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What I found astounding was how rapidly the EU concocted, and launched their effort. They argue about everything, hell they can't even agree on the shape of a tomato. This tells of the breadth, depth and danger in this mess.

As an aside, when 30 days is up on the insurers of Lehmans 400 billion dollars worth of toxic sludge, what do you think is going to happen. That load of melanine tainted assets sold for about 10 cents on the dollar. AIG and other insured that crap and are on the hook for about 360 billion bucks. Granted they reinsured it, but they're the first picket in that fence of stupidity and have to answer to that 1 million creditors. Just curious on your take on how that insurance ebola will burst through the skin of the market. Noones talking, barely mentioning it. It's like it being treated as a bedridden crazy pedaphile grandfather hidden in the back room.



1) not all of that is toxic sludge. There are MANY subprime bonds out there that are still paying out full cash flows and principal payments, but is the equivalent of "throwing the baby out with the bathwater". I have seen pricing sheets on first tranche, first lein loans that are being "priced" at 50 cents on the dollar. There is no way that stuff will go lights out. Worst case scenario on it is extension risk goes out and the bond just takes longer to pay out....THAT my friend (which you are well aware of) is the problem with the market. Many of those assets are money good, noone has the risk appetite to last through the storm. The part that is the HUGEST disconnect in all of this is the "default rate" versus the behavior of the markets.....ABX swaps (subprime home equity loan indices) are down over 80% or around there....ACTUAL defaults are only at roughly 20% for even the highest risk borrowers....see what i mean here? Honestly, if i had the capital (see the problem) i would be pouring it into this area of the market. These bonds are yielding high returns (look at munis too...same issue.....not the underlying security but who insured it and the credit risk they bring to the table) and have a high probability of paying out....just need to be able to ride the storm....

2) AIG was propped up by the US Government for a reason. They are the #1 issuer of CDS (Credit Default Swaps for the layperson) and the rumor is most of it was backed by AIG (my true question in all of this is how much do the German and French insurance companies have on the books...only time will tell...the reason it isnt out so far is they have significantly different accounting standards than the US..DAMN YOU SARBANES OXLEY!!!!).......You think the JP Morgan and Bear merger was by accident? At one time JP Morgan was the most levered institution on the street, tot he tune of $150 trillion (yes with a T)...the rumor i heard was that over 40% of that leverage/swap exposure was with Bear...why not gobble them up on a government sponsored deal and IMMEDIATELY delever youself....brilliant...another scary CDS stat...the entire outstanding notional value of CDS is approximately 55 trillion...this is higher than the combined GDP of the world....ugh...

3) AIG wasnt the only insurer of Lehman....Allianz, MetList, Deutsche, etc. are all on the hook.....once they put it up for auction, watch the performance of their senior bonds...i will be that the price climbs to almost 50 cents on the dollar as CDS payers SCRAMBLE to buy the bonds back for exchange....

4) the part of this equation that is truly scary to me is the prime brokerage aspect of it.....want to look up a fancy word? Look up rehypothification...here is an article to go through the laborious work i would try to lay out here.... a new fancy word to use at cocktail parties

i know i rambled some....ugh