CaptainJJack

How Much Does the Bailout Really Cost?

Axelrod608,

I believe the $130 Trillion number is the total swap market notional amount, which includes not only credit swaps but interest rate swaps and other swaps.

Since both sides of the swap are usually counted, and because many of the larger swaps were divided among many counter parties, the numbers you quote WAY overstates the true exposure.

I seriously question whether there is a lot of unfunded exposure. I am personally aware of swaps done where Lehman was the intermediary, and as part of transaction, the counter party with losses had to post collateral as losses mounted. The swaps were settled as specified in the contracts even though Lehman was bankrupt.

In fact, it was the collateral that took AIG down even though it is not likely that AIG will ever actually have to pay out any losses on many of the CDOs they wrote the credit default coverage on.

So, until I see something otherwise, I do not believe that CDS market is in the trouble you indicate. There certainly are losses, but the losses are being funded and are likely to be paid as the contracts specify.