In DealBook, Andrew Ross Sorkin explains why default can’t occur–and then why it may:
“As political theater,” he said, “the debt ceiling is not a useful threat, because politicians are basically threatening to shoot themselves, as they will rightly shoulder the blame for the serious global economic consequences of a default.”
Mr. Reinhart’s view has become conventional wisdom on Wall Street when it comes to whether the country will hit the debt ceiling limit on Oct. 17. Warren Buffett put it this way: “We’ll go right up to the point of extreme idiocy, but we won’t cross it.”
Nobody believes the country will actually exceed the debt limit — which is exactly why it might.
So, let’s get back to the negotiation side of this: what can be done to solve the problem? Now Wharton’s experts are weighing in on how to craft a deal that will work–and avoid the U.S. self-imposed crash:
Wharton legal studies and business ethics professor G. Richard Shell:
Ask Presidents Clinton and Bush to co-mediate the dispute.
Devise an “unacceptable penalty” that would kick in if the two sides fail to reach an agreement by a set date. For example, begin permanently closing all national parks.
Change the negotiators: i.e., replace Obama and Boehner with a new representative from each party – people who still trust one another.
Invite participation by an authoritative and neutral third party that would structure a process for resolving the dispute. The government would return to work and the default would be delayed for three months while this process took place.
Ask the mayor of a small U.S. town – a political Independent from a swing state — to invite Obama and Boehner for a “backyard beer” to discuss the situation and come up with a solution.
Punt the issue down the road again by making an agreement that lasts only three months and then work on one of the other options on this list.