The Eternal Loop
- Every financial accident starts the same way: Innovation → Speculation → Leverage → Euphoria → Collapse
- Crowded trades end in stampedes because there's only one exit and a million sellers
- Corners collapse when the rules change — and the rules ALWAYS change
- Short squeezes follow 6 phases from setup to slaughter to aftermath
- Bailouts always come after the damage — never before, never during, always after the bodies are cold
- The pattern repeats because human psychology never changes — only the technology does
The Theater Opens
Imagine you're sitting in an ancient Greek amphitheater. The stage is set for a tragedy. You already know how it ends — the hero will fall, the chorus will weep, and the gods will restore order too late to save anyone.
Now imagine the same play has been performed for 400 years. Same five acts. Same dialogue. Same ending. And every new audience believes THIS time will be different.
That's the story of every financial crisis in human history.
"This time is different..."
"This time is different..."
"This time is different..."
"This time is different..."
"This time is different..."
It never is. The script never changes. Only the costumes do.
"History doesn't repeat itself, but it rhymes so perfectly that you'd swear the universe hired the same playwright."
— Mark Twain (paraphrased)
This is the definitive guide to the eternal market tragedy. The five acts that repeat in every bubble. The physics of crowded trades. The anatomy of squeezes and corners. And the cruel timing of bailouts that always arrive to save the system — never the people.
By the end, you'll recognize the script the moment Act I begins. And maybe — just maybe — you'll be the one who leaves the theater before the fire starts.
Every Financial Accident Starts the Same Way
Every crisis. Every bubble. Every catastrophic wipeout. They all begin with the same opening scene:
Something new appears.
A new technology. A new financial instrument. A new market. A new idea that genuinely changes the world. And here's the cruel part — the innovation is usually REAL.
🎬 THE FIVE-ACT TRAGEDY
The Innovation
Something genuinely new appears. Early adopters see the opportunity. Smart money enters. The thesis is often CORRECT. This is where real fortunes are made quietly.
The Boom
Success attracts attention. The idea spreads. Credit expands. Prices rise, confirming the story. "I told you so" echoes through every trading floor. FOMO awakens.
The Euphoria
Everyone knows. Your Uber driver is buying. New paradigm narratives dominate. Bears are ridiculed into silence. Leverage peaks. The marginal buyer is now a fool buying from a genius.
The Reckoning
Something breaks. A crack appears. The smart money quietly exits. Then panic. The stampede. Margin calls. Forced selling. The exit shrinks as everyone rushes for it simultaneously.
The Aftermath
Bodies everywhere. Investigations. Bailouts (too late). New regulations. Solemn promises of "never again." The survivors vow to remember. They won't. The cycle resets.
Let me prove this script never changes with evidence from four centuries:
Different centuries. Different technologies. Different characters. Identical script.
The Core Truth
Financial accidents don't start with fraud or stupidity. They start with REAL innovation that attracts REAL capital. The tragedy is that the innovation succeeds — it's the TIMING and LEVERAGE that kill.
Why Crowded Trades End in Stampedes
Here's a question: What happens when 10,000 people all try to exit through a single door at the exact same moment?
Crushing. Death. Chaos.
Markets work the same way — except the physics are even more brutal. Because in markets, the exit doesn't just get crowded. It actually SHRINKS as more people try to use it.
THE STAMPEDE PHYSICS
When everyone is LONG and something breaks — there's no one left to BUY. Every seller faces zero bids. Price gaps down through stop losses.
A "crowded trade" happens when most market participants are positioned on the same side. Everyone is long. Everyone agrees. Everyone has the same thesis. And because they all bought, there's literally no one left to push prices higher.
The Domino Chain of Collapse
When a crowded trade unwinds, it doesn't decline gently. It COLLAPSES. Here's why:
The most dangerous moment in any market is when consensus reaches 90%+. This is when:
The Marginal Buyer Is Gone
If 95% of traders are already long, who's left to buy? Only the 5% — and they're too small to matter. The fuel tank is empty.
Any Selling = Waterfall
When one person sells, there's no bid to absorb it. Price gaps down. This triggers more selling. A feedback loop of doom.
Algorithms Amplify
Stop losses trigger. Momentum algos flip short. Volatility-targeting funds reduce exposure. Machine selling accelerates human panic.
Liquidity Evaporates
Market makers widen spreads or step away entirely. The bid/ask spread that was 1 cent becomes $1. Orderly selling becomes chaos.
"The market is the only theater where the emergency exits shrink when there's a fire."
— Anonymous Hedge Fund PM
ARKK (2021-2022)
Everyone owned it.
Fund flows: $15B in.
Result: -78%
Yen Carry Trade (2024)
$20 trillion position.
Everyone short yen.
Result: Global flash crash
Oil (April 2020)
Massive long positions.
Storage full. No exit.
Result: -$37/barrel
Subprime (2008)
Everyone AAA rated it.
No one hedged.
Result: Global crisis
The lesson is brutally simple: when a trade becomes consensus, it becomes a trap.
How Corners Collapse
The corner is the ultimate power fantasy: buy so much of something that you control the entire market. When you own it all, you set the price. Everyone must pay what you demand.
It's financial chess. Checkmate the world. And throughout history, brilliant, wealthy, ruthless people have tried it.
They've all failed.
The Corner's Doom Loop
Every corner fails for the same reasons. It's not bad luck. It's structural. The very act of cornering a market creates the conditions for your destruction:
Success Creates Visibility
Your corner starts working. Prices rise. But success creates headlines. Regulators notice. Exchanges notice. Enemies notice.
Size Becomes a Trap
Your position grows so large you CAN'T exit without crashing the market. You own 50% of supply — who can you sell to?
Rules Get Changed
Exchanges raise margins. Position limits appear. "Liquidation only" trading starts. The game changes BECAUSE you were winning.
The Unwind Is Fatal
Forced to sell your massive position into a market you just cornered. Every sale crashes the price. Your exit is your funeral.
"A corner is easy to get into and impossible to get out of. It's like catching a tiger by the tail — let go and it eats you."
— Jesse Livermore
Case Study: The Hunt Brothers' Silver Thursday
The most infamous corner in modern history. Nelson and Herbert Hunt — sons of the richest man in America — tried to corner the entire world silver market.
They accumulated 100 million ounces — 1/3 of world supply. Paper profits hit $4.5 billion. They were the richest men on Earth.
Then COMEX changed the rules.
"Liquidation Only Trading" — you could only SELL silver contracts, not buy. Margin requirements increased 75x. On March 27, 1980 — Silver Thursday — silver crashed from $21 to $10.80 in a single day.
The lesson: Markets have referees. And referees protect the market, not the manipulator.
The Lifecycle of a Short Squeeze
If corners are offensive plays — trying to dominate a market — short squeezes are defensive explosions. They happen when shorts get trapped and must buy at ANY price to escape.
Every short squeeze follows the same six phases. From VW's "infinity squeeze" to GameStop's meme madness — the script never changes:
🎯 The Setup
High short interest (>20% of float). Low float. Beaten-down price. Shorts are comfortable, complacent, LEVERAGED. They've been winning.
⚡ The Trigger
Unexpected good news. Buyer appears. Reddit discovers it. Price starts rising. Short thesis is challenged. First shorts cover "just in case."
🚀 The Squeeze
Covering creates buying. Buying pushes price higher. Higher prices = bigger losses = more covering. Feedback loop of doom for shorts. Price detaches from reality.
💥 The Peak
Shorts are blown out or bankrupt. No more forced buying. Late FOMO buyers provide exit liquidity. The music stops. Silence.
📉 The Dump
Early squeeze buyers take profits. Price collapses faster than it rose. Those who bought the peak are trapped. "Diamond hands" become "bag holders."
💀 The Aftermath
Price settles near pre-squeeze levels. Shorts return. Bagholders cope. Stories become legends. The next squeeze target is already forming.
The Hall of Legendary Squeezes
VW "Infinity Squeeze" — 2008
Porsche secretly accumulated 74% of VW. Short interest: 12%. Available float: 6%. Price: €200 → €1,005 in 2 days. VW briefly became world's most valuable company. Shorts lost €30 billion.
GameStop — January 2021
Reddit's r/WallStreetBets vs. Hedge funds. Short interest: 140% (!!). Price: $17 → $483 in 3 weeks. Melvin Capital lost 53%. RoaringKitty became a legend.
AMC — 2021
The "ape" army attacked. Price: $2 → $72. CEO Adam Aron embraced the apes. Company raised billions in equity. Shorts got crushed. Then reality returned.
Tilray — 2018
Cannabis stock with 70% short interest. IPO at $17. Peak: $300. Duration: 2 months. Collapse: 98% from peak. The anatomy laid bare.
Why Bailouts Always Come After the Damage
Here's the cruelest truth about financial crises: help ALWAYS arrives. But it always arrives too late to save the victims.
The bailout comes. The system gets saved. The institutions survive. But the people? Their money is already gone. Their homes are already foreclosed. Their lives are already destroyed.
This isn't conspiracy. It's structural.
The 4 Reasons Bailouts Are Always Late
Recognition Lag
Authorities don't see the crisis until it's obvious. "Subprime is contained" — Ben Bernanke, March 2007. It wasn't. By the time they admit it, damage is done.
Political Paralysis
Bailouts require votes. Votes require political will. Politicians don't want to "reward bad behavior" or "use taxpayer money." Debate takes months. Markets crash in hours.
Moral Hazard Fear
"If we bail them out, they'll do it again." This is TRUE. But while policymakers debate moral hazard, real people lose everything. Philosophy takes time. Margin calls don't wait.
The "Bodies Required" Threshold
The system only moves when systemic collapse is imminent. Not when 10,000 retail traders blow up. Not when small funds fail. Only when EVERYTHING is about to die.
The Bailout Timeline: Always the Same
"The Fed will always do the right thing — after exhausting every other option, and only when it's too late for it to matter."
— Adaptation of Churchill
Case Study: 2008
Let's trace the timeline of the greatest bailout in history:
Feb 2007
HSBC warns of subprime losses. Stocks rally. "Contained."
Aug 2007
BNP Paribas freezes funds. Credit markets freeze. First signs.
Mar 2008
Bear Stearns collapses. Rescued in 48 hours. Still "contained."
Sep 15, 2008
Lehman Brothers fails. AIG craters. Armageddon. NOW they act.
From first warning to bailout: 19 months. In those 19 months: millions of foreclosures, trillions in losses, a global recession.
TARP ($700 billion) passed October 3, 2008. Three weeks after Lehman. The bodies were already cold.
The Brutal Reality
Bailouts exist to save THE SYSTEM, not THE PEOPLE. If you're waiting for the government to rescue your portfolio, you're the exit liquidity for those who didn't wait.
The Eternal Loop
So why does the cycle repeat? Why don't we learn? Why do the same patterns destroy wealth generation after generation?
Because human psychology never changes.
We change the technology. We change the regulations. We change the actors. But we can't change the wiring in our brains. The same fear and greed that drove tulip mania drives crypto pumps. The same hubris that sank the Hunt Brothers sank Bill Hwang.
Greed Overpowers Memory
10 years after a crash, survivors retire. New traders enter. They didn't FEEL the pain. Reading about 2008 isn't the same as living it. So they make the same bets.
FOMO Is Biological
Watching others get rich triggers primal envy. This isn't weakness — it's evolution. Missing the mammoth hunt meant starvation. Missing the trade feels the same.
Leverage Is Intoxicating
1x gains are boring. 10x gains are addictive. Every generation rediscovers that leverage is magic on the way up — and suicide on the way down.
"It's Different This Time"
The four most expensive words in finance. New technology makes the delusion MORE convincing. AI, crypto, internet — each was "the exception." None were.
"We learn from history that we do not learn from history."
— Hegel
Breaking the Script
You've now seen the tragedy that plays on repeat. The question is: will you be in the audience or on stage as a victim?
Here's how the survivors — the 1% who escape each cycle — actually think:
Recognize the Act
When consensus hits 90%+, when your taxi driver has a thesis, when "everyone knows" — you're in Act III. Exit stage left. The euphoria IS the warning.
Never Corner Anything
If you can't exit your position in 2 days without moving the market, you don't have a trade — you have a trap. Size kills.
Respect Leverage
Leverage is a chainsaw. Useful if you're a surgeon. Fatal for everyone else. The graveyard is full of 10x traders who were "right eventually."
Don't Wait for the Bailout
By the time officials act, you're already roadkill. Protect yourself BEFORE the crash. The cavalry isn't coming for you — only for the system.
Study the Corpses
Before every trade, ask: "Who lost money doing this before?" Not "who made money." The losers teach more than the winners. They had the same thesis. Different timing.
Embrace Discomfort
The best trades feel lonely. The worst trades feel obvious. When everyone agrees with you, you're probably late. When everyone thinks you're crazy, you might be early.
"In investing, what is comfortable is rarely profitable. The most crowded trade is the trade that makes everyone feel safe — right before it kills them."
— Howard Marks
The Curtain Falls... Until It Rises Again
Somewhere, right now, a new innovation is emerging. A new thesis is forming. Smart money is quietly entering. The five-act tragedy is casting its next production.
Maybe it's AI. Maybe it's a new DeFi protocol. Maybe it's nuclear energy or quantum computing or something we can't imagine yet.
The innovation will be REAL. The early money will be SMART. The returns will be SPECTACULAR.
And then... slowly, then suddenly... the herd will arrive. Leverage will build. Positions will crowd. Euphoria will peak. The exit will shrink.
And the same five acts will play out, with the same ending, for the same reasons, creating the same bodies.
The only question is: will you be watching... or bleeding?
The theater is eternal. The seats are always full. The only winners are those who know when to leave.
The Eternal Laws
- Every financial accident starts the same way — with real innovation that becomes speculation that becomes mania
- Crowded trades end in stampedes — when 95% are on one side, the exit becomes a slaughterhouse
- Corners always collapse — size becomes a prison, and the rules always change to protect the market, not the manipulator
- Short squeezes follow 6 predictable phases — setup, trigger, squeeze, peak, dump, aftermath. Every single time.
- Bailouts always come after the damage — the system gets saved; the people never do
- The cycle repeats because human psychology is constant — only the costumes change, never the script
- The only edge is pattern recognition — seeing Act III before the curtain falls on Act IV