Tuesday, October 14, 2008
Morgan and Chase agree to hold each other’s coconuts
Some estimates put the value of outstanding credit default swaps on Lehman Brothers debt at $400bn, Not only are there the Credit Default Swaps written on Lehman's name but there are also the $639 billion (as at the date of it bankruptcy filing on 15th September 2008) of swaps and other derivatives that Lehman wrote in its own name that need to be settled or sold. These two vast sums hang over the market like the sword of Damocles - one slip by just one major counter-party to these financial transactions could cause the system to implode. No wonder central bankers look nervous these days. Ran P "Imagine an island with three people, Morgan, Chase, and you. Each of you has ten coconuts. Morgan and Chase agree to hold each other's coconuts and pay interest to each other, cont.