The following questions are from a Forbes magazine article. I only copied the second page of the article. You can find the entire article at the Forbes website.
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5. In this era of "sophisticated markets," many of the deals involve financial instruments
that are way too complex for most people to understand. If we cannot understand them, how can we regulate them?
The famous Bethany McLean and Peter Elkind book about Enron's shenanigans, "The Smartest Guys in the Room," argued that Enron's managers hid behind the complexity of their deals -- which only they could understand. Everybody respected them for being so smart and gave them a pass. How is this different from Madoff, or indeed from the events that led to the banking crisis?
In a democracy, we do not say politicians are too smart for us to understand, therefore more power to them. If our financial institutions depend on us to survive, they should fall under democratic rules.
6. We are told that Goldman Sachs (GS, news, msgs) was so smart that it divested from toxic assets and from AIG (AIG, news, msgs) ahead of the bust. Indeed Goldman's withdrawal probably led everyone else to abandon AIG, which triggered its collapse, which in turn triggered much else.
Now is this a sign of Goldman's smartness or something else? If Goldman knew enough to get out of something they had abetted for a while, then what did they know, when did they know it and why didn't they warn anyone else or warn the Treasury Department?
If institutions like Goldman or AIG are too big to fail, if taxpayers are their ultimate guarantors, then they owe the best information to taxpayers -- that is, the Treasury -- ahead of shareholders, investors and even directors.
More from MSN Money and Forbes.com
7. If democracy and free markets in tandem furnish the best guarantee of an affluent society, why is China, which has neither, outperforming us?
8. If ethnic diversity and international talent regardless of nation, creed, gender, etc. -- what economists call mobile labor -- are elements crucial to the success of an economy (as Silicon Valley keeps telling us), why are the world's two top economies -- Japan and China -- so mono-ethnic?
9. It appears that those top liberal democracies with the most highly regulated banks such as Italy, France and Sweden suffered least from "exposure to toxic assets." Their banking systems remained the most stable and needed the least help. What does that tell us about our assumptions? Why are their models not good for us?
I do not offer these probes with a hidden agenda in favor of any political ideology. But conversely, our well-intentioned political biases mustn't block out hard questions. When we freed the economy from the political intrusion of quasi-socialist policies during the Reagan-Thatcher years, we also freed the science of economics from the sway of popular superstitions -- in order that the market serve the people better.
Or so we thought. Socialism, we said, is what socialists do, not what they promise. The same applies to any other system: fascism, Islamic law, crony capitalism, colonialism. It also applies to the free market.
What separates us from them? Why are "bad" systems doing so well? What happens if you have to choose between freedom and affluence? And finally, why is no one asking these questions?
