Re: Credit Default Swap (CDS) - Lehman Final Results In

[David Farber <dave () farber net>]

Begin forwarded message:

From: Steve Rayson <steverayson () hotmail com>
Date: October 23, 2008 5:22:54 PM EDT
To: <dave () farber net>, <ptm () pix cs olemiss edu>
Subject: RE: [IP] Re:    Credit Default Swap (CDS) - Lehman Final  
Results In

I found the Parisi-Capone article interesting, but please do note one  
thing.  She wrote that piece on Oct 15.  She was trying to guess what  
was going to happen on Oct 21 on the settlement day.  The NYT deal  
book article is a record of the Oct 21 settlement written the day  
after.  The actual outstanding obligation really was $5.8 billion as a  
matter of record.  Her guess about AIG's exposure was wrong and "M",  
whoever they are, turned out to be correct.

[From NYT Deal Book]
“The portion of this net funds settlement allocable to trades between  
major dealers was settled through the normal settlement procedures of  
CLS Bank (the world’s central settlement bank for foreign exchange,  
and the central settlement provider to the Warehouse) for Tuesday,  
Oct. 21, without incident,” Depository Trust, the main clearing house  
for these swaps, said in a statement.

-Steve



> From: dave () farber net
> To: ip () v2 listbox com
> Subject: [IP] Re: Credit Default Swap (CDS) - Lehman Final Results In
> Date: Thu, 23 Oct 2008 05:48:03 -0400
>
>
>
> Begin forwarded message:
>
> From: Tobin Maginnis <ptm () pix cs olemiss edu>
> Date: October 22, 2008 9:51:44 PM EDT
> To: dave () farber net
> Subject: Re: [IP] Re: Credit Default Swap (CDS) - Lehman Final
> Results In
>
> Dave,
>
> It turns out that the settlement result is not clear. In her article:
> "Lehman CDS Payout On October 21: $360bn or $6bn?" Elisa Parisi- 
Capone
> argues that the primary "naked" CDS bag holder was AIG and that the
> total Government bailout of $120 billion for AIG was used to pay for
> the Lehman defaults. She goes on to say that "...among dealer banks
> and AIG the CDS fallout from Lehman’s default amounts to *around $200
> billion* already."
>
> In the comment section, a poster "M" spends a lot of time disputing
> this by arguing net liabilities are offset by counter CDSs meaning
> that investors trade positive and negative CDS which sum to zero
> resulting in no-one being at risk!?! Responses to "M" say that may be
> the case, but AIG did not have a balanced CDS portfolio leaving it
> "naked."
>
> So only time will tell what the true losses are and how they will
> impact the already rapidly deteriorating financial scene.
>
> http://www.rgemonitor.com/economonitor-monitor/254052/lehman_cds_payout_on_october_21_360bn_or_6bn
>
> ==========================================
> David Farber wrote:
> > Begin forwarded message:
> > *From: *Steve Rayson <steverayson () hotmail com <mailto:steverayson () hotmail com
> > >>
> > *Date: *October 22, 2008 5:58:32 PM EDT
> > *To: *<dave () farber net <mailto:dave () farber net>>
> > *Subject: **RE: [IP] Credit Default Swap (CDS) - Lehman Final
> > Results In*
> > http://dealbook.blogs.nytimes.com/2008/10/22/lehman-debt-swaps-settled-for-52-billion/
> > Sellers of insurance on *Lehman Brothers* debt made net payments
> > of
> > $5.2 billion to settle an estimated $400 billion or more in credit
> > default swaps, the *Depository Trust and Clearing* Corporation said
> > Wednesday.
> > As predicted, the net payments were a fraction of the $400 billion.
> > Its interesting to me that despite the fact that the Depository
> > Trust and Clearing Corporation said this was going to happen, there
> > was still lots of fear last week that the number was going to be in
> > the 100's of billions.
> > -Steve
> >  
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