The New York Fed is aiming to rein-in the nuclear CDS market, by establishing a
centralized credit default swap market with the Chicago Mercantile Exchange and
London’s Intercontinental Exchange. The LEH bankruptcy has revived calls to move
CDS trading onto an exchange trading floor, to remove the system risk posed by a
counterparty failure, provide greater price transparency and offer simpler, more
standardized settlement of contracts when an issuer defaults.
Higher Libor Rates Threaten Global Economy
The collapse in counterparty confidence, the fear of more bank failures, and the need
to bolster balance sheets, has persuaded bankers to hoard their cash and stop
lending money to each other, thus driving Libor rates sharply higher. Banks are
afraid to lend money to other banks, fearful of which counterparty might have toxic
mortgages or big CDS obligations on their books, thus undermining their survival
prospects and ability to repay.
LIBOR
The word “Libor” means nothing to most people, but it’s at the very heart of the
credit crisis and will have a direct impact on global commodity and stock markets, if
credit markets remain ice cold. The London Inter-bank Offered Rate (LIBOR) is the
interest rate at which large global banks are willing to lend money to each on a
short-term basis. In place since the mid-1980s, it’s calculated every business day in
10-currencies and 15-maturities, ranging from overnight to one-year.
YEN CARRY TRADE
The Japanese yen has been the only currency to climb against the US-Dollar since
August 1st, even while the US$ has moved sharply higher against the Euro and other
major foreign currencies. In fact, the yen’s best gains have been against the higheryielding
currencies, ...