Why does this grizzled, bitter, old historian pray for a 1973 outcome where a bear market that wiped out 45% of the market and created the phrase “stagflationary recession” as part of the American lexicon look like an acceptable outcome?
Let’s review a little history together and hope that this author is wrong about the outcome, especially if the egos involved parallel another President’s in distant history.
I. The 1973-1974 “Silent” Bear Market
So why was 1973 such a consequential year in US history?
-An extremely unpopular war was winding down and coming to an end – modern corollary: Iran War
-Inflation was embedded, persistent, and continuing despite Presidential announcements otherwise – modern corollary: Bessent/Hassett claiming inflation or affordability was an opposition party hit piece
-An energy crisis emerged in the second half of 1973 due to Executive Branch paralysis – modern corollary: Trump’s inability to realize markets are warning of winter time shortages of primary byproducts being constrained from the Middle East
-A bull market was still performing well and the odds of a decline were non-existent as America had plenty of energy and the new technologies emerging from the transistor and integrated circuits would revolutionize the US economy – modern corollary: AI
-A corrupt President was engaged in corruption both financial and political using the US intelligence agencies and Justice Department to cover up his crimes – modern corollary: No comment is necessary
Now it’s time to review what really happened starting with President Nixon’s speech about the energy crisis and why his behavior is important to this era:
Now obviously the United States is not at this point yet, but the cumulative stupidity of ignoring the rest of the world, Fed Chair Burns inability to take the tough actions to preserve Bretton Woods at that moment while controlling inflation, and the political discourse due to the corruption of the US Constitution lead to the stock market deciding “nah, too dangerous to party, time to leave.”
In the end, it was a disaster and massive generational shock for those who grew up, invested, and believed in the US financial system after the Great Depression and World War II.
Jason Zweig had an excellent piece on December 11, 2016 which should resonate with everyone about the so-called silent crash of 73-74 with this reminder:
In this piece, from May 1997, I interviewed several veteran fund managers who survived the 1973-1974 market. With survivors of that crash harder and harder to find nowadays, and with stock prices today back in the stratosphere, it seems timely to take a walk down this particular branch of Memory Lane. I can’t say it too often: There’s no better time to think about losing money than when you are making money.
The market got creamed in 73-74 slowly but surely wiping out all of the nouveaux rich and old ideas about how the technological revolution would change the old structure of American industry despite the inflationary conditions the nation was in.
Is an almost two year bear market possible again? Of course it is. But will it happen while President Inflation is in charge is another question.
But could a crash occur that could be far, far, worse? If the 1973 silent but deadly bear is the outcome this time, everyone should be thankful because it probably will be substantially worse.
II. 2008, the Crash That Should Have Reset the System
For those of us old enough to remember seeing the troubles begin in 2005, there was no satisfaction in watching the consequences slam into the US economy and financial system in 2008. What ended as a painful 50% plummet from the highs, it easily could have dropped another 20-40% if unchecked by the Federal Reserve’s adoption of QE (Quantitative Easing) and massive implementation of government bailouts of corporations deemed “too big to fail” as was the problem of that era.
The unspoken word of reality that has yet to be discussed in polite circles is that almost all of the practices engaged in by major financial institutions, insurance companies, real estate speculators, pension funds and yes, governments be they at the Federal or state level, are still participating in the financial casino using the same instruments that created the crisis in the first place.
Repackaging and burying the new investment ideas on the private markets has done nothing to mitigate the risk and in fact may have expanded it exponentially worse than it was during the 2006-2009 time period. This can easily be verified if one understands that over 51% of US equities trade in dark pools or alternative trading systems(ATS) off the grid from the public view with price often leading the public markets by minutes to hours providing a massive advantage compared to the advertised exchanges promoting perpetual bull markets forever.
How did that risk carry on into the future?
III. 2018 – The Christmas Crash and Miracle
The statement from Treasury Secretary Mnuchin over the weekend before Monday, December 24, 2018 did little to sooth investor sentiment:
Stocks, already falling before Trump’s tweet, dropped further right after even as investors were still trying to interpret Mnuchin’s late Sunday statement.
The Treasury secretary said he had contacted the chief executives of six major banks to ensure that their operations were running smoothly and that they had “ample liquidity available for lending.”
That quote from the article via the SFGate article “Stocks close in on bear market as Trump and Mnuchin fuel Christmas Eve drop“
Stocks could have and would have dropped further if it were not for Federal Reserve Chair Powell’s Operation Retreat with a full on rumored leak from the NY Fed President on Christmas Day saved the markets and quite possibly the credit markets from starting to seize up again.
The miracle was that they did not. The crash however was real and on the verge of becoming a major historical event as eleveated credit risk to private entities and those banks that funded them was quite real at that moment.
But from everything the markets have endured since then, the idea that “risk” as defined in 1973, 1987, 1998, 2008, and 2018 terms has finally been redefined and socialized enough to spare the system from experiencing a major pull back like those at other key moments in history.
Until now.
IV. The Boomer’s Trust in Old Investments, Systems, and Return of Capital
Unfortunately for the American public, the modernes wealthy known as the “boomers” are not as prepared for a systemic failure like generations past. While the videos of boomers dancing on yachts or pontoon boats in the Villages make for amusing anecdotes and memes, unlike their parents who endured the Great Depression and World War II, they are living in a world of fantasy believing that after surviving the Great Financial Crisis of 2008 there is no way their retirement investments could ever be at risk again.
The belief that their gains are locked in with real estate holdings that they refinanced at 3%, that stocks can never retest historic lows, and that leverage guarantees that nothing will impact their monthly retirement payments has become the norm, not the exception. For that reason, it is worth a moment to review all three fallacies which at various points in history have returned to bury investors and retirees with a vengeance.
1. The Real Estate Can’t Crash Again Myth
One will hear to the point of their ears bleeding that all real estate is local and the new generation that invests or owns real estate for future retirement purposes are too wise to lose their home equity as there will always be a buyer in the end. The reality is that all aspects of real estate are cyclical, just like equities and bonds, and in an environment where US Treasury bonds are witnessing yield acceleration to levels unseen since 2007.
The same pattern is evident in the 30 year Treasury yield which creates a conundrum for the boomers who are borderline about selling their homes and locking in the gains, even with reduced profits due to the erosion in housing affordability due to stagnant inflation impacted wages plus massive increases in the costs of home ownership.
2.This Time It’s Different Thanks to Technology
The cover above from Barron’s in 2024 is indicative the mentality pervasive since the post-Covid period in US equity markets. The pie-in-the-sky belief that artificial intelligence is generating a new style of permanent bull market revolution. The evolution of AI is going to change the world according to many and prevent the kind of mistakes that occurred in other financial crises.
However even that bullish outlook is being challenged by the lack of deliverables despite over $2 trillion piled into the various corporations be they existing are startups in the past three years. Goldman Sachs recently warned about this in their June 10, 2026 paper “Are US Stock Market Valuations Outpacing Fundamentals?” In this paper the researchers point out a major observation (emphasis added by this author):
Those figures can change significantly depending on the underlying assumptions. Wilson and Chang point out that not all of the $27 trillion gain in market value is attributable to AI alone. Many companies (the hyperscalers in particular) have substantial non-AI businesses that may have driven gains in their stocks over that same period.
In addition, more optimistic assumptions about revenue shares, adoption speed, and productivity gains can raise the estimated value derived from AI. But closing the gap between the rise in market valuations and Goldman Sachs Research’s estimates “needs increasingly optimistic assumptions,” Wilson and Chang write.
More on how the AI race, hyperscaler speculative investment, and the consequences of all of this PE/PC investment later.
3. The Prime Borrowers are Gone, Time for Subprime to Shine
Of course it’s different this time until one starts to look at all the 2008 flashbacks to the reintroduction of subprime lending in every aspect of our society. It’s happening in real estate, it’s happening in Asset Backed Securities (ABS) via BNPL and extending credit to high risk members of society, and yes, again in automobile lending. From Autoremarketing.com:
Equifax reported total outstanding auto debt reached $1.7 trillion in May, representing a 2.4% increase year-over-year. Pushing the figure higher was a 14.9% surge in the subprime share.
While total account volume grew slightly by 0.3% to 87.4 million loans, Equifax also highlighted the subprime share of debt grew by 1.3% to reach 21.5%.
“This portfolio divergence indicates that rising vehicle valuations are sustaining balance growth even as unit volume stabilizes. Lender dynamics reveal a clear shift in risk appetite,” Equifax said in the report that’s designed to provide automotive professionals with the latest auto credit information and industry insights to help them make informed decisions.
But it’s not happening in housing this time, right?
Foreclosures surged 21% in the first half of 2026, new data shows
HomeLight says more buyers are hungry for down payment help in 2026
Credit card delinquencies hit highest levels since financial crisis
Subprime Home Equity Loans in 2026
Thankfully it’s different this time.
V. The Blind Side Hit the Millennials and Generation – X Do Not See Coming
Finally, it’s their turn.
The Gen-X and Millennials are finally starting to see the demographic curve turn in their favor and those evil old boomers like me who smoked, drank, and partied all our lives are starting to keel over and leave our assets and life insurance to the youths who deserve every penny of it.
Or are we?
From NBC News on May 20, 2026:
When Annie Benjamin invested $99,000 in an annuity 10 years ago, she trusted the insurance company to provide her with retirement income. She also relied on the company’s regulator to ensure the insurer could meet its obligations.
Benjamin’s trust in both was misplaced. PHL Variable Insurance Co., a private equity-owned life insurer, collapsed in 2024 and is heading for liquidation. Benjamin’s account is frozen, and 100,000 other PHL policyholders face a $2.2 billion shortfall, public documents show.
But don’t worry, the states are responsible for regulating and oversight of life insurance companies based in their states. They will make the insurance recipients whole, right?
A report this year from Conning & Co., an industry authority, said excess-of-loss agreements pose “underappreciated risks” to the industry. “There is the risk that these assets could dissipate suddenly and leave insurers exposed,” the report said.
As Bloomberg also wrote about this company’s collapse, a policyholder who loyally paid their premiums to the same company for seventeen years for a $2 million policy are probably only going to receive close to $300,000 with the rest gone forever, just like the pensions destroyed during and after the GFC.
Was PHL the only one however? According to the Life CCC (Life Insurance Code Compliance Committee) an un-named company also was sanctioned for its activities:
The insurer self-reported the failures as a significant breach in July 2024 – 12 months after the problem began. The Life CCC disclosed the sanction publicly on June 22, 2026. The insurer was not named. Chair Jan McClelland AM said the consequences for affected policyholders were direct. “People make life insurance claims at some of the hardest moments in their lives. When an insurer does not ask for the information it needs as early as possible, claims can stall and customers can be left facing unnecessary stress, uncertainty, and financial pressure,” McClelland said.
The delays were not uniform. Many customers waited only a few additional days, but at the severe end, seven customers had their claims stalled for more than 180 business days. A further 53 waited between 91 and 180 business days. The insurer paid approximately $160,000 in interest to 101 eligible customers. For compliance professionals, the distribution of delays is as telling as the total count. Claims sitting beyond the 180-business-day mark were not the product of a slow process – they had effectively dropped out of any functional oversight mechanism. The Life CCC noted that many of those affected were dealing with serious illness or financial hardship, making the timing of claim decisions particularly consequential.
Is it just life insurers? Of course not. The bankruptcy of Medicare and health insurance company GoHealth provides insights as to why the economics of insurance companies has been a challenge at a minimum and extremely risky in a stagflationary economy.
But why are the insurers speculating in high risk private credit instruments and the same type of derivative instruments which were the match that lit the fuse of the 2008 collapse? It doesn’t take a rocket scientist to determine the answer:
Demographics:
While the post-pandemic death rates have steadily declined for the elderly population, it will only begin to increase rapidly and life insurance payouts will become insurmountable for those corporations which failed to keep pace with inflation. The crash in US Treasury bond rates during the 2020-2021 period pushed many insurance, pension, and retirement funds into more speculative investments to seek higher yields; especially pushing more funds into private credit to get those higher returns to keep pace with the demographic outlook of the baby boomers putting a strain on the system.
This is where the mantra “it’s different this time” comes into play. A Reuter‘s article by Jamie McGeever from March 10, 2026 caught this author’s attention but did not tie the two together:
Private credit alarm bells echo 2007 subprime warnings
If indeed the information provided by Nick Nemeth and Rob Dubitsky (someone who would know) is confirmed, the US is in for a terrible outcome. From Nick’s must read article from April 5, 2026 on X titled “The Hole“:
The Federal Reserve’s own researchers have been documenting this. Carlino, Foley-Fisher, Heinrich, and Verani (March 2025) found that affiliated asset managers now control 72% of the industry — the same $187 billion CLO exposure and the same hidden leverage structures described in the previous section. Their conclusion: life insurer risky debt exposure now exceeds subprime mortgage-backed securities holdings from late 2007. The leverage in joint venture loan fund structures reaches up to 12:1 — despite regulatory limits that appear to show under 2:1.
The data the two authors on Substack have presented about various insurance companies and private credit is terrifying. Should they validate, the systemic risk is easily 20-30% greater than the losses and potential losses the United States financial system endured during the Great Financial Crisis. And that’s without taking into account the societal dislocation of millions of investors and elderly souls who depend on annuity payments as part of their retirement settlements along with the risk of a real estate decline occurring at the same time.
Oh, and did I mention the global implications of a collapse of this sort? One has to remember there are literally hundreds of billions of US dollars tied up in these investments, corporate bonds, and insurance company equities from investors around the world; all of whom believe that our Federal and state governments actively pursue regulatory oversight to prevent another financial crisis.
The larger issues facing our nation now appear in the lack of ethics, regulatory oversight, an unwillingness to hold anyone accountable for their actions or inaction, and an utter disregard for personal responsibility for one’s finances in the belief that because of the GFC and Covid the government will always make them whole by printing more money. This fallacy in our society has not faced a crisis of the proportions being considered at this time.
If indeed we see an impairment on the transfer of wealth from the boomer generation at the same moment the stagflationary economy forces an increase in consumer defaults, especially in the real estate and lower echelons of credit, the the implications for employment and economic growth would be substantially worse than the 2009-2012 time period.
I was sincerely hoping to warn my readers that tonight might only be as bad as the 1973 market crash or at worst 2007-2012. However, as I study this subject matter further and realize that state regulators are woefully unprepared for dealing with the oversight of so many of these sophisticated financial instruments which these institutions are using along with a substantial number of community banks investing in the same, 2008 would be if we’re lucky. On this path, the mistakes of an era with another arrogant President ignoring the reality from 1907 could come back to haunt us again.
