May 26, 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.
What is the intent of incentives? Quality or quanity? Short term or long term advantages? Where our intentions go, so goes our economy. I know this, you know this.......so what's really going on? Who really benefits most from the current practices? Why do you play the protectionist role of the benefactors of these practices and not the people? What are your true intentions?
I saw first hand this bubble ballooning.....I ran a Broker approval department for a wholesale lender........it was insideous and disgusting to watch the lack of good intentions and lack of oversight. You were considered a negative, nay-sayer to even breath a word of caution in the mist of this impending disaster.
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.
I have deep hope that you consider my comments and not go down the same path, leading us to another sewer hole! Carol
Carol Provence
Roseville, CA