May 22, 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.
Have stiffer monetary penalties for questionable practices and prison time for CEOs and management teams that encourage endangerment of investors' portfolios.
Certainly, the first principle would be the inability to gamble against your customer. Profit realized in that manner should be removed from the compensation package. Practices that excessively endanger investors' portfolios as well as the economic base of our country shoul be tied to prison sentences.
Individuals who live in my retirement community who had already suffered losses in their reirments from bankrupt companies now have further had to suffer from losses in their portfolios and of course took what little they had left and put in the banks so they did not enjoy any profits from the recovery. No need to point out that even for those who left their investments on the table a 50% decline in overall stock worth requires a 100% gain to be back to where you started 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,
Paul Brown