How Wall Street is preparing for a US debt default

LAST week I spoke with two people on Wall Street who are planning what to do in case Congress and the White House can’t reach a deal on raising or suspending the debt ceiling. They told me that it’s not clear how well the contingency plan for a default by the federal government would work, because it’s never been tested. Even if it did work exactly as conceived, they said, a default would still damage the economy.

Even the best-case scenario isn’t good. Let’s say Wall Street somehow managed to minimise the harm done by a brief default. That could cause some politicians to think the warnings were overblown, making them more willing to risk another default, which could inflict more damage. Once broken, a taboo loses its power.

Beth Hammack, who is the co-head of the Global Financing Group at Goldman Sachs, leads a group governed by federal statute called the Treasury Borrowing Advisory Committee, which meets with the Treasury Department once a quarter to advise it on how it raises money through sales of bonds, notes and bills.