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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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October 22, 2008 2:34 PM ET
The head of the credit swaps industry’s main trade group said the smooth settlement of insurance contracts covering the debt of Lehman Brothers this week dispels some “fundamental misperceptions” about the esoteric CDS market. Cash payments were due Tuesday to settle an estimated $400 billion worth of CDS contracts written on the now-defunct investment bank’s bonds. Some industry watchers had feared the settlement could inject more chaos into the teetering financial markets as swaps vendors struggled to raise capital to settle contracts. Robert Pickel, chief executive of the International Swaps and Derivatives Association, said in a statement yesterday that the Lehman Brothers settlement had not “created the financial disruption that critics of the CDS business have claimed.” ISDA conducted an auction earlier this month to determine the price at which Lehman Brothers swaps would be settled. There were an estimated $400 billion worth of Lehman Brothers swaps, although no one knows the precise amount because of the opaque nature of the market. But actual payouts turned out to be a fraction of that amount. ISDA estimates that just $6 billion to $8 billion actually changed hands in the settlement, because many swaps dealers had sold as well as purchased swaps. Thus, their profits and losses canceled each other out. Many swaps sellers also had capital stashed away to settle contracts because they had posted additional collateral as Lehman Brothers spiraled toward bankruptcy. “Today’s settlement demonstrates that the industry infrastructure for CDS clearly works,” Mr. Pickel said, adding that swaps have been wrongly blamed for causing the financial crisis. Credit default swaps are a kind of insurance investors buy to hedge against a corporate bond defaulting. Critics say the lack of oversight and transparency in the $55 trillion market was a central cause of the financial meltdown. The industry is poised for tighter oversight as federal and state lawmakers set their sights on regulating swaps. There are also plans in the works to move the over-the-counter swaps market onto a central exchange or clearinghouse.
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