May 20, 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.
*** Most of the people I know have lost a home or a job or health insurance or credit, or all of the above. While banks are still refusing to give good payers credit, banker execs are still paying themselves huge bonuses. That's not what the bank bailouts were for. If the banks choose to reward themselves and let the middle class become extinguished, there will be no mass buying power to bounce back the economy. ***
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,
L B