Thursday, October 9, 2008
Banks Hoarding Cash to Pay Derivatives Liabilities
Tomorrow, the auction for Lehman's credit default swaps will be held, and the final result will probably be that that holders of credit default swaps will have to pay around $360 billion dollars (see below). That's for Lehman alone. Derivatives exposure due to other failed businesses is even higher.
This is why Wall Street firms and banks have been hoarding cash. As the Financial Times wrote on October 7th:
Banks are hoarding cash in expectation of pay-outs on up to $400bn (£230bn) of defaulted credit derivatives linked to Lehman Brothers and other institutions, according to analysts and -dealers.
***
Michael Hampden-Turner, a credit strategist at Citi, estimates that there could be $400bn of credit derivatives referenced to Lehman.
These contracts will be settled on Friday [October 10th], and with the recovery value on Lehman bonds currently estimated at about 10 cents on the dollar, the pay-out by banks and other sellers of credit protection on Lehman could reach a gross $360bn.
As Fox News puts it:
Massive positions are just starting to be unwound in the credit default swaps market as tens of billions of dollars worth of these contracts are now getting settled in the aftermath of several high-profile flops.And as leading economist Nouriel Roubini wrote today in an article entitled "What Is Really Bothering Markets: Lehman's CDS Settlement on October 10 With A $360bn Expected Payout" (after quoting the above-described Financial Times articles):
Banks are hoarding cash in expectation of expected payouts on anywhere from $200bn to $1 tn–no one knows the amount, adding to volatility–for defaulted credit derivatives linked to the collapse of Lehman Brothers, the government’s seizure of mortgage giants Fannie Mae and Freddie Mac, the government’s rescue of American International Group, and the failure of Washington Mutual.
- Lehman was one of the top ten counterparties in the unregulated $62 trillion OTC credit default swap (CDS) market. As Lehman defaults, tens of billions worth of hedges become worthless and can only by renewed with a new counterparty at much higher premiums (i.e. CDS spreads). Moreover, Lehman bondholders will only receive about 10 cents on the dollar in exchange for defaulted Lehman bonds and protection buyers will have a claim on 90 cents on the dollar in the hope that protection sellers will be able to perform.
- Systemic event: S&P acknowledges that Lehman's default was key to AIG's demise with spillover to Europe, as well as to money market funds breaking the buck with spillover to the commercial paper market. Hedge funds's brokerage accounts have been frozen and they might also be exposed to derivatives trades.
14 comments:
→ Thank you for contributing to the conversation by commenting. We try to read all of the comments (but don't always have the time).
→ If you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better (but it's your choice).
→ The following types of comments will be deleted if we happen to see them:
-- Comments that criticize any class of people as a whole, especially when based on an attribute they don't have control over
-- Comments that explicitly call for violence
→ Because we do not read all of the comments, I am not responsible for any unlawful or distasteful comments.
cheap products for man penis enlargement ideal penis enlargement
ReplyDeletepenis enlargement pills penis enlargement pills
penis enlargement exercises fast weight loss supplements weight loss
penis enhancement
natural penis enlargement
Without hesitate, I bought eve isk , in the game I can find myself. I feel lonely, but I do not want to talk with anyone, so I buy isk . At present, think the happy day I spend in knight, I am eager to enter it, and buy eve online isk . Own eve online isk , it means that you own the life of happiness. So I will not leave cheap eve isk . It is the origin of the happiness.
ReplyDeleteReturn the World Of Warcraft Goldplane, I accompanied her father to the toilet, he suddenly wow power leveling whispered to me: "In fact, the plane I will not lock the toilet door." I patted him on buy cheap world of warcraft goldthe shoulder and tell him "okay", but secretly to feel sad .
ReplyDeleteI would like to immediately inform the wow goldpeer of the sister, the next trip, and her husband also brought cheap wow gold their own, can fulfill filial piety, but also wanted to euwowgoldtell not to come along with the sister, all earned money will come back, but parents wowgold4europestill alive and well-being, Travel can bring This is the biggest blessings of our parents; would like to tell the father, go to the cheapest wow goldtoilet issue is resolved, the next time we can fly further afield.
cheep wow gold,buy wow goldworld of warcrft gold.
ReplyDeleterunescape money
ReplyDeleterunescape gold
runescape money
runescape gold
runescape money
runescape gold
buy runescape gold buy runescape money runescape items
runescape accounts
runescape gp
runescape money
runescape power leveling
runescape money
runescape gold
dofus kamas
cheap runescape money
cheap runescape gold
Guild Wars Gold
buy Guild Wars Gold
lotro gold
buy lotro gold
lotro gold
buy lotro gold
lotro gold
buy lotro gold
Hellgate Palladium
Hellgate London Palladium
Hellgate money
Tabula Rasa gold tabula rasa money
Tabula Rasa Credit
Tabula Rasa Credits
Hellgate gold
Hellgate London gold
wow power leveling
wow powerleveling
Warcraft PowerLeveling
Warcraft Power Leveling
World of Warcraft PowerLeveling World of Warcraft Power Leveling runescape power leveling
runescape powerleveling
eve isk
eve online isk
eve isk
eve online isk
tibia gold
Fiesta Silver
Fiesta Gold
Age of Conan Gold
buy Age of Conan Gold
aoc gold
呼吸机
无创呼吸机
家用呼吸机
呼吸机
家用呼吸机
美国呼吸机
篮球培训
篮球培训班
篮球夏令营
china tour
beijing tour
beijing travel
china tour
tibet tour
tibet travel
computer monitoring software
employee monitoring
runescape gold
runescape money
runescape
ReplyDeleterunescape gold
runescape money
runescape powerleveling
runescape power leveling
runescape
runescape gold
runescape money
runescape powerleveling
runescape power leveling
runescape
runescape gold
runescape money
lotro
lotro gold
lotro money
lotro
lotro gold
lotro money
world of warcraft money
world of warcraft gold
wow gold
wow money
maplestory mesos
maple story mesos
maplestory mesos
maple story mesos
runescape
runescape gold
runescape money
runescape
runescape gold
runescape money
It is what we call 'the syndrome of the passive patient'. Basically we can't have anything with nothing and we know that if the client does not implicate himself wow gold or herself a little bit financially then he or she won't make the effort later on and make
ReplyDeletebiodegradable cutlery the changes which are truly necessary. This is why it is essential for me that the wow gold people I help implicate themselves and why I do not work for free. It is very important for me to know that I am not working pointlessly on an individual's analysis, wow gold producing a reading that wow gold 5000 will not be fully read or assimilated while all I really want to do is to pass on the valuable information which SRO gold. is going to so radically change your life Isis. Experience has shown me that the only means for me to be absolutely certain that the person who requests my work Get free WOW gold is going wow gold sale to make the effort and implicate himself or herself to bring about real change is to ask for a small financial participation. Isis, you will understand that if you don't want pulp egg tray to spend a few dollars to ask me to produce this full reading for you whilst I have already spent over
food container 10 hours on your file without asking you for anything at all in return (once again please understand
SRO gold
台灣汽車旅館加盟網--台北汽車旅館,台中汽車旅館,高雄汽車旅館
ReplyDelete牛初乳
保洁公司
地毯清洗
外墙清洗
沙发清洗
大理石翻新
石材养护
This afternoon wow gold our League
ReplyDeletewow gold branch organized
buy wow gold a discussion
buy wow gold on the
cheap wow gold harmful effects
cheap wow gold of smoking
world of warcrft gold and what
world of warcrft gold effective measures
wow power leveling should be
power leveling taken to
world of warcraft power leveling prevent young
wow gold people from
wow gold smoking. According
buy wow gold to our
buy wow gold form master
cheap wow gold , 50
cheap wow gold % of
world of warcraft gold our class
world of warcraft gold smoke ,
nike shoes or have
jordan shoes smoked at
sport shoes one time
casual shoes or another.
If that is true, then all the boys because we make up about 50 % of our class- I can hardly believe that.
What a mess all these criminals have made for our society!
ReplyDeleteCheap Checks | Recycled Checks
Jewelry MarketKorean Jewelry
ReplyDeletethanks.........
ReplyDeletethanks..
ReplyDeletethanks for your share!
ReplyDeleteDual Sim Card Phone
Wi-Fi Phones
Watch Phone
Quad Band Phones
Android Cell Phones
Android Phone