By nature Americans are optimistic people. But, optimism should not be an excuse to suspend critical thinking. There are uncomfortable questions which should be asked:
To Congress:
- Is this financial crisis different from past recessions?
- If this crisis is different why are we continuing to employ the same failed policies of the past?
- Ben Bernanke and Tim Geithner were in positions of responsibility at the inception of the financial crisis. Why should they continue in their positions?
- If easy monetary policies have gotten us into past financial trouble, why will easier monetary policies not cause further financial trouble?
- How is a jobless recovery a genuine recovery?
- After passing the TARP and a stimulus program, have Americans received value for money spent?
To the Federal Reserve Chairman:
- You have been a student of the Great Depression; explain how and why current circumstances differ from the 1929 Depression?
- Your zero interest rate policy created the housing bubble and much of the current financial crisis. Why continue this zero interest rate policy and cause further financial damage?
- Under what authority did the Federal Reserve have the right to purchase mortgages, equity stakes in private entities?
- If you believe a recovery is in progress, why are you not removing government guarantees and selling the mortgage backed securities the Federal Reserve purchased?
- Isn’t a zero interest rate policy antithetical to a strong dollar? And might not a weak dollar actually hurt the US economic recovery?
- Won’t a zero interest rate policy lead to dangerous speculative excess and misallocation of capital?
- Given the scope and nature of guarantees and expansion in the Fed balance sheet with securities of dubious quality, what is the chance of a US default on its debt?
- Did the Federal Reserve buy private mortgage backed securities at face value? If so, why?
- Why are you afraid of an audit of the Fed’s balance sheet?
To the Executive Branch and Treasury Secretary:
- Given the massive amount of public and private debt (almost 400% of GDP) should government policy be encouraging businesses and individuals to go further into debt to spur a recovery?
- Why are record bonuses being paid to Wall Street executives when these entities caused the financial crisis and needed public support to avoid bankruptcy?
- Has China directly threatened the Administration with boycotting the purchase of US debt?
- With meager internal savings and the potential for a threatened foreign boycott of US debt purchases, how does the Administration intend to fund the rapidly growing federal deficit?
- How many banks are actually insolvent?
- Why have we not promptly closed problem banks?
- Is the FDIC insolvent?
- How much more public money will be required to continue to fund the losses at Fannie and Freddie?
- Is massive federal assistance to select private companies like GE, American Express or AIG constitutional?
- With ever growing deficits, why is the Administration proposing costly health care proposals and expanded troop levels in Afghanistan?
- Is the government secretly intervening in the public debt and equity markets? If so, why?
- You have current regulatory power to reform the financial system. Why are you not:
a. Forbidding the creation and trading of private, customized credit derivatives?
b.Imposing windfall profit taxes on Wall Street that received any form of federal assistance?
c. Breaking up the “too big to fail banks?”
General Questions for Economists:
- How is the constant tampering with interest rates and providing taxpayer supported financial guarantees consistent with capitalism?
- How does a zero interest rate policy affect pension funds and the elderly population living on a fixed income?
- Why is the market incapable of determining an appropriate level of interest rates?
- Does our level of national income support our current projected debt levels?
- Does FDIC insurance lead to reckless lending?
- What is the long-term effect of government meddling in supposedly free capital markets?
- Many of you did not predict the last financial crisis. What did you learn which would help you predict the next crisis?
To the Judiciary:
- Has the US Constitution been violated in favoring select private entities with public support, backdoor “make whole” schemes at the expense of competitors and at the expense of taxpayers?
- What theory of preemption permitted the Treasury and the Federal Reserve to effectively take over AIG when insurance companies are state regulated enterprises?
Conclusion
We are in uncharted waters. When a real estate enterprise in Dubai dominates the financial headlines and shakes the world financial markets we are far from putting the financial crisis behind us. Right now, I think we are in the “extend and pretend” phase of the crisis, wherein markets and government collectively believe that ignoring current problems will permit the economy to heal over time. That is Plan A.
The real question looms in front of us: What is Plan B, if all government efforts fail?
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