So Now It Begins (Credit Event Fnm/Fre)

Oh, this is what a little birdie was talking about last night....

"Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said."

So much for the law of unintended consequences.

What does this mean? Nobody knows. There's never been an event of this size.

Remember, what everyone was worried about with Bear Stearns was that a "credit event" could cause a cascade failure in the financial system.

Well, now we get to find out if there is really a risk of such a thing, and who gets rammed with the costs when this all winds down.

Keep your pantyhose on for this one - it could get interesting, and is especially interesting in light of the insane levels of euphoria being experienced in equity markets today.

Of course if this turns into a "nothing", then that puts the lie to the previous claim that we were all going to suffer imminent financial immolation had Bear Sterns failed, eh?