May 25, 2011
I’m writing because my family, my friends, and my community 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.
It is absolutely ridiculous that we have allowed greedy actions by corporate profiteers to embarrass the American people and our government, sending us into a deep recession while remaining financially unscathed. If we fail to punish these actors now, there is no impetus for them not to commit such irresponsible acts again in the future. Lets have some self-respect and never let another corporate asshole take advantage of us again.
Thank you for considering my comment,
Sophia Sady
Portland, CO