It's the Entitlements Stupid

Senator Mitch McConnell said “We have over $50 trillion in unfunded liabilities, that is, promises we have made that we cannot keep, to very popular things, like Medicare and Social Security and Medicaid, the health program for the poor, how much more do we need to know?”

A lot! For instance the Washington Spectator reports the real financial threat facing this nation is credit default swaps. A credit default swap is the swapping of risk with a third party, essentially to insure you against default. Now, because of decades of deregulation, credit default swaps and other complicated derivatives are traded without any regulation, resulting in “JP Morgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs holding more than 95 percent of derivatives exposure among the nation’s top 25 bank holding companies.”

A bank holding company isn’t just a bank, it’s a mega conglomerate and has a lot more companies under it than just banks, like insurance companies. Precisely why AIG, an insurance company who’s also a bank holding company, was included in the bank bail outs and why we’re on the hook for all those trillions in credit default swaps.

Eric Dinalo former superintendent of the New York Insurance Department stated “ in 2008 the total of private sector debt was about $16 trillion. So it appears that swaps on that debt could total at least three times as much actual debt outstanding.” Oddly enough, that’s close to $50 trillion.

The Spectator continues: “The numbers alone are terrifying. In 2008, Bear Stearns had written derivatives contracts backing credit valued at 10.2 trillion, a figure three quarters the size of the U. S. economy. When institutions with balance sheets like that go south, the entire economy goes with them.”

No wonder the Senator is “talking about trillions here, not millions -- I mean, not billions, we're talking about trillions.” It is easier to convince the populace that future debt is due to entitlements than it is to convince them it’s the bankers and their trick credit default swaps causing future debt. And this is just the tip of the iceberg, there’s a lot more spending on Wall Street that we need to know about, but sadly all we hear is the chant: it’s ‘the entitlements stupid‘.