Dwight Cass on Lehman CDSs Today

We should know how this pans out by 2pm EST today...

"Lehman, which filed for bankruptcy in mid-September, has about $113bn of bonds outstanding, according to Reuters Knowledge. It’s impossible to know how much protection has been written on that debt, since credit derivatives are privately negotiated and not all protection buyers hold the underlying debt. It’s likely that the amount of CDS linked to Lehman is at least several times the size of its borrowings.

The Lehman CDS auction process is set for Friday [today]. Large amounts of cash are likely to change hands as a result. But since there’s a winner for every loser in this market, the net effect on the financial system should be minimal. Except that no-one knows if all the losers will be able to pay – and that’s what has Wall Street worried."

Full piece here.