According to an article published today in the Wall Street Journal:
"On the surface, investors appear to have shrugged off the latest Washington showdown, which follows a similar 2011 brush with calamity. The Dow Jones Industrial Average posted its biggest rise of the year on Thursday, then rose 111.04 points Friday to 15237.11.
But in other markets, participants have been scrambling to gird for a possible default, as unlikely as one is widely deemed to be, while complaining they have been left to operate in the dark. Some industry officials and bank executives say the implications and market reactions to a U.S. default are too vast and dynamic to fathom.
A repeat of the recent down-to-the-wire tactics could unsettle markets if a statutory borrowing breach becomes possible again later this year. Government officials and market observers worry such uncertainty could have an enduring effect on financial markets".
"The brinkmanship in Washington could easily create huge volatility in important funding markets that could easily get out of control," said Jim Millstein, who oversaw the restructuring of AIG Inc at the Treasury Department.
Some investors hope a possible relief valve lies with the Federal Reserve.
Bankers have pressed the Fed and the Treasury to say whether the central bank would accept defaulted Treasurys as collateral for emergency loans in the event of a liquidity crunch, but they haven't received clear answers, they said.
Fed Chairman Ben Bernanke, however, has tried to stress that the Fed isn't planning any grand rescue for financial markets. He has said several times that the U.S. central bank isn't in a position to cushion the financial system or economy.
Many business leaders stressed that they weren't expecting the worst to come to pass.
"A debt default cannot happen," J.P. Morgan Chase & Co. Chairman and Chief Executive James Dimon said on a call with reporters Friday morning.
Large money-fund sponsors, including Fidelity Investments Inc.,BlackRock Inc Chales Schwab Corp and Bank o fAmerica Corp , say they have sold short-term U.S. debt or avoided buying bills due at the end of the month or in early November. Banks sold more than 64% of their Treasury holdings during the two week-period that ended Oct. 2, according to data from the Federal Reserve Bank of New York.
A SEC spokesman said the agency is "reaching out to firms, as we always do in such situations, to make sure they are appropriately considering and managing the risks of their positions."
Japanese authorities have been examining domestic banks' exposure to U.S. government securities and their ability to procure dollars. The Bank of Japan has also been contacting financial firms to check their ability to withstand potential shocks, people familiar with the matter said.
Late in September, some major Wall Street players in the $11.6 trillion Treasury-bond market, along with Federal Reserve officials, gathered to discuss the industry's contingency plan around a debt-ceiling crisis, according to minutes from the meeting by the group".
