Our Violent Future

Maybe you’re reading this on a bus. Or in your living room. Or at the office. Wherever you are, you probably feel safe and secure. Nobody around you is eyeing you up for your possessions. They’re probably not thinking about killing you just because of who you are.

But eventually, your friends, neighbors, and even family will turn on you.

It’s a repeated pattern throughout human history. When resources are scarce, power is consolidated, scapegoats are created and people turn on each other.

Let’s clarify what I mean by “people”, because that word often permits one to disassociate from a situation. The word “people” sounds like folks you see on the news or who live in another town.

In contrast, when I say “people”, I mean humans who exist within your sphere, many of whom you know well.

Take a moment to let that sink in, because you must understand this point to appreciate how frightening the future could become. “People” means your friends, family and neighbors. It means you!

How could people you know and trust turn on you? To answer that you must first understand what humans are capable of and what holds these behaviors back.

The video below is of an interview with a mass murderer. It’s easy to psychologically distance from him, as if he were a character from a fictional show. The horrifying reality, however, is that there are many people like this blending into society, their impulses restrained by the thin veneer of civilization.

The transition from a non-violent, civil individual to someone capable of violence can be influenced by a variety of factors. While some individuals may have latent tendencies that remain dormant until triggered, others can be driven to violence by external forces like societal breakdowns, traumatic events, or extreme stress.

Often, psychological, social, and environmental conditions combine to erode moral and ethical constraints, making violence a viable option where it once was unthinkable.

I’m not saying every 3rd person is itching to become a serial killer. But under the right circumstances – lack of food, cratering economy, fascist enablement – people can quickly become monsters. This has happened many times throughout history.

The French Revolution and the Reign of Terror

During the French Revolution (1789-1799), a period of intense social unrest, economic hardship, and political paranoia swept through France, leading to what became known as the Reign of Terror. Citizens, driven by fear and loyalty to the revolutionary cause, began turning on one another. Neighbors would often accuse each other of harboring anti-revolutionary sentiments, leading to public denunciations, trials, and executions.

These accusations were frequently motivated by personal grudges, social rivalries, or simply a desire to deflect suspicion away from oneself. As a result, thousands of people were executed via the guillotine, many of whom had been betrayed by friends, neighbors, and even family members.

The French Revolution offers a stark reminder of how quickly social cohesion can collapse under the weight of fear and political instability.

The Cultural Revolution in China

A similar pattern unfolded in China during Mao Zedong’s Cultural Revolution (1966-1976), a period in which the Communist regime sought to purge capitalist and traditional elements from society. The government encouraged citizens, particularly the youth, to denounce anyone who was perceived as counter-revolutionary.

Neighbors, classmates, and coworkers were quick to accuse one another in a climate of paranoia. Often, these denunciations were not just politically motivated but were also fueled by personal rivalries or a desire to gain favor with the authorities.

The consequences were devastating: public humiliations, imprisonments, and executions became commonplace, and long-standing relationships within communities were irreparably broken.

The Rwandan Genocide

Perhaps one of the most chilling examples of neighbors turning against one another occurred during the Rwandan Genocide in 1994. Decades of ethnic tension between the Hutu majority and the Tutsi minority, exacerbated by economic pressures and political instability, exploded into mass violence. Hutu civilians were often pressured by militias and the government to kill their Tutsi neighbors. Lifelong friendships and familial ties were destroyed as people, motivated by fear, hatred, or economic incentives like the seizure of property, committed unspeakable acts of violence against one another.

Over 800,000 people, mostly Tutsis, were killed in just 100 days, with much of the violence carried out by neighbors wielding machetes and rudimentary weapons.

When we reached the roadblock, I found that the guy who was my gardener was the head in the roadblock and what they’re telling that, “Tutsi here, Hutu here. If you know you are Tutsi, this side. If you know you are Hutu, this side.”

But then I started to ask myself, “What do I count myself? Do I go to my husband’s side since I’m married to a Hutu? Maybe I had the right to stay on his side.” But then immediately someone, one of the local people on the roadblock, came and pulled me, said, “Hey! You don’t belong to that side if you’re married to him — just here.” So I was pulled to that side and they started up with a machete coming towards me. What I did, I raised up my hand and I said “Please, please don’t kill me.”

As I was putting my hands up, my gardener came, I can’t remember whether this was a slasher or — it was something sharp because it cut my hand. And I fell down, and blood started shooting up, so my mother was trying to pull me up. They said — they hit her hard, she fell down, also, and the gardener came and said, “Okay, please,” he pulled me up, said, “Leave her alone. I’m the one going to kill her because she was — I was digging for her and she was a very bad boss to me. She never paid me well. She never gave me food.” In my mind, I thought I was going to be killed by him. He took us, like, my mother and other three ladies and took us aside on the other bush.

When we reached there, he got some leaves and bandaged my hand, and he told us, “Run! Run for your safety.” And he apologized. He said, “Please, forgive me. This was the only way I could spare your lives.”

– Norah Bagarinka, Survivor

The Bosnian War

During the Bosnian War (1992-1995), following the collapse of Yugoslavia, ethnic tensions between Bosniaks (Muslims), Serbs (Orthodox Christians), and Croats (Catholics) erupted into a brutal civil war. Once-peaceful communities, where neighbors of different ethnicities had coexisted for generations, became battlegrounds.

Nationalist rhetoric and the violence of paramilitary groups led many to turn on their neighbors in fear or vengeance.

Ethnic cleansing campaigns ensued, with massacres, forced deportations, and sieges, such as the infamous siege of Sarajevo. The war left over 100,000 people dead and permanently altered the social fabric of Bosnia.

They had taken a middle-aged man and a woman out of one of the houses. And the woman was screaming. And the soldiers were screaming. And they were screaming at me not to take photographs. And some shots rang out and the man fell to the ground.

A few minutes later, they brought out another woman and then they shot her as well. And, and then things sort of calmed down for a bit, and then they brought out two more people, and they said “Look, look, he’s from Kosovo. He’s a fundamentalist.”

And he put his arms up and basically looked at me as if I was probably the only person that could save him, which, probably in his mind I was, but unfortunately there wasn’t really anything I could do.

They brought him to the headquarters and as I was standing there I heard a great crash, and I looked up and out of a second floor window, this man came flying out and landed at my feet. And amazingly, he survived the fall and they came over and they doused him with some water. They said something like, “This is to purify Muslim extremists,” as they doused him in the water. And they started kicking him and beating him and then dragged him back into the home.

I had to make sure there was a document, that there had to be evidence of this crime, of what was happening. And that, I think, gave me the courage to try—to take those photographs. I was shaking, for sure, when I was doing it because I realized how precarious everything was, but I really thought it was unbelievably important to be able to have the world see what happened. – Ron Haviv, Photojournalist

 

Many people turned in their neighbors to paramilitary groups or actively participated in ethnic cleansing campaigns. For example, in Srebrenica, where Bosnian Serb forces executed more than 8,000 Bosniak men and boys, some Bosnian Serbs assisted in identifying and rounding up their Muslim neighbors for execution. These betrayals were often driven by a mix of fear, ethnic loyalty, and survival instincts.

At the beginning of the war, it seemed as if the war and all it brought with it was impossible, that this wasn’t really happening to us, and that everything would be resolved within a few days. We didn’t even notice how we were drawn into the vortex of inter-ethnic hatred and how neighbors were no longer able to live beside each other, how death moved into the vicinity, and we didn’t even notice that we had got used to it. In Bosnia, a neighbor means more than a relative. In Bosnia, having coffee with your neighbor is a ritual, and this is what we trampled on and forgot. And in this vortex of terrible misfortune and horror, the horror of Srebrenica happened.

I am here before Your Honors because I wish to express my remorse. I have thought for a long time, and I’m always followed by the same thought—guilt. I find it very hard to say this truth. I am to blame for everything I did at that time. I am trying to erase all this and to be what I was not at that time. I am also to blame for what I did not do, for not trying to protect those prisoners. Regardless of the temporary nature of my then-post, I ask myself again and again, “What could I have done that I didn’t do?” Thousands of innocent victims perished. Graves remain behind, refugees, general destruction and misfortune and misery. I bear part of the responsibility for this. – Perpetrator, Dragan Obrenović

The Holodomor in Ukraine

During Joseph Stalin’s forced collectivization of agriculture, Ukraine was devastated by a man-made famine known as the Holodomor (1932-1933). As the famine worsened and people grew increasingly desperate, neighbors turned against each other in a brutal fight for survival.

Reports of theft, hoarding, and even cannibalism emerged as communities crumbled under the weight of starvation.

In many cases, neighbors reported one another to Soviet authorities for alleged crimes like hiding grain or resisting collectivization. Those accused were often executed or sent to labor camps. The famine claimed millions of lives, further deepening divisions and eroding social trust.

The Partition of India

In 1947, the partition of British India into the independent states of India and Pakistan triggered mass violence between Hindus, Muslims, and Sikhs, particularly in the Punjab region. As religious tensions boiled over, neighbors who had lived together peacefully for generations began to turn on one another.

Communal violence erupted, with massacres, rapes, and forced migrations sweeping across the region. Millions of people were displaced, and up to 2 million were killed in one of the most tragic instances of social breakdown in modern history. The partition left deep scars on the communities that had once been integrated and relatively harmonious.

The Salem Witch Trials

Another historical instance of neighbors betraying one another can be found in the Salem Witch Trials of 1692. In the Puritan Massachusetts Bay Colony, religious extremism and economic instability fueled a wave of witchcraft accusations. Many of these accusations were rooted in personal vendettas and rivalries, as neighbors seized the opportunity to settle old scores or remove unwanted competition.

The result was a series of public trials, where individuals were convicted on flimsy evidence and hearsay. Twenty people were executed, and many others imprisoned, all based on accusations made by their fellow community members.

Post-Katrina New Orleans

A more recent example occurred in the aftermath of Hurricane Katrina in New Orleans in 2005. In the chaotic days following the storm, as basic services collapsed and law enforcement struggled to maintain order, social bonds frayed. With food, water, and medical care in short supply, some neighbors turned on each other in a desperate bid for survival.

Incidents of looting and violence emerged, and trust between community members deteriorated rapidly. While many worked together to rebuild, Katrina revealed how quickly fear and resource scarcity can erode the bonds that hold societies together.

Factors Leading to Violence in Civil Society

There are several common precursors that frequently precede instances of neighbors turning against each other. These precursors typically involve a combination of psychological, social, political, and economic factors that erode the bonds of trust and community, replacing them with fear, suspicion, and desperation.

1. Economic Hardship and Resource Scarcity

One of the most common precursors to community conflict is economic hardship, which can lead triggered by resource scarcity.

When people face extreme deprivation—such as food shortages, unemployment, or loss of property—survival instincts can overshadow social bonds. In times of famine, economic collapse, or hyperinflation, competition for basic necessities like food, shelter, and security can lead to neighbors viewing each other as rivals rather than members of a shared community.

The erosion of trust in such situations can quickly escalate into violence or betrayal as people struggle to secure scarce resources for themselves and their families.

2. Political or Ideological Polarization

Another frequent precursor to neighbors turning on each other is the rise of extreme political or ideological polarization. When societies become deeply divided along political, ethnic, religious, or ideological lines, neighbors who once lived peacefully together can be encouraged to view each other as enemies. This is often exacerbated by leaders or media who stoke these divisions, dehumanizing certain groups and justifying violence against them.

A clear example of this can be seen in the Rwandan Genocide, where government propaganda and extremist Hutu leaders spread messages of ethnic hatred through radio broadcasts and public speeches. This incitement of violence made it easier for Hutu civilians to rationalize killing their Tutsi neighbors, despite years of coexistence.

Similarly, during the Bosnian War, nationalist rhetoric stirred up by political leaders turned formerly integrated communities into battlegrounds, as people committed violence based on ethnic identity.

3. State-Sponsored Repression and Fear

In totalitarian or authoritarian regimes, the government often uses fear as a tool to maintain control, encouraging citizens to denounce their neighbors for perceived disloyalty. When people are afraid that they themselves might become targets of the state, they may turn against their neighbors to protect themselves or gain favor with the authorities. This environment of fear, suspicion, and forced loyalty erodes trust within communities.

For example, during Stalin’s Great Purge in the Soviet Union, many people reported their neighbors to the secret police, often for minor or fabricated infractions. The fear of being labeled as “counter-revolutionary” or disloyal to the regime created a culture of paranoia, where turning on one’s neighbors became a survival strategy.

Similarly, in Mao Zedong’s Cultural Revolution, ordinary people were encouraged to accuse their neighbors of harboring anti-Communist sentiments, often leading to violent consequences.

4. Breakdown of Law and Order

When the institutions of law and order collapse or become ineffective, it can lead to chaos and a breakdown of social cohesion. In such situations, people may feel that the only way to protect themselves or their property is through violent means. Without a functioning legal system to resolve disputes or maintain order, individuals may resort to taking the law into their own hands, often turning on neighbors they see as threats or competitors.

After Hurricane Katrina in New Orleans, the breakdown of law enforcement and basic services led to a rise in violence and looting, with reports of neighbors defending their homes with guns or threatening those in need of help. The absence of order and the perception of a survival situation caused people to act out of fear and desperation, turning a natural disaster into a social crisis.

5. Longstanding Ethnic, Religious, or Social Tensions

Pre-existing ethnic, religious, or social tensions can lie dormant for years but may explode into violence during times of political upheaval, economic collapse, or war. When these tensions are exploited or manipulated by political leaders or extremist groups, it becomes easier for individuals to justify violence against people who were once their neighbors.

The Partition of India in 1947 provides a stark example. As British India was divided into Hindu-majority India and Muslim-majority Pakistan, longstanding religious tensions erupted into widespread violence.

Neighbors who had lived together for generations suddenly saw each other as enemies, leading to massacres, forced migrations, and betrayals. Similar dynamics were at play during the Yugoslav Wars of the 1990s, where ethnic tensions between Serbs, Croats, and Bosniaks escalated into acts of ethnic cleansing, with neighbors often directly participating in the violence.

6. Propaganda and Dehumanization

Communal violence and neighborly betrayal is often preceeded by propaganda to dehumanize certain groups. By portraying certain ethnic, religious, or political groups as inferior, dangerous, or traitorous, regimes and extremist movements can make it easier for ordinary people to turn against those groups, even when they are their neighbors.

Dehumanization breaks down the moral barriers that typically prevent violence against others.

This was a central tactic during the Holocaust, where Nazi propaganda portrayed Jews as subhuman and a threat to Aryan society. This allowed many non-Jewish citizens to rationalize reporting their Jewish neighbors to the Gestapo or participating in their deportation.

Similarly, during the Rwandan Genocide, Tutsis were repeatedly referred to as “cockroaches” in Hutu propaganda, making the mass killings easier for Hutu civilians to justify in their minds.

7. Fear for Personal Safety

Fear of personal safety or the safety of one’s family is a powerful motivator that can lead individuals to commit violence or betray their neighbors. When people feel that they or their loved ones are in immediate danger, they may act out of self-preservation, even if it means turning on people they know. Fear can be stoked by propaganda, rumors, or real violence occurring nearby, leading to a breakdown of trust and an increase in suspicion and betrayal.

Modern America is just as vulnerable as anywhere else. During the Red Scare, fear of Communism led to widespread suspicion, and many people denounced their neighbors as a way to protect themselves from being accused of disloyalty.

The Future is Violent

Human civilization is successful because we have rules and cooperate on a wide scale. The economy is built on trust and laws that we all agree to. Social norms shape behaviors.

Remove the legal and social contracts, destroy the incentives for peaceful cooperation and humans deconstruct into their primal elements.

As society collapses, it is likely our history of violence will repeat.

The groundwork is already being laid, with family and friends separated by party lines. The dehumanization of certain segments of the population is creating future targets.

Millions are already salivating at the potential opportunity for violence. Once food and money become scarce and with tacit government approval – or even explicit direction – countless more will join in.

I also invite you to take a look at this site- www.whatfinger.com

Governments Are Asking Their Citizens To Be Ready!

Governments around the world – Sweden, France, Taiwan – are updating civil defence plans as threats from old (and new) adversaries escalate. Some countries, however, have yet to announce plans, despite the desperate need. So I’m filling the void.

Below are personal and household preparedness techniques in case of war, civil strife, supply chain disruptions, and other breaks in organized society. This information is introductory. For more comprehensive preparation, at the bottom I’ve included links to several civil defense guides – many from the Cold War – covering everything from nuclear fallout to outdoor shelters.

This won’t solve all our problems in the event of total collapse, but a prepared community is more resilient and may be able to mitigate some of the damage.

Here’s where to start:

Build and Maintain Emergency Supply Kits

Stockpile essential supplies so your household can be self-sufficient if cut off from services. Authorities recommend at minimum a 72-hour survival kit with items like non-perishable food, water (at least 2–4 L per person per day), medications, a battery or wind-up radio, flashlight, spare batteries, mobile chargers, cash, copies of important documents, spare keys, warm clothing and blankets, and basic tools. In practice, having a larger reserve is wise – Cold War civil defense manuals urged families to keep a full two-week supply of food and water, along with a first aid kit and radio, stored in a home shelter. Rotate your stock and check expirations regularly so provisions stay fresh.

Prepare Shelter and Safe Spaces

Identify the safest area in your home to shelter during different crises. For example, an interior basement room can protect against tornadoes or bomb blasts, and can be adapted as a fallout shelter in a nuclear emergency. Strengthen this space with supplies and physical shielding if needed (earth, water containers, or heavy materials can block radiation). The principles of radiation protection are simple – even with household resources, families can improvise an effective fallout shelter if needed. If a nuclear or chemical threat is imminent, seal the house: close doors and windows and shut off outside air if possible. Conversely, for some hazards like house fires or chemical spills, knowing how and when to evacuate the shelter is equally important. Being ready to shelter in place or evacuate based on official warnings will save lives.

Plan for Evacuation and Mobility

Have a clear family evacuation plan for scenarios where staying put is too dangerous (such as a spreading wildfire, flood, or invasion). Map out safe destinations (e.g. relatives in a safer region) and at least two routes to get there. Keep your vehicle fueled and ready and prepare a “go-bag” or car emergency kit in advance. This car kit should include food, water, first aid supplies, blankets, and a battery-operated radio so you can survive on the road or if stranded. Only attempt evacuation if you are confident you can leave early and reach your destination safely – do not get stuck in traffic during a crisis. As one nuclear survival guide warns, evacuating is viable only if you have a clear destination and route before chaos erupts; otherwise, you risk getting trapped in transit among panicked crowds. If you cannot evacuate in time (especially in urban centers), it is usually safer to stay where you are and make the best of your shelter.

Enhance First Aid and Medical Readiness

In disasters or war, professional medical help may be delayed, so basic medical skills and supplies are vital. Every household should keep a well-stocked home medical kit with first aid materials and essential medicines. This includes bandages, disinfectants, pain relievers (e.g. acetaminophen), any critical prescription drugs, and items for common ailments (oral rehydration salts, antiseptic, etc.). Community health handbooks urge families to have such kits ready for emergencies and to replace used or expired items regularly. Just as important is training – learn first aid and home nursing care in advance. Take a Red Cross first aid course and practice skills like CPR, controlling bleeding, and treating wounds or burns. Military first aid manuals emphasize attending to life-threatening injuries immediately (ensuring an open airway, stopping severe bleeding, treating for shock). Knowing how to stabilize an injured family member or neighbor until help arrives can make the difference in survival. Include basic dental emergency items as well (temporary filling material, oral pain relievers), since professional dental care might be inaccessible during a crisis.

Secure Water, Sanitation, and Hygiene

Water is an absolute priority. Store plenty of safe water – at least 2 litres per person per day for drinking (more for washing and cooking). If you have advance warning, fill bathtubs, sinks, and containers immediately before the supply or power is cut. In prolonged outages, know how to purify water from untreated sources. Maintain hygiene to prevent disease – wash hands frequently (use hand sanitizer if water is scarce) and safely dispose of waste. If toilets won’t flush due to infrastructure failure, set up an improvised latrine or bucket toilet away from living areas and water sources. Dig a deep pit outhouse if possible: a covered hole keeps flies and animals away from human waste, greatly reducing infection risk. Manage garbage by burning or burying it far from homes and wells. By rigorously keeping water clean, handling food safely, and containing waste, you can prevent outbreaks of diarrhea, cholera, and other diseases that often follow disasters.

Maintain Communication and Information Access

Staying informed during a crisis is crucial. Know your community’s emergency warning systems and signals (sirens, alert radio channels, text alerts) and heed them. Keep a battery-powered or wind-up radio in your kit to receive news and official instructions if power or internet goes down. Pre-designate information sources (local radio frequencies, government alert stations) and ensure all family members know how to tune in. Post a list of emergency contact numbers in your home and save them in cell phones. In the event of war or cyber attacks that disrupt communications, having a pre-arranged way to get information (like a neighbor with a ham radio, or a community bulletin point) is invaluable. If you have family members in other regions, agree on a check-in procedure (such as calling an out-of-area relative or using text/SMS which often works sooner than calls). Understand you may not be able to reach people. Communication can also mean simple signaling tools – keep a whistle (for attracting attention) and consider two-way radios for your family or group in case phone networks fail.

Equip and Harden Your Home

Increase your household’s physical resilience and safety. Survey your home for hazards and mitigate them – for example, brace or secure heavy furniture and shelves (especially important in earthquake-prone areas) and remove or fix anything that could fall or cause injury. Prepare to fight fires: install smoke detectors and keep fire extinguishers in key areas (kitchen, garage), and ensure everyone knows how to use them. Civil defense guides recommend having emergency tools on hand such as a fire extinguisher, a length of hose, a ladder, shovel, axe, saw, rope, and work gloves in your shelter or home kit. These tools can help put out small fires, shut off utilities, or perform light rescue if someone is trapped. Backup power and heating plans are also important – have flashlights and spare batteries for lighting, and candles as a last resort (with proper holders). For warmth during winter blackouts, stock extra blankets or sleeping bags and consider safe alternative heat sources. A small camp stove with fuel will allow you to boil water and cook if the electricity or gas is out. Take care with generators or open flames (carbon monoxide and fire risks) – use them only according to safety guidelines. By readying your home in advance, you reduce the risk of injury and damage when crises strike.

Make a Family Emergency Plan (and Practice It)

In a crisis every second counts, so each family member should know exactly what to do and work as a team. Create an emergency plan detailing meeting points, communication methods, and individual responsibilities. For instance, decide who will grab the emergency kits, who will check on elderly neighbors, and who will gather the pets. Conduct home drills for scenarios like fire evacuation, tornado sheltering, or lockdown. Children should be taught in simple terms how to dial emergency numbers and follow the plan. Also familiarize everyone with community plans – if your area has designated shelters or evacuation routes, make sure your home plan aligns with those. A good family plan also involves home emergency maintenance: know how to turn off the gas, water, or electricity if needed to prevent fires or flooding. By practicing in advance (even just talking through different scenarios), your family will respond more calmly and effectively when an actual emergency happens. Planning extends to important documents too: keep copies of IDs, passports, health cards, insurance policies, and a list of personal contacts in a waterproof folder as part of your kit. In the stressful moments of crisis, a well-rehearsed plan prevents panic and confusion.

Support Your Neighbors and Community

Community solidarity is a force multiplier in any disaster. After securing your household, help those around you if it’s safe – check on elderly or disabled neighbors, share resources, and communicate needs to local authorities. Individuals and families are responsible not only for themselves but also for contributing to the general survival effort. Many crises, from ice storms to war, can overwhelm professional responders, so communities that organize effectively can save lives. If you have skills (medical training, volunteer firefighter, etc.), make them known. Defend and aid your community, such as by joining local civil reserve units or volunteer firefighting groups. You might consider getting involved with your local emergency volunteer programs (like Community Emergency Response Teams or search-and-rescue volunteers) before a disaster happens. During peacetime, push for better community preparedness: attend town emergency planning meetings, map out which neighbor has a generator or a snowplow, and establish a buddy system for check-ins. In the event of an invasion or civil unrest, a networked community that watches out for each other is more resilient and less vulnerable to chaos. Preparedness is not just a private affair – it’s a collective insurance policy for your entire neighborhood.

Stay Informed and Mentally Resilient

Psychological preparedness is as important as physical preparations. In any crisis – whether a natural catastrophe or the shock of war – maintaining calm, discipline, and hope will greatly improve outcomes. Educate yourself now about what to expect in various emergencies; knowing the facts helps combat fear. For example, understanding that nuclear fallout risks can be reduced by simple sheltering techniques. By planning rationally, you replace panic with purpose. When a crisis hits, focus on actionable steps (check your family’s safety, use your plan, assist others) rather than dwelling on worst-case anxieties. Take care of mental health under prolonged stress: ensure each family member gets rest, stays hydrated and fed, and has some emotional outlet (even something like a book, game, or prayer can steady nerves during long waits). If you have children, keep them informed in a reassuring way and assign age-appropriate tasks to involve them – this gives them a sense of security and control. Community support is also a huge morale boost: knowing “we’re all in this together” helps psychologically.

Truth About Martial Law... The Warning Signs Are Already in Front Of Us!

 

There’s an old saying: To a man with a hammer, everything looks like a nail. In times of uncertainty, authoritarian power becomes the hammer, and every challenge—whether immigration, civil unrest, or the specter of war—becomes the nail—an excuse for expanding executive authority. When leaders frame these issues as existential threats, the temptation to bypass democratic institutions and invoke emergency measures becomes irresistible.

Martial law has long been seen as an extreme measure, invoked only in moments of true national crisis—during invasion, insurrection, or catastrophic disaster. In the United States, it has historically been viewed as a last resort, a temporary suspension of civil authority in the face of overwhelming chaos.

But what happens when every political challenge is deliberately framed as an emergency?

When an administration habitually describes immigration as an “invasion” or warns of an impending World War III, it transforms the perception of crisis from a rare occurrence into a constant state. And if everything looks like an existential threat, then the use of extreme powers—like deploying the military against civilians or declaring martial law—starts to seem not just possible, but inevitable.

This is the logic of authoritarianism: convince the public that the nation is under siege, then claim that only a strong, decisive leader—free from bureaucratic constraints—can save it. The danger is not just that crises may be exaggerated or manipulated; it is that they normalize the idea that democracy itself is inadequate to handle them. Over time, the public becomes conditioned to accept emergency powers as the default response to political and social challenges. The greater the perceived threat, the weaker the resistance to executive overreach.

In theory, martial law is meant to be a temporary measure, implemented only when civilian government can no longer function. In reality, history has shown that once leaders seize extraordinary powers, they rarely relinquish them easily.

Consider the scenarios in which an administration might justify its use: mass protests and social unrest could be declared a national security crisis requiring military intervention; a contested election might lead a president to refuse to leave office under the pretense of preventing fraud or instability; a cyberattack or foreign conflict could provide cover for broad emergency powers that suspend normal governance. Under any of these circumstances, the erosion of democratic institutions would accelerate.

Ordinarily, the system of checks and balances—Congress, the courts, the military, and the states—would stand in the way of such a power grab. But these safeguards are weakening. A judiciary increasingly shaped by partisan loyalty may hesitate to challenge executive authority. A gridlocked Congress, paralyzed by political dysfunction, may fail to assert its constitutional role. Military leadership, if filled with loyalists, may no longer act as a neutral force. State governments, while positioned to resist federal overreach, could find themselves overridden by federalized National Guard units. And the media, the last defense against unchecked power, is already under siege by disinformation, attacks on press freedom, and efforts to delegitimize its role as a watchdog.

The legal mechanisms for emergency rule are already in place. The War Powers Act, the Insurrection Act, and other national security provisions give the president significant authority to deploy the military domestically and override normal legal processes. But these laws were drafted under the assumption that those in power would use them in good faith. In the hands of a leader who subscribes to the unitary executive theory—which asserts that the president has near-total control over the executive branch, including law enforcement and the military—these provisions could be stretched to justify prolonged rule under emergency conditions. If the courts do not intervene, if Congress does not act, and if the public is conditioned to accept crisis-driven governance, the transition from democracy to authoritarian rule could happen faster than you can imagine.

The question is no longer whether martial law could be misused in the United States, but how to prevent its abuse before the moment arises.

Rebuilding democratic guardrails requires more than faith in the system; it demands active reform. Congress needs to reclaim its oversight role and impose stricter limits on executive emergency powers. Electoral integrity must be protected against manipulation. The military and judiciary must remain independent, resisting political influence. State and local governments must be prepared to serve as counterweights to federal overreach. And most importantly, the public must resist the creeping normalization of emergency rhetoric. A free press and an informed citizenry are the best defense against a government that seeks to govern by fear.

The troubling reality is that we are already wading into the Rubicon, step by step. The erosion of democratic guardrails is not a distant warning—it is happening now. If Congress does not reassert its role, if courts continue to bend to political influence, if elections remain vulnerable to manipulation, then the moment of no return will not be marked by a single dramatic event—it will be recognized only in hindsight, when it is too late.

As I’ve stated in earlier essays, democracy does not collapse overnight. It erodes gradually, often under the pretense of restoring order or responding to crisis.

The invocation of martial law has always been framed as a necessary response to chaos, but the real chaos lies in the unchecked accumulation of power. If the United States is to avoid crossing the line from democracy to dictatorship, the time to reinforce its institutions is not when the emergency is declared, but now—while the choice remains in the hands of the people, rather than in the grip of a single leader.

If the warning signs are already in front of us, what will it take for us to act before it’s too late?

I also invite you to take a look at this site- www.whatfinger.com

Hidden Rehearsal: How Pacific Eclipse Set the Stage for a Global Crisis

Weeks before COVID-19 surfaced, elites ran a secretive biowar drill—Pacific Eclipse. The script? A global pandemic. The goal? Control. What if 2020 wasn’t chaos—but choreography?

In the final weeks of 2019, while the world remained unaware of the approaching storm, a select group of military leaders, academics, and government officials from the Five Eyes nations quietly assembled across three U.S. cities—Washington D.C., Phoenix, and Honolulu—for a highly sensitive event known only to insiders: Pacific Eclipse.

Disguised as a tabletop exercise simulating a hypothetical smallpox bioterror attack beginning in Fiji, Pacific Eclipse was anything but an ordinary drill. Orchestrated by the U.S. Department of Defense’s Indo-Pacific Command and top-tier research institutions like UNSW Sydney and King’s College London, the event involved over 200 invited stakeholders from intelligence agencies, health departments, military commands, and the pharmaceutical industry. Encrypted communication systems were used to shield the planning from public scrutiny.

The timing was uncanny. While SARS-CoV-2 was silently spreading through China, the Pacific Eclipse exercise appeared to foreshadow, with chilling precision, the events that would soon grip the world. From cruise ship outbreaks and border shutdowns to mask mandates, vaccine campaigns, overwhelmed hospitals, and even social unrest tied to an election year—the scenario predicted it all.

Key players such as Professor Raina MacIntyre and Rear Admiral Louis Tripoli openly acknowledged that the simulation was geared toward identifying weak links in societal responses and influencing pandemic strategy. The U.S. presidential election and Brexit were explicitly included in the scenario, raising the specter that political disruption in the West may have been a calculated variable rather than a coincidence.

Even more striking was the exercise’s emphasis on vaccine deployment as the only viable exit strategy—rehearsing the logistics and communication plans necessary to ensure mass compliance and counteract anticipated vaccine hesitancy. The war-gamed solution mirrored reality just months later, down to the language of public health messaging.

Though officially focused on a fictional bioterror event, the parallels between the exercise and the real-world response to COVID-19 were so strong that even the academic paper documenting the drill admitted the alignment. Published discreetly two years later in the journal Vaccine, the article read like a playbook.

In hindsight, Pacific Eclipse may not have simply been a simulation, but rather the covert final rehearsal for what some now see as a global operation—one designed not only to manage a pandemic, but to consolidate control, reshape society, and weaken political populism in key Western democracies.

If true, Pacific Eclipse wasn’t just a glimpse into preparedness. It was the script.

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A Detailed Report! A Hidden Risk That Could Trigger Financial Collapse (A hot 3 letter asset that reminds me of the 2008 Global Financial Crisis)

Dear readers: this is a long one. But it’s something that’s been brewing in my head for a while so I had to get it down on paper. Especially as I see more retail investors jump on the CLO bandwagon. Is this risk imminent? No, but as economic conditions deteriorate while interest rates remain relatively high, the risk today is heightened. What I’m saying below is open for debate. Some feel that CLOs’ history of low default rates suggest a degree of proven safety. Perhaps they’re correct. However, regardless of the probability, given the dire consequences, the risk must be explored. Especially because this financial collapse – if it occurs – would hit everyday people the hardest. While this essay is long, it barely scratches the surface of what I’m contemplating – how this issue fits into the puzzle of a declining empire within a collapsing biosphere. I’ll cover that later. Let me know what you think.

I can’t shake the feeling we’ve seen this movie before.

Here we are, years after the 2008 meltdown, yet Wall Street has cooked up another alphabet-soup security that promises high returns with minimal risk – until it doesn’t.

I’m talking about Collateralized Loan Obligations (CLOs), complex bundles of corporate loans that are being hailed as safe by many of the same types of experts who once swore mortgage-backed securities could never fail.

If you find yourself asking, “Wait, haven’t we seen this before?”, you’re not alone. CLOs may be composed of corporate loans instead of subprime home mortgages, but in structure and spirit they “walk and talk” like the infamous Collateralized Debt Obligations (CDOs) that blew up the financial system in 2008.

Just as CDOs pooled together thousands of sketchy mortgages, CLOs bundle together hundreds of loans to below investment grade businesses. In other words, CLOs are essentially CDOs holding corporate debt instead of home loans.

Structurally, a CLO, like a CDO, is a towering layer cake of risk. Loans go into a special vehicle, which then slices the pooled debt into tranches with varying seniority. The top slice gets an AAA rating and first dibs on loan payments; the bottom equity slice eats the first losses but could earn high returns if things go well. This was exactly the formula with mortgage CDOs. Back then, we had supposedly rock-solid “AAA” tranches composed of dubious subprime loans. Today we have AAA-rated CLO tranches – but don’t be fooled. The AAA rating is deceiving because inside a typical CLO, you won’t find a single underlying loan rated AAA, AA or even A loan.

In fact, a recent analysis found 67% of the 1,745 borrowers in a major CLO loan database carried a B rating – essentially junk. Two-thirds of those loans would likely “lose money in economic conditions” similar to a serious downturn.

Sound familiar? It should.

In 2008, AAA-rated CDOs were stuffed with BBB-rated subprime bonds; in 2025, AAA CLOs are stuffed with B-rated corporate loans. We’ve just swapped who’s borrowing – homeowners then, corporations now – but the game is the same.

The CLO market has exploded in size, now even bigger than the subprime CDO market at its peak. In the 2000s, easy mortgages fueled a $640 billion CDO boom; in the 2010s, cheap corporate credit fueled a $750 billion CLO market by 2018. And it kept growing. By January 2025, the CLO market size was $1.38Tn. Just as easy mortgages fueled economic growth in the 2000s, cheap corporate debt via CLOs did so in the 2010s – and many companies binged on it.

Critically, the perceived safety of CLOs rests on the same shaky pillar that propped up CDOs: diversification. Rating agencies assume that a pool of 200 loans won’t all sour at once. In theory, the CLO’s loans are spread across industries and regions, so a downturn in one sector shouldn’t tank the whole portfolio. This default correlation math earned many CLO tranches their coveted AAA ratings. But we heard a similar tune in 2006: housing markets are local, they said – Florida might crash but Nevada and New Jersey will be fine. They were wrong.

When the economy falters broadly, correlations tend to shoot up – suddenly everything goes wrong together. In 2008, the myth that home prices in different cities were uncorrelated got busted as a nationwide housing decline sent highly rated CDO tranches into freefall alongside the lower tranches. The same risk looms for CLOs: the idea that dozens of highly indebted companies won’t default around the same time in a serious recession may be a dangerous fantasy. The safety of AAA CLO bonds depends crucially on how correlated those loan defaults become. If correlations spike – say, because an economic downturn or rate shock hits many businesses at once – the top-tier tranches could be a lot less resilient than promised.

To be fair, CLOs did learn from a few of the CDO mistakes. They are generally less complex – for example, they’re usually not packed with exotic derivatives or other CDOs (CLOs of CLOs are rare, whereas CDOs of CDOs were common pre-2008). CLOs also typically have thicker cushions of junior tranches below the AAA layer, ostensibly giving more protection to the senior investors. A modern CLO’s AAA tranche might be ~60–70% of the deal (meaning 30–40% subordination beneath it), whereas some subprime CDOs infamously had thin 20% buffers.

These structural tweaks mean if things only get slightly bad, CLOs’ top tranches could hold up better than CDOs did. But if things get really bad? The same fundamental flaw emerges: those buffers are only as good as the assumption that not too many loans default at once.

As the BIS (Bank for International Settlements) pointed out in a comparison, even a sturdier structure can be overwhelmed if the underlying asset quality deteriorates and defaults cluster more than expected. And guess what – underwriting quality has deteriorated in the frenzied hunt for yield.

Prior to 2008, subprime lenders were handing out “no-doc” mortgages like candy; similarly, in recent years leveraged loans without maintenance covenants increased from 20% in 2012 to 80% in 2018, meaning most loans in CLO pools now lack traditional safeguards. The share of ultra-low-rated loans (B–) in CLOs nearly doubled to 18% as of a couple years ago. In short, CLO collateral today is riskier and more weakly protected than a decade ago, despite the outward appearance of higher-rated tranches. Strong investor appetite led to “a deterioration in underwriting standards” for both subprime mortgages back then and leveraged loans now. Bottom line: we’re making the same mistakes in a different market.

Low Defaults Masking Risk

A fact often touted by CLO bulls is that no AAA-rated CLO tranche has ever defaulted in the history of the market – not even through the 2008 crisis. Even during the worst of the Global Financial Crisis, when CDOs imploded left and right, most CLOs (which held corporate loans, not mortgages) came through with only minor wounds.

In 2020’s brief pandemic recession, CLO structures again survived; their market prices plunged for a time, but actual defaults on the bonds were minimal. This track record has led to a pervasive sense of confidence – some would say complacency – about the product.

It’s the old trap of using the recent past to predict the future. CLOs haven’t blown up yet, so many assume they never will. But people once said U.S. home prices had never fallen nationwide, right up until they did. Past performance is no guarantee of future results – especially when conditions are changing.

Yes, CLOs navigated 2008 and 2020 fairly well – but one reason was that policymakers bailed out the broader system quickly, short-circuiting the worst-case scenario. When COVID hit, for instance, the Fed slashed rates to zero and opened liquidity floodgates, including buying corporate bonds; the corporate credit market got a lifesaver, which indirectly saved CLOs from experiencing a prolonged default cycle.

History’s absence of catastrophe is as much due to extraordinary rescue measures as to inherent safety. It’s worth remembering that CDOs were considered solid for years, until they suddenly weren’t. In 2007, AAA CDO tranches still had a spotless default record; by 2009, many of those same tranches were either defaulted or close to worthless.

The transition from “safe” to “toxic” can happen shockingly fast once underlying conditions turn. CLOs have never been tested at their current scale in a protracted, ugly recession with high interest rates squeezing borrowers. As the IMF observed in 2024, this entire asset class (leveraged loans and private credit) “has never experienced a severe economic downturn at its current size and scope” – what happens in a truly adverse scenario is largely uncharted territory.

Another reason CLO performance has been okay so far is that the risk has been shuffled out of the banking sector and into the hands of investors who are often willing (or forced) to hold through turmoil, which can delay the recognition of problems. In 2008, banks and investment banks holding toxic CDOs were immediately at risk of collapse when those assets soured, which made the crisis very acute. CLOs, by contrast, are mostly held by long-term institutional investors (think insurance companies and funds) who don’t mark to market as aggressively. That can create an illusion of stability – prices might fall, but insurers aren’t going to dump their AAA bonds at fire-sale prices (in fact, regulations often encourage them to hold such assets to maturity).

Losses can thus hide or take time to materialize. But make no mistake: the risk is there, just in different hands and perhaps slower-moving. The Fed’s own analysis in 2020 noted that institutional investors had “sizable exposures to risky CLO tranches, which appear to be larger than what market participants believe.” In other words, the market may be underestimating who’s really holding the bag and how much they could lose. The risk didn’t evaporate; it changed form and location.

So where did it go? Largely to the shadows of the financial system – pension funds, insurance companies, asset managers, and hedge funds, rather than the big banks and brokers that were center stage in 2008. This migration was by design: post-2008 regulations (like Dodd-Frank and the Volcker Rule) discouraged banks from loading up on the kind of risky structured assets that nearly killed them before.

Banks learned their lesson and now mostly stick to the safest slices of CLOs (and even those they keep in full view on their balance sheets). In fact, the Fed Chair and Treasury Secretary have often pointed out that banks today hold only the high-grade CLO tranches, implying there’s little cause for concern. And it’s true – banks hold only about 18% of outstanding CLOs, mostly AAA pieces. But that doesn’t mean the risk is gone; it’s just moved to “non-banks” that are outside the traditional regulatory spotlight.

The New Bagholders: How Pensions and Insurers Became the CLO Shock Absorbers

One of the biggest shifts since 2008 is who ends up holding these structured products. Back then, complex mortgage securities found their way onto bank balance sheets and off-balance-sheet vehicles, and even a big insurer (AIG) via credit default swaps. When the music stopped, taxpayers bailed out those firms (and by extension, the investors). Today, CLO risk has largely migrated to pension funds and insurance companies – institutions managing the savings of everyday people.

Insurance companies have become the single largest holders of U.S. CLO securities, far outpacing banks or pension funds. According to Federal Reserve data, by the end of the 2010s U.S. insurers alone held about one-third of all U.S.-held CLOs – the biggest chunk of any investor type. A 2018 breakdown showed insurers holding roughly $112 billion of CLO notes (33%), whereas pension funds held about $22 billion (~7%). Banks held around 18%, similar to mutual funds (18%).

In short, the lion’s share of CLO exposure had shifted to institutional investors like insurers, asset managers, and pensions. Fast forward to today and the trend continues. By 2022, estimates put U.S. insurers’ share of CLO holdings at ~22% of the market, with banks around 18% and mutual funds 15%. Pension funds, hedge funds, and other U.S. investors together held about 14%, and about 30% of CLOs were held by foreign investors (which likely include overseas insurers and funds). In total, roughly three-quarters of U.S.-held CLO exposure sits with non-bank institutions, not with the big banks.

This isn’t just an academic shift – it has real implications for stability. Insurance companies, particularly life insurers, are pouring money into CLOs as they search for higher yields to match their long-term liabilities. By year-end 2023, U.S. insurers’ CLO holdings reached $271 billion, more than double what they held five years earlier.

Even more striking, over 80% of those CLO investments were rated BBB or higher, and 41% were in AAA tranches. On the surface that sounds comforting (they’re mostly in investment-grade notes). But remember, those ratings depend on everything going right. And insurers haven’t shied away from riskier slices either – an earlier Fed study found just over half of insurers’ CLO holdings were actually in the mezzanine or junior tranches, not the ultra-safe AAA.

Other institutions are in a similar boat: about a quarter of pension funds’ CLO holdings were in the risky mezzanine/equity layer as well. There’s evidence even some traditionally conservative players are reaching for yield by venturing into the lower-rated “gut” of CLOs. For example, reports in 2024. noted that pension plans and insurers have been piling into funds that invest in CLO equity tranches – essentially the first-loss positions – hoping to boost returns. That is the equivalent of loading up on the equity of subprime CDOs in 2006 – a bet that paid off until it catastrophically didn’t.

Why should we care if insurers and pensions hold these things? Because these institutions are the bedrock of Main Street’s financial security. If a bunch of CLOs go sour, it won’t be Goldman Sachs or Citigroup bleeding – it’ll be, say, the state employees’ retirement fund, or the life insurance company that guarantees your annuity.

The risk has shifted from the highly scrutinized banking sector to corners of finance that, while regulated, don’t face the same daily market discipline or transparency. It’s quieter, but it’s still there. Financial watchdogs have noticed: The Financial Stability Board warned in late 2019 that insurers are now the largest non-bank holders of CLOs, including lots of lower-rated tranches, so stress in CLOs “could therefore have negative implications for insurers, pension funds and other non-banks.”

This also means the dynamics of a crisis would differ from 2008. Back then, when banks started keeling over, it triggered immediate panic and government interventions (nobody wanted ATMs to stop working).

If CLOs blow up, the pain shows up in more delayed, insidious ways: an insurance company quietly hemorrhaging until it can’t meet obligations, or a pension fund suddenly reporting a huge shortfall and asking a state government for a bailout. The transmission is a bit slower but ultimately lands in the same place – the public’s pocket.

Either retirees and policyholders take a hit, or taxpayers step in to fill the gap.

The Mirage of Diversification

At the core of CLOs’ supposed safety is the idea that diversification will save the day – that by holding hundreds of loans from different industries, a CLO can absorb a few defaults here and there.

This works until it doesn’t.

The risk that too many loans go bad at the same time is the Achilles’ heel of the whole scheme. And right now, we have a perfect storm brewing that could make default correlations skyrocket: higher interest rates and a broad economic downturn.

Consider what’s happened in the last 18 months: The Federal Reserve jacked up policy rates from near-zero to around 5% in an effort to curb inflation. Those higher rates directly raise the cost of all those floating-rate leveraged loans sitting in CLO portfolios. As rates have climbed, struggling companies suddenly face much higher interest expenses on their debt. Many of these borrowers were barely covering their interest when rates were low; now they’re underwater.

Already we’ve seen corporate defaults start to tick up from historic lows, roughly doubling over the past year (from ~1.5% to over 3%) as rate hikes bite into firms’ finances. Fitch Ratings projects loan defaults could rise to about 3.5–4.0% in the near term, the highest in over a decade, due to the combo of high rates and an economic slowdown. That may not sound huge, but remember that’s an average – in a severe recession, default rates in junk debt have spiked into double-digits before (around 10–12% at the worst of 2009). CLOs haven’t seen anything like that in their modern incarnation. If, say, 10% or 15% of the loans in a CLO default over a short period, the lower tranches would be wiped out and even some supposedly safe tranches could be imperiled.

The danger is that a broad downturn – which appears to be materializing at the moment, due to rising uncertainty, government employee layoffs, and trade wars, will clobber a large portion of the companies in these loan pools all at once, overwhelming the benefits of diversification.

When the economy goes south, it’s not just one industry that struggles – it’s many. Consumers cut spending, affecting retailers, restaurants, manufacturers, you name it. Rising interest costs hit every leveraged borrower across the board. It’s a bit like the housing market in 2008: it wasn’t one city or one region that collapsed – it was the entire national market.

CLO managers do try to diversify across industries and geographies, but no CLO is truly immune to a deep U.S. recession or credit crunch. In fact, recent analysis highlights that many leveraged loan borrowers are remarkably similar in their vulnerability: a huge chunk are rated single-B, meaning by definition they are very sensitive to any adverse business conditions.

When credit conditions tighten, most of those B-rated firms will struggle together. The correlation assumptions that rating agencies used (which often assume only a modest portion of loans default in unison) could prove far too optimistic.

Even diversification across regions might not help in the event of a broad economic recession. U.S. and European CLO markets are somewhat separate, but a global recession would hurt both. Within a U.S. CLO, loans might be spread across states or sectors, but a sharp rise in interest rates or a spike in input costs (like oil) hits across the spectrum.

During the brief COVID shock in March 2020, the average price of leveraged loans plunged by ~20 percentage points (from nearly 100¢ on the dollar to around 80¢) in a matter of weeks. That wasn’t because one or two loans defaulted – it’s because investors suddenly anticipated a wave of defaults everywhere. While prices later rebounded (thanks to the Fed’s intervention), it was a taste of how quickly correlations in credit can go to 1.0 when fear takes hold.

In essence, the touted benefits of diversification in CLOs may prove illusory when they’re needed most – much like how mortgage CDOs that were theoretically diversified by geography all sank together in 2008.

Not every underlying loan has to become stressed to have serious consequences. If enough of them falter together even the higher tranches could face losses or at least lose their investment-grade status.

Moreover, if loan defaults accelerate, managers might trade around and try to mitigate losses, but they can’t magically exit a collapsing market. In fact, trading could become impossible if liquidity evaporates (who’s buying junk loans in the middle of a crisis?).

The whole mechanism can seize up.

How a CLO Collapse Could Trigger a Wider Crisis

Let’s map out how trouble in CLO-land could transmit into a broader financial crisis. The key thing to grasp is that CLOs link the real economy (companies borrowing money) with the financial system (institutions investing in those loans). When that link snaps, it can create a feedback loop of pain.

1. Rising Defaults in the Real Economy: Start with a slowing economy – say unemployment rises, consumer spending falls, or profits drop. Highly leveraged companies (the ones in CLO portfolios) begin to miss interest payments or violate debt covenants. Defaults start to surge. Perhaps initially it’s confined to the weakest firms, but as the downturn deepens, even stronger firms struggle. At the same time, high interest rates mean these companies can’t easily refinance their debts; the usual escape hatch (borrow new money to pay off old loans) is largely shut. A wave of corporate bankruptcies ensues – not just isolated cases, but a significant percentage of the loan universe.
2. CLO Waterfalls Kick In: Inside the CLOs, the waterfall structure starts allocating losses. First, equity tranches are wiped out – that’s expected, they’re the buffer. Next, lower-rated debt tranches (say the BB or B rated slices) start taking hits. Interest that was supposed to go to junior tranches gets diverted to pay senior tranches due to failure of over-collateralization tests (CLOs have built-in rules: if collateral values fall or too many loans default, cash flows that normally would trickle down to equity or mezzanine holders get redirected to pay down the senior notes). Mezzanine investors see their income cut off and principal eroded. If defaults are severe, even some of the BBB or A rated tranches could face write-downs. Keep in mind: by design, CLO equity and junior notes absorb losses up to a point – but beyond that point, losses will creep up the chain. The “larger loss-absorbing cushions” of CLOs help, but they are not infinite.
3. Institutional Losses and Strain: Now, who holds those losing tranches? Hedge funds and specialized credit funds probably hold a lot of the equity and B/BB tranches – they’ll get hurt first. Some will fold or face investor redemptions, but that’s not yet systemic. However, insurance companies and some pension or mutual funds hold a sizable chunk of the BBB/AA tranches (and even some of the BBs). As those tranches get downgraded or suffer losses, these institutions take hits to their capital and earnings. Insurers might have to mark down the value of their holdings and boost reserves. A life insurer counting on CLO income to fund annuity payouts could face a shortfall. Pensions see the value of their fixed-income portfolio drop and their funding status worsen – they might swing from healthy to underfunded quickly, or an already underfunded plan becomes deeply in the hole.
4. Fire Sales and Market Contagion: If multiple institutions are under stress, we could see forced selling and liquidity crunches. For instance, imagine a couple of big insurance companies with outsized CLO exposure get nervous and try to offload some tranches to raise cash or reduce risk. In a crisis, though, buyers vanish – the market for CLO paper could freeze up, much like the CDO market did in 2008. Attempted sales just push prices down further. Mutual funds holding CLOs (some open-end funds and ETFs do hold CLO debt) face investor withdrawals and have to liquidate at any price. This becomes a downward spiral – asset prices plummet, even healthy loans trade at deep discounts, which in turn forces more writedowns on everybody still holding. It’s a classic deleveraging cycle. The CLO market, now over a trillion dollars including global issuance, is large enough that a crash in CLO values would send shockwaves through credit markets globally.
5. Credit Crunch for Companies: Here’s where it feeds back to the real economy. CLOs are a major buyer of corporate loans – they have funded a huge share (over 50%) of the leveraged loan market. If CLO issuance halts (no one will buy new CLOs during a fire sale) and existing CLOs are instead trying to sell loans, the supply of credit to companies dries up. Even relatively healthy companies that need to refinance maturing loans in, say, 2026 suddenly find no lenders willing to roll their debt. Banks might be cautious too (they’re dealing with their own issues and many had pulled back from direct leveraged lending, relying on CLO demand which is now gone). Companies that were counting on refinancing or new loans can’t get them, leading to more defaults and layoffs. It becomes harder for businesses to roll over even good debt, spreading the wave of bankruptcies beyond just the weakest firms. In effect, a CLO market implosion could freeze the entire leveraged loan market, very much like the way the subprime CDO collapse froze mortgage lending in 2008. This credit crunch then amplifies the recession, making it deeper and more prolonged.
6. Hit to Banks and Financial System: Up to now, banks have been on the sidelines (apart from losing their ability to syndicate new loans). But in a severe scenario, banks won’t be unscathed. Remember, U.S. and foreign banks still hold about 18% of CLOs, mainly the AAA tranches. If the nightmare unfolds where even AAA tranches are at risk (say, they haven’t yet defaulted but could if things worsen), banks would face huge mark-to-market losses on those holdings. Even before outright default, downgrades of CLO tranches from AAA to BBB (or worse) would force banks to increase capital against them or sell them at a loss. Moreover, banks often extend credit lines to investment vehicles and players in this ecosystem – for example, a bank might have provided a warehouse line to a CLO manager to accumulate loans before packaging, or lent to a hedge fund that’s now bleeding. As those counterparties falter, banks can get hit indirectly. And of course, if the corporate defaults are widespread, banks are also lenders to many of these companies outside of CLOs (through revolvers, term loans, etc.). So they’d take losses on direct loans and see a spike in nonperforming assets. While the epicenter of the crisis might be “shadow banks” like insurance and pension funds, eventually the regulated banks could feel enough pain to spook markets about their stability too. At that point, you have a full-spectrum financial crisis.
7. Feedback to Consumers and the Economy: Finally, consider the fallout for ordinary people. If pension funds incur big losses, they may cut benefits or demand higher contributions from employers. If insurers become impaired, policyholders may worry about their claims or annuities; in worst cases, an insurer failure could delay payments to families. People nearing retirement could see the value of their portfolios and pension expectations shrink just as they need them, reducing their spending and confidence. And of course, if a credit crunch forces businesses to lay off workers en masse, unemployment rises and feeds a downward economic spiral. In a nightmare scenario, you could have a recession worsened by a “financial accelerator” effect, where financial losses (in CLOs) cause institutions to pull back, which hurts the real economy, which in turn causes more financial losses – a vicious loop, much like 2008. The Financial Stability Board has cautioned that today’s leveraged loan and CLO markets “may be more vulnerable to macroeconomic shocks than in the past, and stress in leveraged loan markets could disrupt other markets.” That’s a polite way of saying a CLO collapse could transmit stress far and wide, given the interconnections.

When the Music Stops: What Will Policymakers Do?

The policy response to a CLO-driven crisis should tackle both immediate fire-fighting and long-term fixes. On the immediate front, the Federal Reserve and U.S. Treasury would likely need to step in to provide liquidity to the corporate credit market. This could mean the Fed dusts off the emergency playbook it used in 2020: for example, back then it created facilities to buy corporate bonds and even ETFs. It could extend that to buying senior CLO tranches or accepting them as collateral for loans, stabilizing their value and reassuring investors (in fact, the Fed implicitly included AAA CLOs among assets it could buy in an emergency during the COVID crisis, though it never had to actually do it). An ideal policy would also coordinate with banks to ensure they keep lending to viable firms so that a temporary market freeze doesn’t kill otherwise healthy companies.

The government might also consider direct support to vital institutions like pension funds, if their losses threaten to impoverish retirees. This could take the form of backstop loans or using entities like the Pension Benefit Guaranty Corporation (PBGC) to absorb and restructure failing pensions (though PBGC itself would likely need a bailout in a truly large crisis). For insurance companies, regulators might temporarily ease capital requirements to prevent a forced asset sell-off, while arranging industry-funded solutions for any insolvent insurers (in the ideal scenario, with federal oversight if needed to inject funds and later recoup via fees on the industry). Essentially, you’d want to prevent a domino effect of failures.

Unfortunately, bailouts aren’t an exact science, and policy makers typically take a shoot first, ask questions later approach, given the speed of financial crises. While this might make sense in the heat of battle, they tend to have unintended consequences, such as widening wealth inequality, market disruptions and inflation. After 2008 and 2020, the political capital required to preserve the system is arguably spent.

The likely response, given the current political climate, could be much more ad-hoc and hesitant. Any whiff of “bailouts” for Wall Street is politically toxic these days. In 2008, the Bush and Obama administrations pushed through massive rescues (TARP, etc.) but with great difficulty and lasting public resentment. Today, with populism on the rise across the spectrum, Washington might balk at anything that looks like a bailout of financiers.

There could be a lot of finger-pointing and denial initially – perhaps officials will say “CLOs are a niche issue, we don’t see contagion” (echoing the infamous “subprime is contained” optimism of early 2007). If stress emerged, the first instinct might be to reassure and avoid dramatic intervention, at least until things clearly spiral.

However, when push comes to shove, I suspect the Fed would quietly use its tools to prevent outright financial collapse. The Fed can act without Congress, which is key if political gridlock or backlash prevents a fiscal bailout. In a severe CLO-driven liquidity crisis, the Fed could invoke its emergency 13(3) powers to set up a funding facility for institutions holding CLOs – for example, lending against AAA CLO tranches to take the pressure off insurers forced to sell. It could even buy portions of the CLO or underlying loans via a Special Purpose Vehicle (similar to what it did with corporate bond ETFs in 2020). These would be stealth bailouts – stabilizing Wall Street indirectly to protect Main Street. The average person might not even realize it’s happening (just as many didn’t know the Fed backstopped money market funds and asset-backed securities in ’08). The likely playbook is monetary intervention first and foremost – cut rates, flood markets with liquidity, and hope that calms things. Remember, however, that while these measures were taken in 2020 and eventually helped, the S&P 500 still dropped by about 35% in the course of a month.

What about the current administration’s fiscal response? Unknown. All I can assume is that there’s a high probability they make the problem worse.

The biggest wildcard is the global aspect.

U.S. CLOs have many foreign buyers, including Japanese banks and European investors. If things go south, international coordination may be needed to avoid global financial or economic collapse. The Bank of Japan or European Central Bank might have to support their banks that have American CLO exposure. We could see something akin to 2008 where the crisis transatlantic feedback loop required joint central bank actions, with the US Federal Reserve providing foreign central banks with US dollars (dollar swap lines). Given growing US isolationism, global cooperation – which is mutually beneficial, despite the rhetoric – is no longer a given.

From Financial Crisis to Economic Depression

When the dust settles, who is left holding the bag? The short answer: us, the citizens. One way or another, the ultimate risk-bearers of a CLO debacle are average people, whether as retirees, employees, taxpayers, or consumers. This is perhaps the most frustrating aspect of the whole saga. The risk was supposed to be diversified and sold off to those best able to handle it, but in reality it has concentrated in institutions that directly affect the financial well-being of everyday folks.

Consider pensions: If a pension fund suffers big losses on CLOs, the retirees and workers in that pension plan will face the consequences. That could mean cuts to future benefits, reductions in cost-of-living adjustments, or even in extreme cases, the pension plan going insolvent and being taken over by government entities (which typically leads to benefit reductions for higher earners). For public pensions (like state government employee funds), any shortfall often has to be plugged by taxpayers or by painful budget cuts (which also hurt citizens via reduced public services or higher local taxes). In every scenario, it’s essentially the public paying – either through diminished retirement income or through footing the bill to rescue the plan.

Considering the current war on the middle class via government clear-cutting basic social services, I wouldn’t be shocked if pensions wouldn’t get bailed out leaving retirees fending for their lives.

For insurance companies, the stakes are similarly personal. Life insurers, for example, underpin millions of annuities, life policies, and long-term care coverage. If a major life insurer were to fail because its balance sheet was wrecked by CLO and corporate credit losses, policyholders could find their life savings at risk. Government guaranty funds could step in (again TBD given the current war on basic government services) to cover some of the losses, but those funds have limits.

And how are guaranty funds financed? By assessments on other insurers – costs which ultimately filter down to consumers via higher premiums. Or, if the failure is too large, it might require a broader taxpayer-backed solution. Recall AIG in 2008: it was an insurance conglomerate that nearly collapsed from bad bets on CDOs, and it took a $182 billion federal bailout to prevent chaos. That money effectively came from taxpayers (though AIG repaid in the end, the risk was socialized). We could see a repeat in form: if multiple insurers get in trouble, the public will either bail them out or bear the losses. Either outcome means we pay.

Let’s not forget individual investors. Many 401(k) plans and IRAs are invested in bond funds, some of which could hold slices of CLO debt or the corporate bonds of companies that might default. A collapse in leveraged loans would likely spill into high-yield bond prices (those markets are cousins), so your retirement portfolio could take a hit even if you never heard of a CLO. We’re all more intertwined with this market than most people know.

There’s also a more diffuse but profound way we all bear the risk: the macroeconomic fallout. If a CLO-driven crisis causes a recession (or exacerbates one), then everyone pays in terms of lost jobs, lower wages, reduced wealth, and general economic hardship. The 2008 crisis showed how even people who never took out a subprime mortgage suffered – through a higher unemployment rate, a stock market crash that hurt pensions and savings, and a sluggish recovery that lasted years. Dubbed as the “Great Recession”, the economic pain during the years after the financial crisis came second only to the Great Depression of the 1930s.

Similarly, a corporate credit bust would mean more companies failing, higher unemployment, and potential hits to the stock market, since stock investors would foresee lower profits and maybe dilutive debt restructurings. If pensions and insurers incur big losses, it could also sap consumer confidence – people might feel less secure about their retirement or coverage and thus spend less, further dragging on growth.

In the end, what was marketed as a way to distribute and minimize risk (securitize those loans! spread them around!) ends up concentrating risk in the very foundations of ordinary people’s financial lives.

It’s a bitter irony that average citizens – who have no direct say in these complex financial structures – are the ones poised to suffer the most.

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