Credit Default Swaps and Bear Stearns: What are they and why does Bear Stearns' cost $49,000?

Heard a lot of talk about credit swaps in reference to the recent news story about Bear Stearns and the High-Grade Structured Credit Strategies Fund? Investors perceive the risk of owning Bear Stearn's corporate bonds as very high due to a high number of margin calls in the past three weeks on the High- Grade Fund, which had made bets of over 11 billion in the collateralized-debt market. Five-year credit-default swaps based on $10 million of the Bear Stearns bonds rose from $2,000 to $49,000, according to broker Phoenix Partners Group. An increase in the price of the contracts, used to speculate on the company's ability to repay its debt, shows deterioration in the perception of credit quality.
Wondering exactly what a credit swap is? A credit default swap is a financial instrument designed to transfer the credit exposure of a fixed income product between two parties. It is an agreement between a “protection buyer” and a “protection seller”, where the buyer is purchasing protection against default of the bond he/she owns. The buyer pays a periodic fee in return for a contingent payment by the seller upon a credit event (such as a default or failure to pay). A CDS is used to hedge against risk for the holder of the debt, although because there is no requirement to actually hold any asset or suffer a loss, a CDS is not actually insurance. The typical term of a CDS contract is five years. Thus, if I purchased a corporate bond of Bear Stearns and was worried they might default, I could buy a credit swap for that bond. I would pay a fee to the seller, and should Bear default on the bond I would receive X amount of dollars from the seller of the CDS (determined in the CDS contract) to cover a portion of my losses. If I had purchased them a year ago, I would have gotten a price much much lower than the three-month high yesterday, trading at $49,000.