Lehman and the CDSs

Busy here, so I'm quickly going to quote (rip off) FT, Rueters, and Barry Ritholtz...

Banks are hoarding cash in expectation of pay-outs on up to $400bn of defaulted credit derivatives linked to Lehman Brothers and other institutions, according to analysts and -dealers.

This added pressure on the frozen financial system comes as authorities prepare to meet participants in the so-far unregulated $54,000bn credit derivatives market to speed up plans for the creation of a central clearing house.

The Federal Reserve will meet dealers, investors and exchange executives in New York today. Although big dealers had committed to setting up a central counterparty by the end of the year, urgency has increased in light of the collapse of banks around the world and as company bankruptcies loom.

"The New York Fed will hold a meeting [today] with a small number of banks and buyside firms to discuss the progress being made toward the creation of a central counterparty for credit default swaps," said a Fed official, adding that this would "help reduce systemic risk associated with counterparty credit exposure and improve how the failure of a major participant would be addressed".

So what does that mean? Tomorrow...

Twenty-two dealers will participate in the auctions, which will determine how much protection sellers will recover after paying out the insurance. The timeline for the auctions follows, according to JPMorgan.

9:45 a.m.-10 a.m. Auction participants will submit bids and offers for the debt backing the credit default swaps, which will be used to determine the initial recovery rate of the swaps.

10:30 a.m. Auction administrators Creditex and Markit will publish the initial recovery price and the open interest for the contracts will be published. The open interest reflects the amount of bids and offers that have been made, and will show if there are more buyers than sellers, or vice versa.

12:45 p.m. -1 p.m. Participating dealers will submit limit orders for the debt on behalf of themselves and their clients to fill the open interest

2 p.m. The final price of the auction will be published.

Permalink: http://dowwtf.blogspot.com/2008/10/lehman-and-cdss.html

Live Blogging from the Risk Metrics Conference Call

Live Blogging from the Credit Crisis call hosted by Risk Metrics with Nouriel Roubini, Barry Ritholtz, and Zach Gast:

• Barry is very bullish on physical gold, less bullish on paper gold. He says put 5-10% of your portfolio in it, and "go to the store and buy the bars, if you have to."
• Zach notes that the ban on short selling hasn't kept financial stock from dropping and that it's raised the transaction costs. Barry says the ban has been counterproductive.
  
• Nouriel argues for an FDIC guarantee on all deposits on all amounts.
• Zach suggests that the Treasury should match institutional and PE investments.
• Barry predicts that there's a 40% chance that the House won't pass TARP tomorrow.
• Barry predicts that the DOW will drop another 15-20% from its peak.
• Nouriel thinks the dollar will range between $1.50-1.60 per euro. He thinks that American exports will shrink, no matter what.
• Barry thinks that, long term ("3-6 months"), defense, infrastructure, and small-to-medium-cap biotech and medical devices.
• Barry notes that Buffet is one of Obama's economic advisers, and that McCain also has some good advisers, but concedes that McCain has some real idiots on his team. But on the top rung, he says they are toe-to-toe.

Permalink: http://dowwtf.blogspot.com/2008/10/live-blogging-from-risk-metrics.html