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Here’s an internal Fed blog describing an internal Fed report which proposes that we tie banker bonuses to the CDS spread of the bank. The crux of the idea:

Under our scheme, a high or increasing CDS spread would translate into a lower cash bonus, and vice versa. For banks that do not have a liquid CDS market, the bonus could be tied to the institution’s borrowing cost as proxied by the debt spread. However, the CDS spread has the benefit of being market based, and can be chosen optimally. It is the closest analogue a bank has to a stock price—it is the market price of credit risk. If CEO deferred compensation were tied directly to the bank’s own CDS spread, bank executives would have a direct financial exposure to the bank’s underlying risk and would have an incentive to reduce risk that does not enhance the value of the enterprise.

It’s an interesting idea and I’ll think about it more. I have two concerns off the bat though. First, the blog (I didn’t read the paper) acts like CDS can be honestly taken as a proxy for likeliness to default. However in the real world everything is juiceable. So this scheme will give people more incentives to push for, among other things, fraudulent accounting to avoid looking risky. My second concern is an add-on to the first: the insiders, who benefit directly from low CDS spread, will have very direct reasons to perpetuate such accounting fraud. Somehow I’d love to see (if possible) a scheme put forth where insiders have incentives to ferret out and expose fraud.

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A beautiful post about the metamovement of which OWS is a part, by Umair Haque. A piece:

In a sense, that sentiment is the common thread behind each and every movement in the Metamovement — a sense of grievous injustice, not merely at the rich getting richer, but at the loss of human agency and sovereignty over one’s own fate that is the deeper human price of it.

He links to We Are the 99 Percent. Check it out if you haven’t already seen it.

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Interfluidity blogs about how yes, the bankers really were bailed out. Big time. Great points, here is my favorite part:

Cash is not king in financial markets. Risk is. The government bailed out major banks by assuming the downside risk of major banks when those risks were very large, for minimal compensation. In particular, the government 1) offered regulatory forbearance and tolerated generous valuations; 2) lent to financial institutions at or near risk-free interest rates against sketchy collateral (directly or via guarantee); 3) purchased preferred shares at modest dividend rates under TARP; 4) publicly certified the banks with stress tests and stated “no new Lehmans”. By these actions, the state assumed substantially all of the downside risk of the banking system. The market value of this risk-assumption by the government was more than the entire value of the major banks to their “private shareholders”. On commercial terms, the government paid for and ought to have owned several large banks lock, stock, and barrel. Instead, officials carefully engineered deals to avoid ownership and control.

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Next, read this Newsweek article if you’re still wondering what Mayor Bloomberg’s personal incentives are for letting OWS complain about crony capitalism and the power of lobbyists. The scariest part:

Let’s say a lobbyist for a coal company wants to squash any legislation that affects his employer’s mining operations. He logs onto BGov.com (the cost is $5,700 per year) and is automatically alerted to breaking news of a just-introduced energy bill. The data drill-down begins. BGov shows the lobbyist how similar legislation has fared, what subcommittee the new bill will face and when, who the key congressmen are, and how they have voted in the past. The lobbyist calls up information on the swing vote’s upcoming election contest: it’s competitive, and the congressman is behind in fundraising. Lists of major donors—who might be induced to contribute or, better yet, place a call to the officeholder himself—are a click away. These political pressure points and a thousand more are how lobbyists make their mark, and Bloomberg thinks BGov can deliver them faster than the competition.

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Finally, a very nice blog about the Alternative Banking group and David Graeber by Joe Sucher. Here’s an excerpt:

I know the usual naysayers will nay say until they are blue in the face about changing the so-called system. “It will never happen, never will, so let’s wait for things to settle down and go back to business as usual.” These folks, I’d venture to say, may be exhibiting a fundamental crisis of imagination.

I remember an elderly immigrant anarchist reminded me (when I was naysaying) that if you were to tell a 14^th century European serf, that some time in the next few hundred years, they’d actually have the ability to cast a vote that mattered, no doubt you’d be met with a blank stare. The thought just wouldn’t compute.

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updated: Jesse Eisenger of Propublica wrote this interesting article in DealBook, where he talks about the insiders on the Street who are frustrated by the rampant corruption. I agree with a lot he says but he clearly needs to join us at an Alternative Banking group meeting:

It’s progress that these sentiments now come regularly from people who work in finance. This is an unheralded triumph of the Occupy Wall Street movement. It’s also an opportunity to reach out to make common cause with native informants.

It’s also a failure. One notable absence in this crisis and its aftermath was a great statesman from the financial industry who would publicly embrace reform that mattered. Instead, mere months after the trillions had flowed from taxpayers and the Federal Reserve, they were back defending their prerogatives and fighting any regulations or changes to their business.

Perhaps a major reason so few in this secret confederacy speak out is that they are as flummoxed about practical solutions as the rest of us. They don’t know where to begin.

Um, there are plenty of very good places to begin. It’s a question of politics, not of solutions. Start with the very basics: enforce the rules that already exist. Give the SEC some balls. We’ll go from there. Sheesh!