Jerome a Paris:

Some banks have actually been buying up their own bonds (for amounts less than their full face value), so it's not completely cut off from reality.

So these counterintuitive profits from deteriorating creditworthiness are an instance of overhedging.

These accounting rules attempt to make balance sheets neutral to credit risk. But if the market overprices credit risk the CVA correction overshoots and you get a net profit from deteriorating credit.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith