Lehman

An unseen bubble at the heart of the financial system is deflating with unknown consequences. When bubbles deflate, and here we are talking about one in the hundreds of trillions, bad debts are usually exposed. Even though much of the reduction in outstanding OTC derivatives is due to consolidation of positions following the Frank Dodd Act, much of it is not. When free markets reassert themselves, and they always do, the disruption promises to be substantial. We appear to be in the early stages of this event. If so, demand for physical gold can be expected to escalate rapidly as a financial crisis unfolds.

Don't show Phil LeBeau this chart!

The debt valuation adjustment, or DVA, will no longer be included in net income, according to revisions to the fair-value measurement standard published by the Financial Accounting Standards Board Tuesday.  The DVA rule increased net income when a bank’s bonds tanked, on the theory that the firm could buy back its bonds at a lower price and benefit from the decline in value.

See For Yourself ...

Derivatives like credit default swaps turned a mere bubble in the US housing market into a global financial catastrophe... 

Though "another Lehman Brothers" isn't likely to happen with banks, it is very likely to happen with commodity firms and countries that depend directly or indirectly on commodity prices.

This was not supposed to happen. The spread between the 2Y Treasury yield (which is soaring 7bps today) and 10Y (higher by 3bps) has plunged back below 120bps. The current cliff-edge has been support for the curve four times in the last 8 years but with GC rates blowing out to 7 year highs, one wonders if the size of the moves means we break to new regime lows.

The situation is clear: the 2008 Crisis was the warm up. The next Crisis will be THE REAL Crisis. The Crisis in which Central Banking itself will fail.

The Fed will never succeed in its attempt to manage inflation and unemployment by varying interest rates. This is because it and its economists do not accept the relationship between, on one side, the money it creates and the bank credit its commercial banks issue out of thin air, and on the other the disruption unsound money causes in the economy. This has been going on since the Fed was created, which makes the question as to whether the Fed was right to raise interest rates recently irrelevant.

There is just one very big problem with this "solution"...

Needless to say, these names are just the beginning: once the redemptions - and gating - genie is out of the bottle, there is no putting it back.

"...Unfortunately, we don’t see conditions improving and only becoming more acute as liquidity continues to deteriorate, asset valuations become increasingly stretched, and the Fed navigates the unwind of the greatest policy experiment in history."

Financial fraud is any method by which deception or duplicity induces those with money to "invest" in a scheme...   

In September, interbank credit markets flashed a quick and brief warning that something was up... and Janet folded. Three months later and following The Fed's oddly-timed rate-hike, interbank counterparty risk - as proxied by The TED-Spread - has spiked over 45% in 2 days, the most since Sept 2008 (Lehman).