Lehman CDS: Low price, low volume

So, how did that Lehman CDS auction go? On the face of it, not well: the initial recovery price is just 9.75 cents on the dollar. But if you were expecting 86 cents of losses based on a 14-cent recovery, then your losses have only gone up by 5% with a 9.75 cent recovery.

More to the point, the open interest to sell is less than $5 billion, which is much lower than some of the scariest figures which had been bandied around. If the biggest losses add up to less than $5 billion, I think that counts as dodging a bullet

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