May 29, 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, why not use the bank’s bond price, which measures the overall ability of the bank to repay its own debt? Banks that can't repay their own debt should not be in business. Period. There are really no legitimate excuses for the banks excesses in the first decade of this century. The big banks have disgraced themselves. And we, the taxpayers, have had to bail them out. SHAME. SHAME ON THEM>
A second 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.
Ordinary Americans are sick to death of the the special privilsges we see increasingly given to financial wrongdoers. It's time to end this insanity of financial gamesmanship and focus on the continuing hard and worthy work of rebuilding a stable, job-producing economy.
Carolyn Sperry
Seattle, WA