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There has been a great deal of discussion about how our financial regulations should be reformed. Over the weekend Jason Zweig brought up an interesting suggestion:

Here are a few ideas… being championed by Edward Kane, an economist at Boston College who has studied financial regulation for more than 40 years. Bonuses to senior bankers and managers should be paid in a special class of stock that would require the holders to chip in their own personal capital if the firm becomes insolvent. A secondary market in these special shares likely would spring up to provide diversification to the holders; they would have to offer a discount to entice buyers, and the market price would give investors and regulators another way to monitor risk.

I, for one, really like the idea of not only giving corporate leaders a financial incentive to the upside (options already accomplish this) but also a stake in the downside at the firms they manage. We've already witnessed what happens when execs only have upside incentives – they swing for the fences and many strike out. Having a stake in the downside might inspire a few more sacrifice flys, bunts and maybe even leaning into a few pitches to “take one for the team” (aka, customers, employees and shareholders). How refreshing would it be to see something like that on Wall Street?

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