[Professor S]

I agree with pretty much everything you wrote. Onlya few corrections/ disagreements

Originally Posted by Xantar

As to your idea about the Federal Reserve: I wouldn't mind having several Fed Chairmen instead of just one. However, I don't necessarily support making it into a government oversight committee.

Neither do I. I meant that the government should appoint the committee of chairmen, like you said, and not a Fed "King on High". I certainly don't believe that politicians should be in control of the Fed. We'd all be broke.

Besides, I don't think it was the Fed's fault. The problem is the Investment/Securities market came up with all these new financial products which people didn't fully understand. The Fed has no role in regulating that -- that's the SEC's job, and for whatever reason, they fell behind.

I agree and disagree. The SEC should have regulted the products better, but I also feel that the Fed should have raised interest rates to stem the flow of loans based on the availability of cheap money. Money was cheap, mortgages were plentiful, and there was a run on those securities and everyone was too busy gobbling them up to check whether or not those mortgages were solid. A higher interest rate would have raised the risk of borrowing to buy.

If I understand you correctly, you're proposing to separate mortgages from other investments and securities. That seems like a good idea to me, and I don't think you're crazy for believing that. I'm not sure if it's possible to really do that, though. All the same, it does seem like a good idea to make Freddie and Fannie either fully private or fully public companies. The fact that people could buy stock in them was just not good.

They were separate for a long time. I believe the deregulation of the two happened in the 70's after the regulation was put in place after the Great Depression. In my opinion, those that originate the mortages should eb made to hold those mortgages. That way they will be MUCH more careful in who gets one. Also, I am not a fan of the CRA (Community Reinvestment Act) and I believe that had a hand in originating some bad mortgages.

I think that at a fundamental level, we need to re-examine the issue of executive compensation in the financial system.

Hold on a second! Hear me out. I'm not saying we need to stop paying executives so much. I know some Goldman Sachs employees. They work very hard, and they deserve their high salaries. The problem as I see it is that a lot of them are rewarded for taking risks but they are not punished when those risks. Most of these investment bankers are paid with stock options which means the more they can increase the price of their stock, the more money they personally receive. There's nothing wrong with that except if they screw up, that just means they don't get as much extra bonus money. I think if someone in the financial industry screws up, they should lose money in proportion to the amount that they've cost their company. I don't know exactly how this would be done, but I think it would have prevented a lot of the problems we have now.

The problem is that most of these CEO's compensations are derived exactly as you said: They come from the bottom-line, and thats how the books get cooked so that they can get their bonuses while the company slowly slides into bankruptcy so the CEO can keep their job and walk away with a ton of cash.

I have the solution, and I'd LOVE to get your feedback on it:

Force the financial industry, specifically securities, credit and banking, to form a national self-regulating association with ethics standards, like in Real Estate, Medical and Law. Right now financial ethics are determined by the institution and there is no reprocussion for their violation.

Hear me out, because the key to this is the transfer of legal action from governmental law, to civil law. The burden of proof when deciding whether or not someone broke the law is all or nothing, and exceedingly difficult when you are dealing with very intelligent businessmen with the means to get the best legal council available. By installing the code of ethics and a self-regulatory association, you open these men up to more civil actions with a burden of proof that goes beyond "a shadow of a doubt" and has degrees of guilt determined by a jury of your peers.

The determination of an ethics board as to the nature of the offense could then be used as evidence in a civil, or even state and federal, trial and would greatly increase the chances of a conviction or settlement. Over time, this would help to stem the tide of white collar shenanigans, because the plaintiffs would be represented top-notch private lawyers who want a piece of the pie and convictions/massive settlements would increase greatly.