Friday, October 10, 2008

Lehman Auction "overblown?"

According to a blog on the LA Times, the previously mentioned physical settlement on Lehman Brothers securities with credit default swaps was less than reported earlier. "In the billions of dollars, not tens of billions."

Bloomberg notes:

Banks and investors typically make offsetting trades to hedge their positions, and likely have already posted collateral as the market value of the contracts fall, so the actual amount they need to come up with will be much less, Bank of America Corp. credit strategist Jeffrey Rosenberg said in a note to clients.

"Fears surrounding the Lehman auction settlement are overblown," Rosenberg said. "The economic impact of the Lehman bankruptcy through CDS contracts has for the most part already occurred." big deal? No domino theory? It's hard to sort out what's right and what's wrong. Roubini had pointed to today's auction as a pivotal point. Was the "prescient one" wrong?

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