In my most recent posting, I elaborated on the murkiness of the default-credit swap market and pointed out the risks involved. In page 8 of today's Section C (The WSJ)there is an excellent article making the same point: "Credit-Swap Players Puzzle Over Fan-Fred Fallout" I suggest you read all parts of the newspaper today. In a way this crisis can be a positive development. Lehman Brothers is sunk because it revealed that its mortgage security holdings are worth only 39% of their face value. Many other institutions will have to take a similar bath now (marking their investments to market). This will encourage investors to step in knowing that 39.000 is probably a fair price. Reality may however refute this optimistic view.
Life has never been so interesting in the fixed income securities area.
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