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. We have a business where we review small businesses for homeowners. I do the sales and I can tell you that in the fall of 2008 it was scary out there. People I called were saying to me they were losing their homes, their businesses, everything. We nearly lost our business in 2008. Next came my Dad who lost a third of his retirement. He has downsized considerably and is lucky to be able to live on a downsized budget. Then came my sister who lost her job as an environmental scientist after 20 years in the industry. She spent nearly 2 years unemployed, sold her condominium to help support her two teen boys, went through every penny of her savings and her equity from her apartment, moved in with a friend and finally got a job as a secretary about a year ago. She is 55. Not a great time to be facing an uncertain future. The stories go on and on. Last week I was at the house of a friend of my son's. The mother was hosting a lunch for the kids in his Spanish class for fun. I complimented her on her house. She had apparently just lost it. B of A had sold it by accident - and they even admitted this - to Fannie Mae, while she was in the process of refinancing. She is a single mom and does not have the funds to hire an attorney to fight this, so she is trying desperately to reason with the bank. REASON with a BANK?
What has this country come to? It makes me sick. Bankers making a killing off of the people who pay the taxes that made them whole.
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,
Mara Schoner