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 Âdealers.
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.
Here is the story. Here is my earlier post on derivatives and clearinghouses.
Every day brings a brand new object lesson on why Lehman really was too big to fail. The cited article didn’t make it clear, but the Lehman CDS settlement auction is this Friday, October 10. Hold your breath.
Worst-case scenario would be chain-reaction defaults by counterparties leading to further defaults and TEOTWAWKI. Best-case scenario (wishful thinking) is that nothing meltdowny happens and then all that hypothetical hoarded cash gets redeployed to stock markets (yay).
Here is the link, I hope.
http://econotrashtalk.typepad.com/
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