The Collateral Doom Loop: How Someone Else’s Margin Call Can Become Your Problem

0:00Treasury prices keep falling. And if those treasuries are being pledged as collateral all over the financial system, now we're right back inside the collateral deal loop. Welcome to Money Maps. I'm Lynette Zang. I was a new stockbroker on Black Monday in 87 and I've spent almost 40 years watching Wall Street add more leverage, more complexity, and more ways to spread risk through the financial system. I've also watched the public get pulled into structures that frankly they don't create, can't see, can't understand, and certainly don't control. And when those risks break loose, well ordinary people can lose savings, retirement security, access to credit, jobs, choices, and that really, really ticks me off. How many times can you be lied to when you

1:02do not know the truth? And that is the point of Money Maps. I want to make the machinery understandable before you're forced to live with consequences so that you can make educated choices that put your best interest first. Now there are five interconnected do-em-loops, collateral intermediary liquidity confidence, and finally the real economy do-em-loop. They can overlap and reinforce each other, so we're going to take them apart one at a time. We're going to begin with collateral because before somebody will lend against an asset or leverage against it, which is the same thing as borrowing against it, they have to believe that that asset is worth what everybody says it's worth. So what happens when they stop believing that? What if they stop trusting it? Now collateral sounds like a Wall Street word, but frankly it's everywhere. I mean your house is collateral for a mortgage,

2:06businesses pledge assets to borrow, and financial institutions pledge securities to each other, and US Treasury sit at the center of enormous amounts of borrowing and financial activity and trading. Collateral is simply the asset protecting the lender if the borrower cannot pay. So the loop does not begin when an asset becomes worthless. It begins when somebody says I'm not willing to lend as much against that asset anymore, and this is why the current Treasury story matters. US public debt has crossed $40 trillion that they admit to, and Bloomberg is openly raising the question of doom loop risk. Now 40 trillion by itself doesn't mean that we're in a collateral doom loop, but Treasuries are more than investments. They are the foundational collateral

3:09throughout the entire global financial system. My concern isn't whether or not Treasury can make a nominal payment in dollars. A sovereign issuer can create more currency. My concern is what those dollars can buy, and at what price the market will continue absorbing debt. Now let me show you how this works, so we're more clear on it. These are interest rates. This is the market value of the bond. So when interest rates rise as they do right now, the market value of the bond declines. If interest rates are pushed down, then the market value of the bond rises. If this is when it was issued, the longer the bond, so those 30-year Treasury bonds, the greater the volatility. It's important that you understand

4:10this with what's happening in these markets, because a change in price? That can start the loop! Say I have an asset worth 100 bucks. Yesterday you were willing to lend me $95 against it. Today you are nervous, and will only lend me, say, 85 bucks. The asset didn't disappear, but suddenly I have to come up with another $10. Now, multiply that across leveraged funds. That is debt upon debt upon debt. So you have a teeny-weeny asset, and you have all this debt on top of it. Banks, derivatives, and repo markets all build that leverage. Collateral values fall. Margin calls rise. Barrowers need more cash or collateral. If they don't have it, they have to sell. That selling pushes prices down further, which creates even more margin calls.

5:11Collateral falls. Margin calls. Force-selling. Collateral falls again. That's the collateral doom loop. And we've seen that feedback before. 1987. Black Monday. The best day I could have ever been a stock broker. I had gone full commission on October 1st, but 18 days later, the Dow fell more than 22 percent in one day. The day started like normal. I had gone out for an early lunch, but when I came back, all Hades had broken loose. The way the office was set up is you walk in and straight forward was the reception area. Then there were two large rooms on either side with huge TV screens and the tickers on what was going on underneath it. Remember, nobody had personal computers back then. The rooms were packed with people. It was pandemonium. I went in the back where all the broker offices were,

6:14and I couldn't see anybody. I was like, what is going on? I wasn't aware of really what was happening yet. Then I looked. The brokers were literally under their desks. They couldn't talk to clients. They didn't know what to tell them. But since I was still new, and I'd only been putting clients, I mean, I cut my teeth on treasuries, frankly, because I figured that the government could raise taxes to pay you back. I figured it was the safest thing I could do while I was learning all of this. I didn't have anybody calling me and freaking out, but I did have one person. He owned a small savings and loan in Crocket, Texas. He and his oil, wire, catter friends, they couldn't get a holder of their stock brokers because they were probably under the desk too. But he could get a holder of me. I didn't have any problems with my clients then. So he had me on the squawk box in the middle of the room, and they were throwing questions at me. I mean, it was a very exciting day.

7:15I'm not going to lie to you. And all of those guys ultimately became my clients. That day actually made my career. But it also taught me something that I frankly never, ever forgot. One of the new protections at the time was portfolio insurance. Markets fell. So the program trading, this was new, that sold. And that selling pushed those prices lower, which even then triggered more selling. The protection became part of the problem. Now, if you lived through 2008 or COVID, you probably remember that same kind of feeling. How did something that seemed stable unravel so quickly? After 1987, a new protection layer was added. The president's work and group on financial markets, which was later nicknamed the plunge protection team. That pattern caught my attention early.

8:23New risk, new crisis, new protection after the fact. Then leverage connected everybody more tightly. Barrowed capital markets, the bigger position, growing and growing. And when prices fall, and your lender demands more collateral, well, if you don't have that extra cash, or more collateral, you very well might have to sell. And you're selling, then pushes prices down for the next person. Now your margin call can trigger their margin call. And then when they sell, you might just get another margin call and so on and so on and so on. Can you see that, loop? That's how a problem starts traveling. Because by 1998, long-term capital management was holding roughly $30 of debt to every dollar of capital. That's that leverage. That same level is sheer sin actually in 2008. We'll

9:30come back to that. But then markets moved against it. If long-term capital management had been forced to dump its position into already falling markets, that fire sale could have pushed prices down for everybody around the world holding similar assets, which were government bonds. That's what leverage does. Your forced sale can become somebody else's loss. And 2008, well, let me show you, that took that problem from one fund to the entire financial system. Mortgages were packaged sliced and diced and repackaged into securities that's called securitization. And that spread throughout the global financial system. As long as everybody trusted the mortgages and the models that were used to value them, well, the structure worked. Then housing fell. Defaults rose. And suddenly collateral that had been treated as relatively safe

10:38was no longer trusted the same way. AIG is a perfect example. Its counterparty's demanded more collateral against mortgage-related credit protection. AIG couldn't meet those demands without assistance. That's the loop again. Values fall. Collateral demands rise and liquidity. FOOOP! It evaporates. But what happens when the collateral under stress is government debt? Because we may be seeing that right now. This is one of the cleanest examples. Long-dated British government bomb prices fell sharply pushing interest rates up. Leverage pension strategies face collateral calls. They needed cash. So they sold assets including the guilds. Selling pushed-gilt prices down further. Remember, right? Selling pushed the guild value down further and the interest rates up higher.

11:46And then that generated even more collateral calls. The Bank of England stepped in because the feedback loop revealed financial instability. It threatened it. Think about that. Especially today. Think about that. The government bond was supposed to stabilize the structure. Under enough leverage, it became part of the instability. So that's what's happening today. We'll find out. But sometimes the problem is not just price. It's whether Lenders trust what stands behind the claim at all. Here we go. First brands. That gives us another version of the same problem. Lenders and funds held this debt and trade financed assets tied to this company. The questions emerged about the financing structure and the receivables behind those claims. And look what happened to

12:49the price. But bam! Collateral depends on confidence in some very basic things. Well, what is the asset? Who owns it? Has it already been pledged? What can I recover? And when those answers become uncertain, that value that can disappear very, very quickly. So now bring everything we just learned into August of 2026. On August 19th, Treasury announced that it would at least double its buybacks of longer term treasuries from $2 billion to at least $4 billion per operation. Frankly, they could do even more. Why? As I see, it's an attempt to put a cap on rising interest rates and look what's happening globally. They can call it liquidity support. But frankly, when yields are rising and bond prices are falling and

13:54the Treasury doubles its buying, I'm going to tell you what I think that this means. Because I'm not saying that the Treasury market is already in a doom loop, though frankly, it could be. But I can say that everything has been turned into a trade and certainly including treasuries. And just one week earlier, the Fed published a paper warning that stressing government bond-back repo markets can spread rapidly through funding, reused collateral and derivatives. Shocking! That to me is a huge red flag because the Treasury yields keep rising. What's that mean? That means that Treasury prices keep falling. And if those treasuries are being pledged as collateral all over the financial system, falling prices can mean margin calls and more pressure to sell.

14:58I mean, come on, doesn't that sound familiar? Now, we're right back inside the collateral doom loop. The POOL of Trusted Assets shrinks. This is the whole presentation. One, collateral falls. Two, margin calls require more cash or collateral. Three, force selling overwhelms liquidity and that sends us right back to number one. But here's the important part. The POOL of Trusted Assets shrinks. Collateral failure doesn't mean everything goes to zero. It means that lenders stop treating yesterday's $100 asset like $100 asset. They lend less against it. They demand a bigger haircut or they refuse it. Now, everybody wants more high quality collateral at exactly the

15:59moment the POOL they trust is getting smaller. That's the squeeze which brings me to the question that I really want you to think about. What still stands when that trust breaks? Look at this tower, stablecoins ETFs, repo shadow-branking, rehipothication derivatives, different instruments, different purposes. But I want you to ask one question. Who has to perform? I mean, a bond has an issuer, a loan has a borrower, a derivative has a counterparty, a bank deposit depends on a bank and the banking system. But physical gold and silver in your possession, physical gold and silver in your possession has no issuer whose solvency determines whether the allowance exists. Its price can move, but nobody has to make good on a promise for you to own it. Frankly, that is a very different ownership structure than trust itself. And that's the problem.

17:07And central bank gold buying remains elevated. Central banks continue to buy gold at the highest levels. That doesn't prove that they expect a collateral doom loop. Although it could, frankly. But it does show that institutions responsible for reserves, for governments continue adding an asset. That's not somebody else's promise to pay. And that distinction should mean more to you now than it did at the beginning of this presentation. Because we've just watched the same basic mechanism appear in different forms. 1998, 2008, the UK guilt crisis, first brands, and now sovereign debt markets. This week, pick just one financial asset that you depend on and ask who has to perform for this asset or claim to work the way I expect. Here at Zang International, our sound money

18:12strategy starts with your goals. We position clients with the physical gold and silver that supports what they are trying to accomplish. Whether that's maintaining your standard of living paying off fixed rate debt, properly diversifying wealth still held inside the system or positioning for future income producing opportunities and even building a long term legacy for your family. Our goal is to meet you where you are and help you get to where you want to go. Inside a community, that genuinely wants to be of service. And this is only the first doom loop. When the collateral starts cracking, the stress moves to the institutions standing between those claims. Banks, dealers, funds, non-bank financial institutions. What happens when they start pulling back?

19:14That's the intermediary doom loop. And that's where we go next. If this helped you understand collateral risk, give us a thumbs up. Make sure you subscribe and share it with someone who thinks that has nothing to do with their mortgage retirement account or access to credit. So I'll leave you with this one question. If your retirement savings and access to credit can all be affected by collateral, you never chose and leverage, you never created, what do you own that you can still rely on when the system starts protecting itself? So thank you so much for being part of this conversation. And until next week, meet wherever you are in the world. Stay safe, stay strong, and remember. Sovereignty begins with what you choose to own.