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.
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.
When a hedge-fund manager can make more money in a single day than the average worker makes in 47 years, there is something drastically wrong. Especially, since this practice is simply legalized gambling.
When a Wall Street CEO pay, with bonuses et al, are as astronomical as they are at the expense of the public, and their business practices result in destruction of our economy, there is something drastically wroing.
These practices must be curbed through regulation and brought into alignment with salaries that are reasonable, not greedable.
Thank you for considering my comment,
Patricia Abbott