This is almost exactly what happened to a bunch of hedge funds in 2007 (during the quant meltdown), 2008 and 2009. You would be shocked to learn how many multi-billion dollar hedge funds are out there that have barely considered this simple scenario.
Last August when the VIX jumped 50% in one day, I heard GS increased margin requirements on all PM and Market maker accounts on OTM puts in the indexes for one weekend. I also heard GS was the only seller of those puts when traders had to cover. the only buyer Monday morning when the margin when back to normal. Cool huh!
"margining customer accounts with positions in stocks and stock options since April 2007 influenced and triggered the U.S. stock market crash in October 2008" this is from that link... you sent me and seems ridiculous.. the crash had nothing to do with this.. it was an entire market and global melt down as a result of manipulated otc transactions between banks and the such.. totally off..
ok i say we F*&k them for our millions.. I swear there needs to be a grass roots uprising of the intelligent in the retail community to take the power back from these bastards... Why because i wanna be a Market maker one day.. and i wanna dump all that filthy month back into my deserving pocket.. haha
The leveraged used in the mortgage, bond and CDS markets is a big multiple of the equity market. Not even close.
The paper covers a bunch of related topics and you have to read the whole paper to truly get gist of what he is saying. That said, I agree 100% with you cdcaveman, there is definitely hyperbole in that statement. I think it would have better served the paper if they hadn't tried to make that argument about triggering the crises. That statement justifiably turns a lot of folks away from what is otherwise a very good paper.
Lol...yes, I don't blame you for stopping at that point. Honestly, it's a bit boring to read. The key takeaway is that Portfolio Margin has increased the probability of a margin call induced meltdown, and this will only increase as more assets flow into PM accounts.