we must not suffer because the risk that governments are taking on turns into a financial loss that bankrupts countries capable of manipulating conglomerates. The M1 aggregate will grow in line with that risk. And as for that growth in M1\u2026 we\u2019ll have to wait and see. \"\"<\/a>There are many questions that might arise at this point, and we are really venturing into uncharted territory.<\/span> For example, what proportion of risk will governments buy? Half from the US and half from Europe? What about the G20? And what about emerging market sovereign wealth funds (SWF<\/a>)? In fact, this allocation of \u2018cards\u2019 should be based more on central banks than on states, as it is the former that have the exclusive power to alter the M1 aggregate. In any case, I fear this is set to be the most crucial, coordinated and yet least transparent and regulated process in history. Let\u2019s hope it turns out for the best.<\/p>\n

At this point, we could say that, in fact, The Member States will not even be buying risk; rather, they will have to allocate risk-purchase quotas amongst themselves, which they will then convert, proportionally and in a coordinated manner, into M1 growth quotas<\/span>. I don\u2019t even want to think that it might end up being traded, as is the case with CO\u2082 emission allowances, and I hope we do not end up creating a market out of our own miseries when our very survival is at stake. Some will say that inflation will take hold in a scenario where M1 increases, but let us not forget that all this will happen to plug gaps created in part by the sustained and disproportionate abuse of M3, which is unlinked to M1, in a recessionary environment and a depression that may well exceed that of 80 years ago. I, for one, am not so sure, and I believe that such a scenario is hardly comparable to anything that preceded globalisation and this multi-crisis.<\/p>\n

How much is risk worth?\u2026 What if we all chipped in to buy it?\u2026<\/p>\n

A return to equilibrium after all that? It\u2019s certainly impossible to predict.<\/span><\/p>\n

I think Dani<\/a>, which is almost like the \u00absmall picture<\/span>\u00bbI\u2019ll be happier, won\u2019t I?\"<\/p>\n

\n
\n
Money is nothing, but a lot of money \u2013 that\u2019s a different matter altogether.<\/p>\n<\/div>\n
George Bernard Shaw<\/a> (1856-1950)
<\/span><\/div>\n<\/blockquote>\n
<\/span> <\/div>\n

<\/span><\/div>\n<\/p><\/div>","protected":false},"excerpt":{"rendered":"

Esta claro que la decisi\u00f3n pol\u00edtica, acertada o no el tiempo lo dir\u00e1, es la de tapar agujeros y comprar activos t\u00f3xicos para salvar la solvencia del sistema. La evoluci\u00f3n de dicha decisi\u00f3n tomada bajo la presi\u00f3n del colapso y del p\u00e1nico, parece que est\u00e1 siendo la inyecci\u00f3n de dinero v\u00eda ampliaciones de capital en […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[],"class_list":["post-22894","post","type-post","status-publish","format-standard","hentry","category-sin-categorizar"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/22894","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=22894"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/22894\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=22894"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=22894"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=22894"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}