May 19, 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. My father and my brother were both laid off, I have cousins who are graduating college with great skills, but no job to put them to use... I'm all for capitalism, but when greedy people can use and abuse obscure knowledge of our capitalist structures, and cite "trust in the market" as a reason to keep from being regulated, you are allowing them, and in fact incenting them to make short-term gains at the expense of good people like those in my family. I blame government for not protecting us. Get it right this time or we will face worse. Greed isn't going anywhere anytime soon. Only regulation can correct this market failure.
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.
Thank you for considering my comment,
Ida Wainschel