Systemic Risk Conversion

Risk Distribution

We live in a ponzi scheme wherein risk is being captured, redistributed and monetized while the public narrative denies this process. The 2008 housing crisis is one such redistributed risk ponzi scheme wherein we were told that there was mathematical (and Nobel-prize-winning; e.g. engineered the tolerances) certainty that the redistribution of risk (e.g. sub prime mortgages) was a net benefit to more than just bankers. Uber is another such ponzi scheme wherein the risk traditionally assumed by the corporation is moved to drivers (contractors not employees, thus much risk is distributed among non-corporate entities). (Corporations, via bankruptcy and limited personal liability, are constructed for risk assumption). The biggest risk ponzi scheme may be education; students take on enormous debt to acquire credentials of questionable value. This enormous risk-on behavior is then followed by enormous risk-off behavior; graduates take jobs that are perceived as being stable and highest-paying in order to afford their debt, which generates a systemic threat of creating a market with a critical mass of post-college citizens in their 20s who are entirely risk-off (cf. their interest in socialism and other seemingly risk-off models). This systemic risk-off behavior decreases the dynamism of the country (more specifically, it redistributes and monetizes the risk the usual 22–30- year old would assume into the debt-risk assumed at ages 18–21).[1]

Risk Narrative

More insidious isn’t the capture, redistribution and monetization of the risk but rather the narrative constructed around this process, and herein lives the ponzi scheme. Are college bound students informed that college is a high-risk environment and will massively disincentivize risk upon graduation as graduates work their way out of some kind of debt serfdom? Are we being told that we’re getting more technology for less cost when in fact we’re getting more technology for more cost? What are we told about growth and unemployment versus stagnant wages, and that we’re paying more for most with those stagnant wages?[4] This too saps dynamism from the system (specifically it moves capital from individuals to corporations, and individuals with much less capital tend to de-risk their behavior). The result is remarkable risk-off behavior from young people (older people tend to exhibit risk-off behavior regardless). And systemic risk-off behavior is, in fact, incredibly risky … or did we learn nothing from the housing collapse or the Boskin Commission wherein we hid risk under the coconut shell of magically decreased inflation or the general impotence of Communism wherein de-risking produced structural brittleness and thus fragility?[5]

Genetic Risk Hypothesis[7]

If you lived in southern Europe 5,000 years ago, moving to northern Europe was probably a risk-on move if not for anything else the annual existential cold one must survive. Sailing to North America was certainly a risk-on move in the 17th and 18th centuries. History is replete with events that create and quarantine those given to risky behavior. It seems that after many such events, high-risk gene pools are created such that Columbus sailing West or Washington going to war with the world’s greatest empire or strapping two million pounds of thrust to your butt to travel to a space rock is the gene expression of a high risk subpopulation. And so the creation of Europe (particularly northern Europe) is the aggregation of risk-takers; and the creation of America was the aggregation of high-risk Europeans (which effectively removed much of this subpopulation from Europe, which explains 19th and 20th c. European history, including their wars, which are just a variant of the risk-aggregated structural fragility of the housing crisis).

Risk Mythology

There is no reasonable reward for risking death or financial ruin. Such decisions/impulses lay beyond reason. Thus the reason why we mythologize such risk-takers, either those who deploy capital or their own lives. The Greeks had a concept of an ‘honorable death,’ which transformed into early Christian martyrdom and filters through centuries of risk-takers. Our culture seems adrift in the loss of the concept of honorable death (or substantially weakened into the concept of honorable failure, which exists at the margins). From Washington to Rockefeller to rock stars, we mythologized risk-takers; a cursory review of the current music business illustrates how it has ceased to be a cauldron of risk and instead is now predominately a pre-fab production line.



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