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Financial News: Private Equity Placement – CDS Market Boom Continues
Written by Lisa Hardcastle   
Friday, 01 August 2008

The “shadow banking system” may soon be thrust into the light of day says Private Equity Placement.

According to sources close to Private Equity Placement, the market for credit default swaps is one of the hottest investment arenas around. According to the Bank for International Settlements, last year the fair value of credit default swaps outstanding amounted to $2 trillion.

But reliable methods of measuring how much of these instruments public companies hold are few and far between said the Private Equity Placement source. This makes the credit default swap market also one of the most opaque.
A rule proposed by the Financial Accounting Standards Board may change if it goes into effect as scheduled this autumn. The rule suggests a list of new disclosures to be effective in financial statements for fiscal years that end after Nov. 15, 2008.
Investors and speculators have been increasingly attracted to credit default swaps in recent years and with good reason. To all intents and purposes, these are insurance contracts which allow investors to gamble on a company's health or hedge against possible default by an issuer whose debt they hold. Private Equity Placement’s source asserts that the strength of the system has yet to be tested “in anger”. He said that the effective destruction of monoline insurers MBIA and Ambac this year was just the beginning adding that, soon enough, a large, high profile corporate would default on one of its liabilities and, should the CDS(s) counterparty fail to cover the holder as agreed because of its own insolvency, it could signal the collapse of the entire market which, in turn, would undoubtedly plunge the global financial system into meltdown.
 
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