Wall Street

All this Wall Street pay business is red herring. Changing the salaries of a handful of people at the top of a hadful of firms is a superficial move, pure politics. It's not unfair though. If we're bailing them out, we can tell them what to do with tax payer money.

Here are a few tougher changes that would be good but that don't seem to be in the works, because our political leadership is surprisingly timid, given what we've just been through:

Resurrect Glass Steagall. (Resurrectionism! See the NYTimes piece on Paul Volcker
NYTimes.comwww.nytimes.com/2009/10/21/business/21volcker.html) Split up the super global financial instiutions and force the businesses that get the benefit of the discount window and FDIC insurance to perform the banking services that we actually need, such as lending to small business.

Force interest rate swaps and other derivatives to be traded in an exchange, rather than over the counter. Having these instruments rely on the credit of the counter-parties puts a very difficult to determine amount of risk on thousands of company and government balance sheets, unnecessarily. Standardize agreements, and pool credit.

Bring back the uptick rule on short-selling. Eliminate naked short-selling. The short-sellers effected a self-fulfilling prophecy by causing a run on Bear and Lehman in 2008. The banks were overleveraged, but a soft wind-down would have been more pleasant for all of us. Hey, I'm no defender of bubbles. But making a killing by wiping out a vulnerable big company is unwholesome.

Let shareholders vote on senior executive pay packages.

If a trader's annual profits are contingent on iffy "mark to markets" of illiquid assets, leave some compensation for the future, when the real results are known. You could easily have a situation otherwise, where bankers are gaming their employers because they know how they'll get compensated, and are sticking shareholders with risks they wouldn't want to own themselves.

stimulative taxes?

The US has a tough economic problem here in late 2009. Growth is extremely sluggish and expected to stay that way for at least a year. And the budget deficit and debt situation strikes many people - including currency markets, who are driving the dollar down - as so serious that significant fiscal stimulus, in the form of new spending or tax cuts may not be possilble.

What's the answer?

Stimulative taxes. We have to identify fiscal initiatives that will lower the deficit while not further depressing the economy, and if such a thing is possible, find taxes that can actually stimulate investment.

One way to do this would be to pass laws today that have taxes rise gradually over time. This helps with long-term fiscal imbalance while not dragging dollars out of a bad economy. Also, businesses will have a chance to respond to the coming tax hikes, potentially in stimulative ways. If we're going to impose a gas tax that will gradually rise to $2.00 a gallon, we need to start designing more efficient cars. If electricity from coal is going to go up with excise taxes, we need more windmills and solar panels.