I have been talking to numerous Hill offices trying to figure out what they’re hearing on the chaotic debt ceiling debate. Someone mentioned something last night that I found odd, so I’ve been calling around trying to confirm it. But basically, I can’t find anyone in the Senate or House who says the banks are whipping this.
Members and staffers have offered several explanations for this:
- They think it will just happen anyway and aren’t worried — O-kay. I can’t find anyone else who isn’t worried, so I’m assuming that the quality of their intel isn’t that poor.
- They are taking a short position — No rise in CDS notable, but there are other ways I suppose.
- They dislike Obama so much they’re willing to risk default to get rid of him — Unlikely. The banks well know that things are so fragile that a Lehmans II could take the whole place down.
- It has never been their job to whip debt ceiling increases, so they just didn’t think to do it — possible, but the banks usually figure out pretty quickly how to pick up a phone and start calling when their money is on the line.
- They think it’s “unseemly” — seriously? Since when did the banks give a shit about “decorum” when there was a dollar involved?
- They don’t think they have any control over the tea party — they may not, which means they just flushed $20 million down the drain. Boo hoo. But that leaves roughly 500 people who don’t fall into that category, and they aren’t lobbying them either.
- They have received private assurances from Obama that before it gets to that point, he will invoke the 14th Amendment, and they do not want to be blamed for raising the debt ceiling by publicly advocating for it.
Everyone acknowledges that the banks will lose a lot of money in the event of a default, even a temporary one, especially if there’s a credit downgrade by the
shakedown artists ratings agencies like Moody’s and Standard and Poor’s. And it’s not like the bank lobbyists aren’t up there. They’ve been very active recently on things like swipe fees, so everyone has seen the bank lobbyists in their offices.
We all know what it looks like when there’s a swarm of lobbyists on the Hill. We saw it during the health care debate. It looks like the floor of the Chicago Board of Trade. That’s not happening.
The only one of the above explanations I find even vaguely plausible is number 7, but even then, I’d be surprised if the banks found that an acceptable risk that didn’t need backstopping. Obama took that card out of his own hand weeks ago. He clearly thinks the political consequences would be grave, and does not want to use it.
But the lack of any lobbying effort by the banks perhaps explains why things have gotten so chaotic. What Congress and the White House are accustomed to doing is taking their policy directions from corporate lobbyists, and then arranging the stagecraft so that they give the appearance we are operating in a democracy while working towards a predetermined end. Playing “pass the hot potato,” so to speak. Without that direction, all they know how to do is play out a crude game of brute force politics.
It may well be that the banks just stayed out of it for too long thinking everything would be fine, and now the game has taken on a life of its own, and intercession is impossible.
Meanwhile, you’ve got Judd Gregg out there, now an analyst for Goldman-Sachs, who held a conference call yesterday and said he sets the risk of default at 50%. He thinks the only thing that will bring the House around is a government shutdown, and a failure to send out Social Security checks. The only solution according to Gregg is (once again) the creation of a very undemocratic Catfood Commission that bypasses congressional procedure.
Well, at least we know what they’re not doing — lobbying Capitol Hill.
Update: After talking with Jon Walker, two more possibilities:
- The banks want to force the President to use the 14th amendment and take the debt ceiling increase votes off the table once and for all, because who knows what kind of nut might be in office 8 years from now
- The banks want to force Bernanke into some kind of mini-QE3 to send out Social Security checks, because that will be very very good for Goldman Sachs. In which case Judd Gregg should definitely go to jail.
Photo by yorkd under creative commons license