Understanding Counter Party Risk As we write this, CNBC is reporting that Lehman Brothers, Inc. (LEH) has a notional amount of outstanding OTC positions of nearly $800 billion.  Since Lehman is going into bankruptcy, what does that mean for the rest of the financial markets? Each of these trades has a counter party, an institution that is expecting to pay off or get paid according to the terms of the agreement. Explaining Counter Parties Let us start with an example that everyone can understand.  Suppose that you occasionally make a  football bet (completely illegal) with an online sports betting service or a local provider of such services.  Since you are a recreational player, your normal unit is $100, an amount less than tickets to a local sports event.  If you lose, you have to sacrifice some fun.  If you win, you can ...