In the past sixth months, IntercontinentalExchange, Inc. (NYSE: ICE) has gone from high-risk play to a model whose electronic trading and centrally-cleared products have become marketplace leaders, particularly for energy products.

Further, while FY2009 revenue and earnings will not overwhelm, look for electronic trading, energy products trading, and clearing house function revenue streams to resume solid growth by mid FY2010.

The financial crisis is not over. If things were back to normal, banks would be lending to each other and to businesses and individuals. But measures of bank lending risk suggest fear is 12 times as high as it would be in normal times. The reason? Banks know more than you do about what's wrong. And they're not talking about it because they don't want you to withdraw your deposits and sell your stock. What they know is that on October 21st, some of the biggest players on Wall Street could be required to come up with $400 billion that some may not be able to pay.

Last month, the White House decided that we could afford to let Lehman Brothers file for bankruptcy. That proved to be an enormous mistake. It triggered a run on money market funds because one of the oldest such funds, Reserve Primary, broke the buck since it held Lehman Brothers paper. The U.S. responded with a $50 billion guarantee of money market funds. But the biggest consequence of that mistake is in the $54.6 trillion market for Credit Default Swaps (CDSs).

A CDS is like selling insurance on your car to hundreds of people who don't own it -- yet if your car goes up in flames each of those people collects the full value of your car. More specifically, CDSs are insurance against a bond or loan default. Why are CDSs so dangerous? Three reasons: a CDS seller does not need to put any capital aside to cover losses if the security defaults, the buyer doesn't need to own the asset it wants to protect, and there is no central place where information about all these CDS deals is collected and updated.

This morning markets in Asia fell about 4% -- a relatively muted response to the 7% drop in the Dow Monday. Should we trust our increasingly fragile global financial system to the 73-year old gambler who claimed a victory in yesterday's failed vote on the bailout bill? One poll suggests that the answer is no.

A September 29th Gallup poll found that Americans have the least trust in the Administration's ability to handle this financial crisis and the most in Senator Barack Obama (D-IL), 47. Here is the percentage of Americans who approved of how various people were handling the economic crisis:

• Barack Obama (46%)
• Democratic congressional leaders (39%)
• John McCain (37%)
• Republican congressional leaders (31%)
• Hank Paulson and George Bush (28% each)

Senator McCain, a former POW, gambled on taking money from corporate interests, on appointing Sarah Palin as vice president, and on choosing Phil "Americans are Whiners" Gramm as his chief economic advisor -- the same guy whose bill to deregulate the Credit Default Swap (CDS) market helped get us into this financial catastrophe.

Our national decision is less than six weeks away.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Bloomberg News reports that in the latest effort to prop up global stock markets, the Fed coordinated with central banks around the world to pump $180 billion into the financial system. This move reversed stock markets' 8% slide, leading to a small recovery. Specifically, the Fed got together with the European Central Bank, the Bank of Japan, The Bank of England, the Bank of Canada and the Swiss National Bank to make $180 billion more available to the markets.

Once again, the 100 Year Crash is exposing to the public parts of the financial system of which it had not been previously aware. The most recent new area is Credit Default Swaps (CDSs), which Phil "Americans are Whiners" Gramm, chief economic advisor to John McCain, helped expand. Today's lesson is what the New York Times calls "temporary reciprocal currency arrangements." These are also called "swap lines" and they allow banks "to borrow more dollars in markets at a lower rates," according to the Times.

It is these swap lines that are providing the source of the new dollars. I have never seen this kind of central bank action -- and it makes me wonder: Will central banks need to inject $180 billion a day to halt these knife-dagger plunges? Will they need to inject more every day to have the same effect? Won't all this extra currency cause the value of the dollar to plunge and drive inflation out of control?

Lurking in the background of this weekend's collapse of two of Wall Street's biggest names, is a $62 trillion segment of the $450 trillion market for derivatives that grew huge thanks to John McCain's chief economic advisor, Phil "Americans are Whiners" Gramm. That's because in December 2000, Gramm, while a U.S. Senator, snuck in a 262-page amendment to a government re-authorization bill that created what is now the $62 trillion market for credit default swaps (CDSs).

I realize it is painful to read about yet another Wall Street acronym, but this is important because it will help you understand why the global financial markets are collapsing. And it will give you information to consider when you vote in November. CDSs are like insurance policies for bondholders. In exchange for a premium, the bondholders get insurance in case the bondholder can't pay. As I posted, in the case of the $1.4 trillion worth of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) bonds, the government's nationalization last Sunday triggered the CDSs on those bonds. The people who received the CDS premiums are now obligated to deliver those bonds to the ones who paid the premiums.

Gramm's 262-page amendment, dubbed "The Commodity Futures Modernization Act," according to Texas Observer, freed financial institutions from oversight of their CDS transactions. "Prior to its passage, they say, banks underwrote mortgages and were responsible for the risks involved. Now, through the use of [CDSs]-which in theory insure the banks against bad debts-those risks are passed along to insurance companies and other investors," wrote Texas Observer.

Lehman Brothers Holdings Inc. (NYSE: LEH) is likely to file for bankruptcy today. The reason is that the Treasury and White House are smarting from criticism of their $29 billion bailout of Bear Stearns and the $200 billion to $800 billion Fannie and Freddie nationalization. Neither of these moves has stopped the serial sell off in the shares of investment banks and other firms saddled with crumbling real estate assets. So now the powers that be have decided that they'll tighten up their moral standards and refuse to bailout Lehman.

As I posted, the basic problem is that Wall Street thinks the Treasury will cave in and put money into the Lehman bailout. But despite reports of a proposal to hive off the good part of Lehman from the bad part -- financed by other Wall Street banks -- such a resolution does not appear likely. That's because Wall Street does not want to risk its slim capital shoring up Lehman's bad part -- $85 billion worth of commercial real estate and mortgage-backed securities (MBS). These banks rightly fear that they would lose their investments and sink the entire industry in the bargain. In addition, these bad bank financiers don't want to provide the backstop to enable the winner of the bidding on the good bank to surpass them by picking up Lehman's assets cheaply.

Assuming that plan does not work and that the government refuses to step in to finance the bad bank, this leaves two basic options: Lehman files for bankruptcy or other banks liquidate Lehman in an orderly fashion. Bankruptcy might be a relatively orderly process. According to FOXbusiness, "if Lehman entered into bankruptcy protection, the brokerage units would enter Chapter 7 liquidation and a court-appointed trustee would liquidate the firm's assets and give customers back their money. Generally, securities a customer holds at a brokerage firm are legally the investor's property, and aren't exposed to the claims of the firm's creditors." A bankruptcy would likely wipe out Lehman common shareholders.

Bloomberg News reports that Moody's (NYSE: MCO) may downgrade municipal bond insurer MBIA (NYSE: MBI) after it reported deepening losses from the mortgage-market slump. MBIA's insurance financial strength rating may fall to the Aa range, although a drop to the A category is possible. MBIA's stock is down 91% since the end of May 2007.

That's when I first suggested that investors consider selling MBIA shares short. William Ackman had already shorted MBIA because he thought it lacked the capital needed to support its obligations. Back then, MBIA traded at $66.59 a share -- today it's down to $5.88. His bet proved prescient.

Meanwhile, investors are wagering that MBIA won't make it. Credit-default swaps tied to MBIA's insurance unit rose to a record as investors hedged against the risk the company's guarantees will sour. Sellers of five-year contracts demanded 23% upfront and 5% a year. That's up from 18.5% initially and 5% a year yesterday.

Only $5.88 more to go.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in MBIA securities.