In morning trading, the Standard & Poor’s 500-stock index was off 0.1 percent, the Dow Jones industrial average fell 0.2 percent and the Nasdaq composite was 0.4 percent lower.

With uncertainty over the raising of Washington’s borrowing limit temporarily resolved, investors have focused on other matters, notably when the Federal Reserve will reduce its mammoth monetary stimulus that has been a boon for stock markets.

American hiring and durable goods orders for September were weaker than expected, signaling that growth momentum might be slowing and reinforcing expectations that a scaling back of stimulus, known as tapering, would not begin until next year, Mitul Kotecha of Crédit Agricole in Hong Kong said in a market commentary.

Further data releases on the United States economy this week, including September industrial production, retail sales, inflation and consumer confidence, as well as a Fed policy meeting, could reaffirm that expectation, he said. The Fed is buying $85 billion of government bonds and other securities each month with the aim of keeping interest rates low to support economic recovery….

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Even as it wrestles with the $18 billion of debt that has overwhelmed it, Detroit has already been billed more than $19.1 million by firms hired to sort through that debt, search for ways to restructure it, and now guide the city through court. That does not include more costs that the city is expected to bear for the support staff for its state-appointed emergency manager, and for another set of lawyers and consultants to represent city retirees.

“It’s just ridiculous,” Edward L. McNeil, an official with the local council of the American Federation of State, County and Municipal Employees, said of the mounting costs. “The only thing that’s getting done is that these people are getting paid big-time while the citizens of Detroit are getting ripped off.”

The uncharted scale of Detroit’s bankruptcy — it is the largest municipal bankruptcy filing in the nation’s history in terms of both the city’s population and its debt — suggests that it may also become the costliest, experts say. City officials offer no estimate for a final tab, but some bankruptcy experts say the collapse could ultimately cost Detroit taxpayers as much as $100 million. As of last week, 15 firms had contracts with the city that could total as much as $60.6 million, city records show.

Some lawyers and other consultants are accepting discounted fees, and a fee examiner has been appointed to ensure that bills stay within reason. Still, the soaring costs are a jolt to retirees and creditors bracing for cuts to payments they once expected.

Some lawyers from the firm Jones Day, which charged the city $3.6 million for four months of work this year, bill for as much as $1,000 an hour, documents filed with the city show. The firm also forgave the city more than $1.2 million in additional costs during the same period, and accepted fee caps as part of its contract, the records show, resulting in effective hourly rates that are lower.

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In early trading, the three main indexes — Standard & Poor’s 500-stock index, the Dow Jones industrial average and the Nasdaq composite — were 0.1 percent lower.

The government will reach its borrowing limit, or debt ceiling, by Tuesday. If Congress does not raise that limit, the government will not be able to pay all its bills, possibly shaking confidence in the economy, the world’s biggest.

That leaves just days for the White House and Republican lawmakers, who disagree on spending cuts and other important budget issues, to reach a compromise. Republicans are demanding that any increase must result in expenditure cuts of an equal amount. President Obama is demanding a debt-limit increase with no conditions attached….

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For the first time since before the credit crisis, bond buyers are demonstrating more confidence in the U.S. banking system than in industrial companies as lenders fortify balance sheets while firms from Verizon Communications Inc. (VZ) to Apple Inc. (AAPL) borrow record amounts.

Relative yields on bonds from Citigroup Inc. (BAC) to JPMorgan Chase & Co. (JPM) were 3 basis points less than the average for industrial notes last week, the first time since September 2007 that investors didn’t require more from bank borrowers, Bank of America Merrill Lynch index data show. The relationship reversed after bank bond spreads surged to an unprecedented 365 basis points more than industrials amid the worst financial crisis since the Great Depression.

Lenders sitting on a record $9.5 trillion of deposits are winning over the bond market after increasing a measure of their capital cushions by about 54 percent to meet regulations intended to prevent a repeat of the turmoil that followed the 2008 bankruptcy of Lehman Brothers Holdings Inc. and contributed to more than $2 trillion of writedowns and losses at the world’s biggest financial institutions….

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Ruth Porat didn’t see it coming.

The Morgan Stanley (MS) banker who thought she understood the risks to the financial system in September 2008 was advising the U.S. Treasury Department on its rescue of Fannie Mae and Freddie Mac when she got a message: Would she come back to Washington to deal with the collapse of American International Group Inc. (AIG)?

“The call I got was ‘We worked on the wrong thing,’” Porat, 55, said in an interview last month at the New York headquarters of the bank where she’s now chief financial officer. That AIG “could vanish that quickly and the impact that could have throughout the country, and that nobody could see it coming, was just staggering.”

Porat’s own bank almost vanished when hedge funds, spooked by difficulties getting money out of bankrupt Lehman Brothers Holdings Inc., pulled more than $128 billion in two weeks from Morgan Stanley. To stay afloat it sold a 20 percent stake, became a bank holding company and borrowed $107.3 billion from the Federal Reserve on a single day.

Five years after Lehman Brothers sank on Sept. 15, 2008, triggering the worst financial crisis since the Great Depression, Morgan Stanley is safe enough to survive a shock that devastating, Porat said. She and Chief Executive Officer James Gorman, with prodding from regulators, led a drive to cut risk and boost capital to soften the next blow….

Read the rest of the article at Bloomberg.

Let’s play a game. It is called “What if … .”

As we observe the five-year anniversary of the financial crisis — Lehman Brothers filed for bankruptcy five years ago this coming weekend — the most intriguing hypothetical question about those fateful days is what would have happened had the government bailed out Lehman.

It would have changed the course of history, certainly, but maybe not for the better.

The collapse of Lehman has long been considered the domino that led to the tumbling of so many others: Merrill Lynch’s hasty sale to Bank of America; the bailout of the American International Group; the breaking of the buck in the money market; the near collapse of Goldman Sachs and Morgan Stanley that led them to become banking holding companies; and the decision by the government to pursue the $700 billion Troubled Asset Relief Program to bail out the entire banking industry.

The decision not to rescue Lehman has been called a mistake and worse. Christine Lagarde, the French finance minister at the time, called it “horrendous.”

No one suggested Lehman deserved to be saved. But the argument has been made that the crisis might have been less severe if it had been saved, because Lehman’s failure created remarkable uncertainty in the market as investors became confused about the role of the government and whether it was picking winners and losers. The government had bailed out Bear Stearns and then nationalized Fannie Mae and Freddie Mac but left Lehman for dead only to turn around and save A.I.G….

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In the world of sovereign debt defaults, it is hard to imagine a less sympathetic debtor than Argentina. It has defaulted again and again for nearly two centuries, with few apologies. After the country’s most recent default, in 2001, it refused to negotiate for four years and then offered creditors a deal worth about 30 cents on the dollar — and vowed that those who refused would receive nothing.

After a second offer — on the same terms — in 2010, all but 7 percent of the bonds have been exchanged. But some of the remaining ones were owned by hedge funds that went to court. Last week they won a decision from the United States Court of Appeals for the Second Circuit in New York that has caused considerable concern at institutions like the Treasury Department and the International Monetary Fund.

The decision essentially says that Argentina cannot pay any creditors if it does not pay all of them, and says banks — in the United States and perhaps around the world — could face contempt charges if they allow Argentina to make payments to only those lenders it wishes to pay.

“While we strongly disagree with Argentina’s actions in the international financial arena,” a senior Treasury official, who spoke on the condition of anonymity, said this week, “we have serious concerns that the Second Circuit’s decision will undermine the orderliness and predictability of sovereign debt restructuring and could roll back years of progress.”

The United States government, in a brief filed with the appeals court before it made its decision, urged that it not take the course it ultimately took, warning that the decision could damage the status of New York as a chief world financial center and cause “a detrimental effect on the systemic role of the U.S. dollar” by encouraging countries to denominate their debt in other currencies and put them outside the jurisdiction of United States courts…..

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