Naz News, Gappers and FLE's

[BarbaraB]

I just found this on another board explaining why the Lehman auction was seen as a positive:


Jim Brown this weekend had these comments about that.

>>Weighing on the markets Friday morning was the Lehman CDS auction. Lehman had over $400 billion in debt covered by credit default swaps. In order for debt holders to exercise the default insurance a value on the debt needs to be set. This is done by an auction. Lehman's debt was auctioned for 8.625 cents on the dollar. That means a $100 in debt was sold for $8.65. The debt holder can now bill the writer of the default insurance for the difference or $91.35 per $100 of debt. This means insurers will have to pay $365 billion to holders of the debt. The International Swaps and Derivatives Association (ISDA) has only had to run nine of these auctions since 2005 but has five this month alone including WaMu. Traders were worried that the size of the insurance payments would cause further bankruptcies when the writers of the swaps were unable to come up with the billions in cash. After the auction the ISDA said it was successful and there were no failures. All insurers had put up collateral to cover their liabilities. In fact the ISDA said after taking into account the offsetting positions only about $8 billion in actual payments would change hands. Insurers had been very active in offsetting and hedging their positions. The feared disaster had been averted and the market rallied +800 points off the lows.
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