The Life Aquatic
May 17, 2019·1 comment·In Brief
The financial system is engineered around a simple principle: winners take more than their fair share of success, and losers absorb more than their fair share of failure. This isn't accidental. It's built into every transaction structure, every fund document, every corporate decision. Yet most people participate in these arrangements without recognizing the asymmetry they've signed up for.
• Financial architecture is systematized unfairness. Debt-financed buybacks, leveraged yield vehicles, and fee structures all follow the same pattern: one side captures the upside, the other absorbs the downside. This is the essence of financialization.
• The game only works if you can't retaliate. The moment you're locked into a position with no liquidity, no legal recourse, and no ability to hurt the other side economically, you're vulnerable to being systematically extracted from. This is why fund documents are written the way they are.
• Most transactions are one-off games with strangers. Unlike repeated interactions where you can employ "tit for tat" strategies, financial arrangements often involve counterparties you'll never see again. The incentive structure defaults to extraction.
• The corporate version plays out identically. Managers structure incentives so success generates bonuses for them but failure generates scapegoats below them. Watch how credit is taken and blame is distributed. It's the same architecture.
• You can't refuse to play, but you can stop being the obvious target. The question becomes not whether you'll encounter HIWTYL payoff structures, but whether you'll be positioned to absorb their full impact when they activate.
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
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Comments
Haven’t seen the movie, but I can hear the inflection in Bill Murray’s voicing when he asks “What about my dynamite?”
Ribbonfarm’s description of corporate internal politics and CYA is spot on. And the really sad thing is you are almost forced into playing it or you will fail - you will be the scapegoat.
Heck, your boss is playing it with you and his boss if playing it with him. It’s as if Corporate America is a series of game-playing Russian nesting dolls with the outermost one being the Board of Directors and the innermost one being the summer intern on the just-formed this-or-that project team.
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