I disagree. Municipal corporations may sue for remedy; courts may even invent formularies of damages recognized by their narrow rulings. The fraud alledged by complainants AFAIK involves a fundamental premise of contract law, consideration (1, 2), being contravened by the agent(s) who sold the insurance ("derivatives") to complainants while conspiring to affect event(s) that diminunize the specific value contracted.

But private penalties (paid by banks or their agents) do not sovereign default make.

I bet all those derivatives contracts didn't count as public debt according to accounting standards.

They don't "count" as any kind of debt because the contract value is notional until and only in the event the accounting parties realize a gain (loss) attributed to contract provisions.

GAAP, reporting standards, and acceptable compliance varies by country. The objective of Basel Accord negotiations, of which parties to are both public (government) and private entities, is of course standarizing GAAP in order to facilitate a transnational business of financial (debt) instruments.

(known) Derivatives positions held by state treasuries are reported by BIS and likely recognized in treauries' balance sheets somewhere, being engrossed by a long-term liability and asset figures or a footnote to the account as impairments. In general, exposure is neither a tangible asset nor liability (e.g. Statement No. 150); exposure denotes an unrealized (intangible or notional) obligation.

Which state treasury include municipal (or provincial) corporate obligations in its accounting of "sovereign" transactions, one would need to examine pertinent statutes and periodic financial statements to identify constituent transactions of flow of funds. Business press and tax payer advocacy literature are unreliable reporters of pertinent information such as "bad bank" special purpose vehicles established by public and private trustees to complicate disclosure of asset impairments.

Diversity is the key to economic and political evolution.