I can see through almost any scam, especially one perpetrated by the federal government. I can see through it... they can't pull the wool over my eyes, it's absolutely freakin' impossible to pull the wool over my eyes about the government. - Gary Coleman

Have the last 2 years been one big fantasy? A giant illusion perpetrated on the world by Central Banks? I know I am going to be treading dangerously close to conspiracy island here but lets dive in with an open mind. Two Wall Street heavyweights seem to think so.

Last week Carl Icahn sat down with Fast Money and had this to say "I do think that there could be another major problem. Now, will it happen next week, next year, I don't know and certainly nobody knows, but I don't think that the system is working properly.” So Mr. Icahn thinks the system is broke - Why? He goes on saying “I really find it amazing that we're almost back to where it was, where there's so much leverage going on in the investment banks today. There's just way too much leverage and way too much risk-taking, with other people's money.”

Icahn did not have to stand alone on those beliefs for long, yesterday in Japan - Templeton Asset Management Chairman, Mark Mobius, said “There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis”

What are they talking about? - A system that came to its knees due to leverage and unregulated markets such as derivatives. Have we done anything to fix the structural issues? Absolutely not - the derivative market remains unregulated and continues to grow. A Fed policy of easy money leads to leverage and speculation, we have bubbles blowing all around us - Commodities, US Treasuries, equities (Clearly visible in tech stocks). Last week LinkedIn went public and immediately started trading at a P/E of well over 1,000 - please do yourself a favor and don’t even try to justify that. 

In 2008 we had massive amounts of leverage - How about in 2011? Check, still there

In 2008 we had unregulated derivatives markets - in 2011? Check, and growing.

Today most people seem to be in denial of the true problems facing Europe or believe everything can simply be fixed by buying more time. They also feel such “small” problems as a Greek default will be contained. Deja Vu anyone else? I remember how home prices only needed more time to right themselves and the infamous subprime will be contained quote from Ben Bernanke. 

Let me ask this - if a Greek default would be so contained why are politicians willing to commit political suicide? Angela Merkel has done just that - by agreeing to new round of bailouts for Greece by Germany she has almost assuredly killed her political career. Why would someone go out on such a limb? My guess she got an earful from the ECB, German and French banks letting her know that no matter what we say in public this is far from contained and unless you want to be responsible for the collapse of the economic system kick the damn can. 

You shouldn’t buy the hype either - if Greece defaults then several large German and French banks are soon to follow as well as real problems at the ECB. I have no hard evidence of this but I imagine a number of US Banks and Insurance companies have written swaps on these German and French banks and would also be in a precarious situation once again and far from stable enough to handle any such scenario. 

Chris Whalen of Institutional Risk Analytics had this doozy to say “If we do not see a meaningful recovery in home prices by the end of the year, we may need to contemplate impairment charges on first liens owned by banks and wholesale write-downs of second lien exposures. This implies solvency issues for BAC, WFC, JPM and C, and big losses for the U.S. government and private investors," Yes banks are still carrying second lien exposure on their books near par in some cases, even though they are behind an underwater first. How could this be if we fixed the underlying problem? It can’t, mark-to-model was just part of the lie and pretend scheme - the banks were and still are insolvent - just modifying the marks on your books does nothing to make the asset perform any better. 

Fact of the matter is the last two years were a giant scam brought to you by insane policies and massive piles of debt. Kicking the can and extend and pretend only work until they don’t. Sooner or later we have to take our medicine.

When that time comes it will not be pretty but thankfully it will set us up much stronger for future prosperity.