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Old 10-10-2008, 03:49 PM   #1
Avalon Senior Member
Join Date: Sep 2008
Location: Los Angeles
Posts: 10
Default Lehman Brothers CDS Auction

For those that are not familiar with the Credit Default Swap (CDS) I highly recommend researching this topic because it gets to the heart of the current economic meltdown.

In short there is over $50 trillion gambled on the CDS market and today $400 billion worth of CDS bets related to Lehman Bros are being auctioned. Preliminary numbers are showing that the settlement amount for the Lehman's CDS is about 9.25%. What that means is that the counterparties that are on the hook to pay out for these bets will have to pay out 90.75 cents on the dollar if this settlement amount is finalized later on today. As you can see, there are going to be entities that will be on the hook to pay out a lot of money. Can these parties pay up on what they owe? We don't know. But, I would go as far as to say that since $400 billion is such a huge amount of money, there will be quite a few entities that are going to fail because of this bet. Hence, making our credit crisis much worse than what it is right now.
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