[ThePythonicCow]

Aha -- it is not just I who is confused. Over at the Wall Street Journal, the article Credit-Default Swaps Get Messier explains that the payout amounts of CDS's on failed bonds is a matter of dispute -- the lawyers are fighting over the payout amounts.

That's not surprising, now that I read it.

[ThePythonicCow]

Some more details of how this auction affects the value of the related CDS's is at The Independent: Moment of truth for default derivatives.

It seems to be as I guessed, which just goes to show you that I've spent way too much time this last month surfing financial pages on the web.