May 29, 2011
Wall Street greed and outrageous pay practices were a major cause of the 2008 economic collapse. The system of incentives )aka pay practices) most Wall Street investment banks folowed, encouraged fund managers and lendfers to make policies that were insane by any other measure. 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.
The economic collapse has had severe impacts on my region (rural Sacramento Valley of CA) and has hurt my business as a farmers' market vendor, as well as spreading misery to millions of families across my state. In 2009 our market registered the first contraction in revenue in years, entirely because customers had less to spend. That's hurt our farmers. I just want you to know how Wall Street pay incentives (which may seem like no one's business but the company's) really do affect everyone in the country. Thank you for considering my comment,
Wolfgang Rougle
cottonwood, CA