It’s a role reversal from a couple of years ago: Instead of lawmakers having to deal with the fallout from shortsighted, self-interested financiers, now Wall Street is making plans for how to handle the eventuality that shortsighted, self-interested lawmakers will allow the August 2 debt-ceiling deadline to pass without a resolution. Wall Streeters seem to be mostly hopeful that Washington won’t let them down, but stocks’ increasing volatility tell a somewhat different story. Even if a deal is reached, some worry that the damage to the U.S.’s financial reputation is already done — the value of the dollar could go down, as could the stability of Treasury bonds — and are trying to plan thusly, reports the Times:
So for those particularly liquid firms, then, the crumbling of the nation’s financial security would be a moneymaking opportunity.
The Fed, too, is “actively” planning for the worst-case scenario: It’s planning how to let the government know which checks would go through and which wouldn’t if the limit is reached, and it’s considering how it would treat Treasuries if a default happens.
One ratings agency official, Mark Zandi of Moody’s, used a charming illustration for a less charming situation: “The metaphor is a pile of sand. You keep putting one piece of sand on the pile, nothing happens, and then, all of the sudden it just caves.” Someone had a bad weekend at the beach.