Why not say that all bank compensation above a baseline amount - say, $150,000 in annual salary - has to be paid in toxic assets off the bank’s balance sheet? Instead of getting a check for $10,000, the employee would get $10,000 in toxic assets, at their current book value. A federal regulator can decide which assets to pay compensation in; if they were all fairly valued, then it wouldn’t matter which ones the regulator chose. That would get the assets off the bank’s balance sheet, and into the hands of the people responsible for putting them there - at the value that they insist they are worth. Of course, the average employee does not get to set the balance sheet value of the assets, and may not have been involved in creating or buying those particular assets. But think about the incentives: talented people will flow to the companies that are valuing their assets the most realistically (since inflated valuations translate directly into lower compensation), which will give companies the incentive to be realistic in their valuations. (Banks could inflate their nominal compensation amounts to compensate for their overvalued assets, but then they would have to take larger losses on their income statements.)that's from two months ago, but it's new to me. and it still seems like a good idea now. apparently, credit suisse used a version of that idea last december. (prompting the folks over at baseline scenario to wonder who came up with the idea first)
whoever first thought of it, it seems like an almost magically clever solution for getting toxic assets off bank balance sheets while also not letting the people who put them there off the hook. other than the banksters' natural resistance to something that puts the risk of these assets on them personally, is there any reason why it shouldn't be done?
(via susie)
