SSM-Audit Q&A Series – Crisis Foresight (Question 4B)

Markets were euphoric, yet fundamentals fragile

Question
Stock prices soared and margin buying became common. Banks looked fine on totals, deposits were growing, and industrial output trended up—until suddenly it didn’t. Could a simple stability band beside the existing indicators have shown the fragility before the breaks in 1929–31?

Answer ✅
Yes. Totals hid posture drift: hotter funding (broker call loans), rising leverage on thinner cushions, maturity bunching, and withdrawal velocity picking up around stress days. SSM-Audit adds a read-only stability band beside KPIs you already track, so you see whether the calm is durable (A+/A++) or brittle (A0/A-/A–) while the headline still shines.

What the bands would have shown 📊
• Margin-debt share of market cap sliding from A+ toward A0/A- (more price supported by leverage)
• Broker call–rate spread stability degrading to A- (funding turns jumpier vs risk-free)
• Bank liquidity posture band weakening (A+ → A0) as short-term funding reliance grows
• Withdrawal velocity drifting down-band (A0 → A-) on rumor days and after sharp declines
• Industrial production cadence softening to A0 (output volatility rises before level turns)

What to do now 🛠️

  1. Band leverage quality: track margin debt share, collateral haircuts, and forced-sale cadence; pause leverage growth if band < A0.
  2. Harden funding: term out broker funding; diversify away from single lenders; keep intraday liquidity plans when band drops.
  3. Watch rumor-day posture: simulate run days; if withdrawal-velocity band hits A- or worse, pre-commit liquidity and communications.
  4. Stress the cadence, not just level: band industrial production, freight loadings, and layoffs cadence; trigger early slow-down actions on A-.
  5. Circuit integrity: if multiple bands hit A- together (funding + withdrawals + production), pre-limit leverage and throttle procyclical selling.

How SSM-Audit helps (practicalities) 🌟
• No additional infrastructure: runs beside existing time series (deposits, loans, broker rates, production).
• Numbers unchanged: stability is a read-only overlay; reported figures remain intact.
• Easy to use: spreadsheet/BI friendly; one lightweight weekly ritual.
• Universal language: A++ / A+ / A0 / A- / A– aligns boards, banks, and regulators fast.

CLI 💻 — try our mini Calculator to identify the drift
(Mini CLI Download Page)
Feed your historical series and see bands and drift at a glance (numbers unchanged).

# Leverage posture
ssm_audit_mini_calc crisis_1929.csv --kpi "Margin Debt Share" \
  --out bands_margin.csv --plot_kpi "Margin Debt Share" --build_id 4b

# Funding temperature (broker call vs risk-free spread stability)
ssm_audit_mini_calc crisis_1929.csv --kpi "Broker Call Spread Stability" \
  --out bands_call.csv --plot_kpi "Broker Call Spread Stability" --build_id 4b

# Liquidity posture and withdrawals
ssm_audit_mini_calc crisis_1929.csv --kpi "Bank Withdrawal Velocity" \
  --out bands_withdrawal.csv --plot_kpi "Bank Withdrawal Velocity" --build_id 4b

# Real-economy cadence
ssm_audit_mini_calc crisis_1929.csv --kpi "Industrial Production Cadence" \
  --out bands_ip.csv --plot_kpi "Industrial Production Cadence" --build_id 4b

Technical notes
Representation: x = (m, a) with a in (-1, +1)
Collapse parity: phi((m,a)) = m
Order-invariant pooling: U = sum(w_i * atanh(a_i)), W = sum(w_i), a_out = tanh( U / max(W, eps_w) )
Typical bands (example):
A++: a >= 0.75
A+: 0.50 - 0.75
A0: 0.25 - 0.50
A-: 0.10 - 0.25
A--: a < 0.10

Navigation
Back: SSM-Audit Q&A Series – Crisis Foresight (Question 4A)
Next: SSM-Audit Q&A Series – Crisis Foresight (Question 4C)

Page disclaimer
Illustrative scenario for research and education. Observation-only; do not use for critical decisions without independent validation.