Conflicts of Interest in Academic Research and Economic Doom

April 10, 2009

Sankarshan Acharya
Pro-Prosperity.Com and Citizens for Development

April 10, 2009

To:       Honorable Senators Charles Grassley and Herb Kohl

Cc:      Honorable President Barack Obama

Sub:     Conflicts of Interest in Academic Research and Economic Doom   [Revised]

Dear Honorable Senators,

Kudos for your efforts to nab the serious conflicts of interest in university research and sponsors for such research![1] This also bears reference to my memo written to the US Congress on various themes, excerpted from my paper, “Utility of Wealth, Policy and Governance” that prompted worthy Congressional actions about tuition policies of elite and richly endowed universities.[2]  This had ultimately led to a waiver of tuition at the elite universities for the American middleclass.

The Academy is supposed to be the foundation for generation and propagation of truths, discovered through selfless research, to beget prosperity amid stability of the Country.  Leaders have repeated during crises, “ask what you can do for your Country,” but have not stated what they meant by Country.  Rationally, “Country” should be the vast majority of effective producers of globally competitive goods, services and ideas.  This definition underlies a fundamental truth that only the effective producers can make a nation prosperous and stable and that only they can feed and protect the rulers as well as the poor and the laggards.  If we stray from this fundamental truth, there will be utter confusion and deterioration in the core strength of a nation.  No democracy will adopt a different definition of Country.[3]  

I must humbly submit, though, that the Country has paid dearly in terms of economic depressions, financial meltdowns and massive wealth losses, if not riots yet, because the “elite” academy of economics and finance and media (New York Times and Washington Post) have deliberately blocked selfless research. The blockage is accomplished through a self-serving network of academic journals, editors and referees who act in concert to promote and propagate research to enrich and entrench the elite by sapping the Country.  This network suppresses and eliminates selfless research on optimal rules of governance designed to serve the Country, because such research is viewed as a threat to the entrenched selfish market dogma

The selfish market dogma is a sophistry to impose bank deposit insurance and too-big-to-fail policy on taxpayers by spreading fear that systemic risk would ruin the economy otherwise.  The ulterior goal of the selfish market dogma has been to let a few vampires wangle the wealth of the Country with a government guarantee that a bankrupted Country would bailout the vampires.  Simply put, the vampires loot the Country and feed the elite academy of economics and finance to produce research for publication in elite journals to support the selfish market dogma.  They demolish research meant to serve the Country.  This is not only a serious conflict of interest by “elite” academic researchers, but also a sure recipe for doom of the Country:   

1.    A concrete evidence for the above assertion is that all the articles (including the ones that won Nobel Memorial Prizes in Economics) in all the prestigious economics and finance journals did not foresee the current financial meltdown and depression, let alone prescribe any preemptive optimal rules of governance to thwart such a calamity.


2.    As a publisher in elite journals who is ranked among the Top 1000 authors in the field of finance (with 562nd position as per the latest available ranking), I have vividly experienced firsthand how the self-enrichment and self-entrenchment driven academic elite blocks research that defies their agenda.[4]  I have narrated my experience in an article, “Value of Selfless Research” to the Country.[5]

3.    The truth discovered through selfless research, that is pertinent to the current calamity, is “Safe Banking” needed to avoid moral hazard in banking.[6] 

Moral hazard is a euphemism for blackmailing of taxpayers and Congress by the bankers to print money for banks after continually gambling away of the federally insured deposit funds for private enrichment. 

I have written a general equilibrium model to show that free arbitrage trading and elimination of deposit insurance will efficiently resolve the moral hazard problem in the banking industry.  The equilibrium is a government charter for “safe banks” and “universal banks.” The safe banks will invest only in government securities and be subject to minimum capital rules and executive compensation limits.  The universal banks will be free to maintain any capital structure, invest in any risky asset and face no government oversight. Only well-capitalized universal banks will succeed in equilibrium.  No bank will have federal deposit insurance or a too-big-to-fail guarantee by taxpayers and Congress.  This equilibrium will have no moral hazard risk for taxpayers. 

I wrote my general equilibrium paper on elimination of moral hazard risk during 1992-1994, when I was a financial economist at the Board of Governors of the Federal Reserve System.  This paper was not liked by the elite in the academy or government regulatory agencies.  Ostensibly, it was too complicated!  The entrenched moral hazard economists felt threatened to publish a paper which was antithesis of their Nobel Prize winning literature. The vampires and their academic proponents dreaded it because it would eliminate their ability to inflict moral hazard risk on taxpayers and Congress for private enrichment and entrenchment by sapping the Country

Rejection of my paper on efficient resolution of moral hazard by “elite” academics and regulators suppressed propagation of this selfless research intended to serve the Country and ruined my career.  The Country cannot learn about research meant to serve its best interest.  But the truth has not been subdued, despite the elite opponents’ serious efforts to the contrary. 

I left the Federal Reserve to join the University of Illinois to gain the freedom to write to the representatives of people about the truth.  I then wrote the whole complicated equilibrium model in plain English, but with the robust principles of economics still intact in a paper, entitled, “Safe Banking,” in 2003.  I published this paper in a non-elite journal (Journal of American Academy of Business) after some elite referees stated that I was writing it out of disgruntlement. 

I submitted my Safe Banking paper to the Congress in March 2003 with a memo warning about an impending financial-mortgage meltdown that could cost taxpayers trillions unless my proposed policy was preemptively adopted.[7] 

The Congress sought testimonies and a conference from the Federal Reserve Board in October-November 2003.  The Fed conference propagated the myth that banks were safe and sound and that deregulation without government oversight was optimal for taxpayers.  The basis of this inference was data generated from a government protected-insured banking industry that retained its option to impose moral hazard risk on taxpayers through deposit insurance and too-big-to fail policy.  Economists at the Fed and their cohorts in the academy used such data generated by the banking industry (which is predicated on passing the gains to the vampires and losses to taxpayers) to make inference about usefulness-optimality of deregulation to taxpayers by publishing such trash in “elite” academic journals. 

Our “elite” journals and media (NYT and WP) did not publish my “Safe Banking” policy that would have saved the Country $40 trillion dollars in lost wealth and averted a potential global depression!  They tried to bury the truth of Safe Banking being optimal for taxpayers and society.  They thus let the selfish market dogma rule the roost.  The Country thus became bankrupt.  Banks propped by the bankrupt Country have thus failed.  The government is not receiving enough taxes and is printing money to avert a technical default.

A financial depression has been looming under the veneer of the GDP growth, which is a false barometer of prosperity but hooted as important by the same “elite” academic researchers and selfish market dogmatists.  The financial depression brewing within the Country ultimately erupted, as if to exhume the truth about Safe Banking.  The government has now willy-nilly accepted my Safe Banking policy by effectively making the money market funds my safe banks and by yanking the risky business (Salomon, Smith Barney) of Citigroup to make it safer.  An independent web-portal, Safe Banking Central, says of my safe banking policy: “An excellent, early, thought leader’s view.”[8]  The Country needs Safe Banking and the Congress will be impelled to adopt the truth in governance in to-to, maybe after more pains.  My Safe Banking is closest to the true free market economy enshrined in the Constitution.

I have to humbly and honestly submit that the governance of the Country is compromised because the elite economics-finance academic research is not predicated on promoting or propagating the truth to serve the Country.  Such researchers are spreading the myth that no one foresaw the current financial meltdown.[9]  They have caused the mess.[10]  They cannot reform the system of governance the Country needs for prosperity amid stability, which is crucial for national security.    

With profound regards,

Sankarshan Acharya

[1]This refers to Bloomberg News (April 9, 2009): “Columbia Tells Researchers They Must Reveal Conflicts”   

[2] Acharya, S. (October 25, 2007, Pro-Prosperity.Com): “Utility of Wealth, Policy and Governance,”

[3] How the principles of governance, propagated by the academy, have abjectly failed the Country is presented in my April 7, 2009  memo to the United States Congress and President,


[5] Acharya, S. (January 22, 2009, Pro-Prosperity.Com): “Value of Selfless Research: Optimal Governance vs. Market Dogma,” available on the internet at

[6] Acharya, S. (2003, Journal of American Academy of Business): “Safe Banking,” also available at  Acharya, S. (2008: Journal of Risk Management in Financial Institutions): “Safe Banking to Avoid Moral Hazard,” also available on the internet at

[7] Acharya, S. (March 31, 2003: Pro-Prosperity.Com): “Warning to the U.S. Congress in 2003,”


[9] The British coined the term myth based on an Indian term Mythya which means lie.