CDS auction monday: look out below


#1

nakedcapitalism.com/2008/10/ … g-big.html

In theory these auctions should be damp squibs, because the CDS should cancel each other out. But the suspicion is that it doesn’t really work like that. The suspicion is that many companies did an AIG on it and sold CDS that they didn’t offset completely and so they are carrying the can. There is also a suspicion that naked purchases took place, that is, purchases where there was no underlying asset to protect - these companies will be big winners. Where there are big winners, there are either big losers or lots of small losers.

Despite reading the auction process above a few times, I don’t really understand how it works, so if anyone clever can tell me, I’d be delighted BD


#2

From Dhalc2 on tickerforum:

As the FNM and FRE bonds are government guaranteed, it is likely there will not be much of a problem with them. The real problem will come with the Lehman’s auction on 10 October. This in turn, if it turns bad, could turn the WaMu and AIG auctions into bigger events (although in theory both are guaranteed by their new owners). Pabloescobar, another poster on tickerforum, believes this is the real motivation behind the Fed/Treasury needing 700 bn in cash to buy distressed assets - they need to pump money into the losers of these CDS unwinds.


#3

#4

nakedcapitalism.com/2008/10/ … ts-on.html


#5

F!CK - when does this hit the fan exactly?
Also how much more of this is there?


#6

There’s still AIG to do, but I don’t expect that to cost that much as it is nationalised and it’s bonds are worth something (about 85 cents on the dollar?). Still, don’t know how much is outstanding on AIG.

The next biggies, which will be 30 days after the confirmed ‘event of default’ will be the Icelandic banks. There’s been speculation about them for months (far longer than about Lehmans), so I expect there will be a fair amount written on them. Prices were high for the CDS, so maybe it won’t be too bad?

edit: sorry - Diet on godlikeproductions.com/forum … 632616/pg1 believes his kabalism and says either 2:07 eastern or 3:11 eastern (19:07 or 20:11). I presume he knowns when the announcement will be made and assets will be dumped? Or that margin calls will start being made based on the downturn in the market caused by Lehmans CDS auction or he’s got a hotline to Opiuchi and the voices are telling him…


#7

bloomberg.com/apps/news?pid= … refer=home


#8

I hope he’s wrong. Otherwise I can’t see a reason for the waves of selling other than, er, selling…


#9

Guess the kabala is busted…


#10