Protection buyers may vote for bankruptcy, reports the Financial Times

The Financial Times today reports on a study by two academics from the University of Texas, which finds that when creditors to a company have also bought protection on the credit they may have a strong interest in voting against a restructuring plan.

Fishknife comments: It is puzzling that it takes two academics and four Financial Times journalist to unearth the obvious and unoriginal fact that anyone short a credit wants to see a clean credit event and low recoveries.

But as the world moves into a period of higher corporate defaults we should not forget that credit derivatives will attract public controversy. Expect many more articles in the mainstream press in the months ahead (many of them less well researched) pointing out the evils of credit derivatives.

It is as well to remind ourselves of the counter arguments. Credit derivatives have, for the first time, allowed people to take a negative view on a company's creditworthiness. This brings greater liquidity to the credit market and, over the course of the credit cycle, lowers companies' borrowing costs and boosts the efficiency of the economy overall.