May 25, 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. This collapse has caused me great financial strain, wreaked havoc on my retirement funds and ultimately delayed my retirement indefinitely.
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. There is now way that any financial institution or practice should be allowed to bet against the U.S., but that is what took place with the loan industry. It must be made illegal to facilitate loans that are guaranteed to fail and then hedge to make money on the guaranteed failures that have been intentionally orchestrated!!!
Thank you for considering my comment,
Peter Wormley
New Berlin, WI