Lehman was killed by sharks

Cramer: Breaking Capital Destruction
Courtesy of The Street.com

Wow! I’m amazed, Cramer has these wonderful days. I usually hit the remote button to change the channel to avoid his shouting… But, I take my hat off to the guy this time, you have to watch him on this video clip.

And, I have to admit that I still haven’t developed the killer instinct of these sharks!

Let me explain. In essence, these sharks, as they’ve done in the past in Mexico and Thailand, smelled the weakness in the credit default swaps’ short positions, which are mostly held by investment banks, —and recognized that there was a huge amount of money to be made if the origination debts defaulted.

A long CDS position allowed more leverage at default than ever before.

I have estimated that they made $4 trillion USD with the Lehman default (10x Lehman’s debt). But, the beauty of it all, is that they only needed about $5 million to do it ($5 million = 4% conservative good faith deposit on 3% average cost of outstanding CDS to debt of $4 trillion).

An unbelievable 833 times profit in less than 2 months, conservatively.

What can I say, live and learn.