System that Creates Massive Credits for a Few by Bonding the Vast Majority

February 15, 2009

Sankarshan Acharya
Pro-Prosperity.Com and Citizens for Development

February 28, 2009

To:       Honorable President Barack Obama
Cc:       Honorable Vice President Joe Biden
Honorable Speaker Nancy Pelosi
Honorable Senator Harry Reid
Honorable Senator John McCain
Honorable Senator Chris Dodd
Honorable Congressman Barney Frank

Sub: Mega Problem: system that creates massive credits for a few by bonding the vast majority.

Dear President Obama,

Your new tax policy and budget, rightfully lauded by pundits, cannot solve the above mega problem.
You have stated lately that financial institutions not receiving bailout funds need not face government
restrictions on executive compensations. This is sub-optimal for taxpayers. Bankers were not seeking
bailout until recently and paying themselves without government restrictions. Yet, we are experiencing a
financial depression, which you have correctly stated as manmade. How men made the depression should,
therefore, guide optimal policy.

It is sub-optimal to let a financial institution (i) compensate its executives anyway it wants or (ii) maintain
secret accounts just with the approval of its shareholders, even if it receives no taxpayer funds. A financial
institution is a repository of “credit,” which means “trust” of savers and borrowers.

Is an institution really independent of society and government when it receives no taxpayer support? No.
The credits maintained in a financial institution depend on government protection. The government should
ensure that borrowers meet their debt obligations to creditors. This is necessary to maintain integrity in the
system. Such enforcement is also needed to induce people to persevere to generate credits, instead of
borrowing perpetually from creditors who have worked hard to save. Only perseverance makes a society
competitive and prosperous.

But the government, acting in the best interest of society, should not optimally protect illegitimate usurpation of
credits or clandestine storage of such credits in financial institutions. Protection of illegally usurped credits
can lead to an autarkic bondage of the vast majority: a few rulers can directly credit their accounts or pass
lopsided laws to facilitate illegitimate usurpation of credits and hold the same in secret financial institutions,
while using the government to protect their credits lent as debt to the rest of society. A few individuals can
thus bond the vast majority of society, contravening the Declaration of Independence. The system of
governance can then be autarkic, not democratic as per constitution.

The CEOs are vigorously defending hefty bonuses for senior staff at their floundering financial institutions.
They argue that the talent will leave unless bonuses are paid even when the companies lose. Their argument
lends immense support to my rational inference that hefty bonuses and secrecy in financial institutions help
illegitimate usurpation of credits for leaders of financial institutions and hedge funds.

The mega problem looms as the usurped credits help rig prices of basic necessities-cost of borrowing,
food, energy, healthcare and higher education-on which the vast majority depends. The rigging has led to
bubbles and crashes globally.[1] To solve the mega problem, it is necessary to prohibit financial institutions’
CEOs and their kith and kin from owning and operating hedge funds and from trading with senior staff (fund
managers) at these institutions. Financial institutions include bank holding companies and mutual fund
companies. Our recent experience reinforces this policy:

My pleading with the Congress in 2007 to prevent banks from lending hedge funds massively was
followed by conforming government actions which were justified by the U.K. Prime Minister Gordon
Brown in a statement later that “irresponsible and undisclosed” lending caused the financial meltdown.
The “irresponsible and undisclosed” lending from government insured financial institutions must have
illegitimately helped private hedge funds take massively leveraged bets against passive mutual funds and
retail investors. The illegitimate lending, not talent nor ingenuity, generated the massive hedge fund
profits during the past decades. Withdrawal of the illegitimate lending led to a collapse of many hedge
funds and their profits.[2] This establishes a point of this memo that a major source of wealth or credit is
indeed illegitimately usurped, not ingeniously earned, through leadership of publicly supported financial
institutions and allied private hedge funds.

Why did the constitutionally mandated capitalistic market economy fail? The founders of American
Democracy have established myriad institutions including media at colossal costs to citizens. Yet, these
institutions have abjectly failed to serve the best interests of society and taxpayers. The institutions have
ironically collaborated with the few who sap public welfare and often acted vindictively against those who
selflessly pursued for common interests. It is a travesty that the vast majority of taxpayers and investors
have no easy mechanism to learn and reward the efforts of a few who persevere incessantly for common
good. In a New York Times column, Frank Rich doubts if the same institutions manned by the same people
who have been responsible for the breakdown can mend the system.[3]

With profound regards,

Sankarshan Acharya

[1]This memo is intended only to beseech for adoption of public policy to prevent potential illegitimate usurious transfers. Any
criminal wrongdoing can only be proved by appropriate authorities after examination of trading books of private hedge funds
owned and operated by executives of floundering financial institutions‐this is perhaps urgent to prevent further potential losses
to taxpayers.

[2]I wish the credits (even if illegitimately usurped) were available, at reduced interest rates, to people who produce globally
competitive goods, services and ideas to make America more competitive, prosperous and stable. Everyone (including most
creditors) lost as the credits disappeared in the gamble, while the nation could not enhance its competitiveness to export at least
as much as needed to import for survival.

[3]At a cost of appearing to be personal, we should not forget this issue especially in light of an excellent column by Frank Rich (NewYork Times, February 7, 2009), “Slumdogs Unite,”