A momentous morning

I'm here at SIBOS, Day One. 

Like last year's SIBOS, the credit crunch dominates the news.

Unlike last year's SIBOS, the credit crunch is now a once a week affair.

Last week it was Fannie Mae and Freddie Mac. Today, it's Lehmans, Merrill and Bank of America.

What a weekend. What a day.

My first act at SIBOS is to chair a session on the future of securities market infrastructures, with LCH.Clearnet, EMCF and EuroCCP on the Panel.

Unsurprisingly, EuroCCP had to pull out last night at the last minute, as the Lehmans issues unfolded.

Regardless, Alberto Pravettoni of LCH.Clearnet and Jan Bart de Boer of the EMCF did join me, and we had a good discussion.

The talk focused upon the future business models for Central CounterParty (CCP) clearing, and seemed to emerge into two camps: the feature and functionality rich, cross-asset class providers of clearing and the specialist, single asset class providers who provide low cost, economies of scale on a globalised basis.

There was lots more to it, with the keys being price, service and risk management.

This last piece is the most critical part. After all, EMCF and other clearing firms in the equities space have three days to settle. No big deal. However, in the land of OTC Derivatives with positions unclear for months ahead in large and complex, futures-based CDS deals ... that's hard.  And that's what LCH.Clearnet were dealing with today, with trillionsof dollars wrapped upon in Lehmans CDS positions.

That's why the unravelling of Lehmans positions will cause more mayhem in the markets ahead.

From my own side, I guess it just showed that the Federal Reserve had had enough.

The Fed is actually a bit like the old story of the Dutch boy who stuck his finger in the dyke (that is a bushy hedge for those unfamiliar!) to stop the water coming through.

The Fed had placed one finger in that hedge with Bear Stearns.

They then placed their thumbs in to two more gaping holes with Fannie Mae and Freddie Mac.

Now they could see a tsunami of water could be tipping over the edge and could not see how to stop it. After all, you only have so many fingers and thumbs.

That's why they let Lehmans go and why there will be more to follow.

Meantime, as I came out of my clearing and settlement meeting, the first booth I encounter here at SIBOS is the Federal Reserve's Financial Services stand.

They're giving out baseball caps but didn't seem to be able to spare a dime.  Mind you, a baseball cap is useful to stop your head splitting open with the strain isn't it?  I'm sure.  Maybe that's why everyone seemed to want one.