Insight - As U.S. default threatened, banks took extraordinary steps

NEW YORK (Reuters) - As the United States threatened to default on its debt last month, major U.S. banks set up war rooms, spent many millions of dollars on contingency planning and, in some cases, even prepared to underwrite federal government benefits.

In a series of interviews with top bank executives, new details emerged about the extent of the contingency planning that was undertaken before and during the 16-day government shutdown and as a potential default loomed.

The planning for worst-case scenarios didn't come cheap. JPMorgan alone has spent more than $100 million on contingency planning for U.S. budget crises in recent years including this one, sources close to the bank say. It has reviewed and analyzed thousands of trading contracts, updated computer systems to handle fiscal emergencies, hired consultants, and built new models to figure out what might happen to securities prices.

Via: Yahoo

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Government default? It’s already happened, twice

Although President Barack Obama and the establishment media routinely describe a potential federal default as “unprecedented,” the United States government has flaked on its debt service several times, and one expert says the current default has already begun.

The historical default precedents should be of limited comfort to Obama, however. One of the deadbeat presidents was the commander in chief during a disastrous war that saw Washington, D.C. occupied and the White House burned to the ground. The other was Jimmy Carter.

According to Connie Cass of The Associated Press, the U.S. government “briefly stiffed some of its creditors on at least two occasions.” The first default took place in November 1814, during the administration of James Madison, America’s tiniest chief executive. Just a few months after the British conquest of Washington, D.C. during the War of 1812, the Treasury was unable to move enough precious metal to service its debt, and missed interest payments on bonds. Boston bondholders, according to Wayne State College history professor Don Hickey, were paid off in short-term interest-bearing treasury notes or more bonds. These debt service troubles, and the war, were resolved within a few months.

A more recent default came in 1979 under President Carter, who, until Obama, held the record for presiding over the country’s longest post-World War II period of economic stagnation. Cass attributes the ’79 default to “a back-office glitch that ended up costing taxpayers billions of dollars.” She writes, “The Treasury Department blamed the mishap on a crush of paperwork partly caused by lawmakers who — this will sound familiar — bickered too long before raising the nation’s debt limit.”

The Carter default is potentially more relevant because it occurred under the 14th Amendment, a post-Civil War change to the Constitution that declared the “validity of the public debt….shall not be questioned.”

These precedents for an event the president describes as unexampled in U.S. history are unlikely to get much attention from media that have been eager to ape the administration’s terror-mongering over the debt ceiling increase.  Executive branch efforts to whip up hysteria have gotten wide distribution and arguably caused minorfinancial panic.

Via: Daily Caller

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George Will: ‘Default is a choice’

On Tuesday’s “Special Report,” Washington Post columnist George Will said the prospect of a government default has been exaggerated, because there is more than enough revenue to cover U.S. debt payments.

Will’s comments came during discussion of a potential government default, which has gotten more attention as the U.S. federal government approaches the so-called debt ceiling on Wednesday night.

“The last time we faced cataclysm over this was when Standard & Poor’s lowered our credit rating, people said disaster,” Will said. “No, the cost of borrowing actually went down 40 percent. I don’t think the markets are as irrational as some of the people on Wall Street say. I repeat what I have said here before: Default is a choice — a choice in the sense that we have 10 times more revenue coming in than is needed to service our debt. We can continue to service our debt by not paying certain other vendors and certain other programs. We will only default if it is a choice. And, furthermore, the 14th Amendment empowering the president not at all, but the Congress entirely, says it is a constitutional requirement to pay, under the full faith and credit of the United States, our bonded debt.”

Via: Daily Caller

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Palin: ‘Defaulting On Our National Debt Is An Impeachable Offense’

WASHINGTON (CBSDC) — Former Alaska Gov. Sarah Palin believes President Barack Obama should be impeached if he raises the debt ceiling without the backing of Congress.

In a Facebook post, Palin said Obama is “scaremongering the markets” on the prospect of default if the nation’s borrowing limit doesn’t rise by Oct. 17.

“Defaulting on our national debt is an impeachable offense, and any attempt by President Obama to unilaterally raise the debt limit without Congress is also an impeachable offense,” Palin said. “A default would also be a shameful lack of leadership, just as mindlessly increasing our debt without trying to rein in spending is a betrayal of our children and grandchildren who will be stuck with the bill.”

Boehner: ‘There Have Been No Decisions About What Exactly’ House Republicans Will Do

Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell are reportedly close to striking a deal that would fund the government through Jan. 15 and raise the nation’s debt ceiling through Feb. 15, according to CBS News. Even if the Senate does pass this legislation, it still must be approved by the GOP-controlled House.

Via: CBS DC

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Wall Street ends up on hopes of debt solution in Washington

(Reuters) - U.S. stocks rose on Friday, extending gains from a major rally in the previous session, as investors were hopeful for a solution to end the partial U.S. government shutdown and raise the U.S. borrowing limit to avoid a possible default.

The S&P 500, which jumped more than 2 percent on Thursday, ended above 1,700 for the first time since late September.

Buyers on Friday were motivated by the chance an agreement could come over the weekend. The Senate is expected to vote over the weekend on extending the federal debt limit through January 2015.

President Barack Obama and congressional Republican leaders worked to end a fiscal impasse that would allow a reopening of the federal government and an increase in the U.S. debt limit.

"People don't want to be short going into a weekend, especially if a deal does get done," said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.

The partial shutdown is now in its eleventh day and less than a week remains before an October 17 deadline to extend the government's borrowing authority and avoid a debt default.

All S&P sectors were up except consumer staples, which fell slightly. Energy stocks .SPNY led the S&P 500, rising more than 1 percent after the Environmental Protection Agency proposed lowering the required amount of ethanol to be blended into U.S. gasoline after Thursday's market close.

The CBOE Volatility index VIX .VIX, Wall Street's so-called fear gauge, closed down 4.6 percent at 15.72, the lowest in nearly two weeks.

"This rally will provide the opportunity to modify positioning, as we expect fundamentals to matter more as the credit cycle turns," said Peter Cecchini, managing director at Cantor Fitzgerald in New York, writing in a note to clients.

The Dow Jones industrial average .DJI was up 111.04 points, or 0.73 percent, at 15,237.11. The Standard & Poor's 500 Index .SPX was up 10.63 points, or 0.63 percent, at 1,703.19. The Nasdaq Composite Index .IXIC was up 31.13 points, or 0.83 percent, at 3,791.87.

For the week, the Dow rose 1.1 percent, the S&P 500 rose 0.7 percent while the Nasdaq fell 0.4 percent as some of the strongest gainers in the tech sector sold off during week as investors were taking profits.

Via: Reuters

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