Oh, there we go

[solarbird]

Oh, there we go - the other reason for the credit lockup and the money hoarding that's sending the dollar into a rally. There's a huge series of Credit Default Swap workouts coming up - a market test - and nobody knows how much any of any of these things are worth and how they're going to work out, and they total trillions and trillions of dollars and while it'll reduce in actual payout, nobody knows how far. So everyone's holding on to every dollar they can. And the CDS market is denominated almost entirely in US dollars, even tho' they're all over the globe, which is why the dollar can be in a rally.

And that hoarding will include this US$700B, by the way - just look at how much is on the table here:

The "auction season" starts tomorrow, when the International Swaps and Derivatives Association has scheduled an auction for Tembec, a Canadian forest products company. This is followed by Fannie Mae and Freddie Mac auctions on October 6. Then, Lehman is settled on October 10, and Washington Mutual is scheduled for October 23.

...

The amount of contracts outstanding that reference Fannie Mae and Freddie Mac alone is estimated to be up to $500bn. ... The CDS contract settlement could result in billions of dollars of losses for insurance companies and banks that offered credit insurance in recent months. ... Lehman's bonds have been trading between 15 and 19 cents on the dollar, meaning investors who wrote protection on a Lehman default will have to pay out between 81 and 85 cents on the dollar...

And that's why the "bailout" didn't look like it'd do a goddamn thing to free up the credit markets - because it won't. And wasn't meant to. It's for these auctions. It's why the Fed wasn't going to act for two weeks even if they'd gotten this power last Monday, because the auctions weren't happening for a couple of weeks. And it's why foreign banks and foreign assets had to be included.

I can't wait to see what they come up with next week.