Do you really think Governor Patterson and Christopher Cox have traded distressed debt?
That they would actually be more knowledgeable than someone who has?
Bonds are really high on the pecking order when it comes to insolvent companies. Of course they're going to have some residual value. Sigh...
Your typical plain vanilla corporate bonds (i.e. senior or senior subordinated holdco unsecured debentures) are not that high in "the pecking order", smart guy.
They come before preferred stock and common equity and warrants in a workout, but they come after: taxes, mechanics' liens, A/R facilities, letters of credit, trade claims, capital lease obligations, first lien bank obligations, second lien indebtedness, operating company debt and of course debtor-in-possession facilities.
In many bankruptcies the holders of corporate bonds are either wiped to zero or are given warrants with strike prices so high that they are worth practically zero.
In a financial company bankruptcy - which typically involves enormous amounts of debt that are structurally senior to corporate bonds and an asset base that consists mostly of troubled loans - bonds rarely recover a cent.
I should be sighing: I gave you a detailed breakdown of the mechanics of the CDS market and your response was that Governor Patterson is really scared of CDS.
And you will continue to spread the same FUD regarding CDS despite the fact that I have given you the real deal.
You have given me nothing my FRiend.
As our fellow readers will attest, you specifically stated that very few CDS contracts are settled.
I want you to give me hard proof of your assertation as it applies to these failed institutions:
Bear Stearns
Fannie Mae
Freddie Mac
Lehman Brothers
AIG
Merrill Lynch
Washington Mutual
Wachovia
National City Bank
I'll be waiting...