Wednesday, June 16, 2010


Fifteen Economists Issue Crisis-Prevention Manual

Rather than setting pay levels, the government should require banks and other critical financial institutions to withhold a share of each senior manager’s total pay for several years, a group of leading economists is urging in a new book. The money would be forfeited if the company went bankrupt or had to be bailed out.

Another recommendation that has received limited attention in Washington involves a kind of debt instrument known as contingent convertible bonds, or CoCo bonds. Banks would be encouraged to issue such debt, which would automatically convert into equity in a crisis. Such bonds would speed up the recapitalization of an ailing bank, at no cost to taxpayers, leaving bondholders to bear the cost of failure.
Squam Lake Report (transcript)

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