So let us make a guess:
-- Banks hedge their positions on swaps by holding underlying stocks.
-- Banks willing to take more default risks to compete for borrowers.
-- Equity+margin is not always a good collateral for all lenders.
-- There are always mistaken killing in any unorganized exit.
-- Bill Kwang lost all money and may only be responsible for treatment difference of counterparts.
-- There may be more similar unexplainable high multiples.
While used to taking neutral position on derivatives, facing high liquidity circumstance, banks may have to lower bar for leverage as seen in this case.
It is true that unorganized exits and thus impact on stock price do present the negative part of TRS. However, derivatives, in essence and given being mathematically clear, do not face more uncertainties than underlying assets. For example, the major uncertainty in this case is the uncommonly sudden growth in correlations among the underlying stocks.
The risk we take depends on the loss we can undertake. Temporary chaos that huge loss undertakers brought us will always be somewhere, and the price will eventually go back to its fundamentals no matter how many high multiples there are on similar positions in the market.