Wednesday, September 17, 2008

Wall Street in Crisis - What's Next?

Unless you have been under a rock this week, you have heard about the terrible times that are hitting the financial industry with the $85 Billion dollar Goverment bail out of AIG and the record lows on the Dow Jones. I am not the most stock market-literate person out there, but when the Dow drops 300 points overnight - I am concerned.

Well, today I ran across some interesting ideas from Columbia University professor Joseph E. Stiglitz. Stiglitz was awarded the Nobel Prize in Economics in 2001, and he has some recommendations on regulations our government needs to inact. With this being a Presidential election year, we all need to take the time to understand the major issues and have relevent research to back our thought processes. Take a look at Stiglitz recommendations below and make sure to listen close to our Presidential nominees to see if they are speaking to the issues and how to rectify the problems.

Excerpt taken from

1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options. We should mitigate the incentives for excessive risk-taking and the short-term focus that has so long prevailed, for instance, by requiring bonuses to be paid on the basis of, say, five-year returns, rather than annual returns.

2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for "human consumption." Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people's money. Some may worry that this may stifle innovation. But that may be a good thing considering the kind of innovation we had -- attempting to subvert accounting and regulations. What we need is more innovation addressing the needs of ordinary Americans, so they can stay in their homes when economic conditions change.

3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.

4. We need to impose other regulations to improve the safety and soundness of our financial system, such as "speed bumps" to limit borrowing. Historically, rapid expansion of lending has been responsible for a large fraction of crises and this crisis is no exception.

5. We need better consumer protection laws, including laws that prevent predatory lending.

6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is "too big to fail." If it is that big, it should be broken up.

And in closing... Obama 08!!!! We Need Change!!!!


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