I appreciate you taking the time to articulate all of this. You definitely have greater knowledge of this than I do.
However, I do not believe in the conspiracy. Mostly everything you are posting I agree with. I do not think there was any nefarious conspiracy behind the scenes, but I do believe there were time critical mistakes made, which I will talk about next.
The things we disagree on is Vlad lying numerous of times on national TV about liquidity. He messed up the narrative and deserves all the heat he gets. Even though I sympathize since the situation was unprecedented. I also maintain RH should have halted all trades, buys and sells, since what happened was unprecedented. There are rules, then there are exceptions.
Lastly, I believe the whole systems deserves all the scrutiny it is under. From the federal reserve, to the SEC, to Wall Street, and all these brokerages that pretend they give a shit about the retail investor, when all their business model is about selling their data to big firms.
I know posting in this thread is probably frustrating as all hell, but what is happening is bigger than finances. People don't give a shit about the system when the system is set up to serve the big institutions. Keep on posting, your knowledge isn't going on deaf ears.
Appreciate the kind words.
When the DTCC announced the recalculated collateral required for GME and other stocks it essentially sent a shockwave through the broker channel. It shouldn't have as the calculation is generally known and can change exponentially based on volatility, but still no one expected the collateral requirements for the DTCC to increase by 30% in total ($7B and this would be mostly tied to the stocks in question as the rest of the market wasn't moving). Brokers have to put this collateral up out of their own pockets which means cash and a lot of it. The major brokers didn't really have as many issues here although they did restrict some based on not wanting to have to put it up.
When this happened, RH was essentially DOA. They were in a liquidity crisis and on the verge of going insolvent if they kept going the way they did. The quickest way to not have to put up that collateral was stopping purchases. Stopping purchases will lower the volume and deposits you have to make, while letting your customers sell their stock if they want to get out. Thus, you are allowing your customers to exit their positions if they aren't comfortable and all you are doing is preventing them from committing more capital. This is the safest way to do it. Preventing customer from selling their position opens you up to a ton of lawsuits, its hard to prove that unrealized gains from purchases at a time has any standing.
If RH stopped all buying and selling this wouldn't have made a difference as RH was just one very tiny part of the volume trading GME. The stock continued to trade without their retail shares. Halting buying and selling means that you are setting your customers up for a worse time by locking their capital up in a potentially losing situation.
While this was going on they raised $1B in cash from lenders and existing equityholders. This would prevent them from possibly failing and having a much more significant risk to their customers and market.
If he went on TV and claimed they had a liquidity crisis, they would immediately have a much worse problem as you would have a run on the bank. Think back to if your bank was going under and you had no backstop, what would you do, you would pull all your money out which would make the problem 100x worse. They couldn't admit the issue until they were clear because it would be a self fulfilling prophecy.
It's why Lehman and Bear didn't have liquidity crisis until they did.
Regarding government regulations, the DTCC collateral requirements and the net capital requirements for brokers that RH had to abide by were actually revamped and set as part of the post 2008 Dodd-Frank to try and reduce counterparty risk and having to unwind trades. The crisis as RH was actually driven by a meme stock with too much volatility and government regulations. If the SEC wasn't requiring the higher net capital requirements and the new collateral calculations wasn't setup so that all parties in the market (not even in the trade) had some skin in the game, you wouldn't have had this issue. It's one of the reasons why the politicians (other than AOC who knows nothing about how this works) changed their tune once the details started to filter out. Its tough to argue for more regulation on brokers when the regulations caused the issued at the broker in the first place (even if they help prevent a total meltdown).
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