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Banks, Hedge Funds Threaten A Repeat Of Lehman If Debt Ceiling Not Raised

Tyler Durden's picture


As we reported yesterday, The Treasury Borrowing Advisory Committee, easily the most important 3rd party advisory structure at the US Treasury currently, chaired not surprisingly by JP Morgan and Goldman Sachs, released a letter to Tim Geithner, doubling up his calls for untold death and destruction, not to mention plunging year end bonuses, if the US is not allowed to kick the can down the road for another 1-2 years. For those curious, in addition to the Matt Zames chaired committee, other members include Soros, Tudor, Bank of America, BNY, Moore, Alliance Bernstein, Morgan Stanley, Round Table IMC, Brevan Howard, PIMCO (lol), Dodge & Cox, RBS, and Western Asset Management. The full M.A.D. letter is presented below.

The Honorable Timothy Geithner
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Mr. Secretary:

As Chairman of the Treasury Borrowing Advisory Committee, I am writing to express my concerns regarding the urgent need to increase the statutory debt limit. A considerable degree of uncertainty already exists among market participants given the severe and long-lasting impact that even a technical default would have on the U.S. economy.

Any delay in making an interest or principal payment by Treasury even for a very short period of time would put the U.S. Treasury and overall financial markets in uncharted territory, and could trigger another catastrophic financial crisis. It is impossible to know the full impact of such a crisis on overall economic growth and on Treasury’s financing costs. However, the lessons from the recent crisis suggest that several damaging consequences will likely result, ultimately raising Treasury’s long-term funding costs and increasing the burden on the American taxpayer. These consequences stem from five developments that could likely occur if Treasury were to default on its obligations as a result of a failure to raise the debt limit in a timely manner.

First, foreign investors, who hold nearly half of outstanding Treasury debt, could reduce their purchases of Treasuries on a permanent basis, and potentially even sell some of their existing holdings. A worrisome precedent is the sharp decline in foreign sponsorship of [government-sponsored enterprise, or G.S.E.] debt since Fannie Mae and Freddie Mac were placed under conservatorship. Despite assurances from Treasury officials regarding the U.S. commitment to these institutions, foreign sponsorship has yet to return to pre-conservatorship levels. If foreigners began curtailing their investment in Treasuries as a result of a default, Treasury rates, and thus Treasury’s borrowing costs, would undoubtedly rise. A sustained 50 basis point increase in Treasury rates would eventually cost U.S. taxpayers an additional $75 billion each year.

Second, a default by the U.S. Treasury, or even an extended delay in raising the debt ceiling, could lead to a downgrade of the U.S. sovereign credit rating. Indeed, Standard and Poor’s decision to change the U.S. ratings outlook from stable to negative this week indicates a one-in-three chance that Standard and Poor’s will downgrade the U.S. rating within the next two years. One reason cited for the change in the outlook is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges. It is possible that a default, or even a delay in acting on the debt ceiling, will be perceived as an increased indication of the political inability to forge a compromise on essential long-term fiscal reforms. The consequences of a ratings downgrade would be significant, with the potential for Treasury rates to rise by a full percentage point for each one-notch downgrade.

Third, the financial crisis you warned of in your April 4th Letter to Congress could trigger a run on money market funds, as was the case in September 2008 after the Lehman failure. In the event of a Treasury default, I think it is likely that at least one fund would be forced to halt redemptions or conceivably “break the buck.” Since money fund investors are primarily focused on overnight liquidity, even a single fund halting redemptions would likely cause a broader run on money funds. Such a run would spark a severe crisis, disrupting markets and ultimately necessitating the same kind of backstops that Treasury and the Federal Reserve initiated in the aftermath of the 2008 crisis. Such further increases in Treasury’s off-balance-sheet commitments are likely to be viewed negatively by investors and ratings agencies, which will potentially put further downgrade pressure on U.S. sovereign ratings.

Fourth, a Treasury default could severely disrupt the $4 trillion Treasury financing market, which could sharply raise borrowing rates for some market participants and possibly lead to another acute deleveraging event. Because Treasuries have historically been viewed as the world’s safest asset, they are the most widely-used collateral in the world and underpin large parts of the financing markets. A default could trigger a wave of margin calls and a widening of haircuts on collateral, which in turn could lead to deleveraging and a sharp drop in lending.

Fifth, the rise in borrowing costs and contraction of credit that would occur as a result of this deleveraging event would have damaging consequences for the still-fragile recovery of our economy. In 2008, placing the GSEs in conservatorship combined with a tightening of credit standards caused mortgage spreads to widen by 1.5 percent, ultimately raising mortgage rates for consumers. A similar rise in mortgage and Treasury rates would adversely impact economic growth, potentially pushing the U.S. economy back into recession.

Finally, I would emphasize that because the long-term risks from a default are so large, a prolonged delay in raising the debt ceiling may negatively impact markets well before a default actually occurs. This is because investors will likely undertake risk-management actions in preparation for a potential default. For example, borrowers who rely on short-term funding markets, including the GSEs, may attempt to pre-fund themselves or hold excess liquidity through July, distorting money market rates. Additional effects could include large auction concessions, especially if Treasury were forced to delay auctions for cash management purposes. I would also expect to see weaker demand for Treasury securities as uncertainty increases on whether the debt limit will be raised. Both of these effects would negatively impact Treasury’s borrowing costs.

Given the magnitude of the adverse consequences a default would have on Treasury borrowing costs and the health of the broader economy, action is urgently needed to increase the statutory debt limit. Swift action would also help ease the existing uncertainty in financial markets that could begin translating into real market impacts well before Treasury exhausts extraordinary actions at its disposal to postpone a default. Notwithstanding your significant efforts to date, your continued attention to this important issue is greatly appreciated.


Matthew E. Zames
Treasury Borrowing Advisory Committee


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Wed, 04/27/2011 - 07:09 | 1210627 JLee2027
JLee2027's picture

Since default is inevitable, better now rather than later.

I pray we have 218 brave men and women in the House of Representatives willing to stand up and say "No More".

Wed, 04/27/2011 - 07:14 | 1210634 Quintus
Quintus's picture

It's a nice thought, but seriously.....

Wed, 04/27/2011 - 08:06 | 1210670 anynonmous
anynonmous's picture

Well Zames is clearly the right guy for the job, he clearly knows a Ponzi when he sees one.  He was one of three JPM executives named in a court filing (PDF) for having known about the Madoff Ponzi, though in that case they are accused of taking no action.

From the filing (Dec 2, 2010):

“For whatever it[’]s worth, I am sitting at lunch with Matt Zames who just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a [P]onzi scheme.” (June 15, 2007)


The story has been told time and time again how Madoff duped the best and the brightest in the investment community. The Trustee’s investigation reveals a very different story—the story of financial institutions worldwide that were keen to the likely fraud, and decidedly turned a blind eye to it. While numerous financial institutions enabled Madoff’s fraud, JPMC was at the very center of that fraud, and thoroughly complicit in it.

Wed, 04/27/2011 - 08:11 | 1210756 Manthong
Manthong's picture

Old Charlie stole the handle and the train it won't stop going, no way to slow down.

Wed, 04/27/2011 - 10:24 | 1211412 DavidC
DavidC's picture

Great track, from one of the earliest albums I got into.


Wed, 04/27/2011 - 07:46 | 1210692 Sudden Debt
Sudden Debt's picture

:) +10


Wed, 04/27/2011 - 10:06 | 1211314 Weisbrot
Weisbrot's picture

until the incompetence and or corruption is allowed to fail the entire nation suffers.

Wed, 04/27/2011 - 11:12 | 1211700 dizzyfingers
dizzyfingers's picture

Where's that "perfect ten" button?!

Wed, 04/27/2011 - 07:24 | 1210646 ParaZite
ParaZite's picture

Sadly, The reality is we just have 218 well paid criminals in the House...just like the rest of our criminal, corporatocratic government. 

Wed, 04/27/2011 - 07:45 | 1210687 AmCockerSpaniel
AmCockerSpaniel's picture

You are so right.    


The voter is damned if he does, and damned if he does not. They are all bought and paid for.

Wed, 04/27/2011 - 08:39 | 1210847 IBelieveInMagic
IBelieveInMagic's picture

This is a crock of shit -- the fact is that the voter has been happy to have someone else (Congress, etc.) enable voters living beyond our means and allow us the deniability when things go bad. We are all complicit.

This worked in the short run because we were able to consume at the expense of the rest of the world (on borrowed dime that will not be paid back) but now that run is coming to an end. 

Wed, 04/27/2011 - 08:47 | 1210878 JLee2027
JLee2027's picture

We consumed at the expense of the rest of the world? Hardly true. And you forget we have provided a security umbrella for the West and the Pacific area for the past 65+ years. We do not "owe the world". In fact, our consumption raised living standards worldwide.


Wed, 04/27/2011 - 09:05 | 1210933 Bicycle Repairman
Bicycle Repairman's picture

"we have provided a security umbrella for the West and the Pacific area for the past 65+ years"

The demand for that protection ended with the fall of the USSR.  We got the memo, but refused to read it.

Wed, 04/27/2011 - 09:21 | 1211067 Hacksaw
Hacksaw's picture

Obviously you haven't been reading about how the Aussies have been wringing their hands about how they want the U.S. to get in between them and China. You're kidding yourself if you think there wouldn't be a wailing and gnashing of teeth if the U.S. brought all their troops home.

Wed, 04/27/2011 - 08:48 | 1210880 falak pema
falak pema's picture

WE are to blame it on the Boomer generation that elected Clinton and GWB. Sixteen years...Some people say a man is made outta mud...

A poor man's made outta muscle and blood
Muscle and blood and skin and bones
A mind that's a-weak and a back that's strong

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store...


Wed, 04/27/2011 - 11:25 | 1211779 dizzyfingers
dizzyfingers's picture

I'm never going to vote again because I think elections are a crock and nothing every really changes because voting simply says "yes, let the corruption and swindles continue", but probably the reality is this: we're all more or less stuck with this country, and our citizenship is sort of like being on a rogue train as it rumbles downhill out of control. What is the titizen-passenger supposed to do? Climb out the train window and somehow get to the engine so that he or she can jump in front of the train to stop it? How's that going to work out? But what else is there, since there's no access to brakes, and once on its downhill trip, brakes won't work?

We're more-or-less stuck with the country we're born in.

What's your detailed idea of a plan that would work?

Wed, 04/27/2011 - 07:49 | 1210701 Sudden Debt
Sudden Debt's picture

They have been allowed to behave the way they do these last few decades when the presidents decided to sell the US to the happy few.

It's like giving a lighter to a kid, watching him put the place on fire and when the fire is on for an hour saying: BAD CHILD! YOU CAN'T PLAY WITH FIRE!

The reactions are way to late. They should have been shot a decade ago.

What can you do now? Is there still anything left to save?



Wed, 04/27/2011 - 11:16 | 1211711 dizzyfingers
dizzyfingers's picture

Thanks. Truth emerges slowly and painfully, but it emerges.

Wed, 04/27/2011 - 07:27 | 1210656 cossack55
cossack55's picture

Hey, we just had the Easter Bunny. 218? I'll settle for 3.

Wed, 04/27/2011 - 07:36 | 1210674 let-them-eat-cake
let-them-eat-cake's picture



Laugh out loud or man drowning?

Wed, 04/27/2011 - 08:56 | 1210903 poggi
poggi's picture

...and, when every indiviudual saver's government-backed money market fund goes to zero value, will you handle the blowback?

Wed, 04/27/2011 - 09:05 | 1210937 Ruffcut
Ruffcut's picture

Brave representatives?

THat's just plain funny. Surprised they did not design the capitol building to look like a huge vagina.

Wed, 04/27/2011 - 10:00 | 1211293 Weisbrot
Weisbrot's picture

damn straight, they had tarp 1, tarp 2, tarp 3, talf, qe1, qe light, qe2 ... the system should have flushed out the crap in 2008, it was not permitted to do so,  it needs to fush out the crap now!

Wed, 04/27/2011 - 11:10 | 1211678 dizzyfingers
dizzyfingers's picture

I agree, but I don't think anyone who's brave is in Congress.

Wed, 04/27/2011 - 07:14 | 1210630 Landrew
Landrew's picture

Why the pretense? A Ponzi is a Ponzi whether it's 15 trillion or 50 trillion!

Again, please help get this video to physics students in Japan, thanks.

Wed, 04/27/2011 - 07:16 | 1210632 HamyWanger
HamyWanger's picture

I don't see the problem you have with Goldman Sachs and JP Morgan. If they were 'evil zionistas' who don't produce value, like bigot libertarians say, they would not make so much money (as every financial contract is based on law and mutual consent), and Americans would not vote every 4 year for a member of the current ruling elite if they were not satisfied. So having GS and JPM in the board of economic advisors is a healthy measure, as we can profit from their expertise. 

Raising the 'debt limit' is just common sense. No one, even lunatic silverbugs, want to see what would happen if it is not raised. 

Wed, 04/27/2011 - 07:23 | 1210649 Moe Howard
Moe Howard's picture

Why are you using the American flag as a avatar when the Coat of Arms of the Rothschilds would be more accurate?





<HELP> for explanation.

Wed, 04/27/2011 - 07:30 | 1210658 cossack55
cossack55's picture

I think it has 57 stars on it.

Wed, 04/27/2011 - 08:14 | 1210767 Cash_is_Trash
Cash_is_Trash's picture

Those seven are:

Iraq, Afghanistan, Bahrain, Canada, Cancun, Libya...

Help me out people!

Wed, 04/27/2011 - 08:49 | 1210883 JLee2027
JLee2027's picture

...and Kenya and Indonesia. Just to cover all the possibilities of BO's citizenship issues.

Wed, 04/27/2011 - 08:55 | 1210901 falak pema
falak pema's picture

You forgot Israel and Saud Arabia the biggest lodestone north starrrrrrrrrr!

Wed, 04/27/2011 - 07:43 | 1210686 Sam Clemons
Sam Clemons's picture

Harry, under a value-based gold or silver system, with no one setting interest rates and no central credit creation, I would expect GS and JPM to not exist. 

It would be hard to not make money when you can borrow at .25% and loan the dollars you just created under fractional reserve banking to the broke ass government and citizens at 4% and 14% respectively. And if and when those bets go south, you get bailed out.

The whole thing stinks.  If the economy can't grow except when it takes on more debt, then that should be a glaring problem.  The whole concept of growth is a lie in a fixed world, and is only based on borrowing from the future:  banks create money out of thin air, and our posterity must pay them for the right to use it now.  I don't see value supplied here.

Wed, 04/27/2011 - 10:56 | 1211580 SoNH80
SoNH80's picture

Expertise in raping the fisc more like it.  *Nausea*

Wed, 04/27/2011 - 07:17 | 1210635 Narrow Ledge
Narrow Ledge's picture

And if the debt ceiling is raised... it's all good?  This is a lose/lose everyone

Wed, 04/27/2011 - 07:32 | 1210667 smlbizman
smlbizman's picture

i promise you that this letter was written by turbo timmy ....

Wed, 04/27/2011 - 08:20 | 1210778 cossack55
cossack55's picture

I was not aware TurboTax had a word processing component.

Wed, 04/27/2011 - 07:17 | 1210639 Old Poor Richard
Old Poor Richard's picture

Dumbass Keynesians keep arguing that there's no analogy between the US borrowing and going gonzo on credit cards, yet here we have gangster banks sending threatening letters to the Jeethner that rings true to anyone who's been prodded by thug credit card lenders.

When your last credit card is maxed out, what do you do?  Apply for another one and head over to Needless Markups for a new handbag to try out the card!

Just like credit card companies that threaten you for "inactivity" on your account, these guys are instructing the US with a National Lampoon cover style threat: you had better keep borrowing [so that we can keep skimming], or we're going to shoot your economy.


Wed, 04/27/2011 - 07:25 | 1210651 Corduroy
Corduroy's picture

Yes, but secretly they cannot wait to raise interest rates...

Wed, 04/27/2011 - 07:50 | 1210696 MyFriendMises
MyFriendMises's picture

They are not dumbasses.  They are criminals using the guise of Keynesian Economics to conceal their true intentions of the continued transfer of wealth from the middle class to the rich.  When the transfer has been completed and the middle class has jumped back into the market and bought out the TPTB stake they will let the market collapse and will raise interest rates. 


It is very dangerous to write people off as stupid when what their actions do not coincide with logic.  They are usually very smart but just don't live with the same moral code as the rest of us.  We mistakenly believe that people (i.e. Bankers and Politicians) will in end do what is good for the masses when in fact they are continuing to do what is good for them.

Wed, 04/27/2011 - 07:57 | 1210712 overmedicatedun...
overmedicatedundersexed's picture

the banks are holding a gun to their collective heads and saying do it or we shoot.. I say shoot.

Wed, 04/27/2011 - 09:02 | 1210922 earnulf
earnulf's picture

Why does the sheriff scene in Blazing Saddles come to mind?    Especially the statement he makes once he is safe in the sheriff's office.....

Wed, 04/27/2011 - 08:26 | 1210794 wandstrasse
wandstrasse's picture

they will let the market collapse and will raise interest rates. 

THEY will let the market collapse and introduce a PM standard when THEY loaded up enough PMs in their vaults. THEY have at least 75% of all PMs on the planet BEFORE they let the fiat system collapse.

Wed, 04/27/2011 - 07:17 | 1210640 sunnydays
sunnydays's picture

I hope Congress doesn't play the game and calls their bluff.  Congress held with the first TARP vote and voted no, then they were threatened with martial law if they didn't pass it.  I have no doubt that another martial law threat will be given to them if they don't do as the banks want.


The junior Congress people are being lobbied by every banker there is and they are being told to raise the limit.  But I hope the tea baggers and all the others will hold out and not do it.  But I know, they will fold to the banks and raise the limit, they always do what the banks want. 


I can just imagine the type of threats they are getting.

Wed, 04/27/2011 - 07:30 | 1210663 cossack55
cossack55's picture

The difference is if you made similar threats you would soon be doing the perp walk.  Land of the Fee and Home of the Slave.

Wed, 04/27/2011 - 07:35 | 1210669 cowpieflapjack
cowpieflapjack's picture

Funny shit right there...


Wed, 04/27/2011 - 09:11 | 1210973 Ruffcut
Ruffcut's picture

Yep, I don't care who you are. ++

Wed, 04/27/2011 - 07:52 | 1210702 Lord Welligton
Lord Welligton's picture

Land of the Free home of the Knave.

Wed, 04/27/2011 - 07:57 | 1210719 cossack55
cossack55's picture

Knave? Too freakin' English. We's don't be's talkin' no English here in amerika, ya big dumb Limey.

Wed, 04/27/2011 - 08:26 | 1210801 Lord Welligton
Lord Welligton's picture

Humble apologies my good sir.

Wed, 04/27/2011 - 07:18 | 1210641 Moe Howard
Moe Howard's picture

Just say NO to more debt.

I did that in my life years ago.

Time for us to say the same as a country.

Whatever TBTF wants, we need to do the opposite.

Wed, 04/27/2011 - 07:23 | 1210645 Kina
Kina's picture

Get rid of the cieling, put in a sun roof.

Wed, 04/27/2011 - 12:11 | 1211937 AbandonShip
AbandonShip's picture

or chop the top and make it a convertible.

Wed, 04/27/2011 - 07:25 | 1210648 Corduroy
Corduroy's picture

The classic is that by raising the debt ceiling you keep your sovereign credit rating, thats wicked ! The obvious analogy of the family that keeps taking on new credit cards / sources of debt to maintain cashflow (credit rating) springs to mind.

Wed, 04/27/2011 - 07:26 | 1210653 Mongo
Mongo's picture

Yes, raise the ceiling... need to get some distance to the light...

Wed, 04/27/2011 - 07:28 | 1210659 gordengeko
gordengeko's picture

LET these fuckers crash!!!  Headed by GS and JP morgue, are you kidding me?  What pisses me off is I still have friends that do their banking at chase and BOA!  Fuck em, I warned them, I showed them proof and I told them to buy silver to protect themselves.  Did they listen??? NO!  What else can you do, if people are that fucking stuck in their way when you can't even wake them up with a fucking 1 mil lumen ray in their face then to each his own!

Wed, 04/27/2011 - 07:37 | 1210675 PY-129-20
PY-129-20's picture

You cannot cure the dumb. It is a waste of time and breath.

Change is coming, but not the Change the people hoped for.

By the way, Tyler - they (ECB) used the same comparison (Lehman-Scenario) to describe what could happen, if the Greek debt would need to be restructured.

You can find an article about this in the German magazine "Der Spiegel",1518,759091,00.html

Wed, 04/27/2011 - 07:50 | 1210690 gordengeko
gordengeko's picture

My friends aren't dumb people tho, they are well off and affluent.  With the amount of MSM propaganda the only chance we have is for the alternative media to step up.  Thankfully that is happening and increasing everyday.  The masses won't listen to regular people even if those regular people present facts and information.  We are working against decades of chemical imbalances, media bullshit, entertainment and shit in the air which is dumbing down society.  We are approaching end game.

Wed, 04/27/2011 - 08:00 | 1210720 cowdiddly
cowdiddly's picture

Ah, well off and affuent= intelligence. Its amazing that propagada and the effect it has on thought. This is going to be fun.

Wed, 04/27/2011 - 08:16 | 1210764 gordengeko
gordengeko's picture

No I do not equate affluence and intelligence by any stretch.  Obivously they are capable of some form of critical thinking to obtain wealth.  It's the fact that society in general is bombarded with all this external shit blocking them from seeing outside of their personal lives (for the most part).  That is the problem.

Wed, 04/27/2011 - 08:24 | 1210797 cowdiddly
cowdiddly's picture

I knew you did not mean it. Just pickin on you a little bit. I just keep laughing at their cardboard cutout lives where the all go get the same degrees, so they can all think the same, to get a corporate job,to buy a house in the suburbs that looks just like their neighbors and then get in a grass growing competition on their 1/2 acre lots. Sucesss!!!!!

Wed, 04/27/2011 - 08:40 | 1210837 gordengeko
gordengeko's picture

Bingo!  That's the part of the ideology I've been talking about.  Where does it come from?  It comes from the media, the institutions and society.  We've been raised to be nothing but consumers to venerate the ones who have been holding the key.  The country (and world) was subverted and these values were installed for a purpose. 

Wed, 04/27/2011 - 09:13 | 1211005 Ruffcut
Ruffcut's picture

We have spent considerable depressing moments digesting this clusterfuck.

Most people don't have the bowel control to deal with it.

They choose to ignor the truth. Ignorant on purpose.

Wed, 04/27/2011 - 09:42 | 1211187 gordengeko
gordengeko's picture

Well I ask this question then, WHAT is more difficult to digest?

1- Looking into your own soul and reflecting on all the "bad" shit you've done and making peace with it?

2-Looking at the WORLD and seeing all the bad shit that is deliberately surpressed?

How about this for a mindfuck, what if the 2 are connected???

Wed, 04/27/2011 - 11:00 | 1211625 SoNH80
SoNH80's picture

Cognitive dissonance is powerful.  Humans have a unique ability to delude themselves.  In "polite society", talk of the "financial crisis" aka Fall of the Republic is increasingly frowned upon, like talking about your grandmother's funeral.  I keep beating the drum, telling the truth, warning my friends & family.  One friend, after the '08-'09 crash, said, "I should have listened to you."  That's the only thanks I've gotten thus far.  People are frightened, and they don't want to face the truth of the situation.  In post-Fall Rome, many citizens still pretended that the Empire was firing on all cylinders, until the grain ships stopped coming deep in the 6th century. 

Wed, 04/27/2011 - 11:05 | 1211667 SoNH80
SoNH80's picture

But then again, clearing my land recently, gave some good hard wood to a neighbor to use, that same neighbor (civil engineer, smart self-made guy) didn't miss a beat when I mentioned my plans to experiment with potato cultivation, maybe some squash.  He replied, "I'll help you work it if you give some of the crop to me, hell, that might be all we have to eat soon."  People with some common sense see what's coming.  Common sense is becoming rare today, though, and that's the rub.

Wed, 04/27/2011 - 18:47 | 1213978 James
James's picture

Robert Ringer, an author, describes them as the "Thousanduplets"

All mindless sheep, conforming to their BFF.

Wed, 04/27/2011 - 08:01 | 1210725 cossack55
cossack55's picture

Of course. You're choice: Malthus or Darwin, or maybe one just leads to the other.

Wed, 04/27/2011 - 09:29 | 1211114 i-dog
i-dog's picture

Don't try to teach a pig to sing ... it just wastes your time and annoys the pig.

Wed, 04/27/2011 - 09:12 | 1210980 Waterfallsparkles
Waterfallsparkles's picture

My Grandfather used to say: "You cannot argue with a STUPID Person".

Wed, 04/27/2011 - 11:15 | 1211705 msamour
msamour's picture

Hey don't worry about it, they will make delicious nutritional supplement when the time comes. Start learning recipes...

Wed, 04/27/2011 - 07:28 | 1210660 Jo
Jo's picture

What kind of mong starts a letter 'I am writing' ffs?

Wed, 04/27/2011 - 07:44 | 1210685 LMAO
LMAO's picture

Not only is he writing, he is writing

"As Chairman of the Treasury Borrowing Advisory Committee"



Wed, 04/27/2011 - 08:45 | 1210867 Urban Redneck
Urban Redneck's picture

"First, foreign investors, who hold nearly half of outstanding Treasury debt,"

Perjury or Gross Negligence? 

Wed, 04/27/2011 - 07:47 | 1210695 Bubbles...bubbl...
Bubbles...bubbles everywhere's picture

The best mong money can buy.

Wed, 04/27/2011 - 08:07 | 1210734 LMAO
LMAO's picture

The point being:

This fooker is not writing (somebody else is doing that for him) 

Financial mobsters are always Dictating.

Debt ceiling blown off Fukushima style as dictated, done.





Wed, 04/27/2011 - 08:13 | 1210754 overmedicatedun...
overmedicatedundersexed's picture

fellow zh posters..the elite can see no scenario to both save the economy of USA and their continued wealth and they will continue the policy of destruction of wealth of the common people for it keeps them on fact it elevates them even more.

the real solutions to so many of USA's problems are not difficult it's just that it wipes out too many very powerful people.

Wed, 04/27/2011 - 13:35 | 1212357 SilverBaron
SilverBaron's picture

They would love to continue to inflate to infinity, but there is a problem.  If the House of Saud decides to turn to China for their protection because of us devaluing their holdings we are screwed.  This is the part that this article conveniently leaves out.  It is a one sided argument with plenty of possible outcomes of what could happen if we stop borrowing, but it completely leaves out what could happen if we decide to borrow (print, steal) more.  Eventually the rest of the world will not need our "protection".  It reminds me of mobsters going into businesses and demanding they pay for protection.  Protection from who, they would ask.  From us. 

Wed, 04/27/2011 - 07:39 | 1210664 bob_dabolina
bob_dabolina's picture

I advise against raising the debt ceiling. This country was not designed to borrow/print beyond its means.

-Every founder of this country

Look at how weak we have become. We are reliant on borrowing from foreign nations and held against our will by banks and hedgefunds? What the fuck? This is insane. This is insanity in it's purist figure.

Wed, 04/27/2011 - 07:34 | 1210666 cowpieflapjack
cowpieflapjack's picture

The Sopranos would recognize the sentiment of the letter. If you don't comply, then a visit from Tommy the Torch that evening. What a racket.

Wed, 04/27/2011 - 07:33 | 1210668 digitlman
digitlman's picture

Dear Too Big to Fail Banks,

Go Fuck Yourselves.


The World.

Wed, 04/27/2011 - 07:39 | 1210676 slaughterer
slaughterer's picture

Look at the presupposition underlying this sentence: "Such a run would spark a severe crisis, disrupting markets and ultimately necessitating the same kind of backstops that Treasury and the Federal Reserve initiated in the aftermath of the 2008 crisis."  They really unconditionally assume that the Treasury/Fed will bail their asses out again.   This is really quite arrogant, and shows who is in power.

Wed, 04/27/2011 - 07:54 | 1210707 slaughterer
slaughterer's picture

The more I parse this, I feel like I am reading FOMC speak: "...would have damaging consequences for the still-fragile recovery of our economy..."  I am sure this phrase will turn up in today's FOMC minutes, and in the Bernank interview afterwards.   

Wed, 04/27/2011 - 07:39 | 1210677 Vincent Vega
Vincent Vega's picture

Straight from the Hank Paulson play book...give me the money or else. Go ahead and default. Stop terrorising the USA. We the people will survive; you the bankster's won't.

Wed, 04/27/2011 - 07:40 | 1210678 Cdad
Cdad's picture

Oh no!  We wouldn't want to interrupt the criminal syndicate known as Wall Street as it loots the American treasury.  We wouldn't want them to think the POMO gravy train is over.  We wouldn't want to force Congress onto a sustainable fiscal path if it caused JP Morgan or Goldman Sachs any discomfort.


Wed, 04/27/2011 - 07:40 | 1210680 max2205
max2205's picture

Lol. Money markets THAT MAKE ZERO would have a run. Give me a break. Widows and orphans will die threat. They don't make shit now

Wed, 04/27/2011 - 07:42 | 1210681 Tic tock
Tic tock's picture

Looks fine to me: "..severe and long-lasting impact that even a technical default would have.."

..see, it's just a technicality! 

Wed, 04/27/2011 - 07:46 | 1210693 slaughterer
slaughterer's picture

How many here know fund managers betting on a 2008 repeat in 2011 and are aligning bets in this direction?  I can name 3 off the top of my head, but they all requested anonymity.

Wed, 04/27/2011 - 07:49 | 1210694 Moe Howard
Moe Howard's picture

Raise the debt ceiling or we'll shoot these citizens!

Wed, 04/27/2011 - 08:14 | 1210759 cossack55
cossack55's picture

Raise the debt ceiling or we'll:

a.  Invade Iraq (completed)

b.  Invade Afghan  (completed)

c.  Bomb little brown people in Libya. (in progress)

d.  Bomb little brown people in Syria  (pending)

e.  Bomb little brown people in Yemen (planning)

f.  Bomb little brown people in Iran  ( chomping at bit)

g.  Invade Saudi Arabia for their own protection (selling)

Wed, 04/27/2011 - 09:30 | 1211116 takinthehighway
takinthehighway's picture

"One false move and the n***** gets it!"

Wed, 04/27/2011 - 07:48 | 1210698 palmereldritch
palmereldritch's picture

Apparently these are a 'vaults half full' type of folks.

Wed, 04/27/2011 - 07:51 | 1210699 belsebub
belsebub's picture

Is it a coincindence that the Cusip number of the new 2Y bond issued yesterday is labeled: 912828QE3?






Wed, 04/27/2011 - 07:53 | 1210711 slaughterer
slaughterer's picture

Sort of like the "I killed Paul" written in the run-off groove of a Beatles album.   

Wed, 04/27/2011 - 07:56 | 1210717 Everybodys All ...
Everybodys All American's picture

Are you serious? That is a big heads up if true. It's been my belief for a long time these mf'ers are signaling the markets.

Wed, 04/27/2011 - 08:14 | 1210760 belsebub
belsebub's picture

I am serious. The code is the right one. I just wonder if this is their deliberate way to take a crap in the typical zero hedge readers face...

Wed, 04/27/2011 - 08:13 | 1210763 cossack55
cossack55's picture

Pure coincidence.  Move along. Oh, let me see your glasses for a minute....oops...sorry.

Wed, 04/27/2011 - 07:49 | 1210700 Everybodys All ...
Everybodys All American's picture

Is that all ... no big deal. Tell them forget it.

Wed, 04/27/2011 - 07:53 | 1210705 Dr. No
Dr. No's picture

Lehman repeat?   Wait, Im still here?!  the world did not end after Lehman?  I guess it didnt.  Huh.  Mr. Bankster, you are telling me a Lehman repeat will happen if the debt is not raised?  What will happen again?

Wed, 04/27/2011 - 07:52 | 1210708 silvertrain
silvertrain's picture

If the Feds balance sheet is SO BIG THAT it can continue to purchase shit, 3 card monty style,they have plenty stashed around to keep this bitch funded..

Wed, 04/27/2011 - 09:09 | 1210709 Cdad
Cdad's picture

Oh no!  We wouldn't want to defend the US dollar against the criminal syndicate known as Wall Street.  We would not want to reduce the price of oil.  We would not want more purchasing power from the dollars we earn if it caused fractional bankers to have a sleepless night.

Wed, 04/27/2011 - 07:56 | 1210716 slaughterer
slaughterer's picture

USA: the best option is to end "The Age of USA" in 2011 and go bankrupt: let's all follow Iceland into the BIG RESET.   "Just say No to the debt ceiling lift."

Wed, 04/27/2011 - 08:04 | 1210731 cossack55
cossack55's picture

Perhaps Iceland will colonize the US and repopulate with people with a spine.

Wed, 04/27/2011 - 07:59 | 1210726 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

The Banksters/Politian cabal will keep stealing/pushing until the people start to push back...

... judging by the average citizen, that could be quite a while yet.

Wed, 04/27/2011 - 13:46 | 1212402 SilverBaron
SilverBaron's picture

Or until China, Russia, and the House of Saud decide to get together and push back.

Wed, 04/27/2011 - 08:13 | 1210752 goodrich4bk
goodrich4bk's picture

Everybody here seems to agree with this guy's premise, ie., that not raising the ceiling = default on bonds.  WTF?  Rolling our bonds requires no new debt.  The only new debt required is to spend more this year than we bring in as tax revenue.  All we have to do is cut government down to the level of taxes we collect.  There is absolutely no need to borrow more money.

For Mr. Zames, though, let me spell it out.  You pay all of the coupons on existing debt.  Everybody esle --- the Department of Defense, Medicare and Medicaid service providers, monthly agricultural subsidy recipients --- they stand in line.  Give them vouchers redeemable when there is sufficient tax revenue to pay them. 


Wed, 04/27/2011 - 09:12 | 1210996 earnulf
earnulf's picture

Sorry Goodrich, too simplistic.   The fact is that we already spend $1.62 for every buck the country "earns" in revenue.     You start messing with paychecks and the revenue stream also begins to dry up at an alarming rate.

40% of the revenue stream (that's counted as revenue in the government books) comes from Social Security Taxes taken out of paychecks.    Individual Income taxes account for another 40% of that revenue stream.   Start issuing vouchers (governmet IOU's, wait, isn't that FRN's?) instead of dollars and how you gonna collect that 80% of revenue when all they have to pay for it is vouchers (damn, FRN's).     We are already well past the point of no return and without a lifeline (where's Regis when you need him) we are toast.

Existing coupon debt, at existing rates is 413 billion dollars (as of 2010).   Coprorate Income taxes in 2010 were 191 billion and Other revenues were 207.   So without taxes from the paychecks, we can't even fund our interest costs at ZIRP.

Wed, 04/27/2011 - 12:14 | 1211943 cxl9
cxl9's picture

And how many, like me, are waiting for the first sign of weakness to stop paying their taxes entirely? No one wants to be the last soldier to die in a war; I don't want to be the last taxpayer in a dying nation. At some point the IRS will be swamped with tax defaults and the cost to collect will exceed the revenue to be gained. The beast will thrash around like a desperate, wounded animal. That's the time to starve it to death.

U.S. taxes create a demand for dollars. When that demand dries up, then you'll see your hyperinflationary event.

Wed, 04/27/2011 - 08:11 | 1210755 dognamedabu
dognamedabu's picture

Excuse my foreign understanding of the US system..Are you telling me the government is advised on borrowing practices by those that broker and hold US debt? Isn't that like have the fox in charge of the hen house? USA, I love ya, but holy fuck. Wake up!


Wed, 04/27/2011 - 08:14 | 1210768 Victor Berry
Victor Berry's picture

Congress is a reactionary body.  It is not proactive.  It will wait until there is a significant flash crash of the stock market before voting to raise the debt ceiling.

And the moral of the story?  Tea baggers learn that it's better to suckle Wall Street's massive balls made of depleted uranium rather than get beaten about the head, face, neck, and shoulders by them.

Wed, 04/27/2011 - 09:25 | 1211082 Dr. No
Dr. No's picture

Absolutely.  Remmeber 2008?  The house passed TARP cuz of a 600 point drop on the DOW.  50% hair cut on constituient 401(k)s cuts down on the e-mail threats really fast.

Wed, 04/27/2011 - 08:15 | 1210770 Cash_is_Trash
Cash_is_Trash's picture

"The Honorable"?

The man's a piece of shit!

Wed, 04/27/2011 - 08:20 | 1210774 Waterfallsparkles
Waterfallsparkles's picture

Just maybe the FED should have thought about that when they instituted QE1 and QE2.  The Trillions of Dollars used to pump up the Banks Balance sheets could have been on their Balance sheet.  We would not need a Debt ceiling raise because they would have the Money on their Balance sheet to continue Monetary operations for another year.

They spent the Money and now they want more.  I say NO.  Live within your Budget.

Wed, 04/27/2011 - 08:19 | 1210775 Strategery
Strategery's picture

The letter is wrong. The only way we entice foreign countries to buy our treasury debt is to get our fiscal and monetary houses in order. These governments are already pulling out. These foreign countries have been our finical creditors/bankers, and they are telling us to quit spending so much and to quit killing the dollar......we should listen.

Wed, 04/27/2011 - 08:20 | 1210785 cossack55
cossack55's picture

No sweat. The Bernank will just handle thru Euro swap window and the ECB or IMF wiil buy the auctions using the money given them by the FED, minus a decent cut for them.

Wed, 04/27/2011 - 08:20 | 1210781 Dr. Impossible
Dr. Impossible's picture

Dear Mr. Taxcheat:

As Chairman of the Homeofthefreakinscrew'd, I am writing to express my concerns regarding the urgent need to increase the propaganda. A considerable degree of uncertainty already exists among market participants given the severe and long-lasting impact that even a, make believe, technical default would have on the Homeofthefreakinscrew'd....they might go back to work if default happens.....

Wed, 04/27/2011 - 08:44 | 1210856 Waterfallsparkles
Waterfallsparkles's picture

Petitioning the Congress for a Debt Ceiling raise is like the Banks Voting for Entitlements for themselves at the expense of the United States Citizens.

Wed, 04/27/2011 - 08:49 | 1210875 dcb
dcb's picture

To me the list reads of the people you'd like to see all crash in a plane.


OK, thought about this last night. with no consumer credt expansion, the government increased credit is the most effective way of destroying the currency and causing inflation. get rid if that and bankers are fucked!!!

Wed, 04/27/2011 - 08:49 | 1210885 Seasmoke
Seasmoke's picture

at this point is it a ceiling or a floor ?

Wed, 04/27/2011 - 08:54 | 1210897 buzzsaw99
buzzsaw99's picture

Extortionist thugs at it again.

Wed, 04/27/2011 - 08:57 | 1210915 boooyaaaah
boooyaaaah's picture

What if this vote was the last vote in this present system?

The present system started with th constitution, elected representatives and taxes to run the system.

The people were guaranteed rights were required to elect representatives and pay taxes.

The representatives, congressmen, senators, and the president carried out the general will of the people by spending their tax dollars.

Very soon after this system was established the representatives wanted to spend more than the people were willing to authorize.

Then deficit spending, borrowing, and printing money were created to satisfy the need of the elected representatives ---policy makers.

The result was to diminish the constitutional right to vote.

The representatives in creating money no longer needed tax revenue to the extent that borrowing and printing replaced tax revenue.

The more funny money the less important tax money.

Since witholding tax money is the free man's only grip, only control over the representatives, by creating funny money the representatives take away the free man's right to vote to say no more money.

They don't need our allowance money any more they have their own source of funds furnished by the bankers

That's why this vote on raising the debt ceiling may be our last. They really don't need us any more. They don't need our tax revenues. And we are so afraid of leaving their teat and they know it

It may have been the game plan of tyrants since the beginning.
Enslave those who oppose you. The only sure way to royal security is to promise social security.

Wed, 04/27/2011 - 09:03 | 1210928 Waterfallsparkles
Waterfallsparkles's picture

If the Debt Ceiling was not raised, Wall Street would have to Sell their Stocks.  That would be good as they would then have to pay Capital Gains which would help boost Tax Revenues for the Government.

This way it helps the Government Revenues which would at least be a return on the Money spent to hold up the Market.

Wed, 04/27/2011 - 09:05 | 1210936 HedgeFundLIVE
HedgeFundLIVE's picture

What is great is that most of the banks still hold recession-level loan loss reserves and I believe that they are, for the most part, on the verge of some measurable loan growth as the economic recovery proceeds.

Wed, 04/27/2011 - 09:06 | 1210960 falak pema
falak pema's picture

Benocide must make his call....will it be QE3 or end QE2? What are the odds? Wager!

Wed, 04/27/2011 - 09:11 | 1210991 Downtoolong
Downtoolong's picture

Rule by threat and fear has always been acceptable towards an enemy. I guess that would be us now, the only commoners with any real assets left.

Wed, 04/27/2011 - 09:18 | 1211032 jplotinus
jplotinus's picture

The Zames letter is, in my view, irresponsible.  There is not one hint or suggestion of what would be done during the grace period that would accompany a debt ceiling increase. Merely reiterating that the sky is falling is not a responsible statement coming from the TBAC. 

First of all, it does not even provide acknowledgment of the need to reign in the debt over time, let alone address the consequences of raising it without so much as a hint as to what is to be done to prevent another such dire request for raising the limit within a year or two at the most.

What is on display in the letter is the utter cluelessness of what should be an august body of capable personages, who are prepared to provide financial system leadership.

The issue, then, is this, as there appears to be no leadership capable of acknowledging, let alone addressing the failed financial system that is our current reality, how do citizens in their ones, twos and small groups come together to solve this problem at a grassroots level?

I think we're seeing, in the content of the Zames letter, further confirmation of a complete abdication of responsibility at the highest levels.

Wed, 04/27/2011 - 09:34 | 1211125 disabledvet
disabledvet's picture

Wall Street orders the arrest of Congress????  Hahahahahaha.

Wed, 04/27/2011 - 09:45 | 1211203 Bansters-in-my-...
Bansters-in-my- feces's picture

, "The Treasury Borrowing Advisory Committee, easily the most important 3rd party advisory structure at the US Treasury currently, chaired not surprisingly by JP Morgan and Goldman Sachs",

Hey Americans....!!!

When the fuck are you's going to put the fucking t.v. remote control down and take your fucking country back ???

You's have been taken over by banksters disguised as politicians.

WAKE THE FUCK UP.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Wed, 04/27/2011 - 09:47 | 1211208 cocoablini
cocoablini's picture

These letter signers should known it will be like 2008 plus, since they frikkin invented 2008s meltodown

Wed, 04/27/2011 - 09:53 | 1211239 Bansters-in-my-...
Bansters-in-my- feces's picture

Hey Matthew E Zammes...

I hope you choke to death sucking a big horse cock.

Because I am sure you suck a lot of them.

You fucking Sach of shit.

I hope your sidekicks expierience the same fate.


Wed, 04/27/2011 - 16:21 | 1213398 AldoHux_IV
AldoHux_IV's picture

Awww how cute the robber barrons drafted a letter to express their concerns as to why the ponzi may not continue-- like there's ever a doubt. The ponzi is unwinding and the default is happening just in a "slow and orderly process" like the euro system-- the only risk is the peasantry prying their attention from American Idol, Jersey Shore, Donald Trump i.e. dumb politics, and focus on what's truly happening-- I think the IMF has some fancy model they can use to forecast the odds of that happening. 

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