I know almost enough to ask a question....

[Bigmack]

maybe.

I understand that there is about $62 Trillion tied up in derivatives. I understand there's about $42 Trillion tied up in Credit Default Swaps.

I even (slightly) know what those things are...

My question.... Have these things been "resolved" yet? That is, does the Bailout include these instruments? Or will there be another round of bankruptcies and failures related to them?

Seems to me that nobody can "bail out" $100 Trillion, or whatever fraction of that number has been lost.

If you reply... be gentle. Not my field. Use small words.

[A HERETIC I AM]

1. Not all of it will settle.

Thinking that all $42 Trillion will actually be paid is kind of like thinking that every automobile insurance policy will settle or every homeowners insurance policy will. You might have a car insurance policy that puts the insurance company on the hook for $250,000 should you injure someone. The coverage is there, but the likelihood of it settling is remote.

Many of these contracts will expire worthless.

[Common Sense Party]

4. Most of these Credit Default Swaps are essentially bets that

XYZ Corporation will/will not go belly up, right? It's just some strange, rarified put/call option that is only good for a certain period of time. At least that's how I have understood them.

[A HERETIC I AM]

5. That's how I understand them as well.

Credit Default Swaps are essentially insurance plays. Not all insurance settles.

I know DU'r Lucky Luciano is much better versed on this subject than I am. Perhaps if he reads this, he'll comment.

[Wapsie B]

2. I am as far from being a financial expert as they come

but I do remember Warren Buffett warning about the derivative crisis. I do not believe the bailout included these instruments. It wouldn't come close to dealing with that kind of money.

[pam4water]

7. The $700 billion bailout is not supposed to got directly towards the credit swap market...

but the AIG bailout just dumped $85 + another $38 billion down credit default swap bottomless pit. The new plan for implementing the $700 million bail out just changed to buying stock in the banks. Which is actually better idea. But before we the taxpayers by these things we have to make sure they disclose their total liability for credit default swap this. Or maybe should say it's time to start calling your congressman telling him to make sure the banks disclose all that liabilities before they buy the stock.

[metapunditedgy]

3. lehman bonds

The credit default swaps on Lehman were just priced friday to be on the hook for about $350 billion. (I forget the exact number.) That's just for Lehman. That's gonna hurt... somebody.

[metapunditedgy]

6. Lehman followup

To follow up, I've read rumors that many of those swaps will actually cancel out as all the players had traded them with each other... somehow. Not sure if that's true or not; just goes to show how confused and poorly-regulated the whole system is, though.

[Alpharetta]

8. You're right. The bailout isn't addressing the swaps

Many of the swaps are worthless because the guarantors have hidden and never intended to pay them off.

Many other swaps have already been triggered and the bailout can't prevent their trigger. Despite the "bailout" saving the underlying mortgages or CDOs, the swaps got triggered by downgrades of the CDO sellers.

My impression is the lawyers are standing by, ready to gum up the "unwinding" so a zillion courts and decisions provide another level of volatility and a brand new roulette wheel to bet on.