If you think your credit card interest rates are high, be thankful you are not Morgan Stanley, or GE Capital at the moment. Reuters are reporting that Morgan Stanley's five-year credit default swaps (CDS) rose to an upfront payment of 24% of the sum insured plus 500 basis points a year, up from 19% just the day before. That means it would cost $2.4 million to insure $10 million of debt, plus $500,000 a year! GE's five-year CDS also widened to 600 basis points on Friday versus 565 basis points on Thursday, Reuters reported. Less than a year ago, 20 basis points would have been considered high. Adding to the gloom, initial results of the auction to determine the value of CDS on Lehman Brothers showed banks, hedge funds and other sellers of protection facing losses in the area of 90% of the insurance they sold.
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