Rep. Jeb Hensarling's Choice Act for Banks is
Unanimously Disagreeable, Fundamentally Unfair (Unconstitutional), Inefficient and Unstable

Dr. Sankarshan Acharya
Founder, Pro-Prosperity.Com and Citizens for Development

May 6, 2017. Revised May 7, 2017

To:       Honorable President Donald J. Trump

Cc:       Ex-President Barack Obama and Senator Bernie Sanders

Date:   May 6, 2017. Revised May 7, 2017.

Sub:     Rep. Jeb Hensarling’s Choice Act (HCA) for banks is designed to render the economy unstable, inefficient, fundamentally unfair (unconstitutional) and unanimously disagreeable.

This is available and updated at

Dear President Trump,

To counter your proposal of reinstating the Glass-Stegall Rule to separate investment banking from commercial banking, Rep. Jeb Hensarling has broached a Choice Act (HCA) for banks during his interview in Washington Journal of Fox News today.  HCA will offer Mega Bank Holding Companies (MBHCs) a choice between raising their capital levels or facing bankruptcy (as opposed to writing their own will for death under the Dodd-Frank Act) without breaking them up. 

Rep. Jeb Hensarling claims that of loss of equity capital due to bankruptcy under the HCA will induce MBHCs to follow Market Discipline for safety and soundness of banking and financial markets.  Why is the HCA needed if the FDICIA-1991 too imposes on the MBHCs a fear of losing their capital due to bankruptcy?  FDICIA-1991 and Market Discipline could not avert the mega financial crisis of 2008.  How could HCA help in preventing another crisis? 

That MBHCs transgressed the FDICIA-1991 -- through multi-level leveraging via holding company structures and that such transgression was piling losses on taxpayers, while ramping up a latent financial crisis as bankers privatized profits -- was illustrated in my research since 1991 and in a published paper submitted to Congress in 2003, where I had proposed an unanimously agreeable safe central banking policy proposal to avert the looming crisis preemptively.  My subsequent memos (2005-2007) led the Bush Administration to urge MBHCs to raise their capital or perish.  Why did the Dodd-Frank Act of 2010 then make the MBHCs systemically important that cannot die without their own will?  Rep. Jeb Hensarling could introduce a simple legislation to void the “death by own will” clause of the Dodd-Frank Act.  Why does he want HCA?    

The Current Deep Administrative State (CDAS) comprises Robber Barons-controlling MBHCs, most federally insured deposits, Market Making and Market Clearing operations-anointed elite academic experts, government regulators and allied politicians.  CDAS ordains that Robber Barons can be disciplined by market forces to perpetuate systemic robbery of enterprising wealth creators (EWC). Such Market Discipline professed by CDAS to perpetuate systemic robbery of EWC is a Dogma (MDD).

The primary goal of Hensarling Choice Act is to mandate by Congressional fiat that the Market Discipline Dogma (MDD) is a free market principle.  MDD has been professed relentlessly by the ex-Fed Chairman Alan Greenspan and his coterie of economists at the Fed and elsewhere through sponsored academic research published in top journals.  If this academic research has made MDD a true free market principle, why is a legislative fiat needed to make MDD a free market principle? 

The HCA is designed to ordain MDD as a free market principle to systemically rob enterprising wealth creators (EWC) with impunity by legally reinforcing the following systemic privileges already granted to Robber Barons:

  • Valuable information garnered from the EWC trade flows routed through Market Makers operating under MBHCs at the behest of Robber Barons.
  • Clearing house data on EWC’s asset holdings, to bankrupt anyone who dares to oppose the current system of governance of banks and financial markets.
  • Federally/EWC insured deposits under the purview of MBHCs.
  • Ultimate protection by the Federal Reserve Act that lets the Federal Reserve lend to the MBHCs new money, created on the back of EWC.
  • Blackmailing threat (moral-hazard) by CDAS imposed on EWC: unless MBHCs are given more and more cheap money they will ultimately damage EWC assets and become wards of EWC.

Mr. Michael Flynn lost his DNI job due to an orchestrated fear that the money he received from Russia could be the basis of blackmailing of a U.S. President.  This farfetched fear of blackmailing is miniscule, if at all, as compared to the gargantuan actual blackmailing by CDAS of the EWC and US economy due to the current system of moral-hazard-laden governance with MDD

The Hensarling Choice Act is designed to preserve this system moral-hazard-laden governance by legislating the MDD as a free market principle.  

My research on efficient resolution of moral hazard (blackmailing) shows that MDD is antithetic to the true free market principle and that MDD is the crux of blackmailing of EWC or the nation (1991-2016).   This memo points out that the HCA - designed to legislate MDD as a free market principle to justify the currently established moral-hazard-laden governance - is unstable, inefficient, fundamentally unfair (unconstitutional) and unanimously disagreeable.  

MDD is not founded in any theory of general economic equilibrium.  Neither is MDD supported by empirical experience.  MDD has been rather found to be very dangerous to EWC and economy, as evidenced by the 2008 financial catastrophe, when $7.8 trillion of uninsured bank debt and $3.5 trillion of uninsured money market funds faced panic and run.  At least $13 trillion of hard-earned wealth and 9 million good paying jobs were wiped out in 2008.  More importantly, confidence in the U.S. system of governance has been indelibly damaged since then.  The Federal Reserve has correctly found the 2008 financial catastrophe to be worse than the Great Depression. To perpetuate the current system of governance of banks and financial markets, CDAS suppressed publicity of the heretic-antithetic Unanimously Agreeable Philosophy and Governance (UPAG).  Publicity of UPAG could have led to supplanting of the CDAS rules with UAPG to avert the financial catastrophe.  Blocking UAPG from the public caused the 2008 financial catastrophe

My research since 1991 on Unanimously Agreeable Philosophy and Governance (UAPG), attained in a comprehensive dynamic general equilibrium model of the economy, shows that the Market Discipline Dogma (MDD) is unstable (causing social unrest), inefficient (resulting in an uncompetitive economy), fundamentally unfair (unconstitutional), and unanimously disagreeable.  UAPG is antithetic to MDD.  UAPG attains as unique stable, efficient and fundamentally fair (constitutional) within a comprehensive general equilibrium model of the economy.  Uniqueness of UAPG in general equilibrium means any other dogmatic system like the MDD which allows systemic robbery of enterprising wealth creators (EWC) is unstable, inefficient, fundamentally unfair (unconstitutional) and unanimously disagreeable.    

The US Congressional Financial Crisis Inquiry Commission (FCIC) concluded in January 2011 that the 2008 financial catastrophe was avoidable (manmade) and was caused by failure of the elite established experts, who have supported the MDD in academic papers published in top journals, and by government regulators and Robber Barons, who have framed MDD-based rules for enactment by Congress.  The elite experts, regulators and Robber Barons were blamed, but not prosecuted, nor incarcerated!  Why?  It is obviously because the U.S. Congress was allied with those it blamed for the 2008 crisis for legalizing MDD-based rules and for using MDD to block publicity of antithetic UAPG.  As a result, Congress supported MDD - that Rep. Hensarling now wants to reinforce with his Choice Act for banks - has pushed the U.S. economy to a modern form of the Great Depression with the government endlessly printing/borrowing money to grant entitlement checks and largesse to the victims of systemic robbery, as opposed to distribution of bread in the 1930’s.  

The FCIC has kept classified (not made public) crucial parts of its analysis and supporting documents on the exact cause of failure of CDAS.  The FCIC finding unambiguously implies, though, that CDAS failed to institute an alternative system (a) which would have averted the 2008 crisis, preemptively, (b) which it knew since1991, and (c) which it was forced to adopt to stem the domino of crashing markets in 2008, on an ad hoc basis, like the safe central banking policy and minimum bank capital requirements on a consolidated basis for bank holding companies, which are elements of Unanimously Agreeable Philosophy and Governance (UAPG).     

Surfacing of Hensarling Choice Act to reinforce MDD shows that CDAS adopts the following strategy to continue to systemically rob the enterprising wealth creators (EWC):

  • Impel the established academic experts (‘top’ journal editors and reviewers) to not publish any UAPG research in the ‘top’ journals under the purview of CDAS by often stating in blind review reports that wide acceptance of MDD (due to new laws like the HCA) does not necessitate publication of UAPG in ‘top’ journals.
  • Have Congress follow the established expert doctrine that research (such as UAPG) not published in ‘top’ journals cannot form the basis of governance of banks and financial markets.
  • Surreptitiously denigrate and destroy the UAPG author by suppressing publicity of UAPG and his career.
  • Surreptitiously adopt those elements of UAPG which can temporally avert any cascading fall in the financial markets during financial catastrophes. 
  • If the UAPG author is alive to submit rejoinder to the CDAS testimony before any crisis inquiry commission that god (invisible hand) causes periodic financial crises, keep such rejoinder and supporting documents classified (beyond the purview of public).
  • Revert to reinforce MDD through new acts like the HCA after public memory of the previous financial catastrophes fades. 

CDAS has adopted the above strategy to hoodwink the Enterprising Wealth Creators (EWC) about the surreptitious systemic robbery perpetrated of EWC by CDAS. But alas! CDAS has failed according to Congressional Financial Crisis Inquiry Commission and UAPG has triumphed.


The dangerously failed MDD has resurfaced with renewed vigor to perpetuate systemic robbery of enterprising wealth creators (EWC) under the stewardship of a prominent political member of CDAS, Rep. Jeb Hensarling, now serving as the Chairman of House Committee on Financial Services.  In today's Washington Journal of Fox News, Rep. Jeb Hensarling speciously conveyed the following:

  • Rep. Jeb Hensarling is squarely opposed your idea to reinstate the Glass-Steagall Rule (GSR) that had separated commercial banking from investment banking since 1936 until this GSR was repealed in 2000. 
  • Rep. Jeb Hensarling proposed Hensarling Choice Act (HCA) to let mega bank holding companies (MBHCs) continue with MDD as a free market principle through a specious choice between (a) raising more capital or (b) facing bankruptcy without MDD.
  • Rep. Jeb Hensarling did not say how his HCA is different from the Optimal Bank Foreclosure Rule which has been enacted in the FDICIA-1991 based on my research with J.F. Dreyfus published in Journal of Finance in 1989.  The optimal bank foreclosure rule was not designed to resolve the MDD-induced moral hazard or blackmailing of the systemically robbed enterprising wealth creators by which EWC are forced to print new money for insolvent mega banks with a threat that the economy will collapse otherwise. CDAS actually issued such a threat in 2008 to bailout banks.  When I observed (as a Federal Reserve economist during 1990-1995) that MDD allowed MBHCs to surreptitiously transgress the FDICIA-1991 via their bank holding structure, I researched and obtained an efficient Unanimously Agreeable Safe Central Banking Policy and mimeographed the same in an academic paper at the Federal Reserve in 1991 and wrote memos about the necessity of this policy to avert a looming financial crisis due to MDD.
  • Rep. Jeb Hensarling bloviated that his HCA is based on the “free market principle” and, hence, is far better than the restrictive Glass-Steagall Rule. 

Rep. Jeb Hensarling was significantly silent about the following:

  • A comprehensive Safe Central Banking Act which precludes federal deposit insurance obviates reinstatement of the Glass-Steagall Rule.  So, Rep. Hensarling’s claim that the HCA is an alternative to the Glass-Stegall Rule is specious.
  • HCA permits continuance of MDD which is antithetic to the true free market principle:   MDD allows Robber Barons - controlling the Mega Bank Holding Companies, federally insured deposits, and Market Making and Market Clearing operations – to systemically rob enterprising wealth creators (EWC) with impunity by betting against EWC based on (i) valuable information garnered by EWC trade flows routed through Market Makers controlled by Robber Barons, (ii) clearing house data on EWC’s asset holdings, (iii) federally/EWC insured deposits under the purview of Mega Banks, (iv) ultimate protection by the Federal Reserve Act that forces the Federal Reserve to lend new money, created on the back of EWC, to Mega Bank Holding Companies by blackmailing EWC that unless MBHCs are lent this way they will ultimately ruin EWC assets and become wards of EWC.
  • The Federal Reserve may not lend equity capital to MBHCs.  But the Federal Reserve Act allows the Fed to lend virtually unlimited amount of funds even at negative interest rates only to MBHCs (market clearing house members), not to EWC. 
  • The CDAS has foisted on EWC rules that systemically rob EWC with impunity. 
  • CDAS agents, floating acts like HCA, are presuming that EWC are stupid or haplessly disorganized.   
  • Rep. Jeb Hensarling did not mention that his HCA cannot disbar market manipulation by Robber Barons to artificially increase their marked-to-market capital (net-worth) by inflating the value of their long asset positions while deflating the value of their short-positions, thanks to the short-selling rule promulgated by SEC without Congressional mandate.  For example, suppose that CDAS members including Mega Banks short-sold one billion shares of Fannie Mae and Freddie Mac stocks when these stocks traded at $60 per share.   This is when the EWC believed rationally that these privately chartered blue-cheap financial companies would never perish. EWC did not know that CDAS had surreptitiously plotted to eliminate Fannie and Freddie through HERA-2008, Net Worth Sweep-2012, etc.  Suppose that the CDAS and Mega Banks had also purchased about one billion shares of some stock like Amazon or Apple which the EWC rationally deemed to be overvalued.  The EWC operate rationally by remaining long in undervalued stocks like Fannie and Freddie and short in overvalued stocks like Amazon and Apple.  MDD facilitates mega banks to push down market prices of the undervalued Fannie and Freddie stocks and raise market prices of the overvalued stocks like Apple and Amazon with blizzards (‘economic news’) through embedded media, academy and government.  Mega banks can thus artificially inflate their marked-to-market regulatory net-worth (while ruining the net-worth of EWC) based on manipulation of overvalued stock prices upwards and of undervalued stock prices downwards.  Suppose that Fannie and Freddie shares fall by 58 dollars (from $60 to $2) and overvalued stocks rise by 100 dollars per share.  With a billion shares short in undervalued stocks and a billion shares long in overvalued stocks, the CDAS members can make $158 billion by causing as much loss to EWC.  This is possible only due to MDD -- CDAS-approved rules of governance and organization of banking, financial markets, regulatory institutions and rules -- designed to artificially privilege CDAS controllers to systemically rob EWC with impunity.
  • Rep. Jeb Hensarling did not obviously say that the sole purpose of his HCA is to keep legalized surreptitious funding of politicians embedded in CDAS, which stems from unconstitutional, inefficient and unstable systemic loot of enterprising wealth creators.


  • The Hensarling Choice Act (HCA) is fundamentally unfair (unconstitutional), inefficient, unstable and unanimously disagreeable - just like most other laws on governance of banks and financial markets enacted by the Congress.
  • I have written to you (a) how your campaign for reinstating the Glass-Steagall Rule (GSR) made you the political enemy number one of CDAS, (b) how Senator McCain squandered his significant lead in the 2008 presidential contest for uttering reinstatement of the GSR, (c) how Senator Obama became president for tacitly embedding in CDAS through credible appointments of top economic advisors - Larry Summers, Robert Rubin and Co (LRSC), and (d) how my heretic Unanimously Agreeable Philosophy and Governance (UAPG) – which is antithetic to CDAS rules - has made me the permanent enemy of CDAS.  
  • President Obama was circled by LRSC until August 2013.  Through my general equilibrium research showing that Fannie and Freddie are needed for stability, efficiency and fundamental fairness (constitutionality), I demonstrated in memos submitted to President Obama how he was crushing his own stated mission due to policy advices of his own top advisers, such as, the Fannie and Freddie Net Worth Sweep agreement signed in August 2012 for a de facto government take-over of all Fannie-Freddie profits for a de jure liquidation of two privately chartered well-capitalized financial institutions.  Fannie and Freddie were crucial to extricate U.S. from the Great Depression.
  • Minimum capital standards or optimal bank foreclosure rule enacted in FDICIA-1991 was crucial to restore stability of banks and financial markets, which led to quadrupling of markets as money poured in to the U.S. from all over the world.  But mega bank holding companies (MBHCs) surreptitiously transgressed the bank foreclosure law via massively-leveraged bank holding company structures. 
  • The unanimously agreeable Safe Central Banking Policy proposed by me to Congress in 2003 could have preemptively averted a looming financial catastrophe due to MBHCs surreptitiously piling of risk on taxpayers while systemically robbing EWC.  Instead, the CDAS publicly declared (via an address of the president of American Economic Association in late 2003) that the system of banking and finance in USA was great and invincible (for the CDAS, of course) without realizing that the EWC propping the CDAS was collapsing under the veneer of ‘greatness.’ 
  • The CDAS went on rampage to repeal the Glass Steagall Rule in 2000 and then to eliminate Fannie and Freddie in 2008, which precipitated the financial catastrophe. Even President Obama has stated that the 2008 crisis could be because of repeal of the GSR.
  • It is thus clear why the Mega Bank Holding Companies are dead opposed to reinstatement of the Glass-Stegall Rule and why they are promoting the Hensarling Choice Act to thwart your idea of having GSR again.
  • The issue then is: can reinstatement of GSR avert financial crisis in future? No. GSR cannot resolve moral hazard in banking and financial markets as the market crash of 1987 occurred, despite having GSR.
  • Glass-Stegall Rule cannot eliminate moral hazard created due to private lending of public funds including federally insured deposits and Federal Reserve lending. The Current Deep Administrative State (CDAS) has mandated the Federal Reserve Act in 2013 to have the Federal Reserve lend artificially created funds cheaply to mega bank holding companies (clearing house members) under the purview of the Fed. The Federal Deposit Insurance provision of the Glass-Stegall Act was designed to keep publicly insured deposits under the custody of private banks for lending to privileged private hedge funds controlled by bank executives for the benefit of their kith and kin and cronies including political allies that are the most privileged members of CDAS. Lending of public funds under the custody of private lenders to private hedge funds controlled by the lenders is unstable, inefficient, fundamentally unfair (unconstitutional) and unanimously disagreeable according to my research published in the Journal of Governance and Regulation (2016). After I submitted the original version of this paper (which was rejected by a 'top' journal, Economic Letters, edited by a Nobel Laureate professor of Princeton because, as the editor wrote, I did not have economic analysis suited for publication) in October 2007 to the US Treasury, I received a "thank you note." Thereafter, Treasury Secretary Hank Paulson publicly stated to deleverage and, if necessary, liquidate many private hedge funds that were leveraged by public funds to bet against the public. Secretary Hank Paulson also threatened many mega bank holding companies (operating as mega private hedge funds) with shut down unless they raised sufficient capital. Fannie and Freddie were the only financial institutions that never operated like the private hedge funds or like the mega bank holding companies leveraged with public funds to bet against the public and to feed the CDAS. Fannie and Freddie were flush with equity and cash by the end of 2007. The CDAS, therefore, chose to usurp Fannie and Freddie to rescue the highly leveraged mega bank holding companies filled with toxic (short-sold) mortgage backed securities backed by no real loans. President Obama inserted the "Volker Rule" to the Dodd-Frank Act of 2010 to restrict hedge fund trading by banks, after he received my memo explaining how the Democrats lost their fortified senatorial seat in Massachusetts. The not-implemendable Volker Rule was designed to be subterfuge to delay public recognition of the real source of moral hazard in banking: Reckless lending of cheaply created Federal Reserve funds and federally insured deposits kept in the custody of private banks to private hedge funds to socialize losses and privatize profits. This moral hazard has subverted liberty of Americans. The Dodd-Frank legalized subversion of liberty by making the mega bank holding companies systemically important that cannot be shut down unless they willed to die. The not-implementable Volker Rule attempts to distract enterprising wealth creators from how their liberty has been subverted by various acts of the Congress including the Dodd-Frank Act. The only efficient resolution of the system of moral hazard (blackmailing) in banking and financial markets - established thus far by various acts of Congress to subjugate enterprising wealth creators with a view to eternally keeping CDAS privileged, enriched and powerful - is a comprehensive safe central banking act (1991-2017), which according to Sankskrit adage "Eka Brahma, Dwitiya Nasti" means uniqueness of unanimously agreeable knowledge.
  • Despite CDAS propaganda that Fannie and Freddie caused the 2008 crisis, Fannie and Freddie actually rescued the mega banks:  the government took over Fannie and Freddie under HERA to force them to transfer their private equity including the $187 billion of taxpayer funds received as loans from the Treasury to the mega banks through purchase of the latter's worthless short-sold mortgage backed securities, backed by liar-loans. 
  • That the mega banks have thus looted private capital of Fannie and Freddie is evidenced by the fact that these banks paid huge penalties ($100’s of billions) for mortgage fraud committed against Fannie and Freddie. 
  • The CDAS does not want to cover its short interests in Fannie and Freddie stocks.  A prominent senator, Bob Corker, has publicly advocated traders to sell short Fannie and Freddie stocks, whose prices continue to be manipulated after transfer from a rule-based exchange (NYSE) to a lawless OTC (over the counter).    
  • Elite academics collaborating with economists at the Federal Reserve during my tenure there as a financial economist have produced a tome of research published in 'refereed top academic journals’ controlled by CDAS to propagate their Market Discipline Dogma (MDD) that the Hensarling Choice Act wants to legislate as a free market principle (to suppress by fiat the fact that MDD is antithetic to the free market principle).
  • In a letter sent April 3, the chairman of the House Committee on Financial Services instructed the Treasury Department to decline FOIA requests relating to communications between the two offices!

With profound regards,

Dr. Sankarshan Acharya
Director, Academy of Unanimously Agreeable Philosophy and Governance