In an unprecedented move, the Fed and the International Swaps and Derivatives Association allowed derivatives trading today, on a Sunday, to "reduce risk associated with a potential Lehman . . . bankruptcy."
Lehman holds $ 800 billion in derivatives.
As the very even-keeled and level-headed chief executive of Pimco, the world's biggest bond fund, said:"This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in today's highly disrupted financial markets, the unthinkable is thinkable."What is the "unthinkable" he's referring to?
Another great depression. Perhaps even a world-wide depression.
To see why derivatives are the key to the financial crisis in the U.S. and the world, and why the Fed allowed derivatives trading today, read this.
Update: Bloomberg today writes:
"Bond-default risk soared worldwide as the collapse of Lehman Brother Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel."
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