Nows about the time when a lot of credit default swaps for a lot of the companies that went down last month are going to be coming due. A lot of the holders of these bought swaps against those positions failing, and on up the chain- but the front line value of the swaps on Lehman alone are in the hundreds of billion, if not half a trillion. I don't care how thinly you cut, mix and re-sell the risk, eventually a lot of people will have to liquidate a lot of positions to cover all that paper. I suspect thats a fair portion of the market drop today.

Anyway, this will be a real test of the CDS market. If the whole thing really is another house of cards market like the Mortgage Backed Securities were, we could be in for another round of pain. If not- well, I'll say this again... watch the hedge funds. Just as they were huge into the MBS market, the are huge into the CDS market. We've seen some hedges hit the floor, true, but so far there has not been a broad collapse of funds. I'll still say if they do (collapse totally as an investment sector) we're in even bigger trouble than anyone thought.

Short term credit market is loosened, though, thats good.

Yeti