Questions For the Big Guys

The Times asked some experts to submit three questions that they would ask the heads of Golda, and a couple of banks about what happened to cause the financial crisis. Here are the only really relevant questions that were submitted:

1. Describe in detail the three worst investments your bank made in 2007 and 2008 — that is, those transactions on which you lost the most money. How much did the bank lose in each case?

2. What was the total compensation of each manager or executive supervising those three transactions — including yourself — in 2007 and 2008?

3. Are those executives still with your bank? What investments do they supervise today? How much will they be paid for 2009, including their bonuses?

— SIMON JOHNSON, a professor at the M.I.T. Sloan School of Management and a senior fellow at the Peterson Institute for International Economics

Here is my submission:

1. Do you suffer from dementia or any other memory altering malady? No? Well then, how could you possibly get involved in a flawed market that mirrors exactly what happened to mortgage lenders during the period from 1989 to 1991 (see post of 01/06/09), e.g., how could you possibly be a party to a market that allowed borrowers to be qualified at teaser rates?

2. If Billy's mother let him jump off of the Mystic River Bridge, would you let your little Lloyd or Jamie or Johnny?

3. WRT to the GSE's - Fannie and Freddie, were you aware that they employed greater than 100 times leverage in their risk management? Yes? Given a simple default analysis, you were therefore aware that a modest increase in defaults would bankrupt them, were you not? Yes? Were you also aware that the government's line of credit to them was far less than what was at risk? Yes? We take it therefore, that you were confident that the government would step in and bail out the market? Yes? Knowing the potential for loss, you proceeded anyhow ...