All day I’ve been looking….
…and the bastards (pardon my German) have covered this entire operation up with ONE HUGE WET non MEDIA blanket.
Interesting fact in that alone……..
So……..from Goldies, here’s what we know thus far
Lehmann -what Ike found so far
Lehman default swaps still pending, DTCC says
By Laura Mandaro, MarketWatch
Last update: 7:31 p.m. EDT Oct. 21, 2008
This update corrects and clarifies that final settlement is still pending.
NEW YORK (MarketWatch) — An industry clearing organization said late Tuesday that it was still awaiting final results from the settlement of Lehman Brothers’ credit-default swaps, a massive financial transfer that would add significant support to a recovery in the credit markets.
The Depository Trust & Clearing Corp. will issue a statement when the settlement is completed, according to spokeswoman Melanie Best. She declined to comment on timing.
Payments under these derivatives contracts have to be made by the close of business Tuesday.
The International Swaps and Derivatives Association, the group that represents swaps dealers, issued a statement just before 6 p.m. Eastern noting the “success” of the Lehman settlement.
“Today’s settlement demonstrates that the industry infrastructure for [credit-default swaps] clearly works,” said Robert Pickel, chief executive of the ISDA.
The exchange between the buyers and sellers of credit-default swaps, a type of derivative contract that pays out when a company reneges on its debt, spooked markets Tuesday. Some investors worried sellers would be unable to come up with the cash to pay their counterparties, and these no-shows would usher in a new round of bank or fund failures.
This type of domino effect turned what started as a U.S. housing-market collapse into a global credit crisis.
“Settlement of Lehman’s CDS is what has the market on the nervous side,” said Peter Cardillo, chief market economist at Avalon Partners, said earlier Tuesday about the credit-default swaps.
The major U.S. stock indexes briefly scaled back declines late in the session after reports that counterparties had closed the swaps settlement without a hitch. See Market Snapshot.
Global interest rates spiked and lending contracted after Lehman Brothers (LEHMQ
Lehman Brothers Holdings Inc
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LEHMQ) declared bankruptcy in mid-September, a failure that risked taking some of the firm’s numerous trading partners down with it.
The bankruptcy also triggered a relatively rare event in the $50 trillion market for credit-default swaps: the requirement that holders of protection on Lehman debt get paid by the sellers of these swaps.
An Oct. 10 auction determined terms of the payout. Buyers of protection against a Lehman default were slated to receive 91.375 cents for every dollar of Lehman debt they held. See full story.
The overall size of the payout was expected to be as much as $400 billion. But if the counterparties’ offsetting trades are taken into account, the Depository Trust and Clearing Corp. has forecast that sellers of the protection may only have to cough up about $6 billion.
The credit-default swap settlement comes as stressed credit markets showed some early signs of recovery.
The cost of short-term borrowing continued its recent fall Tuesday.
The London interbank offered rate, or Libor, for three-month dollar loans fell to 3.83375% from 4.05875% the previous day. The decline follows a sharp drop of about 35 basis points, or 0.35 of a percentage point, on Monday. See Libor story.
Still, there are more companies at risk of default and more debt outstanding than in several years, and credit-default swaps may cause continued headaches for credit markets, said John Atkins, a fixed-income analyst at IDEAGlobal.
Going forward, “workouts can be much more convoluted,” he added. “This doesn’t mean things can’t go wrong.” Laura Mandaro is a reporter for MarketWatch in San Francisco.
> Pay-up time for Lehman swaps
> By Kim Asger Olsen
>
> This Tuesday will be the first really interesting day in the financial
> markets since the day last week when US Treasury Secretary Paulson
> partially nationalized the nine largest US banks. October 21 sees the
> settlement of the credit default swaps (CDS) issued on Lehman Brothers
> debt.
>
> First the facts. A CDS, or credit default swap, is essentially an
> insurance against losses if an issuer of debt goes bankrupt and cannot
> honor its obligations. Those who have sold the protection will then
> compensate the loss to those who have bought the protection. Estimates
> say that Lehman debt amounts to some US$150 billion. Other estimates
> say that Tuesday will see settlement of about $360 billion worth of
> nominal CDS contracts.
>
> Sounds fishy? Insured debt of $360 billion while the total
> outstanding of Lehman debt amounts to only $150 billion? The
> explanation is a simple one, that the CDS are not necessarily linked
> to the buyer of the credit insurance in fact holding any Lehman debt.
> To put it in different terms: a CDS is the financial market equivalent
> of being able to take out an insurance that will pay out money to you
> in case your neighbor’s house burns down.
>
> This situation is indicative of something that ought to have everybody
> hold their breath for a second. CDS were originally meant as insurance
> for holders of debt. But in absence of rules, oversight and regulation
> CDS became instruments of speculation, where the buyer and the seller
> took bets on Lehman’s future. If the above estimates are true, and if
> we make the friendly assumption that $150 billion worth of nominal
> contracts are indeed bought by the actual holders of Lehman’s debt, no
> less than $210 billion worth of speculative bets will have to be
> settled on Tuesday.
>
> If the recent prices of Lehman debt is anything to go by (between
> eight cents and nine cents in the dollar), this settlement will lead
> to some $190 billion changing hands - from sellers to buyers of
> “default protection”.
>
> To get the order of magnitude right: the amount changing hands
> corresponds to nearly three months of US current account deficit.
>
> A gain of 91 cents or so for each underlying of $1 is not a bad return
> on a few minutes work. In other words, those who speculated on
> Lehman’s collapse are looking forward to a huge pay day. Or are they?
>
> Certainly, some of the biggest players, such as the fully nationalized
> AIG and the nine partly nationalized banks, are big players in this
> game. It is inconceivable that some of them are not on the
> underwriting side and have sold the protection, irrespective of
> whether the buyer actually held Lehman debt or was just another
> gambler in the market. Now an interesting new dilemma is appearing:
> will the US Treasury accept that potentially huge sums of taxpayer
> money be used to pay speculators who were right in guessing that the
> US Treasury would allow Lehman to fail.
> It is known in the market that AIG has asked the US Treasury for some
> $20 billion-plus on top of the bailout package of $85 billion agreed
> three weeks ago. It is also widely guessed in the market that that $20
> billion is earmarked to meet AIG’s obligations related to Lehman debt.
> We have not started to talk about other defunct debt issuers yet -
> notably Bear Stearns or Washington Mutual.
>
> Being among those who have to shell out $190 billion is enough to give
> other institutions a powerful push in the direction of insolvency. For
> this reason alone, the US Treasury is facing a serious choice: use
> taxpayer money to reward speculators or try to limit the damage. One
> possible avenue would be to demand that those who have bought
> protection actually prove that they held Lehman debt, and pay them,
> but refuse to pay those who had speculated. This could be a
> politically attractive way out of an interesting moral dilemma.
>
> Morals are always interesting to discuss. For our purposes it is,
> however, more relevant to look at the potential impact on the CDS
> market. It is estimated that CDS to the value of $55,000 billion or
> $55 trillion have been sold in relation to corporate debt. Given that
> the CDS market is unregulated, it is at this point in unknown how many
> of those “protection” contracts are purely speculative, as are about
> two-thirds of the Lehman contracts. It is unknown who issued them and
> we do not know the buyers. What we do know is that the settlement of
> the Lehman CDS will be an important indicator for whether this market
> will be the next to melt down as the subprime market has already done.
>
> Probably, most of the CDS are issued on non-financial companies, and
> some even on sovereign issuers. This could indicate that we are not
> heading for a total meltdown, as the rate of corporate bankruptcies
> obviously will not go through the roof (unless we really are heading
> for a depression … an interesting thought).
>
> But it is almost certain that hedge funds are among the big holders of
> speculative default protection. If the settlement of Lehman CDS gives
> rise to any glitches, the huge CDS market will be shaken and it is
> likely we will see a scramble for the exit as holders of “protection”
> realize that they may not be protected at all.
>
> Readers will recall the ancient Chinese curse: May you live in
> interesting times! Sometimes a bit of boredom should be welcomed.
>
> Note
> 1. The Depository Trust and Clearing Corporation, which clears the
> vast majority of trades in the US over-the-counter market, said this
> month only $6 billion may actually change hands, Reuters reported
> early on Tuesday. This is because large players in the market, such as
> dealers and some hedge funds, have both bought and sold protection,
> subsequently taking both gains and losses on Lehman’s default that
> will offset each other, the report said.
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