Actually it will... you just don’t understand how those investment decisions are made. You don’t get what professional money managers actually do for a living. That’s OK of course, it’s no reflection on you that you don’t. You have some other job that I probably don’t know all that much about (certainly not as much as you), but it’s pretty clear that it’s a mistake to assume that you know enough to understand the consequences of what I’m talking about.
If the long vol trade was so obvious to you, then you’d be a billionaire right now, and you’re not. The fact that it would blow up eventually was obvious to everyone, but no one could forecast when it would blow up. My proposal would make that forecast possible for those who do this for a living. And that would prevent the market crisis by “creating” liquidity at the most crucial time. Assets will still fall and rise, market volatility will still be present, just like it was during the Amaranth collapse, but it won’t be a broader market crisis.
I’m sorry to put it so bluntly, but the fact that you don’t understand it doesn’t mean it won’t work... it only that you don’t understand it.
My career has been productive enough to satisfy me, no need for the “billionaire” argument. The fact that nobody could decide when a 47T credit to 14T income would blow up is completely irrelevant. The “crucial” liquidity from the other side of the asset bubble will not pay those debts. No money from the other side of the trade (e.g JPM in the Amaranth case) is going to go into the stream of income need to sustain the securities and keep them solvent, never mind worthy of a “AAA” rating. Creating liquidity at the “crucial” time last summer would have been as effective as the Fed liquidity was back then. There’s no way out of a credit bubble other than credit contraction. Your attempt to sustain it and kick the can only makes it crash from a high point later.