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MuddlinThru -
No, I think you are right on this. I haven't obtained an understanding of the covered bond deal and what that means for the banks. IF they can swap toxic for good and continue the shell game does it mean that there is now a much bigger tool available to hide assets? Does that buy them more time and MER's move is pre-mature so the rest of the financials hang in there?

I think the MER thing is interesting too because they sold the stuff at 22 cents on the dollar, but then financed it too (75%).
So, does the new covered bond fiasco give new license for ill or did MER & Thain just say the hell with it and take it all at once to distance themselves from the LEH treatment it looked like they were about to get? (see the action on them over the last 4 days or so).
If I were Thain, I wouldn't want the continuing questions about solvency and counterparties pulling lines like LEH endured. I wouldn't be suprised to see a big drop at the open and then a big recovery tomorrow on the MER in particular, but the market as a whole.

In fact, I'm planning on trading this and if there is a big drop... I'm out of all shorts to re-enter when the dust settles.