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Friday, October 10, 2008


it's lehman CDS settlement day

one of the reasons liquidity is at an all-time premium is the wait for CDS settlement (and, potentially, counterparty failure). alea cites good initial news -- the net amount outstanding has been exaggerated.

the dow opened lower and traded down (-1400) (-700) near the open -- to 7888 -- a maximum loss of over (-9%). barry ritholtz notes that circuit breakers will kick in at 7400 or so. s&p traded as low as 838. things recovered as sell-on-open orders cleared -- now down around (-3%) across the board. if this football-fucking monkey shuts up, we might even get a rally here.

UPDATE: it struck me that not everyone will get that vintage bit of bile. so in the interests of edification:

Meaning: A task performed with great ineptitude.

my apologies to those who put party affiliation ahead of honest assessments of competence.

UPDATE: via yves smith -- the CDS priced at 90% payout, which is a little more than had been thought likely. a fearsome point from one of her commenters:

Though some [CDS] are off setting many may be built on leverage and unreserved.

What will happen as a result of the Lehman auction today and similar events is that those solid institutions that underwrote CDS contracts which they than turned around and hedged with an off-setting CDO will still be obligated contractually for the CDO they underwrote while losing their protection to a bankrupt counter-party. They will than have unhedged exposure and may be taken down by the same bankruptcy or another depending on whom they underwrote. A few major bankruptcies will take down the whole $58 trillion edifice like a "house of cards."

The only way to resolve this is for the U.S. government to declare "force majeure" and annul these contracts. Parties will be relatively little scathed financially as they will lose only the premium flow and un-callable protection where they have underlying securities to protect.

though that remedy too has consequences.

UPDATE: speaking of monkeys and footballs. government officials have to learn that crisis is not their "showtime" -- blather from the insipid in power is antithetical to a restoration of confidence.

UPDATE: still no result.

UPDATE: final. yves smith:

Based on the results, sellers of protection may need to make cash payments of more than $270 billion, BNP Paribas SA strategist Andrea Cicione in London said. ...

No one knows exactly how much is at stake because there's no central exchange or system for reporting trades. It's that lack of transparency that has increased the reluctance of financial institutions to do business with each other, exacerbating the global credit crisis and prompting calls for regulation of the market. More than 350 banks and investors signed up to settle credit-default swaps tied to Lehman.

The list of participants includes Newport Beach, California-based Pacific Investment Management Co., manager of the world's largest bond fund, Chicago-based hedge fund manager Citadel Investment Group LLC and American International Group Inc., the New York-based insurer taken over by the government, according to the International Swaps and Derivatives Association in New York.

if bodies are to float to the surface following this, we might know next week. remember that the washington mutual CDS auction is upcoming as well.

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Re: football fucking monkey...Fuck you!!! you ass hole licking fucker

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LMAO!!!! Don't say anything bad about the king. His minions (I think he has 6 left) will be pissed.

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yeah - lighten up, anonymous.

man, you really got a mad on.

you can't have it both ways. read and show respect - or don't read.

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hmmm.... That explains why it's so hard to sit down these days.

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