Thursday, October 09, 2008

Lehman CDS: Friday

Well, we'll see what the market will be like in the coming months a short while after Friday, when up to $400B payouts on Lehman's bankruptcy has to be settled in the CDS market. Will there be bankrupticies from the payouts? Bilateral agreements halting payout?

The expected payouts on Lehman bankruptices, and others like it, is why there is no lending going on. Banks have to use all the cash they get from the Fed in order to maintain these CDS commitments. There will be more CDS settlements so while tomorrow is a big test, it does not mean we are out of the woods yet in terms of the CDS market's vulnerabilities. If it goes badly tomorrow, however, we can be sure it gets tougher for all markets, for the rest of the year.


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