May 23, 2011
I can really hardly believe what is happening in the USA. People I know, who have worked hard, are out of work and barely making ends meet. My nephew is working two jobs to feed his three children. But Wall Street greedy people are making 100 times as much as my nephew makes -- in only a few months of Wall Street-variety work. Something is wrong with this picture!
Wall Street greed and outrageous pay practices were a major cause of the collapse. One way to change the incentives so they donít 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 bankís 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,