Canceling the debt ceiling apocalypse

Before we begin, let it be said that the looming possibility of the U.S.'s default on its own debt is a not-insignificant issue. Let it also be said that the U.S. government may be unwilling to pay interest on its multi-trillion dollar publicly-held debt as of mid-October, and that this carries substantial risks. And, finally, let it be said that this is something we should most definitely avoid.

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What If Default Isn't a Disaster?

Before we begin, let it be said that the looming possibility of the U.S.’s default on its own debt is a not-insignificant issue. Let it also be said that the U.S. government may be unwilling to pay interest on its multi-trillion dollar publicly-held debt as of mid-October, and that this carries substantial risks. And, finally, let it be said that this is something we should most definitely avoid.

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Default Risk: Wall Street’s Shocking Debt Denial

"The United States is not going to default on any obligation. We are not a credit risk, believe me." Calm words, coming from the financial sage of Omaha, Warren Buffett, and words meant to keep the markets calm in the face of mounting hysteria in Washington over the debt ceiling and potential default of the U.S. government. This perception—that Washington may go to the wire on Aug. 2 but that in the end, sanity will prevail—is widely shared on Wall Street and on bourses throughout the world. That is almost as disturbing as the debt mania, because if Buffett and the financial community are wrong, they are wholly unprepared for the consequences.

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Fear Itself

As of today, the global financial system is gripped by panic. In the past two weeks since the bankruptcy of Lehman Brothers, the fear and chaos have accelerated dramatically, and the failure of Congress to pass its proposed $700 bailout bill on Monday unleashed a new wave of panic. That is the situation we find ourselves in now, with safe havens almost non-existent save for those betting against the market completely, or who have retreated to cash. Relief rallies notwithstanding, this is a market in the grip of animal spirits, and the stampede is heading for the exits.

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Wall Street isn’t Main Street

The purchase of Merrill Lynch by Bank of America and the bankruptcy and collapse of Lehman Brothers are the latest — albeit most dramatic - installments of the ongoing credit crisis that began last August 2007. The bailout of Fannie Mae and Freddie Mac, as well as the fire-sale purchase of Bear Stearns by JP Morgan Chase in March were also greeted with fear and dread, and if the past is any guide (which, by the by, it may not be), today will not be the final chapter.

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Are Transparent Banks Healthier?

Lehman Brothers, one of the premier Wall Street investment banks, announced a new round of steep losses in the ongoing credit crisis. Critics were quick to point the finger at one glaring issue: "It's the lack of transparency," said one prominent fund manager. "Most investors don't have any way of knowing what is out there in terms of bad debt."

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