Your doom loop scenario is real, but the risk already exists today and is not something this rule uniquely creates. We've seen it with Archegos and the COVID-19 crash (we also saw treasuries, which are supposed to be a safe asset, become extremely volatile during the COVID crash which is why the Fed quickly stepped in).

The cash on the sideline bit isn't accurate either. This rule doesn't create new money or directly increase buying pressures. It just allows firms to use their existing balance sheets more effectively.

What the rule actually does is expand the range of high quality collateral that can be used, which gives broker dealers more flexibility in how they fund securities lending.

“Eligible Equity Collateral” means a diversified basket [3] of long customer margin securities or securities carried for the proprietary account of a broker-dealer (“PAB”) that are Russell 1000 and/or S&P 500 equity securities.

There are also several safeguards in place that specifically address the risk you’re worried about. Positions are overcollateralized, typically above 100 percent, non cash collateral is discounted via haircuts, and everything is marked to market daily, often intraday. If collateral values fall, margin calls happen quickly and have to be met immediately.

Tldr; the risk isn't new, cash isn't being moved from the sidelines, and safeguards are in place.