Why The Next Market Crash Will Be The Sharpest On Record

Leverage on top of more leverage all to prop up assets that may not even exist — Kolin Lukas

Kolin DeShazo


In 2009, short-seller Bill “Fleck” Fleckenstein pulled the plug, closing his positions and his fund. By successfully predicting Armageddon, he walked away with huge returns that rivaled the protagonists of the cult film The Big Short. The untold story, however, details how some speculators continued to predict further economic collapse, thinking the world was about to end.

But despite the financial system literally breaking in half, the authorities’ combination of bailouts, liquidity injections, and “asset relief” programs restored confidence, and those bearish speculators went bankrupt. It was this extraordinary confidence revival that created the foundations for the longest bull market in history, the idea that you could ignore reality, zombify the economy, and get paid for it.

Because… why create an improved system free of all existing bad ideas when you can simply restart the profit machine, and convince everyone to play along?

Over the past decade, economic growth has halved while investors have put their faith in the Fed to prop up the economy, producing an absurd range of financial assets and systems created specifically to support them. Instead of savings, capital, and real wealth growing our economy, we have financial engineering:

CDOs, CBOs, MBSs, and to back them up, a plethora of alphabet soup “asset relief” programs: CPFF, TALF, PDCF, SMMCF, TALF, MSCLF. You get the idea.

Financial institutions have been revived not via real economic growth but via leveraging debt-financed assets that would instantly go to zero in post-financially insane world. And as leverage has become the de facto funding source that the megabanks, hedge funds, pension funds, and insurance firms use to bankroll these products — generating huge returns for themselves —

we’re about to experience the sharpest market crash on record.

To understand why let’s look at how Wall Street creates a CLO: a fancy name for fixed-income securities consisting of roughly 250 senior secured bank…