Thread by @jlowin

1/ On Sunday September 14, 2008, the largest players in the credit derivatives market convened a special trading session in a last-minute effort to offset risk from the seemingly-certain bankruptcy of Lehman Brothers.

I was there, and it was the most memorable day of my career.

2/ The session itself was extraordinarily unusual: trading would last from 2pm-4pm and all trades were contingent on Lehman filing before midnight. Otherwise, the trades evaporated. It was like a very grim version of Cinderella.

3/ Remember, in 2008 CDS wasn’t cleared. Each one was an OTC contract between the protection buyer and seller. If you traded with Lehman, and they filed, your insurance was getting torn up.

See: wrong way risk

https://twitter.com/jlowin/status/961405086026125313

4/ The emergency trading session that Sunday was designed to allow traders to offset their Lehman counterparty risk by putting on offsetting trades with new counterparties.

5/ The fact that the trades disappeared at midnight was an operational nightmare! We had to run two sets of books: one if the trades were good, and one if they were torn up... and bear in mind that every system was specifically designed to PREVENT any weird shadow accounting.

6/ But how else could you answer the question of "what's my risk?" Monday morning we knew the market would go crazy, and we needed to understand our positioning in one of two possible futures. So we convinced and cajoled our systems into supporting these Schrodinger trades.

7/ Even so, we weren't set up to track things in realtime. I printed out a spreadsheet on a giant piece of paper and walked around the trading floor, collecting trades as they happened by marking them in pencil.

It was completely surreal, but mostly I remember how quiet it was.

8/ The fact that we were trading on a Sunday afternoon was weird, sure, but the event was hardly a surprise. We had been working for weeks - even months - on the assumption that something of this nature was possible and even likely. We were as prepared as we could reasonably be.

9/ And so, when the event finally arrived, a thousand different simulations and rehearsals collapsed into what I remember being a surprisingly orderly trading session.

(though we later learned that relatively few trades actually took place among other session participants)

10/ The session was supposed to end at 4pm, but was haphazardly extended to 6pm. When trading stopped, operations took over. Did we get confirms for all trades? Did the system accept them? Did the OTHER system accept them?

We ordered lots of pizza and waited for Lehman to file.

11/

At 9pm, we were still waiting.

And at 10.

Also 11.

Midnight came, and there was another flurry of activity as we double- and triple-checked to make sure there hadn't been a filing, then tore up every trade.

We were still waiting.

12/ When I think back on the financial crisis -- amidst the turmoil, the uncertainty, and the tragedy -- the moment that immediately comes to mind is that Sunday night: sitting 30 stories above Manhattan, eating cold pizza, and waiting.

It was surprisingly calm before the storm.

13/ Around 1am, LBHI filed. Dormant contingencies snapped back into action as we called global offices to coordinate activity.

In my next snapshotted memory: the sun is up, the pizza is still cold, and I'm walking home to shower before the market opens.

You know the rest.