Today...Extree! Extree! Read all about it! Cara says global banking system could collapse next week!

Today the Swiss government injected $5 billion into UBS and the Swiss National Bank bought almost $55 billion in UBS’ toxic assets. A couple days ago, the UK government did the same for HBOS and Royal Bank of Scotland, while Germany did the same for Deutsche Bank. In the US, the Treasury and Fed have arranged a quarter trillion dollars in support for a select group of America’s biggest banks.

Why the panic bail-outs? The answer lies in the $55 trillion dollar Credit Default Swap market that is unraveling day to day. Banks and central banks are totally focused on the breaks to the credit ring when up to $400 billion of Lehman Brothers CDS obligations come due in the next week, with nobody at the teller window to pay up. Lehman Brothers is, as you know, bankrupt.

What this means is that unspecified banks holding the Lehman CDS derivatives will get nothing, and then they will be unable to meet their obligations to other banks. At stake are the Money Market Funds on deposit in these banks. The entire system could collapse, so banks do not want to be in the position of lending to one another. The credit market has failed.