Anyone Planning to ‘Fess Up on Lehman’s CDSs?

Just curious, but is anyone planning to ‘fess up on the Lehman-related CDS losses last week? As I wrote last Thursday, there was oodles of worry about the auction, with some people tossing out apocalyptic numbers, the highest of which were usually based on confusions about notional and net exposure.

Nevertheless, there seemed to be a general consensus that we would see a hit of somewhere between $250- and $400-billion, and that feeling just grew after we discovered that credit recovery at Lehman was going to be lower than expected. But the actual net transfers, according to a DTCC piece I mentioned on the weekend, may be as little as $6-billion.

Now, that’s definitely non-zero, so I’m not suggesting it’s just mad money for banks and hedge funds. But it’s also far, far less than the ruinous figures being tossed around by some people.

I’ll confess to having been surprised at the small net exposure. Anyone else want to ‘fess up? (And I can think of a few high-profile people who should.) This is a very interesting data point, and I, for one, am rethinking the default swap exposure issues here, with a particular eye on select counterparties. I’ll definitely be watching to see if it continues in the Washington Mutual and Icelandic bank CDS auctions over the next few weeks to see if this continues, and I can’t see why it won’t.


Originally published at Infectious Greed on Oct 15, 2008 and reproduced here with the author’s permission.