May 19, 2011
I’m writing because my family and I were affected by the economic collapse of 2008, and we don’t want it to happen again.
Wall Street greed and outrageous pay practices were a major cause of the collapse. One way to change the incentives so they don’t collapse our economy again would be for regulators to use a *safety index* for incentive compensation, instead of a profit index.
Currently, most bankers receive stock options. So if they can generate more profits, the stock price goes up, and their options become more valuable.
Instead, what if they used the bank’s bond price, which measures the overall ability of the bank to repay its own debt? Another measure of bank stability is the spread on credit default swaps (the insurance-like policies that are essentially bets, where one gambler bets with another that a particular firm will fail). The closer a bank comes to failing (such as in failing to pay of its bond debt), the bigger the spread on credit default swaps.
I do not understand why the financial transaction tax is not being considered. This could slow down the speculation, while allowing more money to be available for loans, and provide a reasonable revenue. Many countries have this tax, and the U.S. used to also.
I am a 72 year old teacher of emotionally disturbed children. I work full time, and cannot afford to retire. I resent what has happened to the country I love. We are becoming a plutocracy, with a dire future. I sincerely hope you will take steps to change this.
Thank you for considering my comment,
Cynthia Williams