'Too big too fail' is mostly about taking advantage of (implicit or explicit) government guarantees. Ie making the taxpayer bail you out.

That's very different from normal creditors being morons.

(And yes, the people with resources often, but not always, have an easier time getting the government to give them even more resources.)

> This is the most arbitraged thing in the world, [...]

So we agree and you say that this thing is already priced in? Good.

Yes, market participants anticipate many things, and make their contracts based on what they expect. Not on any mechanical considerations of what happened before.