Tail event: Difference between revisions

An investor long “on margin” might wish to ride out a sudden correction by meeting margin calls. In most dislocations this is the obvious and — if you can manage it, correct — thing to do. Such an investor might, per its own books and records, be solvent, well-capitalised and In good standing with its banks. But meeting the margin call means drawing on a stand by [[revolving credit facility]] — who keeps a yard of cash off the table for emergencies? — and it turns out your bank is experiencing a liquidity squeeze. They evoke some buried condition precedent they say is buried in the docs and unexpectedly pulls your lines, or suspends withdrawals, as a result. This is nothing to do with you: this is caused by it's ''own'' market exposure. At the same time your margin lenders — usually so patient with you, generally genial, good for a knees-up at Ascot and tolerant of peripheral looseness in your margin operations — have had a sense of humour failure. They are apologetic, but they are shipping a shower of grief from risk management and have been told to tell you that you today there is no flex, today the money must be there without fail —and for good measure they are jacking up your IM. You tell them this is absurd, that everything is fine, ''but today they don’t know what to believe''. Normal conditions of trust are suspended. This could be the final round. Anything they can’t see unaided with their own naked eyes could be fake news. The one thing they can see is that ''everyone else is running for the door''.