SIVs, which are bodies without organs, are now available

If you’ve followed the concepts we’ve been outlining, which are found starting with this, then this, and finally this post, then you, like SpecMaters everywhere, now have the beginning of a good handle on the peculiar but profound materiality of synthetic finance.

To recap, we’ve now covered:

i. credit default swaps and total return swaps (as two instances of single name credit derivatives)


ii. tranches (which are the re-differentiating second step to the de-differentiating first step of pooling: tranching and pooling comprising the two sequential steps to any securitization) {please note: the plastic arrangement of attachment and detachment points endemic to tranching, as we will show in Infinite Leverage, is a powerful method for the arrangement of singularities -the importance of this is difficult to overstate}

and then most recently:

iii. credit linked notes (which are generic financial assets, but also the synthetically-derived incarnation of the asset-backed commercial paper (ABCP) which stand to the right-side of any tranches, and the sale of which funds the whole structured financial operation to begin with -but which, we also strove to elaborate, is a method for converting the outcome of maximum profitability from a zero-sum game (i.e. in which the house wins or the gambler wins, but never both) into now a non-zero sum game, wherein everyone could own CLNs whose notional value is tied to the notional value of every individual’s (synthetic) portfolio; and thus everyone would be leveraged on top of everyone else, and therefore simultaneously a debtor and creditor to everyone else -and importantly, of course (since that’s the whole point!), in a way that makes all parties better off, viz. wealthier). This is part of what we meant when we said before that today the “speculative” (in speculative materialism) is all about the general, and that “communism” is all about the particular.

What more, then, do we need to do before we’re in a position to think about tinkering with the divergent evolutionary capacities with which the qualitative multiplicities that are synthetic financial assets are chocked-full?

There are a couple things. Most immediately, though -which is the reason for this post- there is one more thing we need to know about before we (a) outright build a traditional synthetic CDO for you, and then (b) we start tinkering with it (e.g. its parties, cash-flows, notional values, distribution of risks), in order to convoke a set of questions and issues we must address going forward, and then finally (c) to bring all this commencement to a close, unpack the ontological contours of this proposal by demonstrating that we’re actually proposing a war machine economy (note: we’ll do this in the future by illustrating that Deleuze & Guattari’s proposal in Ch. 12 “On Nomadology -On the War Machine” in their Thousand Plateaus, is the generative force of our project).

What is this one more thing? Namely, we need to know about SIVs (structured investment vehicles). Our examination of this is found here.   

And from the synthetic we can now derive the referent….

Our set of tutorials on the nomadic distributive capacities of synthetic finance formally commenced here, and then went here.

If you’ve moved with us, you now have a good enough understanding of credit default swaps, total return swaps, single name credit derivatives in general, and tranches (the latter of which is the redifferentiating counterstep to the dedifferentiating step of pooling -as the two steps to any securitization).

Now then, it’s time to move deeper into our consideration of the fungible material process of structuring finance assets -i.e. taking a preexisting generic or synthetic asset, dividing the asset, and (you know the drill:) in the course of its division, we are now capable of changing the asset in kind. So take an asset, any asset, and securitize it; this asset has been transmogrified: it is now a security (and all the economic properties that differentiate concomitant with this act therein!).

A correlative point to keep in mind here, is that as the geometer observes the loosening of a series of invariance requirements present and placed on Euclidean (or even some non-Euclidean) geometric transformations, and as we ascend down the scale of regressive differentiation in mathematics’ birth to form of topology, topological transformations, and topological invariants, it is not the case that there is now too much white symmetry, and everything is rendered into some kind of formless, homogeneous, thoroughly dedifferentiated blob of geometric properties. No, not at all. In fact, as we observe the loosening of invariance requirements that were previously in place, we see the birth to differentiation of a wholly new set of geometric properties which were real and virtual but still yet unactualized, and therefore inaccessible, under more rigid restrictions marking the earlier class of transformations. For example, continuity, closure, and so on; these new properties are specific to topology only because and as a result of the act of loosening. We see the same thing and more so with the synthetic financial economic transformations we call synthetic exchange.  We have already seen this in our earlier work on Tranches. We will continue to see this throughout.

Now please follow this link to learn about the role of CLNs in Tranching.

Single-Name Credit Derivatives are now available

We will ultimately want to illustrate that artificial leverage and natural leverage are two kinds of leverage that differ in kind.

Artificial leverage is exogenously introjected into the asset (to augment the volume of gains and losses), while natural leverage is endogenous, intensive, natural, i.e. built into the exchange of the asset itself.

We wish to demonstrate that structured finance is an organic mode of production of natural leverage, which if universally distributed, could be infinite.

When we show these two things, we will be doing so in order to convey that a universal waterfall economy amounts to a phase-resetting mechanism whereby the rhythm, rate, and plastic channels to the distribution of all risk and cash flow can be hyperfungibly annihilated, modified, or altogether reset -and importantly, in a way that is nontotalitarian, nonplanned, noncapitalist, but somehow a set of “free” markets (if we are still permitted to use that term) that are fully-equitable and make all parties involved better off. No biggie.

It is true that this truth is predicated on the existence of topological invariants, singularities, and affects to the spatial timing of the nonlinear oscillators comprising financial markets (of course if one grasps the subtle but profound ontological claim made by dynamical systems theory (that Deleuze aptly labels the univocity of being) the argument has already been made, and we have no good reason to doubt the radical nomadic distributive capacities of nonadditive stimuli endemic to nonlinear systems when induced into conditions far-from-equilibrium).

This requires our reader to understand what the hell even is a waterfall economy?

To begin to answer this latter question, Lozano here at specmat (who, again, is only one specmater -he doesn’t even speak for himself, let alone anyone else) has elected to pursue the strategy of tutorials -in derivative satisfaction of the project objectives of The Lives of Concepts of Finance– on synthetic finance: he will move from ontological examinations of single-name credit default swaps, single-name total return swaps, and single-name credit derivatives (all three of which are currently available here and here and here), to then some key concepts in structured finance (e.g. tranches, CLNs, CDOs); and from there we will be an informed position to appreciate the impetus of the aformentioned claim.

We will also greatly augment our understanding of synthetic finance, which will aid our understanding of Deleuze’s Guidebook to Synthetic Finance (which will recommence shortly).   

Why study the ontology of synthetic finance? a first note

Perhaps its time to say a few words clarifying one reason why speculative materialism is interested to study the ontology of synthetic finance (and as always, why a Deleuzian is uniquely situated to do so).

We began by noticing that the recent development of two financial technologies now exhibit a series of intensive properties and processes whose material specificities demand serious, sustained, ontological examination. A Deleuzian is especially interested in intensive properties, so when we noticed their presence in the domain of finance, we decided to take a closer look. What are they?

First is credit derivatives. The progressive differentiation of these synthetic objects (from out of generic financial objects) convey that finance is a system whose modality is homologous with other dynamical systems with multiple attractors. Indeed, credit derivatives are singularities, or attractors; and credit derivatives markets are basins of attraction for financial markets writ large. And basins of attraction -in whatever system they articulate themselves- always force upon us the problem of accounting for a mode of existence that has available and material, but unactualized tendencies that are nonetheless real . What is the ontological status of such objects and their constitutive economic properties at play herein?

Secondly is the process, method, and mode of asset production called securitization. A Deleuzian only needs to read a technical manual on securitization to be immediately struck by the fact that we’re dealing with a flexible de- and re-differentiating assembly process, capable of an open -not closed- set of potential combinations.

Together, these two technologies combined, comprise synthetically-structured finance. We also began to realize that together they are a method for the nomadic distribution of qualitative multiplicities.

What do we mean by this? A more thorough answer to this question is provided by Deleuze’s Guidebook to Synthetic Finance (the first post of which is found here), as we slowly, carefully, and comprehensively work our way through the political finance in Deleuze’s Difference & Repetition. But there is also a shorter answer to give herein.

We know from dynamical systems theory, but also from the other subfields from the sciences of morphogenesis that when a process or series of processes lead to a closed set of assemblages, that set comprises a numerical multiplicity, because its different potential actualities can be exhaustively enumerated -as Deleuze says, everything is already present in its reality; not of course that everything is realized in its actuality, but that all of its potential actualities have already been realized, it is now a closed set of potentiality.

But we also know that some processes yield open sets, that these sets are divergent, and that therefore any attempt to exhaustively enumerate their potentialities will always fail -and at that, will always fail for a number of reasons; but the easiest way to explain why is to simply observe that it is a qualitative multiplicity, and qualitative multiplicities are by definition divergent. Biological evolution -in which novel biological assemblages incessantly move by degrees to produce a qualitative change in kind- is the most obvious example of the divergent, open set of a qualitative multiplicity in a dynamical organism. But as we sought to show in Essay Three of Of Synthetic Finance, the progressive differentiation of synthetic finance is another, albeit perhaps less obvious example.

Therefore, and building on the findings elaborated in Of Synthetic Finance, our study of the ontology of synthetic finance has now brought us to three things that must be examined further: (i) that synthetic finance is a technology for nomadic (as opposed to sedentary) distribution; (ii) of using the powerful de- and re-differentiating techniques of securitization for organically creating (what in Of Synthetic Finance we called) ‘natural leverage’ in a universal synthetic CDO, in order to assume a kind of ‘infinite leverage’, and for the purposes of realizing a speculative materialist communism; and (iii) developing an ordinal theory of value to supplant the cardinal theory of value (the latter of which is any other theory of value -whether Marxist, marginalist, etc.), i.e. of thinking of value in  ordinal terms, rather than cardinal terms.

This will be one of the agendas of speculative materialism’s interest in synthetic finance moving forward.



Generic Finance is to Euclidean Geometry what Synthetic Finance is to Topology

‘The loose and flexible topological view of the world [feels] very comfortable. Geometry seem[s] straight laced and conservative in comparison. If geometry is dressed in a suit coat, topology dons jeans and a T-shirt.’

— David Richeson, Euler’s Gem: The Polyhedra Formula and the Birth of Topology, Princeton University Press, 2008