Chatting with some traders today, everyone sees counterparty risk looming everywhere as limits are being cut. No one seems immune from rumour – even WestLB!
People are also unwilling to lend long prefering overnight or thereabouts given the uncertainty and rate volatility. “Nope, just one night and we’ll talk tomorrow!”
Some institutions I know are chuffed with themselves having bought credit protection on CDOs before markets turned – the price for such protection having shot up with increased fears of payouts. Prior to their recent use of derivatives they would have missed out on such profits.
The wheels are beginning to slow down in the markets