The Train Is Leaving the Rails: A Warning from the Road
2026-01-27 What Is Lars Thinking ("WILT")
Lars Toomre starts this day in Reston, Virginia, in the extreme cold, with near-zero temperatures and a stiff wind that seems to cut through all the layers despite the many layers advised by hearty New Englanders. The car, fortunately, has spent the last sixty hours sheltered in a hotel parking garage, so there is no snow and ice to clear. The snow started here around 11:30 PM Saturday night — just hours after Lars arrived from Boston. Shortly, he will load up and continue his drive to Palm Beach County in Southeast Florida. Lars's concussion, suffered a week ago in Salt Lake City, is now clearing, and he can see with great clarity.
It is time to move — both physically and figuratively. There are about 1,000 miles of black ice, downed power lines, snow, and frigid air before Lars arrives home. On the work front, a whole bunch of new entities seemingly are springing to life, and a team of Brass Rats (the MIT school ring, for those questioning the odd name) is emerging to help ensure that our financial system continues to run — or, more precisely, to help clients survive what happens when it does not.
The Excesses Have Accumulated
Lars personally suspects the American economy is about to enter a very rough patch. We have seen many financial excesses since the 2008–2010 Great Financial Crisis. Equity market valuations are near all-time highs. Real estate prices in most markets are simply out of sight. Both Democratic and Republican administrations have been out of control with their spending — each claiming to correct the excesses of the other political party while adding excesses of their own. The national debt has become a number so large that it has lost all meaning to the average citizen, which is precisely when it becomes most dangerous.
Lars was one of the bond vigilantes back during the 1987 Plaza Accord currency crisis. Bond yields increased by multiple hundred basis points in a matter of weeks as real fears emerged that the Reagan administration could not control federal budget deficits, and hence America could not fund its debt. Lars remembers what it felt like when the market, collectively and without warning, decided it no longer believed the official narrative. That feeling is returning.
What Lars Was Supposed to Be Doing
Sadly, today, Lars is supposed to be retired — collecting Social Security and relying on Medicare to help with health care needs, which, fortunately, are few. On Saturday, Lars was supposed to be attending the Celebration of Life ceremony at Wellesley College for the wife of one of his Alpha Tau Omega ("ATO") fraternity brothers from his MIT days. Instead, Lars was driving south to beat as much of the winter storm as possible, arriving in Reston just before the snow began.
Some of the discussions at that gathering, no doubt, would have included collective fears about whether the Social Security and Medicare safety nets would still exist in retirement. Had they asked, Lars would have responded that he is worried about even bigger issues — issues that will make Social Security's solvency look like a rounding error.
The Political Distraction
Our politicians and news media are focused on illegal immigrants and what to do about the absolute failure of the Biden administration to enforce laws duly passed by Congress. They think this issue will dominate the 2026 election cycle. Lars will guarantee you that this political focus will be long forgotten by the time we reach November 2026.
Instead, we will be speaking about a global financial crisis that led to the resolution of two or more Global Systemically Important Banks ("GSIBs"). Lars does not know with certainty which two banks those will be. He personally suspects Citibank and UBS, but what does Lars know as a "retired" senior citizen who supposedly "does not know a thing"?
The Silver Fracture: The Last 72 Hours
Here is what Lars has not yet told you, and what the financial press has largely ignored: the London silver market is fracturing in real time.
The last 72 hours have been extraordinary. As Lars writes this on Monday morning, spot silver is hovering around $110–$113 per ounce, having surged from approximately $30 just months ago. Earlier in January, silver hit all-time record highs near $117–$119 before pulling back sharply in some sessions — drops to the $108–$110 range, followed by violent rebounds. One day saw a 13–14% high-to-low swing, including multiple four-sigma (four standard deviation) moves. Over the past week, gains have been explosive — up 17–19% weekly in places, 55–56% monthly, and over 270% year-over-year from early 2025 levels.
This is not normal price discovery. This is crisis-mode euphoria — parabolic, volatile, rumor-heavy, and squeeze-driven.
The Chicago Mercantile Exchange ("CME") Group has responded by hiking margins by 47% — a move that can be interpreted either as prudent risk management or as an attempt to curb the rally before it breaks the clearinghouse. The London Bullion Market Association ("LBMA") to Commodity Exchange ("COMEX") spread has widened dramatically. The Shanghai premium has reached $8 per ounce over London — a clear signal that physical metal is draining eastward, presumably to vaults where someone actually counted the bars.
China's export restrictions on refined silver, effective January 1, 2026, have tightened supply at precisely the moment when industrial demand — solar panels, electric vehicles, AI-chip cooling systems — continues to accelerate. Reports suggest Costco sold approximately 2.4 million ounces of silver in 72 hours earlier this month. The retail frenzy is real.
Meanwhile, the Federal Reserve's ("Fed") December repo injections — officially attributed to "seasonal funding needs" — arrived with timing that suggests the fire department knew about the fire before the smoke alarms went off.
What happens if silver goes to $150? Some predict $200. At those levels, the variation margin calls become mathematically impossible for the short-sellers to meet. The bullion banks — Bank of America, Citigroup, and yes, even the mighty fortress bank JPMorgan Chase — will face a choice: default on delivery or invoke Force Majeure. Either option destroys confidence in the paper market. Either option triggers the next question that no regulator wants the public to ask: "Is my money safe?"
The Hollow Fortress
Let Lars be direct about JPMorgan Chase, because he has heard too many people describe it as a "fortress bank" that will survive anything. This is a comforting myth. JPMorgan is the primary clearing member for the COMEX. If smaller participants default on their silver obligations, JPMorgan must absorb those losses as the guarantor of last resort. They hold physical silver — perhaps 750 million ounces — but that physical position exists precisely because they need it to "plug the holes" in the paper market. When the paper claims exceed the physical metal by multiples — and they do — the fortress is revealed to be little more than a hollow promise with an impressive lobby.
The Federal Deposit Insurance Corporation ("FDIC") Cannot Save You
The FDIC insurance fund currently holds approximately $120 billion. That sounds like a large number until you consider that JPMorgan Chase alone holds over $2.4 trillion in deposits. Citibank holds another $1.3 trillion. Bank of America, another $1.9 trillion. The FDIC fund represents less than 2% of insured deposits at just these three institutions.
If two or more GSIBs enter resolution simultaneously — which is what happens when a margin-call contagion spreads faster than the regulators can schedule conference calls — the FDIC does not have sufficient funds to pay off the insured depositors. The playbook says the Fed will step in with emergency liquidity. The playbook assumes an orderly process. The playbook has never been tested against a scenario where the underlying collateral — the physical silver, the actual metal — simply does not exist in sufficient quantities to honor the contracts written against it.
Margin Levels: The Canary in the Coal Mine
This brings Lars to a closer examination of margin levels in the U.S. capital markets — a subject that receives far too little attention until it is too late.
Total U.S. margin debt, as tracked by the Financial Industry Regulatory Authority ("FINRA"), exceeded $1 trillion for the first time in mid-2025 and has continued climbing. As of the most recent data available (August 2025), total margin debt stood at $1.06 trillion — up 33% year-over-year. Relative to Gross Domestic Product ("GDP"), margin debt sits at approximately 3.48%, approaching the record high of 3.97% reached in October 2021. For historical context, the peak during the dot-com bubble in 2000 was 2.6%, and the peak before the Great Recession in 2007 was 2.5%.
The rate of margin debt growth is what matters most. The May-June 2025 period saw the largest two-month increase since 2007 — and before that, 1999. These are not parallels that inspire confidence.
Are margin levels decreasing yet? No. Quite the opposite. Investors remain "all in," borrowing at record levels to buy stocks at record valuations. When this reverses — and it will reverse — the forced liquidations will be violent. Margin calls do not negotiate. They arrive by morning, and they demand cash. When investors cannot meet the call, the brokerage sells their positions without notice, often at the worst possible prices. This creates a cascade — falling prices trigger more margin calls, which trigger more forced selling, which drives prices lower still.
This is the physics of a crash. Lars has seen it before.
Volatility: The Calm Before the Storm
The volatility indices tell a fascinating and troubling story.
The Chicago Board Options Exchange Volatility Index ("VIX"), often called the "fear gauge," currently sits around 15–16 — relatively low by historical standards. On January 20, 2026, the VIX spiked 28% to close at 20.66, its highest level in months, triggered by the Greenland geopolitical shock and tariff threats. But here is what is remarkable: instead of fleeing to safety, retail investors poured nearly $4 billion into the market to "buy the dip."
This behavioral shift is dangerous. The "Fed Put" — the belief that the Federal Reserve will intervene to support markets — has been augmented by what some are calling the "Retail Put." Because retail investors are now so quick to deploy capital during VIX spikes, they are effectively providing the liquidity that the central bank used to provide. This makes the market appear remarkably resilient — but it is also "hollowed out" in terms of genuine price discovery. Technical levels in the VIX now dictate buying more than fundamental economic data.
The concern is this: if retail investors are too concentrated in leveraged products like UVXY or SVIX, a prolonged period of high volatility — rather than a short spike — could lead to cascading liquidations. The 2026 market is proactive, with traders seeking out "tail risk" to profit from its collapse. This works until it does not.
Meanwhile, the ICE Bank of America Merrill Lynch Option Volatility Estimate ("MOVE") Index — the "VIX for bonds" — sits at approximately 65–66, near multi-year lows. This is remarkable given the underlying stress in the Treasury market. Historically, spikes in the MOVE often precede spikes in the VIX. When rates reprice, equity multiples usually follow. The current calm in both equity and bond volatility indices may signal confidence — or it may signal that risk is simply underpriced and the market is setting up for the next regime shift.
The shape of the VIX futures curve also warrants attention. For most of the past year, the curve has been in contango — near-term futures priced lower than longer-dated futures, the "normal" state that reflects complacency. During the Greenland shock in January, the curve briefly flattened as near-term fear spiked. If the curve inverts into sustained backwardation — near-term futures priced higher than longer-dated futures — that is the market screaming "danger ahead."
Lars is watching.
What You Should Do Now: Risk Management 101
Here is practical advice that Lars would give to anyone who asks — and many have:
First, reduce all margin exposure to zero. This is not a time to be leveraged. If you are carrying margin debt in your brokerage account, pay it off. The interest you are paying is expensive, and the risk of forced liquidation at exactly the wrong moment is not worth the potential upside. Margin amplifies losses just as it amplifies gains. In a crisis, that amplification is catastrophic.
Second, consider taking some money off the proverbial gambling table. Equity valuations are at or near all-time highs. The Shiller P/E ratio, the Buffett Indicator, and virtually every other long-term valuation metric suggests that future returns from current prices will be disappointing at best and devastating at worst. Selling some portion of your equity holdings and moving to cash or short-term Treasury bills is not "timing the market" — it is prudent risk management. You do not have to sell everything. But reducing exposure at elevated valuations is simply sensible.
Third, spread your liquidity across multiple institutions. Do not concentrate your savings at a single bank, no matter how impressive its lobby or how confident its advertising. The current FDIC insurance cap is $250,000 per depositor, per institution. If you have more than that amount in liquid savings, you should have accounts at multiple banks, each below the insurance threshold.
Fourth, consider money market funds at institutions like PIMCO, Fidelity, Vanguard, and similar asset managers. These are not banks. They hold short-term securities directly. They are not immune to crisis, but they represent a different risk profile than bank deposits. Again, do not concentrate — distribute your funds across multiple fund families. This is not sophisticated financial engineering. This is Risk Management 101, the course that apparently no one in Washington has taken.
Fifth, hold some physical cash. Not because you expect the Automated Teller Machines ("ATMs") to stop working — though they might — but because having two weeks of expenses in physical currency provides optionality when systems are stressed.
Sixth, reduce debt where possible. In a deflationary crisis, cash is king and debt is death. The asset you bought with borrowed money declines in value while the debt remains fixed. This is the margin call that arrives at your kitchen table.
The Political Reckoning
This crisis, when it arrives, will be a fatal wake-up call for the political class.
Americans will turn on their elected representatives with absolute rage — and they will deserve every ounce of it. For decades, politicians of both parties have refused to make hard choices. They have refused to work together on fiscal discipline. They have treated the national debt as someone else's problem, to be addressed by some future Congress, in some future decade, when the consequences of inaction would fall on someone else's watch.
That future has arrived. The consequences are here. And the political class has no one to blame but themselves.
We still have almost $2 trillion of debt to finance in 2026 — before any effects of recession or depression reduce tax revenues and increase mandatory spending. That is $2 trillion that must find buyers, primarily among American institutions and households, at a time when confidence in American fiscal management is collapsing. Foreign buyers are already pulling back. The Japanese carry trade is unwinding. The 10-year Treasury yield should increase from its current approximate 4.25% level — not because of inflation fears, but because of supply and demand. Too much paper, not enough buyers willing to hold it.
Politicians will need to make hard choices. They will need to work together. They have demonstrated no capacity for either. The rage that will result from their complete failure is entirely deserved.
The Agentic AI Accelerant
Here is the part that should terrify anyone paying attention: the productivity revolution is arriving at precisely the wrong moment.
Lars predicted last year that one unit of Agentic AI capability at Christmas 2025 would cost the equivalent of one thousand or more units at Christmas 2026. That prediction is tracking. The cost curves are collapsing faster than anyone anticipated. America is not ready for such a significant increase in productivity.
During the Industrial Revolution, America experienced — for a few years — an estimated 20x increase in productivity in certain sectors. The social disruption was immense. Are we ready for a 50x increase? Or more?
What happens to the zombie banks that cannot raise either debt or equity in the capital markets when AI-driven due diligence exposes their balance sheets in real time? What happens to the stranded assets around the developed world — the shopping malls, the office buildings, the commercial real estate carried on bank books at values that assume a world that no longer exists? Those assets have minimal value going forward, yet they secure substantial debts at far higher valuations. Who takes those losses?
The Train Is Leaving the Rails
Lars has spent his career watching financial systems operate under stress. Lars was a key trading manager at Lehman Brothers. He was a key trading manager at UBS. Lars watched the 2008 crisis unfold from inside the machine. He knows what it looks like when the dispatcher has lost control of the switches and the trains are still running at full speed.
That is what Lars sees now.
A new Fed Chairman will not yet be confirmed when the crisis arrives. The regulatory agencies — the Securities and Exchange Commission ("SEC"), the Office of the Comptroller of the Currency ("OCC"), the FDIC, the nine agencies subject to Financial Data Transparency Act ("FDTA") Section 5821 — have spent four years producing consultation documents, comment periods, and elegantly formatted Federal Register notices instead of building the machine-readable reporting ("MRR") infrastructure that would have surfaced these risks months ago. The paperwork is immaculate. The rails, however, remain unbuilt.
The locomotive for the Machine-Readable Reporting ("MRR") digital transformation mandated by the Financial Data Transparency Act of 2022 ("FDTA") was supposed to arrive by December 31, 2025. It has been delayed by a year. But unlike what most institutions resistant to change hope — and lobby for with considerable funds — the FDTA will most likely not be delayed further. Congress does not typically revisit laws simply because the regulated parties failed to prepare. The compliance deadline is coming, ready or not. And as of January 1, 2027, institutions that have not conformed with FDTA requirements will find themselves exposed under normal securities reporting laws to shareholder lawsuits, regulatory enforcement actions, and the tender mercies of plaintiffs' attorneys who have been waiting patiently for exactly this moment.
The Object Management Group ("OMG") is a standards development organization recognized as a Voluntary Consensus Standards Body ("VCSB") under the National Technology Transfer and Advancement Act ("NTTAA") and Office of Management and Budget ("OMB") Circular A-119. For those unfamiliar with the acronym soup: federal agencies are legally directed to adopt privately developed standards from VCSBs rather than invent government-unique specifications. This is not a suggestion. It is federal procurement law. OMG promulgated its Standard Business Report Model ("SBRM") specification precisely to address the machine-readable reporting requirements mandated by the FDTA — requirements that the collective wisdom of Congress and the Administration saw fit to impose on every financial institution that had spent the prior decade assuring regulators that their data systems were "best in class."
They were not.
Shortly, SBRM will become extremely relevant — not in the abstract, policy-discussion sense, but in the "our General Counsel just called an emergency board meeting" sense. Citibank, Wells Fargo, Bank of America, Morgan Stanley, State Street, BNY Mellon, Goldman Sachs, and yes, the "fortress" bank JPMorgan Chase, will all discover that the FDTA requires the use of ontologies developed and submitted by a VCSB. The word "ontology" will suddenly appear in board presentations where it has never appeared before. Executives who have spent careers avoiding technical details will find themselves asking what, exactly, an ontology is — and why their institution does not have or use the standard one that meets federal regulatory requirements. The answer, invariably, will be that no one told them it mattered. Someone did. They were not listening.
What this means practically can be answered by SBRM Solutions LLC ("SBRM Solutions") — a Brass Rat Capital LLC ("BRC") affiliate. Lars and his team have been building the infrastructure that the regulators should have built years ago. When the crisis arrives, that infrastructure will be the difference between institutions that can demonstrate solvency in real time and institutions that cannot.
A word of caution to the chairmen and CEOs who will inevitably come calling: the price tags for this work will begin with a "B," not the millions you are accustomed to paying for consulting engagements. Lars understands this may cause sticker shock. He also understands that the alternative — securities litigation, regulatory consent orders, and the reputational damage of being the institution that could not produce machine-readable financials when the regulators demanded them — will cost considerably more. The market for FDTA compliance expertise is about to experience the same supply-demand imbalance as the silver market. Early movers will pay less. Late movers will pay whatever is asked — or they will not move at all, and will instead incur substantial speculation about whether the institution will be "resolved" before the next quarterly earnings call.
The proverbial train is leaving the rails. Lars does not know the exact date. He does not know the precise sequence of failures. But he knows the physics of what happens when too much momentum meets too little track. He has seen it before.
Sometimes, it really does help to listen to the geeks, nerds, and others who actually think — especially about Near Real-Time Enterprise Risk Management ("NRTERM"). Those geeks have been asking uncomfortable questions for years. Questions like: Why are we still reconciling data manually when the regulators will soon require machine-readable reporting? Why does no one on the executive committee understand what an ontology is? Why are we paying consultants to produce PowerPoint decks instead of building infrastructure?
And now, the question those geeks are asking about JPMorgan Chase:
Jamie Dimon earned $43 million in official compensation for 2025 — a 10.3% raise — plus approximately $770 million in total economic benefit when you include stock appreciation, dividends, and a special retention award that vested. The board cited his "exemplary leadership" and the bank's "fortress balance sheet." One wonders whether that fortress will look quite so impregnable when the silver margin calls arrive and the COMEX clearinghouse comes knocking. For $770 million, one might reasonably expect the locomotive to arrive on time.
The rails do not yet exist.
When JPMorgan — and the other seven American GSIBs — finally confront the cost of FDTA compliance, the bills will run into the multiple billions. Those billions will come directly out of 2023, 2024, 2025, and 2026 earnings — earnings that have already been reported, already been celebrated, and already been used to justify record executive compensation. The geeks wonder: will Mr. Dimon's 2026 bonus include a clawback for the compliance infrastructure his "fortress" failed to build? Will the board that awarded him $770 million in 2025 ask why the bank now faces securities litigation exposure because it cannot produce machine-readable financials on demand?
Lars suspects the answer is no. Accountability, like the locomotive, appears to be running behind schedule.
What Lars Is Telling You
This is the first time Lars is publicly stating that a recession — or, more likely, a depression — lies ahead. Not in some distant future. Not as a theoretical possibility. As a high-probability event within the next twelve to twenty-four months.
The knock-on effect on American and European consumer confidence will be severe. People will wonder — many for the first time — what happens to their savings when the banks that hold those savings cannot meet their obligations. They will discover that deposit insurance is a promise backed by a fund that is far too small relative to the promises it must keep. They will learn that "too big to fail" was always a policy choice, not a law of nature, and that policy choices can be overwhelmed by events.
Lars hopes he is wrong. He has been wrong before. But Lars was not wrong in 1987. He was not wrong in 2007 when he started warning about mortgage-backed securities. And the clarity Lars feels now — the same clarity that returned when his concussion finally lifted — tells him that the excesses have accumulated beyond the system's capacity to absorb them gracefully.
Prepare accordingly.
— Lars Toomre
Managing Partner, Brass Rat Capital ("BRC") - Reston, Virginia - January 27, 2026