May 23, 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.
The resultant collapse of the real estate market resulted in one family member’s loss of his home of 40 years (as he had been conned into ‘refinancing’ it under the bogus mortgage terms popularized after 9/11). This hardworking man then lost his excellent credit rating, and he and his family are still suffering from this mess.
Financial company execs, and their underlings, who allow(ed) these games with our homes and investments should be ‘forced’ to keep their jobs at about $250,000/year while they oversee the cleanup of the disaster they’ve created. ANY profits to those organizations should be turned over to the social programs that were required to support citizens as they tried to recover from this fiasco.
In lieu of 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,
R Ayers