May 26, 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.
I had bought and was renovating a home when the collapse occurred. I lost my job and so did my boyfriend. I had no choice but to run up a large credit card bill paying for both necessary renovations to make our home livable, and for our living expenses. No one is going to bail me out from those credit card bills. I was fortunate to obtain a job after several months, and I can assure you that if my actions led to the economic collapse of the firm I work at, I would not receive a huge bonus. The fact is that the people directly responsible for the near-depression who received obscene bonuses and profits basically just stole the money and got away scot-free.
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.
Thank you for considering my comment,
Karen Nielsen
Reno, NV