the biggest stock market crash in history

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These tiny little events such as the one below are nothing compared to the real big stuff!


$400 Billion Lehman CDS Unwind?
Thursday, October 09, 2008 | 09:54 AM
in Credit | Derivatives | Trading

I've heard concerns from various traders and hedge fund managers over the past few weeks that the Lehamn Brothers (LEH) derivatives unwind has been what's roiling markets.

Early October, Citi (C) credit analyst Michael Hampden-Turner estimated there is $400bn of Lehman credit derivatives that will be settled on Friday

Hence, some recent fear can now be attributed in part to jumbo losses caused by Lehman's derivative unwind . . . with JPMorgan (JPM) being the biggest potential collateral damage . JPM has the biggest derivative exposure on the Street (I have no opinion on how this impacts them or on their derivative exposure).

Here is the FT:

"At the moment, participants can't just extinguish credit derivatives contracts with Lehman, they can only offset them. That, in turn, puts pressure on some participants to buy more credit insurance and the cost of such contracts is rising.

Moreover, many counterparties to Lehman who believe it owes them money have joined the ranks of unsecured creditors. This increases the number of claimants and reduces the money available to bondholders and other creditors.

The exact amount of any claim is determined by the difference between the value of the collateral and the cost of replacing the contract. The cost has risen in line with fears about the health of financial institutions and the creditworthiness of counterparties."

While Fannie and Freddie CDS settled at between 91.5 and 99.9 cents on the dollar., expectations are for Lehman to settle at 10 cent on the dollar -- causing a few $100 billion in losses. The unwind comes Friday.

More details after the jump . . .