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John Thain And The Cds Basis Trade

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by Felix Salmon
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Jan 26 2009 5:18pm EDT

John Thain and the CDS Basis Trade

John Thain seems to think that the CDS basis trade was at least partly responsible for Merrill Lynch's $15 billion loss last quarter. This from the transcript of his interview with Maria Bartiromo:

Cash assets completely separated from their derivatives. There were huge spreads between the prices of cash assets and credit default swaps as an example...
The-- the correlations that should exist between derivatives and cash also broke down.

Well, he's right about that. But how come no one else seems to have made these kind of losses from hedging their assets with CDSs? Or are those losses still hidden, and the banks are just hoping the basis will bounce back towards zero?

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