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Comment by stanleydrew | Hacker News Reader

> Elon might be getting margin called on Tesla right now, which could wipe him out financially.

I don't think this is how margin calls work. Presuming your broker is properly managing risk, then a margin call is explicitly designed to not wipe you out financially. You have to put up more capital or sell positions in order to maintain a certain amount of equity in your account, and that required amount is never zero (again, if your broker/lender is managing risk properly).

Of course it is a stressful situation, and he may need to sell assets at "unfavorable" prices which would effectively lock-in some reduced paper wealth. But I don't think a margin call is going to wipe him out.

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Elon has personal loans made using Tesla stock as collateral.

If he is asked to post more collateral on those loans, and the only way he can meet those calls is to sell even more huge amounts of Tesla stock (which is a significant “if”), then he’s going to drive the price of TSLA down non-trivially. (This, by the way, already happened once earlier this week.)

Which could spur more margin calls on other loans, as his collateral (more Tesla stock) has devalued.

It could spiral in a very nasty way, depending on how his personal finances and loans are structured, and how harshly the market views his fire-sale of TSLA.

Depends on your definition of wiped out.

In order to get the loans for this he wound up putting up a ton of Tesla stock. He won’t be poor, but he could possibly lose control of Tesla and likely by extension things like space x.

He’ll likely never be poor but he’ll lose his relevance

Fair. I guess I pedantically object to using the term "margin called" as a verb that implies it causes financial ruin. The margin call helps to avoid ruin.

But you're right, if he had to sell so much TSLA to meet margin requirements that he lost control, that would be bad.

> The margin call helps to avoid ruin.

For the bank, yes. For the investor, not necessarily.

https://www.investopedia.com/articles/investing/121515/how-s...

This appears to be an example of a failed margin call. The broker should have closed out the customer's position sooner, to maintain margin requirements. It's interesting to think about the reasons that didn't happen in this case.

But to be clear, the broker is very exposed in this situation. It reads like the customer is planning to cover the loss, but if a loss is big enough there's a strong incentive to declare bankruptcy and leave the broker with bad debt. Needless to say the broker doesn't want to be in the position of worrying about whether they will be on the hook for customers' losses. Which is why margin requirements exist.

Margin calls are designed to stop the broker from losing money, not the customer.

The broker only loses money if the customer loses money though. So their interests are aligned. The broker doesn't want a customer to get wiped out, which is exactly the point of margin requirements.

A margin call protects the broker/bank. The customer still loses everything.

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