Nicole Gelinas examines how the way the Tea Party sees TARP impacts the debt ceiling debate:

TARP’s Shadow

On Wednesday, House Minority Leader Nancy Pelosi sent a warning on the debt-ceiling hike. “Let’s get on with writing the bill,” she said. “I don’t need to see markets drop 400 points. But Republicans may need to see markets drop 400 points.” Pelosi remembers September 2008, when the House, then controlled by the Democrats, initially voted against the Troubled Asset Relief Program. Stocks plunged 778 points. Only after her caucus felt the visceral terror of an impending depression was Pelosi able to cobble together votes to counter Republican opposition.

If the House goes to the wire this time, there will be plenty to fear. A Treasury default would be worse than the financial crisis of 2008. The world economy is built on Treasury securities. Companies around the globe use them as collateral for overnight loans so that they have cash to pay workers as they wait for their own payments from other companies. Because this collateral is so safe, the lenders who make the overnight loans don’t have to worry about the borrowers. The key is that Treasury bonds are supposed to be risk-free.

But nothing is risk-free. If and when the market discovers this about Treasury bonds, the consequences will be dire. Companies short of cash would shed workers. Global asset selloffs could send the slow-brewing Eurozone crisis into multiple defaults, and European governments would struggle to protect their own financial institutions from panic. The fear of default could spur companies around the world to hoard more cash in anticipation, slowing the economy down. In the past week, a parade of leading financial figures has sounded the alarm—Federal Reserve chief Ben Bernanke, JPMorgan Chase honcho Jamie Dimon, Senate Minority Leader Mitch McConnell, Treasury secretary Timothy Geithner, and former Obama economic adviser Larry Summers among them.

And that’s precisely the problem. Tea Party freshmen and their supporters hold this establishment in contempt. Implicitly invoking TARP, as Pelosi did when she mentioned a stock-market crash, won’t scare them; it will only embolden them. It would be one thing if Tea Party adherents merely believed that a default wouldn’t spell disaster; in that event, the GOP freshmen would figure out the truth soon enough. The problem is that many Tea Partiers consider TARP such a terrible idea that they would have chosen to brave a worse financial disaster instead. Today, they think that a market cataclysm would be better than another “sellout” vote. House veteran and GOP presidential candidate Michele Bachmann set the pace in last month’s GOP presidential debate: “I fought behind closed doors against my own party on TARP. It was a wrong vote then. It’s continued to be a wrong vote since then.” As the defeat of Utah senator Bob Bennett in 2010 showed, party voters are unforgiving of Republicans who supported TARP. A debt-hike vote will follow Republican candidates in their primaries next year.

Please do read the rest. It’s not wingnutty at all, and its actually quite good.