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William Black’s Comment to Krugman’s Twinkie Manifesto

NEP’s William Black posted the following comment in response to Krugman’s Twinkie Manifesto post:

This is also playing out in Ecuador. The legislature has given preliminary approval to a bill that would impose an excess profits tax on banks and limit the compensation of bank executives. The four largest banks (with over 80% combined market share) responded with a coordinated email campaign to every depositor implying that the legislation would place their deposits at risk.

Yes, they are actually threatening to induce a run on their own banks if their compensation is limited. They are trying to extort President Correa into withdrawing the bill by holding the finance sector (and through it the general economy) hostage.

Correa was in Spain — trying with other Latin American leaders to convince Spain’s conservative government to reject austerity — when the large Ecuadorian banks launched this effort to panic their depositors. As an economist, he is particularly well-positioned to explain why regulating executive compensation is essential to limit the perverse “agency” incentives that have been a leading cause of bank failures and bank illegality.

If banksters had tried this type of extortion during the S&L debacle we would have immediately issued a temporary cease and desist order prohibiting their action and then removed and prohibited them from office and/or placed the S&L in conservatorship and appointed new controlling officers.

Nov. 19, 2012 at 3:30 a.m.

This piece is cross-posted from New Economic Perspectives with permission.

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