Wednesday, May 20, 2009

Bankruptcies, Missed Payments Trigger Credit Default Swaps

Georgia Gulf, a maker of commodity chemicals, missed an interest payment on its debt. This triggered credit default swaps, according to the International Swaps & Derivatives Association. The payment was due April 15.

Private equity underwriter bankruptcies keep coming. The Deal Magazine has a laundry list.

The Obama team believes CDS's and PEU's pose no systemic risk. Treasury and the Fed will need to backstop both with billions to trillions of dollars. The Federal Reserve Bank expanded TALF today. Treasury changed the OTS rule to allow PEU's to buy a majority interest in banks. Uncle Sam will likely finance any PEU bank deals. Pay attention, the money shuffle will happen via multiple routes.