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Lehman -- Credit Default Swaps Covering
Old 10-13-2008, 10:23 PM   #1
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Lehman -- Credit Default Swaps Covering

From a Washington Post article this on Oct. 11, 2008

Last month's bankruptcy by Lehman, which had been the nation's fourth-largest securities firm, has raised concern that firms might not be able to cover credit-default swaps written on about $400 billion of Lehman bonds. But firms with exposure to swaps frequently hedge their bets to limit their risks."

Let's hope everyone pays and they have their positions hedged.

It seems to me however, that there is a good chance that one of the banks, insurance companies, brokerage or other counterparty might not be able to pay up on 23rd and this will cause....let's say...some problems. If the US owns one of these entities that doesn't pay, doesn't that mean the taxpayer gets hit with another multibillion dollar obligation or do we just drain the 700 billion bailout stockpile. I wonder if the Treasury and the Fed are even looking at the liabilities they are buying into. If the US (Me and You) own 80% of AIG then we are picking up potentially tremendous liabilities.'s just another scary thought to ponder but I think the next 6-12 months holds a lot negative surprises that send the markets south.

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Old 10-14-2008, 02:00 AM   #2
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The fear is the domino effect of CDS driven failures.

IMO - the regulators should create a tiered payout on the CDS... bond holders first and speculators (that can't produce a bond) get what is left.... maybe just their premium back. I know this is not legal or even right... scr3w the speculators. Normal investors should come first.
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