Credit derivatives, stock markets brace

The International Swaps and Derivatives Association staged an emergency trading session on Sunday to allow dealers to prepare for the death of Lehman Brothers, a fairly large player. To unwind, or hedge, or whatever else. Many are expecting a significant credit default swaps event. This may be the first counterparty to fail. Bear Stearns technically did not default. There will be big losses on CDSs on Lehman bonds, of course, but the value of CDSs on other bonds that were underwritten by Lehman also would be affected. This is the second major event in a week, following on the heels of the Fannie and Freddie bailout. There are some jitters about stock trading today as well, as banks were not successful in their plea to revive a recently expired temporary ban on short sales of some financial stocks.

For more:
- here's the Financial Times article
- here's another article on worries about Monday
- What will the shorts do now? Article

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