Derivatives Bloodbath

GEORGE WASHINGTON
Friday, October 10, 2008

The auction of Lehman’s credit default swap derivatives (CDS) occurred today. The final price bid for Lehman’s CDS was 8.625.

That means that holders of Lehman CDS will have to pay 100 minus 8.625, or 91.375 cents on the dollars.

That equals around $365 billion dollars (since there are around $400 billion in CDS for Lehman).

This is even worse than expected.

As an article on CNBC puts it:

“News that the settlement price might be lower than the 13 cents Lehman bonds have been trading at may have rattled the financial markets today. The theory being that if the sellers of insurance of Lehman bonds had to make a larger payment to protection buyers than previously thought, this might force the protection sellers to liquidate assets (of all kinds and in all asset classes) to raise money for the final settlement.”

(ARTICLE CONTINUES BELOW)

In related news, Bloomberg writes today:

“Credit-default swap indexes around the world soared today on concern the deepening credit crisis will trigger company and bank failures.”
If the government is going to stick its nose in the free market, it should deal with derivatives – the 800 pound gorilla.

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6 Responses to “Derivatives Bloodbath”

1. michael144 Says:
   October 10th, 2008 at 5:42 pm

   I heard recently that the entire principal cash flow in the world is 100 trillion and the total derivatives equals 1.4 quadrillion which is 1400 trillion dollars. The derivatives which I understand to be a deficit would then swallow up every dime in the world when called in….I’m not an expert on this trading so could someone tell me if i have it half right or am i wrong?

2. George Says:
   October 10th, 2008 at 9:04 pm

   Michael,

   I spent an hour looking at the 1.4 quadrillion derivatives claim. I haven’t seen that verified, and I think it might actually be hundreds of billions smaller.

   And most of the derivatives are in things which may be less dangerous than credit default swaps.

   But no one knows how much of a “black hole” derivatives are, and whether they will, indeed, swallow up the world financial system.

   Good luck.

3. Diane Says:
   October 10th, 2008 at 9:27 pm

   The number estimates for CDSs I keep running into are between $55 and $63 Trillion. If I remember right, 60 Minutes went with the larger number.

4. Michael Says:
   October 11th, 2008 at 6:38 am

   The buyout is about making sure we have no more defaults, to protect the derivative pyramid, the true attentions of the powers will be if they then plan to unwind the whole corrupt system, so the time-bomb is diffused for all time.

5. Alastair Carnegie Says:
   October 11th, 2008 at 4:19 pm

   Folk have to be aware that financial computers are now on autopilot, they liquidate assets without human intervention. It’s a default system intended to prevent catastrophe. I don’t think the sun will be visible on Monday (A Holiday for Wall Street) as the sky will be darkened by the wings of chickens flying home to rooste! Sow the wind of dereguated banking, and reap the whirlwind of monetary implosion. My father in law Gerald Enderby-Smith was (by Treaty) C.E.O. of the Fuji Bank. the President was a fine Japanese gentleman who liked to play golf. I believe Gerry gave the Fuji Bank staff a holiday on 9/11. so when the aircraft hit the three floors of Fuji Bank Offices, the staff were not injured. I personally gave warnings on my 50th birthday, in July of that year. On the morning of 9/11 I ordered my ADC Allan “G” to tape all News broadcasts. The insubordinate so & so, had not stocked up on sufficient video tapes. I was making a nice cup of fresh coffee, when Allan came into the kitchen exclaiming that I was right! a plane had hit the towers. I told him to keep recording, and I would go out and purchace more video tapes. “No we need you here Alastair, and don’t worry, I will record over every tape I have, if that’s neccessary” From that moment on, Allan answered the telephone, “War Room here! how can we help?”

6. Washitdown Says:
   October 12th, 2008 at 4:48 pm

   YUM.
   Gold.
   Washit down
   With blood.

   http://illuminatimatrix.wordpr.....symbolism/

   It’s just their thing.
   Find out what’s next.

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