Dean Baker: Wall Street will not let Republicans pull the debt ceiling trigger [View All]

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By Dean Baker
http://www.michaelmoore.com/words/mike-friends-blog/wall-street-will-not-let-republicans
http://www.guardian.co.uk/commentisfree/cifamerica/2011/jul/16/debt-ceiling-negotiations

The tension is building in the budget talks as the calendar closes in on the August 2 drop-dead date. According to Treasury Secretary Geithner, this is the date where the government would no longer have the money to pay its bills and a default on the debt would be looming.

As many have noted, including me, a default on the debt would be an absolute disaster for the financial system. We would see the same sort of freeze-up of lending as we did after the collapse of Lehman in September of 2008, although this time would almost certainly be much worse.

With US government debt no longer the rock-solid pillar of the world financial system, banks would instantly lose much of their capital. They would not only have to write-down the value of government debt, but also all the assets backed by the government, like mortgage-backed securities issued by Fannie Mae and Freddie Mac.

(snip)
The bottom line is that the debt ceiling is a gun pointed first and foremost at Wall Street's head. And, there is no way on earth that Wall Street is going to let the Republicans pull the trigger.