BREXIT—A MINSKY MOMENT. At exciting financial moments I turn to Tyler Durden. Here is his report from this morning. By a majority of 52% to 48%, British voters approved of Britain leaving the European Union (Brexit). Durden commented: “Just…wow. The ‘left tail’ scenario has played-out, and now, we are in the midst of a real-time “Minsky Moment” in Europe.”
I posted here in November 2008, some two months after the Lehman bankruptcy, about Minsky Moments (named after Hyman Minsky). A Minsky Moment is â€œthe point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments.â€ Durden focuses on the short term effects: “The market carnage is staggering with regards to the violence seen in such a short period of time, as the stress and convexity of the move is exacerbated by the inability and unwillingness of market-makers to provide liquidity.” The effect of margin calls on those who are highly leveraged will lead to a lot of short selling.
Durden describes the situation in financial lingo: “The tide has ‘gone out’…and we are about to see who’s been swimming naked.”