Speaking of "unreal"... This has got to be the dumbest statement regarding financial derivatives I have heard since Greenspan retired. At least Greenspan's stupidity was only so idiotic in retrospect... these guys, Backshall and Crescenzi, are true morons in real time:
Since Lehman's Sept. 15 bankruptcy filing, there has been considerable anxiety that dealers who had underwritten some $400 billion of credit default swaps on the bank would be caught short in a massive payout.
But sharp market moves in the value of these insurance-like contracts would have obliged most sellers of these insurance-like contracts to post additional collateral to cover their potential losses. As a result, they should have sufficient funds set aside to handle their liabilities in this settlement.
"Worries over ex-broker-dealer exposures and their knock-on impact are misguided," said Tim Backshall, senior credit analyst with Credit Derivatives Research.
What's more, the result is to the benefit of those banks that were buyers of the CDS.
"Keep in mind that the extra few billion to be paid will wind up in the hands of lucky buyers, making it a zero-sum game in reality," said Tony Crescenzi, strategist at Miller, Tabak & Co.
The final results of the morning's auction were posted by administrators Creditex and Markit on www.creditfixings.com.
online.wsj.com
I am surprised the WSJ allowed such a blatant piece of garbage to be expressed in their paper without comment... "Zero-sum game"... Lord A'Mighty... At least we now know where all the selling is coming from:
The price of the Lehman bonds underlying the swaps was settled at auction at 8.625 cents on the dollar, which is subtracted from 100 to get the payout ratio for the swaps. Bond traders had recently quoted Lehman's debt at about 13 cents on the dollar, which protection sellers might have been using as a proxy before the auction to estimate how much they owed their counter-parties.
"For all the people who are sellers of protection who didn't have hedges themselves, they're paying more than they thought they were going to pay," said Joel Telpner, an attorney at Mayer Brown in New York who specializes in credit derivatives transactions.
washingtonpost.com
It seems pretty clear that every fund manager and MoMo on the planet is being forced to liquidate everything they can to prepare their own "margin calls." The redemption demands that must be stacking up in historic amounts will be the final act in this horror show... are going to compound the problem. I don't have a clue as to when or how big that impact will ultimately be. I don't know if anyone else does either, but I figure that as soon as the MoMo's think they have it figured out... the market will spike a thousand points north ASAP... or at least the market for companies with real earnings power will jump like a moon rocket.
I'm just glad that there are people who can find a reason to laugh at it all:
seattlest.com
The real money is still kicking around. But the leverage is gone... "poof"... along with the idiot Crescenzi's "zero-sum":
ft.com
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