May 26, 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. Even though I consider myself highly employable (I have an MS in electrical engineering, a PhD in Biology, and several years of industry experience as a hardware design engineer, a software consultant, and a computer programmer), I finished a PhD in October 2008 only to find myself unemployed and without unemployment benefits for almost two years. During that time, I drained all my savings just to stay afloat. Had these bankers and ‘financial experts’ not wrecked our economy because of their uncontrolled greed and short-term goals, I am sure I would have found a job shortly after graduation and would be in a safer financial situation now. As it is, I still have little in retirement money, and I am concerned about my future as a retiree. Greed is the sacred cow of American society, and it must be stopped and controlled. Greed leads to more unequal societies, which in turn makes them less healthy and unsustainable. I recommend you read the book “The Spirit Level: Why Greater Equality Makes Societies Stronger’ by Kate Pickett and Richard Wilson. After reading that book, I am sure you’ll agree with me that corporate and individual greed must be controlled.
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,
Federico Prado
Seattle, WA