Saturday, October 8, 2011

What the Wall Street Protestors Should Demand

There are a lot of people mad at Wall Street.  Right now they have a growing protest (it just gained the Unions).  

All they lack is a solid message.    First of all, forget about solving the issue completely.  If it were that easy, it would have been done already.    What we need to do is to make a single solid step in the right direction.

The problems Wall street has are three fold:

  1. Excessive concentration on the short term.  Short term profits can always be achieved by taking long term risks.  It's not that hard to create gambling strategies that pay off a reasonable profit 9 times out of 10,but one time out of ten bankrupts you.   Stock prices pay attention to short term profits, and often ignore long term risks.
  2. Unethical treatment of customers.   American corporate law is at heart a "Buyer Be Ware" process.  IT  lets corporations sell things by focusing on the main benefit while ignoring the small print. 
  3. Unemployment.  When the business doesn't off shore their business, then they get beaten by foreign based companies.  
These three problems can not be completely solved without doing horrible things to the economy.  But they can be ameliorated.   I see two solutions.  (Sorry, could not think of anything to help out with unemployment - in part because the more you fix #2, the greater a problem you get for #3 - we need a balance))

Solution #1:  More some of the focus of corporations to the long term  via bonus rules.   Three rules to do this:  
  • Any public corporation based in the US can not pay any person more than $200,000 unless at least half of the amount over $200k is in the form of a corporate bonus. You can pay them $500k a year, as long as $150k of that $500k is in the form of the corporate bonus. 
  • All corporate bonuses must "vest" over a period of at least 4 years.  If you earn a bonus in one year, your get no more than 25% one year after you earn it, 25% the next year, etc. etc.   If you leave the company, you still get the bonus.  No bonuses can vest in any year unless the corporation declares a taxable profit to the US government.
  • All un-vested corporate bonuses are, by law, forfeit to the the government if the corporation receives a bail out or to creditors if the corporation goes bankrupt.    If a corporation is in talks about a bailout or is considering declaring bankruptcy, then the bonuses must be delayed for up to 3 months or until the talks/considerations are over.  If they can delay completing the bankruptcy/bailout, then they get that extra year's worth of bonuses.
Note, this does not  actually lower the amount anyone gets paid, unless their business goes bankrupt..  Instead it time shifts some of the money.

Solution #2:   Grant more power to the newly created Federal Trade Commission.  Specifically, grant it a rating power.  It can review any and all contracts for major corporations and rate them - from A to an F.   This rating, by law, must be prominently displayed at the location where people sign the contract  - and in large, readable,  type whenever any web site requires you to click to accept.    Failure to do so invalidates the contract completely.

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