The Final Price for Lehman Brothers CDS auction is 8.625. That's 8.625% on the dollar and is much less than what was expected, 9.75.

That means CDS Lehman sellers have to pony up 91.375 cents on the dollar. That's the Biggest Payout Ever and will assuredly result in further write downs and losses for these sellers.

The bottom line is that the final recovery will be below current market prices,said Tim Brunne, a credit analyst at UniCredit SpA in Munich. Possibly far below.

No one knows exactly how much is at stake because there's no central exchange or system for reporting trades. It's that lack of transparency that has increased the reluctance of financial institutions to do business with each other, exacerbating the global credit crisis and prompting calls for regulation of the market. More than 350 banks and investors signed up to settle credit-default swaps tied to Lehman.

What is Bloomberg talking about?

There might be massive pay outs as these credit default swaps come due, which will result in more write downs by the companies left holding the bag in this great derivative ponzi scheme.

The Federal Reserve is in stealth setting up CDS actions to finally reveal what is behind the curtain on this shadow banking system.

Dealbreaker spells it out best, OUCH!:

It looks like $5 billion of Lehman bonds priced at around $0.0975 in the fire sale auction today. That is somewhat dire for anyone who wrote credit default swaps for Lehman and now has to cover the difference, or $0.9025 on the dollar. The Street Sweety had it essentially right earlier (I know, hard to believe).

The price isn't official until 2pm, but it is hard to imagine it will change all that much between now and then.

Bloomberg is quoting someone who thinks this means about $270 billion in payouts from CDS writers is now due. Obviously, that's going to require some asset dumping to raise cash. Possibly, that will sink a few firms in the weeks to come.

Calderro wrote a piece on EP, Origins of Subprime:   Derivatives.

The origins of the present subprime crisis can be found in the Nixon Administration when his appointment to the SEC, Mitchell, removed the prohibitions to trades in futures and similar "bets" that has made our markets so unstable. A number of academics including Fisher Black, created a series of formulas by which traders could manipulate the markets and make huge profits. The result of this behavior would led to our crisis by creating the impression that risk could be eliminated

In Hair of the Dog, midtowng pulls that curtain further and further back.

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 Day of Reckoning?

Credit Fixings has the detailed results on the Lehman Auction.

International Swaps and Derivatives Association said this didn't cause any other banks to fail.....but there are many more of these auctions to come....