Megan McArdle has a long and thoughtful post today about how low interest rates are delaying action on the debt ceiling because the cheap borrowing indicates the financial markets don't think the debt crisis is real and/or there's little chance of default.
Let me just add this, if I may. I just finished reading an excellent book about the subprime mortgage crisis and the ensuing economic downturn titled "All the Devils are Here" by Bethany McLean. (She's also the author of the fantastic account of Enron: "The Smartest Guys in the Room.") One thing I took away from the "Devils" book is that - once the market loses faith in an institution - the downfall is swift, harsh, catastrophic, and irreversible.
This was true for AIG, Merrill Lynch, Washington Mutual, but especially for the old-money boys at Wall Street institution Lehman Brothers. In mid-2008, Lehman's exposure to subprime loans was becoming evident. By September, the 150-year-old firm - unable to find a buyer - declared bankruptcy. Only six months before the collapse, Lehman CEO Richard Fuld had appeared on a Barron's list of the 30 best CEOs in the country.
Overcome with debt and liabilities it could not contain or mitigate, Lehman imploded like *that*.