[jpdoctor]

> Even as a credit analyst, I agree that you can't really feel sorry for the bondholders here. If you want to lend in any market, you need to assume the risk that the debtor goes bankrupt. Pensioners are a different story though.

Very much agree.

> However it's absolutely not true that "a lot of money in the US is being lent with the assumption that creditors will always be bailed out by the state or federal government", at least not a large amount relative to the total bond market size.

This is more subtle. While bankruptcies even on the scale of Detroit don't work with an implicit backstop assumption, large-scale muni bankruptcies on the scale predicted by Meredith Whitney are a different story. Let's face it: When push came to shove, Fannie and Freddie were not allowed to enter runoff mode.

There doesn't seem to be an opinion that this will kick over the can and start the bankruptcy run, but throw in a couple of more and the political&banking dynamics would turn interesting in a hurry.