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10-10-2008, 03:49 PM | #1 |
Avalon Senior Member
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Location: Los Angeles
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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. |
10-10-2008, 04:02 PM | #2 |
Avalon Senior Member
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Re: Lehman Brothers CDS Auction
yes the scare over the CDS is what is going to further feed the fierce furnace of the "Great Crash of 2008" . . this article expands into these well.
http://www.guardian.co.uk/business/2...fscotlandgroup |
10-10-2008, 04:08 PM | #3 |
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Re: Lehman Brothers CDS Auction
The CDS and Derivatives markets are the catylists to this economic crash.
If it was just the subprime mess in isolation, that would cost US taxpayers $400-500 billion to clean up. A huge mess, but not big enough to take down the global economy that has a GDP of $60 trillion. If people add derivatives and the CDS market, both account for $70 trillion in risky bonds and bets made on those bonds and institutions. This mess will cost at leasts $10 trillion to clean up globally. This is enough to crash many economies around the world. |
10-10-2008, 04:09 PM | #4 | |
Avalon Senior Member
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Re: Lehman Brothers CDS Auction
=
= Lehman Brothers (Oct 10) and also coming up Washington Mutual (Oct 23) Quote:
http://www.independent.co.uk/news/bu...es-949823.html = = |
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10-10-2008, 04:30 PM | #5 |
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Re: Lehman Brothers CDS Auction
Geeze, is it me or is it really that hard to wrap your head around all this. But if I can attempt to cut to the chase perhaps too quickly, does it all boil down to the fact that a lot of banks/institutions owe a lot of other banks/institutions a boat load of money and (1) no one knows really how much money; (2) no one knows the price at auction so they can't quantify the debt; and (2) nobody knows for certain who will be holding the bag after one of these auctions.
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10-10-2008, 05:11 PM | #6 |
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Re: Lehman Brothers CDS Auction
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10-10-2008, 05:23 PM | #7 | |
Avalon Senior Member
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Re: Lehman Brothers CDS Auction
Quote:
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10-10-2008, 06:41 PM | #8 |
Avalon Senior Member
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Location: Long Island, NY
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Re: Lehman Brothers CDS Auction
Z-
Haven't seen you around the forum that much lately. Hope all is well and I have enjoyed all of your economic (among other) contributions to Avalon. I personally don't know what to think of the current circumstances. My intuition is telling me we are transitioning into an entirely new economic and societal time period, and the changes are chaotic yet positive for the planet as a whole. It is inevitible the banking system as we know it will be revamped, probably with much stricter ethical guidelines they must follow. Some say the economy cannot fully "collapse" because it is what is known as a complex adaptive system, and while the reorginization we are seeing today may appear chaotic, the truth is the changes are part of a complex reconfiguration of the world economy. It will be interesting to see the final results. Any thoughts? L/L 13 ************************* may WISDOM guide COMPASSION "out of MANY, we are ONE" |
10-10-2008, 07:14 PM | #9 |
Avalon Senior Member
Join Date: Sep 2008
Location: Los Angeles
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Re: Lehman Brothers CDS Auction
Here is an article about the result of the Lehman Brothers CDS auction and the news is not good.
http://www.reuters.com/article/marke...38084520081010 If you do the math, that means entities that lost on their Lehman bets are on the hook for about $365.5 billion. Ouch! Next week will be Wamu on the CDS auction block. I don't see the total bets being as high as Lehman, but we are still looking at multi billion dollar payouts for Wamu as well. |
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