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Politics : GOPwinger Lies/Distortions/Omissions/Perversions of Truth -- Ignore unavailable to you. Want to Upgrade?

To: geode00 who wrote (140846)	10/11/2008 12:27:22 PM
From: Lizzie Tudor	1 Recommendation Read Replies (1) \| Respond to of 173976

I don't know, this is more along the lines of what I have seen from WSJ. Theres a huge difference between DEBT and SWAPS and whenever you see that guy Pickel (appropriate name) being interviewed the subject is swaps not debt. I think a lot of business writers don't know anything about the credit market for one thing. The debt itself is not a derivative. The CDSs are derivatives. Lehman CDS Settlement Disappoints OCTOBER 10, 2008, 12:35 P.M. ET By EMILY BARRETT NEW YORK -- Initial results for Friday's settlement of the credit default swaps on Lehman Brothers have undershot expectations, setting the recovery rate on the firm's senior debt at 9.75 cents on the dollar. Expectations had ranged in the double-digits, with consensus around 12 cents. The lower result means dealer banks that sold protection on Lehman's debt will end up paying more than they had expected -- 90.25 cents on the dollar. The total value of contracts, to be settled within the next couple of weeks, is estimated around $400 billion. The low rate qualifies this as one of the most expensive defaults ever in the credit derivatives market. Following the default of Italian food company Parmalat in 2003, its debt was valued at just below 10 cents on the dollar. The settlement of these complex derivative instruments is being widely-watched as a first major price discovery process at a time when markets are going through a major crisis of confidence about their counterparties' financial standing. Essential to this process is the notion of how much investors that insured against a Lehman default would have to pay their counterparties on these credit default swap contracts. Final results are due at 2 p.m. EDT. Stocks, already suffering through extremely volatile trade, tumbled after the initial results for the settlement were published. The Dow Jones Industrial Average was knocked down another 100 points, and in recent trade was off 360 points on the day at 8,218 points. The initial results shouldn't come as a painful surprise for the sellers of protection on Lehman. The price isn't far below what has been quoted in the market in the past couple of weeks, but those levels had bounced to the mid-teens on increased demand for notes to present at the auction. The government securities market, for one, wasn't surprised. T-bills and short-term Treasurys remained boosted and longer-term issues weaker on the prospect of more supply. "I believe people had a good idea of what their positions were with the company as time moved on since the announcement of their bankruptcy," said Robert Allen, managing director and head of the government trading desk at Banc of America Securities, "and positions have been gradually adjusted." Since Lehman's Sept. 15 bankruptcy filing, there had 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 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. The preliminary results of the morning's auction were posted by administrators Creditex and Markit on www.creditfixings.com.