May 19, 2011
I’m writing because the future of America was affected by the economic collapse of 2008, and we don’t want it to happen again.
Wall Street greed, outrageous pay practices and unlawful actions 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. What if options could only be exercised over an average time period.
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 also urge the SEC to bring charges against bankers, investors and others whose unlawful practices helped created the collapse. Bernie Madoff was not alone.
Thank you for considering my comment,
Pat Kilduff