Lehman follows on 10 October and Washington Mutual on 23 October. Lots of agony potential for the month.
Too bad several years ago no one thought to look at the real value of Fannie and Freddie. Oh, I almost forgot - the Republicans did but the Democrats said everything was fine.
Be sure to get Schumers ass plastered up there.
What I think is happening is that they are auctioning off the $1.6 Billion of bonds issued by Fannie Mae and Freddie Mac, and somehow that determines what losses the CDS's have to reimburse.
Selling these bonds by itself would be fairly straight forward. In a bankruptcy (technically, I guess this is not a bankruptcy, but some mutation thereof) one sells off the assets for what one can, perhaps at an auction such as this. The bond holders, starting with the senior holders, gain the results of the sale.
So ... where do the Credit Default Swaps (CDS's) come in?
CDS's are essentially insurance policies. Companies have taken out these CDS insurance policies on Fannie and Freddie Bonds. That means they pay a monthly premium to some insuring company, in return for which they get paid if the referenced bond fails.
Apparently (and here I'm going from guess to wild speculation) these CDS's pay out a varying amount, depending on just how bad the referenced Fannie or Freddie bond fails. So, the less money these bonds fetch at this auction, the more it costs the companies that issued these CDS contracts.
I wonder who the primary companies are that issued this CDS paper?
If JPMorgan is at the top of the list, and if the auction of these bonds of Fannie and Freddie goes poorly (the bonds sell cheap) then I'd expect another bank or two to fail, taken down in the middle of the night, as was Bear Stearns, so that JPMorgan can feast on the failed banks carcass, pick off the solid assets, and leave the toxic remains for the tax paying citizens of this great land to consume. That's how JPMorgan seems to be keeping from going under, even though they issued (if I recall correctly) more CDS's than anyone else other than perhaps AIG.
If some other company is the leading provider of CDS insurance of Fannie and Freddie bonds, and if the auction goes poorly, then I'd expect that company to become visible as a rotting corpse in the desert, in the near future, with its insured assets covered by the FDIC (you and me, again ;).