Yes Lehman is bankrupt but they are still roiling the markets. You see today in about an hour and a half the results of an auction are going to be released. What auction you say? The auction that tells people who played in the Credit Default Swap (CDS) market with the Lehman name get to pay or get paid. What you say? Well remember the CDS market is a type of default insurance that you can buy or sell on a certain company. If you buy protection on a company like Lehman for say $10mm and Lehman goes bust, the guy who sold you that protection owes you $10mm less whatever the bankruptcy court says they are worth.
A lot of times this "recovery value" is like 40 or 50 cents on the dollar. So if you bought protection on Lehman for $10mm and the "recovery value" is 40 cents on the dollar, the guy who sold you that protection owes you $6mm buckaroos. (10mm-4mm for the 40 cents). You know what people are saying this Lehman "recovery value" is gonna be today? 13 cents. Helllllllllooooooooooooooooo!
So that means in our above example if you bought protection on Lehman for $10mm you would be owed $8.7mm dollllllllllah. That's pretty cool if you are the buyer of protection. What if you are the seller? Ding dong right in the tookus. You know who sold protection on Lehman? LOTS of big people. Like Pimco and AIG and GE and well you get the picture. Oh and the amount they did? LOTS more then $10mm. So the sellers of protection are gonna need to come up with a lot of cash to pay these buyers of protection. Trouble.
So everybody around the globe is waking up to this fact today. And they are selling stocks, bonds, oil and anything else they can get cash for. You can look on www.creditfixings.com to see the results of the Lehman auction. Best of luck to all.
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