Insurers and Banks Face Huge CDS Losses

This could freeze up the CDS market.

Reports out of FT indicate that the Treasury takeover of Fannie Mae and Freddie Mac has triggered the default of up to $500 billion of Fannie Mae and Freddie Mac credit that could result in billions of dollars of losses for insurance companies and banks who offered credit insurance in recent months.

The potential losses, as well as uncertainty about exactly how the derivatives contracts will be settled and unwound, is putting strains on the unregulated $62 trillion credit derivatives market.

-Robert Wenzel