Kate over at Small Dead Animals received this email recently.

Who knows how significant this is, but the market sure hasn't exuded confidence lately, has it?

Good morning Kate-

I don't think you're going to see this anywhere else, so here goes....

With no excess margin left in any trader's account nowadays, the littlest foreign exchange hiccup is blowing up every hedge fund's and Wall street prop desk's most favorite trade, the emerging market swap. Lend the Jap 10 year note, and borrow the Thai 10 year note, at the same time, as an example, and pocket the difference in yield., in a corporate margin account, using borrowed US Treasury bills pledge to borrowed Japanese Yen to finance the larger swap trade. Because of the unidicted status of Jon Corzine, any "smart" trader will leave no uninvested cash at any
brokerage account, knowing that the brokerage firm may use it for its own purposes with little or no recourse. And certainly no access to your cash, for months on end. The margin call comes in when the borrowed security's value falls, in this case a Thai 10yr, compounded with a currency move (Thai Baht) against the borrower, who borrowed in Japanese Yen, which also moves against the borrower, and you have a multicase of margin call, which forces the sale of the whole thing. And actual, realized losses.

Hedge funds will be closed today because of these bets. And the banks? Oh, Jack Lew will be "forced" to bail out some of them out. (see def. "reliable donor class")

Going to get very messy into next week.

Related?  JP Morgan has the largest single on day withdrawal ever from it's gold vault. 

Also related? VIX spikes to three month highs as stocks collapse.