May 19, 2011
I’m writing because my family and I were affected by the economic collapse of 2008, we are still suffering the effects, and we don’t want it to happen again.
Wall Street greed, fraudulent acts, 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 to delay the bonuses for several years, at least five or seven. That way, we’ll know if the loans they made in year one remain good. In the bad days, bankers paid themselves on the volume of loans (mortgages) they generated, not on their quality.
What about those banking institutions that forged signatures and mortgage documents to present to courts during foreclosure proceedings? What do you plan to do about that?
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,
Elaine Jefferson