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 “the 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.” 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.”

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