The Toxic Fruit Of Financialization: Risk Is For Those At The Bottom

Tyler Durden's picture

Authored by Charles Hugh Smith via OfTwoMinds blog,

Those who have pushed the risk down the wealth-power pyramid are confident the Federal Reserve will continue to limit the risks of speculative financialization.

One of the most pernicious consequences of financialization is the shifting of risk from the top of the wealth-power pyramid to the bottom: those who benefit the most from financialization's leveraged, speculative credit bubbles protect themselves from losses while those at the bottom of the pyramid (the bottom 99.5%) face the full fury of financialization's formidable risk.

Longtime correspondent Chad D. and I recently exchanged emails exploring how the higher debt loads and higher interest payments of financialization inhibits people at the bottom of the wealth-power pyramid (i.e. debt-serfs) from taking risks such as starting a small business.

But this is only one serving of financialization's toxic banquet of risk-related consequences. Chad summarized how those at the apex of the wealth-power pyramid protect themselves from risk and losses.

At the top levels of the pyramid, members in those groups collect way more interest than they pay out and at the very top, they get a ton of interest and pay little to none. The people at the top can take all sorts of risk, because of this dynamic and further, they also usually have a heavy influence on the financial/political machinery, so they get bailed out by taxpayers when their investments go bad. In addition, because their influence extends to the criminal justice system, they are able to commit fraud and at the same time neutralize regulators and prosecutors, thereby escaping any ramifications from their excessive risk taking and in many cases massive fraud.

As Chad observed, the wealthy own the income streams from debt (bonds, etc.), while everyone else owes the interest and principal due on debt. As this chart shows, the wealthy own business equity and financial securities and have a modest slice of debt. The bottom 90% owe most of the debt, and their primary asset is the family home-- an asset that doesn't generate income while it generates interest income for those who own the mortgage. In other words, it's less an investment than a form of consumption-- especially when the current housing bubble deflates.

The asymmetry of risk and exposure to loss resulting from financialization is about to become consequential. Financialization has reached the top of the S-curve and is now in the decline phase. As noted on this graph, what worked so effortlessly in the boost phase of financialization not only no longer works, it actively boosts the risks of sudden, catastrophic losses.

Those who have pushed the risk down the wealth-power pyramid are confident the Federal Reserve will continue to limit the risks of speculative financialization. The S-curve is a pattern of Nature. If you're confident the Fed is now the ultimate power in the Universe, then you're betting that the Fed and Treasury will always absorb all the risk and all the losses, with zero consequences.

The S-Curve suggests that bet isn't as low-risk as those at the top of the wealth-power pyramid currently believe.

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38BWD22's picture



And how much gold do these various segments own?

gregga777's picture

The top probably owns most of the gold and silver, even that supposedly in the US national gold reserve.

booboo's picture

their own actions are making their meat more palatable, a case can be made since "the rich" today provide very little to society and are a net drain. I would lump them right into the same column as a negro baby farmer.

Maybe just the financial sector rich

gregga777's picture

Kill them all and let God sort them out.

gregga777's picture

The people at the top of the financialization pyramid have access to $ BILLIONS, at close to 0% interest, all courtesy of their fellow tribes persons at the Goldman Sachs Feral Reserve System.

Rebelrebel7's picture

We are turning the world upside down and those at the top are realizing that they will soon be underground in there billion dollar bunkers with 12 horses, not much thought went into that, but whatever.

The Federal Reserve Act will be repealed.

malek's picture

You mean the Federal Reserve Act will be repealed in an orderly way by House, Senate, and signed by the President?

Without revolt, martial law, US Dollar collapse, civil war, and mob rule? (not necessarily all and/or in that order)

I'd like some of what you're smoking!

GunnerySgtHartman's picture

The Federal Reserve Act will be repealed.

From your keyboard to God's ears, haha.

I want to see it repealed, too - but it's going to take a mass uprising to do it.  It will not be repealed as a course of general Congressional business.

Oldwood's picture

Those at the top have been running up massive debt to purchase real property and assets as well as using it to develop technology that renders 99%of people redundant useless eaters. They may be bunkering up but only so long enough for us to dispose of ourselves fighting for the last of the free shit.

We have been indoctrinated for decades to see ourselves entitled to things we have not EARNED.  At the same time they are eliminating our jobs. Even a grade schooler can figure this math. While technology can make things cheaper, how cheap does it need to be if you have ZERO income? Are we going to believe that those who OWN government are going to accept being "taxed" to create the redistribution to pay for the products they create? The ONLY part in the ownership of the means of production we will own will be the debt that these corporations will walk away from once the consumer base is destroyed. They will be left with the largely self sustaining technologies that will provide them all they need, with only enough labor demand left to provide them a sense of superiority while saving the planet from us.

LawsofPhysics's picture

LOL!!!  All the risk is at the bottom?  I don't think that was the case the last time the "elite" tried such a "let the majority eat cake" monetary, political, financial, and eCONomic scam.

Get long sharecropping and guillotines!

Oldwood's picture

Those with the gumption, wherewithal and ability to go after these people will instead be forced to expend themselves fighting off the free shit zombies that will be out ravaging anyone with anything. Do not doubt that the elite will continue to influence and manipulate as long as we remain erect and semi-cognitive.

PitBullsRule's picture

Most of the wealth has passed down to the 2nd, 3rd, and 4th generations.  These are people born with a silver spoon in their mouthes.  They don't have a clue.

Radical Marijuana's picture

"Financialization" is the euphemism for public governments ENFORCING FRAUDS by private banks.

That "financialization" expanded through the big corporations that grew up around the big banks.


Those nearer sources of the public "money" made out of nothing as debt benefit by the robberies,

& those further away from the sources of that "money" are those who are proportionately robbed.


Kinds of superficially correct analyses of the Empire of Finance present by Charles Hugh-Smith:

There Is Only One Empire: Finance


tend to NOT sufficiently recognize there is only ONE political system,

"organized crime."


Those who are most robbed have also be victims of the War on Consciousness.


(Those who benefited most from enforced frauds delivering symbolic robberies

also were most able to dominate the social stories repeated about themselves.)


Those dominate social stories are based on DUALITIES:

false fundamental dichotomies, and impossible ideals.


Since human beings necessarily live by being various

"entropic" pumps of environmental energy flows,

groups of them are reproducing gangs of robbers.


As soon as we perceive and define human beings

as relatively separate from their environment &

relatively separate from each other, then they

must TAKE ENERGY across those boundaries.


To TAKE ENERGY, in the English language, IS ROBBERY.


Human beings live by killing and eating organisms.

Those are the fundamental reasons for how & why



Some of the corollaries of the ways that Globalized Neolithic Civilization necessarily operates according to the principles and methods of organized crime are that those who are the biggest and best organized groups doing so are most able to make and maintain the most dishonest social stories regarding themselves doing so. Hence, the vast majority of people who are being symbolically robbed by the ways that public governments enforce frauds by private banks tend to not only not understand that, but also, have been conditioned to feel like they do not want to understand that. Rather, those corollaries of the ways that Civilization necessarily operates according to the principles and methods of organized crime are that the only publicly significant "opposition" groups are effectively controlled to stay within taking for granted the same frames of reference, based on the DUALITIES of false fundamental dichotomies, and therefore, recommend bogus "solutions," based on the same old-fashioned impossible ideals, which always backfire badly, and actually cause the opposite to happen.


In that context, many comments posted under various related articles republished on Zero Hedge tend to diffusely present notions of "revolution" in ways which do not engage in enough deeper levels of analysis of the ways in which "revolution" is "re-evolution" of the established systems of organized crime, whose most important aspects are the death control systems in general, and the murder systems in particular. Since public governments ENFORCE FRAUDS by private banks, while the entire political economy operates through fundamentally fraudulent financial accounting systems, OF COURSE those towards the bottom of the social pyramid systems are relatively more robbed, while those towards the top of those social pyramid systems are the pyramidion people who relatively more benefit from those robberies.

However, it is better to attempt to think about social pyramid systems as actually being nested toroidal vortices, because then it is more possible to think about connecting the top and bottom of those social pyramid systems, in ways that those are actually ALREADY connected. Human beings living inside Globalized Neolithic Civilization are ALREADY manifestations of general energy systems, and therefore, ALREADY actually operate through UNITARY MECHANISMS, because of the ways that they ALREADY are flows of the same energy.

While prodigious progress in physical science has been achieved by series of intellectual scientific revolutions and profound paradigm shifts, whose main theme has been to replace previous presumptions based on DUALITIES with UNITARY MECHANISMS, political science has not been allowed to achieve any genuine progress. Therefore, achievements such as harnessing electric energy have been applied to automate frauds, through electronic money, in ways which have enabled the previous social pyramid systems based on ENFORCED FRAUDS to become about exponentially more FRAUDULENT. In that context, superficially correct presentations of the problems driven by runaway "financialization" tend to continue to default to bogus "solutions." While Hugh-Smith tends to present some of the most interesting analyses republished on Zero Hedge, he also illustrates the problems with controlled "opposition" that stays within taking for granted the same old-fashioned DUALITIES, false fundamental dichotomies, and related impossible ideals.

In my view, the universe is ALREADY "perfect," in the sense that the laws of nature are ALREADY operating, and human beings and Civilization are ALREADY expressions of those laws of nature. It even makes "perfect" sense that natural selection pressures have driven the development of artificial selection systems to become as dishonest about themselves as possible, and indeed, are endeavouring to continue to become exponentially more dishonest about themselves. "Financialization" is an expression of the ways that money is a manifestation of human laws, where the only connections between human laws and natural laws are the abilities to back up legalized lies with legalized violence, i.e., the Empire of Finance's political economy is almost totally based on the ways that public governments ENFORCE FRAUDS by private banks. Meanwhile, there is almost nothing but the central core of that excessively successful triumphant organized crime, namely banker dominated governments, which is surrounded by layers of controlled "opposition," which stay within taking for granted the same language and philosophical presumptions, that were promoted and popularized the most successful, biggest and best organized, forms of organized crime, namely those banker dominated governments.

All private property is based on backing up claims with coercions. The degree to which the vast majority of people do not understand that, as well as have been conditioned to feel like they do not want to understand that, is also the degree to which the ownership of private property is becoming more and more extremely unbalanced.  Since there have been series of profound paradigm shifts in physical sciences, and those have enabled series of technologies to become about exponentially more powerful and capable, it is becoming more and more theoretically imperative for political science to also go through series of profound paradigm shifts ... Of course, at the present time, and for the foreseeable finite future of Globalized Neolithic Civilization, it appears to be politically impossible for enough people to better understand themselves, especially because doing so would require enough people to better understand how and why governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters, who are currently the banksters, and their buddies in the big corporations that have grown up around those big banks issuing the pubic "money" supplies as debts.  

But nevertheless, it is theoretically imperative to go beyond recognizing those apparent anomalies:

"One of the most pernicious consequences of financialization is the shifting of risk from the top of the wealth-power pyramid to the bottom: those who benefit the most from financialization's leveraged, speculative credit bubbles protect themselves from losses while those at the bottom of the pyramid (the bottom 99.5%) face the full fury of financialization's formidable risk."

"Financialization" is necessarily the expression of runaway SYMBOLIC ROBBERIES. Those issues can not be adequately admitted and addressed without going through series of profound paradigm shifts. Any "solutions" which continue to be proposed and promoted from still WITHIN the frames of reference of false fundamental dichotomies and related impossible ideals are guaranteed to continue to not work, but instead, backfire badly, because, after all, those are still being advanced by those individuals and groups who are forms of controlled "opposition" to the entrenched systems of excessively successful organized crimes, which are not better balanced, because of the degree that those being most robbed still mostly want to believe in the same old-fashioned bullshit that the bullies, who became the banksters, originally brainwashed them to believe in. 

Globalized Neolithic Civilization was the development of thousands of years of being able to back up lies with violence, becoming more and more sophisticated and integrated systems of legalized lies, backed by legalized violence, the most important forms of which became that public governments ENFORCED FRAUDS by private banks, enabling their runaway "financialization" of the economy, in ways which deliberately ignored or misunderstood the surrounding environmental ecologies in the most absurdly backward ways possible.

At the present time, we are living in a world in which mathematical physics has enabled series of profound paradigm shifts, while nothing like that has been allowed to happen in politics, other than the applications of the technologies enabled by that progress in physics to ENFORCE BIGGER FRAUDS. That is driving accumulations of apparent anomalies, while most of the content on Zero Hedge is pointing out and discussing those anomalies. In that context, the series of articles from Hugh-Smith are illustrating the degree to which there is some slight progress in recognizing the increasing magnitudes of those apparent anomalies, WITHOUT that causing sufficiently profound paradigm shifts in the perceptions of those anomalies.

IF there are going to be sufficient political revolutions, THEN those should be inspired and guided by the previous achievements of intellectual scientific revolutions in physical sciences. However, at the present time, the dominate philosophy of science is still more the expression of compromises with the biggest bullies' bullshit-based world views, rather than more consistently revolutionary. The languages based on taking for granted the DUALITIES of false fundamental dichotomies, and the related impossible ideals (whose mechanisms are generally misunderstood in absurdly backward ways), almost totally dominate the public discussion of political economy. Therefore, those few people who superficially recognize that governments are the biggest forms of organized crime, dominated by the best organized gangsters, the banksters, mostly continue to propose and promote bogus "solutions" based on somehow realizing their favourite impossible ideals (in ways which are premised on misunderstand their mechanisms in the most absurdly backward ways humanly possible.) After thousands of years of backing up lies with violence, resulting in globalized political economy almost totally based on ENFORCED FRAUDS ACHIEVING SYMBOLIC ROBBERIES, those impossible ideals are routinely presented on Web sites like Zero Hedge as statements regarding "what money should be" that tend to deliberately ignore how and why "money" IS what it IS!

The source various ideals is the principle of the conservation of energy. However, that tends to be quite universally misunderstood in the most absurdly backward ways. It is barely possible to exaggerate the degree to which progress in mathematical physics has radically changed the common sense views of time and space as independent absolutes. Similarly, it is barely possible to exaggerate the degree to which the vast majority of people continue to think about the ways that energy is distributed through time and space, which is entropy, in old-fashioned ways, which are as wrong as possible.

Human beings live by relatively SUBTRACTING parts from the Whole, after which SUBTRACTIONS necessarily follow relative ROBBERIES across the boundaries defined by those SUBTRACTIONS. Overall, the progress in mathematical physics is re-converging with ancient mysticism, from where it started, long, long ago. However, the development of Globalized Neolithic Civilization was mainly the development of warfare, in which the most important forms were the War on Consciousness waged by the ruling classes against those they ruled over. Since almost everyone has been taught to think and communicate about SUBTRACTIONS in absurdly backward ways, ROBBERY tends to be thought about in absurdly backwards ways, such as how the biggest and best organized reproducing gangs of ROBBERS are able to publicly present themselves as NOT ROBBERS.

That War on Consciousness has taken the form of "financialization" being able to be publicly presented as NOT based on ENFORCED FRAUDS. The biggest and best organized gangsters are able to publicly present themselves as NOT being gangsters. Furthermore, the vast majority of people, for generation after generation, have been conditioned to think about themselves in the most absurdly backward ways, such as demonstrated by the concepts of time and space, and therefore, entropy, having become as absurdly backwards as possible ... Meanwhile, the apparently intensifying paradoxes keep on becoming greater and greater sets of consistent contradictions, that Civilization necessarily operates according to the methods of organized crime, which also necessarily becomes more and more dishonest about itself doing so. That "ownership society" is becoming increasingly psychotic, in ways which inherently make "perfect" sense, but which nevertheless are automatically becoming more INSANE!

Some human beings have been able to better and better understand the laws of nature, but that better understanding has primarily been applied through the history of warfare, and especially through War on Consciousness. For generation after generation, even the ruling classes have become also the victims of their War on Consciousness which they waged against those they ruled over. More and more, there have developed attitudes of deliberate ignorance and absurdly backward misunderstandings of the laws of nature, in order that the laws of men could triumph as ENFORCED FRAUDS.