Question: Why should the Fed permit large US banks to return the $1T in cash on their balance sheets to stockholders when several are technically insolvent now, and more will be next winter. I suspect $1-2T in bad residential mortgage assets lies on bank balance sheets (if marked to market, not fallacy). Clearly, it would seem that large US banks are going to need to be bailed out again.

You’ll want proof of this assertion before you pose the question …. data from Fed Flow of Funds report 2 weeks ago):

-> $10.6T in remaining and contracting homeowner equity (this is 65% of the $16.37T in total home value –representing the homes with mortgages)
-> $10.06T in mortgages are owed on those homes
-> 5 years ago, home owner equity was $5.4T. 90% of that is now gone. 100% of it -in the aggregate- will be gone next winter.
-> by the end of this year there will be roughly 10M Americans that have fallen through the unemployment benefits system remaining jobless. Despite a U3 headline of around 7% by year end, the real unemployment + underemployment rate will be more than double that. This may become a tipping point where many walk from their mortgages and cause loses on residential debt to go asymptotic — further increasing losses to banks.

why is this not alarming?

Before the financial crisis, you spoke about “mixed signals” the market was transmitting. At that time, the bond market was sending a signal of fear, while the stock market was transmitting a message of complacency.
Are the current “mixed signals” by the various markets similar, and is do you think that the current stock market trading activity signals caution, confidence or complacency, and if so, what can holders of publicly traded shares make of this message.

The US is approaching the end of QE2. What do you think would have been a better option?

Dear Mr. Erian,
Would you give us your views on how Egypt shall grow economically and socially ??