The always lucid Veronique De Rugy has discovered that contrary to the opinion offered by Democrat Pols at the time, we have not in fact eliminated any risks by having the government buy bad mortgage assets from banks. She's very bright, so she probably knew that already. But it's a nice clear chart all the same, so that's seems a good reason to bring it up.
My first recollection of writing about this phenomenon was in November of 2008, just a few moments after the Feds decided what they were going to do. So it's certainly no surprise to me. This is what it means when we call a risk 'systemic'. And from that point on, the only question for me has been how long it would take before it all goes up in flames.
If someone replaced economically illiterate John McCain with someone who understood economics, and magically caused him to win the last election, there was still probably enough runway left for America to clear the trees. But after the bailout, and the thoroughly pissed away stimulus, we're now out of black top. We can no longer pull up fast enough to make it.... so at this point we're probably better off cutting the engine, slamming on the brakes and hoping we can stop before we "become one with nature".
Being "Short - Vol" means that things look like they're getting just a touch better every day, until they don't. then is a single day of losses you give back all your profits and then some. America has taken on a massive "short - vol" position (along with a massive short Treasury position") and although I can't say precisely when it will happen, I do know what it will look like when it does. I'll bet some institution will have a total loss in the Trillions.
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