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Experts say that a U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will dwarf the financial fallout seen by Lehman Brothers collapse in 2008, Bloomberg News reported today. Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, raising borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression, according to dozens of money managers, economists, bankers, traders and former government officials. The $12 trillion of outstanding government debt is 23 times the $517 billion Lehman owed when it filed for bankruptcy on Sept. 15, 2008. As politicians butt heads over raising the debt ceiling, executives from Berkshire Hathaway Inc.’s Warren Buffett to Goldman Sachs Group Inc.’s Lloyd C. Blankfein have warned that going over the edge would be catastrophic.

Citigroup Inc. is firing back at Lehman Brothers Holdings Inc.'s "unprecedented" bid to cut off its right to hundreds of millions of dollars in interest payments tied to Citi's $3 billion bankruptcy claim against the failed investment bank, Dow Jones Daily Bankruptcy Review reported today. Lehman wants Bankruptcy Judge James Peck to end what it calls Citi's "interest rate arbitrage" with respect to rival claims on billions of dollars in assets. By provisionally paying off the bank, Lehman would stem the flow of interest payments to Citi, which could total hundreds of millions of dollars by the time the two sides face off in court, which isn't expected until 2015.

A New York law banning merchants from surcharging customers to make up for credit card swipe fees was halted by a federal judge who ruled the statute is unconstitutional, Bloomberg News reported yesterday. U.S. District Judge Jed Rakoff yesterday ordered the state not to enforce the ban during a legal challenge filed by several small businesses. Businesses including a Vestal, N.Y., hair salon, a Brooklyn ice cream parlor and a Lower Manhattan martial arts academy alleged in a lawsuit filed in June that the law violated free speech rights by penalizing them for adding surcharges while at the same time allowing them to provide discounts to customers paying with cash or debit cards. Judge Rakoff said that the law violated the First Amendment because it prevented merchants from calling the difference between prices charged to cash customers and credit-card users a “surcharge.” The term “surcharge” communicates to customers that credit cards are costly for merchants, the businesses argued.

Deloitte & Touche LLP settled lawsuits by Taylor, Bean & Whitaker Mortgage Corp.’s bankruptcy trustee and Deutsche Bank AG over $7.6 billion in losses associated with the collapse of the mortgage lender, Bloomberg News reported yesterday. Bankruptcy trustee Neil Luria and Taylor Bean’s Ocala Funding unit sued Deloitte in September 2011 over claims the accounting firm failed to detect a fraud that led to losses at the defunct lender. Deutsche Bank, which filed its complaint in December 2011, invested in asset-backed notes issued by Ocala based on Deloitte’s audits of Taylor Bean’s financial statements from 2005 through July 2009. The settlement comes ahead of an Oct. 21 trial in the case. Taylor Bean, once the 12th-largest U.S. mortgage lender, collapsed in 2009 after federal regulators began probing a fraud that involved fake mortgage assets, targeted the federal bank bailout program and contributed to the failure of Montgomery, Ala.-based Colonial Bank.

A bankruptcy trustee overseeing the liquidation of MF Global Holdings Ltd.'s brokerage operation plans to file a motion as soon that will likely smooth the way for all remaining money to be returned to the firm's U.S. customers, Dow Jones Daily Bankruptcy Review reported today. Trustee James Giddens plans to ask a judge in the motion for the remaining funds to be returned to U.S. customers who traded on domestic exchanges. An estimated $1.6 billion went missing from MF Global customer accounts in the wake of the firm's collapse in October 2011. Since then, Giddens has returned 98 percent of that money to U.S. customers who dealt on U.S. exchanges.

Wells Fargo & Co. will face an enforcement action today by New York state over the bank’s alleged failure to uphold terms of a $25 billion mortgage-servicing settlement, Bloomberg News reported yesterday. The action, in the form of a motion to compel compliance with the 2012 accord, is to be filed by New York Attorney General Eric Schneiderman in federal court in Washington, D.C. Wells Fargo and Bank of America Corp. were accused by Schneiderman’s office of violating the national settlement, under which five of the country’s largest mortgage servicers promised to reform foreclosure and loan-modification practices. Bank of America has agreed to changes aimed at bringing the Charlotte, N.C.-based lender into compliance with the deal.

Credit card issuers may face new limits on fees and greater disclosure requirements as the U.S. Consumer Financial Protection Bureau pledges more scrutiny after a 2009 law that revamped regulation of the business, Bloomberg News reported today. “The CARD Act brought better consumer protections and fairness to the marketplace, but we found there is more work to be done,” CFPB Director Richard Cordray said. The Credit Card Accountability Responsibility and Disclosure Act of 2009, limited lenders’ ability to raise interest rates, curbed late fees and forced lenders to seek customers’ approval to apply over-limit fees. Now the bureau will examine whether certain cards impose undue fees, and whether issuers adequately disclose terms and conditions, Cordray said.

A JPMorgan Chase & Co. employee is cooperating with federal investigators examining whether the bank knew the mortgage bonds it sold were of poor quality, Bloomberg News reported today. The unnamed JPMorgan employee told her superiors at the bank they were vastly overstating the quality of mortgages packaged into securities. The Justice Department also has documents showing JPMorgan was aware it was selling residential mortgage-backed securities of poor quality. The disclosure of a cooperator comes as the lender is in talks to pay about $11 billion to end investigations into its mortgage-bond sales practices by state and federal authorities.

Wells Fargo & Co., the largest U.S. home lender, agreed to an $869 million settlement with Freddie Mac to resolve repurchase claims on faulty loans sold to the government-backed firm before Jan. 1, 2009, Bloomberg News reported today. The accord includes a one-time $780 million cash payment to Freddie Mac, a reduction that reflects credits tied to previous buybacks, San Francisco-based Wells Fargo said yesterday. The firm already had set aside money to cover the cost of the agreement. Home lenders including Bank of America Corp. and Citigroup Inc. have sought to resolve claims tied to faulty mortgages sold to Fannie Mae and Freddie Mac, the U.S.-owned firms forced to take a $187.5 billion bailout after losses from soured mortgages. Citigroup reached a $395 million deal with Freddie Mac last week and announced a $968 million settlement with Fannie Mae in July.

JPMorgan Chase & Co. and Citigroup Inc. were among the banks that lost a bid to throw out a Federal Deposit Insurance Corp. lawsuit over $388 million in securities sold to a failed lender, Bloomberg New reported on Friday. U.S. District Judge Louis Stanton on Friday denied a motion to dismiss the suit, which also targets UBS AG, Deutsche Bank AG and Wells Fargo & Co. Judge Stanton rejected defense arguments that FDIC filed the suit too late and that the agency failed to make a sufficient claim that could allow it to recover. In the suit, filed last year, FDIC alleged that the banks misrepresented the quality of the loans underlying 11 residential mortgage-backed securities that Colonial Bank purchased in 2007. Colonial Bank, of Montgomery, Alabama, was closed by the Alabama State Banking Department on Aug. 14, 2009, and the FDIC was named as a receiver for the institution. The misrepresentations included inaccurate loan-to-value ratios based on inflated property values, according to the complaint. Many of the properties at issue also had second mortgages that weren’t disclosed, the FDIC said.