**Last updated 11:10pm EST

Dear CIGAs,

1. The quoted amount of OTC derivatives on Lehman's books are not notional value, but some silly mark to no market. The real number is trillions. When either party to an OTC derivative fails the value of that derivative instantaneously become the size of what was previously called notional value. With one quadrillion, one thousand one hundred and forty four trillion (BIS) in notional value, there is NO means to stop this financial cataclysm.
2. The shit has hit the fan because trillions of dollars of OTC derivatives failed Monday.
3. The entity to fail is not the winner on those fraudulent pieces of paper but the loser. Otherwise it would not have failed.
4. Many other counter parties to those derivatives have fallen into potential bankruptcy.
5. The long spoken about "domino effect" is active and I now believe the Fed did not consider how a derivative becomes full value (formerly called notional value) when one side goes into bankruptcy. Yes, Pandora's Box opened Monday morning.
6. For years I was laughed out when this present condition was clearly described.
7. Gold is going to $1200 and $1650. Laugh at me again if you must.
8. Those that demand a date already have one - on or before January 14th, 2011.
9. This is it and it is now.
10. The greatest damage done to gold shares and gold came directly from those that were over-margined. Yes shorts got it down but those on margin got them here. Shame on you who demanded margin!
11. Continue to ignore all the means of protecting yourself and you do not deserve to be protected.
12. If you fail to retain proper parties such as an attorney to read your custodian agreement you do not deserve to be protected. Cheap out NOW and you crap out later, and that won’t be much later…

Wall Street crisis: Is this the death knell for derivatives?

On page 62 of last year's accounts, under the heading "off balance sheet arrangements" Lehman had derivative contracts with a face value of $738bn

If this is the death of Wall Street as we know it, the tombstone will read: killed by complexity.

Derivatives in their baffling modern forms – collateralised debt obligations, credit default swaps and so on – lie at the heart of the failure of Lehman, Bear Stearns, Fannie and Freddie, and even our own Northern Rock.

The philosophy that underpins the growth of derivatives is the idea that risk can be transferred to institutions more able to take the strain. In theory, it's a terrific scheme – the weak can get rid of risks they can't handle, and the financial system should be stronger as a result.

The practice is very different, as Warren Buffett worked out years ago. His 2002 letter to his Berkshire Hathaway shareholders made headlines by condemning derivatives as "financial weapons of mass destruction". The passage comprised only a couple of pages of the lengthy letter but read it again today - it is the best guide to understanding how Wall Street has arrived at today's mess.

Here is Buffett on General Re Securities, a derivatives dealer that Berkshire inherited with its purchase of insurer General Re. "At year-end (after ten months of winding down its operation) it had 14,384 contracts outstanding, involving 672 counterparties around the world. Each contract has a plus or minus value derived from one or more reference items, including some of mind-boggling complexity. Valuing a portfolio like that, expert auditors could easily and honestly have widely varying opinions."

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Jim Sinclair’s Commentary

Here comes the big time falling dominoes.

ETF Securities products plummet up to 50% on AIG fear
By Rob Mackinlay

Shares in ETF Securities products, which are backed by AIG, were down as much as 50% this morning after US insurer was downgraded by credit agencies S&P and Moody’s.

ETFS Precious Metals dropped 50.68%, ETFS All Commodities dropped 54.7%.

On its website ETF Securities says it has assets of $7.65bn under management in exchange traded commodities. These products track commodity prices using financial instruments mainly provided by AIG-FP which are backed by AIG.

This morning ETF Securities issued a statement saying that AIG was continuing to honour its obligations. However it warned that AIG faced the risk of further downgrades and said: “A number of firms who were making markets in the Commodity Securities stopped doing so yesterday afternoon.”

The note said: "The ETFS group is actively working on possible ways of providing investors with liquidity."

One of the Frequently Asked Questions on the ETF Securities website is: “What is the credit risk for investors?" The reply is: “ETFS Oil Securities and ETFS Commodity Securities are backed by commodity contracts purchased from AA-rated third parties. Currently, these third parties are Shell and AIG.”

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Jim Sinclair’s Commentary

Dominoes are falling all over the place.

Did you know that the female Governor of the Fed who was advertised as their derivative expert retired over a year ago?

Still love your EFT? Don’t!

AIG fears cause securities trading to halt
By Rosie Murray-West
Last Updated: 9:16pm BST 16/09/2008

Shareholders were left unable to trade popular commodity securities yesterday, due to fears over the future of their backer, AIG.

Banks and brokerages stopped making markets in the Exchange Traded Commodities (ETCs) backed by the troubled insurer and sold by ETF Securities (ETFS). The price of the stocks also plummeted due to the worries over AIG.

ETFS said it was working on providing its customers with liquidity, and added that its other products, which are physically backed rather than backed by futures contracts, were unaffected. These include Metal Securities and Gold Bullion Securities. Shell-backed Oil Securities, is also unaffected by AIG's problems, with ETFS reporting active markets in all of these products.

"The ETFS group is actively working on possible ways of providing investors with liquidity, including arranging suitable collateral for market-makers," the company said in a statement. "However, we can give no assurance as to whether these or other alternatives can be implemented at this stage."

ETCs have become popular as a way of gaining exposure to rising commodity prices without trading in futures. They allow customers to invest in the price of commodities from lean hog to grain. Traditionally they are seen as risky investments suitable only for sophisticated investors. However, investors trying to beat inflation, or who are wary of equity markets, have become interested in ETCs, which can be sold and bought like ordinary shares.

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Jim Sinclair’s Commentary

The roof has fallen, it has already hit the fan, and if you are not a direct victim, you still don't have a clue.

This is certainly what is called the "Domino Effect" from the Lehman failure.

You think the Fed blew it in their decision between a rock and a hard place? The Fed and Treasury will bail them all out at least until November.

Money market giant freezes redemptions
By Sam Mamudi
Last update: 5:19 p.m. EDT Sept. 16, 2008

NEW YORK (MarketWatch) -- One of the first and largest money market funds has put a seven-day freeze on redemptions after the net asset value of its shares fell below $1. Primary Fund (RFIXX) a $62 billion fund managed by money market fund inventor The Reserve, said Tuesday afternoon that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero. As of 4 p.m., the value of the fund's share is 97 cents. The Reserve said that redemption requests received before 3 p.m. Tuesday will be paid out at $1 a share.

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