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article imageOp-Ed: Thanks for the debt ceiling problem, Wall Street

By Kelly Bowlin     Jul 29, 2011 in Politics
The cause of the debt ceiling debate has been largely ignored. The root cause doesn't stem from Capital Hill. It's from a street 228 miles hard north.
Sure, you can look at the ten-year history of our national debt and conclude that since Bill Clinton left office with a budget surplus, we’ve tanked badly. Don’t immediately assume our skyrocketing deficit from 2003 until today was either parties fault. Bill Clinton didn’t have 9-11 and he didn’t have an Iraq and Afghanistan war. Wars turn out to be expensive. Even though George W. Bush led us into both, it was with bipartisan support. Finger pointers beware; Barak Obama and Nancy Pelosi supported our incursion into the Middle East, right along with John McCain and Mitch McConnell. If you want to look at a potential “root” of our debt debacle, you should start with Muslim extremists. Al Qaeda attacked us on our soil, and we started a very expensive search and destroy mission.
While Muslim extremist are certainly be in our “blame sites,” the real culprit lurks 228 miles north of the White House. The address is: NYSE Group, Inc. 11 Wall Street, New York, NY 10005. Muslim extremists may have forced us into a couple of shooting wars, but Wall Street has led us into something potentially far worse.
Weapons for Financial Armageddon
Warren Buffet was right when he famously labeled derivatives, “Financial Weapons of Mass Destruction.” Derivatives, as the name implies are investments that “derive” their value from other things. When the world’s markets crashed, derivatives were largely to blame. They were the result of offshoots of Mortgage Backed Securities (MBS’s). When the world’s real estate markets were skyrocketing, Wall Street bundled the underlying security of home mortgages, namely real estate, into neat, multi-billion dollar packages, and then sold them off to the world financial markets. But they didn’t stop there. They were so confident their newly formed investment packages were safe, that they packaged and re-packaged the same investments into a multiplicity of exotic securities, with names like CDO’s, Swaptions, Forward Rate Agreements and Credit Default Swaps. In perspective, if you think our 14 trillion dollar debt-ceiling is large, consider Newsweek estimates that approximately $600 trillion worth of derivatives are floating around in the world today. For illustration, that number looks like this: $600,000,000,000,000. It’s 60 times larger than our entire national debt. It’s actually larger than the combined assets of the world! How is that possible? It’s because derivatives are just smoke-and-mirror illusions. Many derivatives had liability-to-asset ratios of 40 to 1. That means this: for every $100,000 mortgage that was made, there were $4,000,000 in derivatives created from it. Insanity! Why, because if that innocent little mortgage defaulted, or let’s say the underlying real estate it secured, lost half its value (sound familiar), then the $4,000,000 derivative that was created from it, became doubly worthless!
Is the Sky Falling, or Should Chicken Little be Deep-Fried, Extra Crispy?
The debt-ceiling, regardless of what the president and congress do, is the spark of a much bigger problem? Any debt-ceiling solution right now; is a band-aid on a gaping wound. As a country, we are hemorrhaging money. Our metaphorical credit card is maxed out and the debt-clock is still running. As a country, we’re in this dilemma because we’ve spent too much. Look no further than the government’s desperate attempt to patch up the economy from the lethal wound inflicted by the “banksters” of Wall Street. Here’s a rough recap of the bailout (in billions):
• Federal Reserve Programs $ 2,100
• Federal Deposit Insurance Corp. $ 149
• Treasury Department $ 597
• Federal Housing Administration $ 300
Total $ 3,146
In short, we’ve spent more than 3 trillion dollars, just to keep our head above water. It’s from money we’ve had to manufacture. Make no mistake; we’ve been at our debt limit for several years now. It’s because we’ve had to triage our economy by raising our credit card limit. The debt ceiling could be 20 trillion or 30 trillion if we’re not careful.
Unlike the wars we’re in or the budget crisis we face; whether it’s from taxes or health care, or immigration or social security; the derivative crisis is much larger, and far more threatening than all of those issues combined, and it certainly doesn’t ride on the backs of donkeys or elephants.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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