May 19, 2011
Regarding past and current frivolous and damaging behavior on the part of Wall Street bankers and insiders...I believe existing regulations are not being inforced with the full force of law either because of incompetence or complicity at various levels of administrative power. I believe the later to be more accurate. I know the name Brooksley Bourne. I know Brooksley Bourne tried to ring the bell and warn what was comming prior to the financial tsunami of 2008. Brooksley Bourne was told by the Bush administration cronies and the Fed i.e. Alan Greenspan, to sit down and shut up. They succeeded in silencing her only to find just a little egg on their faces by admission during the investigative hearings.
I’m writing because the majority of Americans 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, conveniently advantageous moves generate more profits, the stock price goes up, and 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,
Mary Thoma