Wall Street Presses Republicans to Reach a Deal on Debt Ceiling
By MARK GONGLOFF And PATRICK O'CONNOR
During a recent series of meetings and fund-raisers, top Wall Street executives and lobbyists have urged Republicans to resolve the debt-ceiling debate quickly or risk turmoil in the bond market.
In the sessions, House Speaker John Boehner (R., Ohio) explained the politics of the vote to investors, telling them Republicans won't approve an increase in how much the U.S. can borrow without a long-term deficit-reduction plan, according to people familiar with his remarks. In turn, the executives said delaying a resolution could unnerve skittish credit markets.
What's at Stake
If the debt ceiling isn't raised on time by Congress, the U.S. risks triggering the following events:
Shaking investor confidence in the U.S.
Driving up long-term interest rates on Treasury debt, increasing the government's budget deficit
Disrupting the flow of government services
Interrupting outlays for federal workers' salaries, Social Security and other benefits
Undermining the U.S. economic recovery
Rep. Spencer Bachus (R., Ala.), chairman of the House Financial Services Committee, said executives he met in New York Sunday and Monday warned of the "negative implications" of failing to extend the debt ceiling. Mr. Bachus said his role as chairman required him to make the point to fellow Republicans that letting the matter drift into the summer could hurt markets.
The U.S.'s borrowing limit, a precise number set by Congress, has become central to Washington's debate over spending and debt. The House GOP has said that it won't vote to raise the limit, currently $14.294 trillion, without a commitment from the Senate and White House to pare spending.
President Barack Obama acknowledged as much in an interview with the Associated Press on Friday. Mr. Boehner is "absolutely right that it's not going to happen without some spending cuts," he said. He also warned that failure to raise the debt limit "could plunge the world economy back into recession."
Mark Gongloff explains why Wall Street executives and lobbyists are pressing the case to House Republican leaders to resolve the U.S. government's debt-ceiling debate quickly, or risk severe bond-market turmoil.
Top financial executives have also called White House and Treasury, raising similar alarms, administration officials say.
The White House suggested this week a committee of lawmakers be formed to negotiate a deficit-reduction target and ease passage of a debt-limit increase, though it isn't clear if such a body would have enough congressional support to be viable.
The government has said it would reach its borrowing limit on May 16 and risks defaulting on its debt on July 8 without fresh funds to pay interest on existing debt. Some lawmakers think the debate could continue past May 16 without causing too much damage.
The Obama administration has indicated it might take until late June to reach a broader deal. Republicans have an incentive to push the matter as long as possible in order to extract White House concessions.
But even though the government can avoid defaulting after May 16, by using accounting and cash-management maneuvers, markets will likely worry about Congress's political will, many market participants say. If investors shun long-term U.S. government debt, interest rates would rise, which would drive up the government's borrowing costs and hasten the risk of a default.
"Bond markets will start to get very nervous if we go beyond May 16 without a debt-ceiling agreement being reached," said Ajay Rajadhyaksha, head of fixed-income strategy at Barclays Capital.
The issue presents a dilemma for those Wall Street executives most concerned about the U.S.'s long-term fiscal outlook. Republicans said executives prodded lawmakers to make cuts in the federal budget, as well as to raise the debt ceiling.
Texas Rep. Pete Sessions, who was in New York to raise money for the National Republican Congressional Committee, said Wall Street executives wanted to make sure Congress took the debt-limit vote seriously while also pushing for spending cuts. "I told them we're very serious," he said.
Mr. Boehner this week sought meetings with executives from Goldman Sachs Group, UBS AG and other banks. The speaker is hosting a fund-raiser at the St. Regis in Midtown next month that will be well-attended by financial-industry executives.
Spokesmen for Goldman and UBS declined to comment.
"Boehner has said exactly the same thing privately that he says publicly: the American people will not tolerate an increase in the debt limit without addressing the reasons it needs to be raised by cutting spending," said Boehner spokesman Michael Steel.
The discussions began last Wednesday at a gathering in Washington of the Financial Services Forum, a trade group, where GOP leaders met with chief executives of some the nation's largest banking firms to discuss topics including the debt ceiling, according to people familiar with the meetings.
Financial Services Forum President Rob Nichols declined to comment on discussions. He said he and his group meet frequently with freshman Republicans to express the importance of raising the debt limit.
Republicans said this is part of a running dialogue that started when the GOP gained its majority in the House. "Wall Street understands that if we default on our obligations, our markets are going to crash," said freshman Rep. Michael Grimm, a New York Republican who has served as a conduit between fellow first-year members and Wall Street back home. "They're doing their job and talking to a lot of members."
—Deborah Solomon, Dan Fitzpatrick, Liz Rappaport and Damian Paletta contributed to this article.
Write to Mark Gongloff at mark.gongloff@wsj.com
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