“The overwhelming share of increased actual and projected costs for the fund have been caused by actual and projected failures of smaller banks, not larger ones.”

-John Dugan, the comptroller of the currency

>

I don’t usually insert myself into personal disputes amongst regulators, but when one of them appears to be a bit of an asshat, I feel compelled to comment.

The spat in question is between Sheila Bair, the exemplary FDIC chairwoman, and the asshat being the speaker of the above WTF quote, John C. Dugan, the comptroller of the currency. I don’t know much about Dugan, other than some of the odd and indefendable statements he keeps making. He often misstates facts about the credit collapse, blames the wrong organizations for the subprime debacle, and otherwise seems to be a mouthpiece for the largest, most inept banking istitutions.

Some Dugan comments:

• “The overwhelming share of increased actual and projected costs for the fund have been caused by actual and projected failures of smaller banks, not larger ones.”

• The financial crisis stemmed in part from problems at small banks;

• Stiff new insurance fees on banks as unfair to the largest banks

• The responsibility for validating risk management models lies first and foremost with the institution itself. (OCC)

Bizarre.

Part of the problem lies with the OCC itself. Its an agency that has been committed to radical deregulation. When the NY Attorney General was looking into “discriminatory mortgage lending practices,” OCC filed suit to stop the NYAG from inspecting the lending records of national banks using state laws.

The OCC decision to allow banks to become commercial real estate developers failed to recognize the inherent risk involved. Even the NAR complained. A 2002 ruling by the regulatory agency prevented Credit Card insurance from being regulated by the appropriate state agencies. And why anyone at the OCC thought allowing national banks to underwrite insurance was a good idea is hard to fathom.

At just about every turn, the OCC has ruled in favor of radical deregulation, and against consumers. Why the Obama administration has retained Dugan (he’s been at the OCC since 2005) is beyond my comprehension. He is a classic Bush appointee — a regulator who is against regulating — who should have been dismissed at the earliest opportunity.

Banks are in the business of taking in deposits and then lending that money out again. If they cannot do that responsibly and profitably, then they should get out of the banking business and into real estate development or insurance underwriting. But so long as the FDIC is on the hook as the insurer of these deposit accounts, banks should not be allowed to stray from their core competency into other businesses.

Stick with banking.

>

Previously:
My Experience at Indy Mac: Fraud, Corruption, Criminality (July 2008)

http://bigpicture.typepad.com/comments/2008/07/appraisers-wows.html

Office of Thrift Supervision: Asshat Central (December 24th, 2008)

http://www.ritholtz.com/blog/2008/12/ots-asshat-central/

Video: IndyMac CEO Interview on CNBC (September 2006)

http://bigpicture.typepad.com/comments/2008/07/video-indymac-c.html

Idiots Fiddle While Rome Burns (July 2008)

http://bigpicture.typepad.com/comments/2008/07/idiots-fiddle-w.html

Sources:
Regulators Feud as Banking System Overhauled
STEPHEN LABATON and EDMUND L. ANDREWS
NYT, June 13, 2009

http://www.nytimes.com/2009/06/14/us/politics/14power.html

OCC and Model Validation Part 2
Angry Bear, March 28, 2008

http://angrybear.blogspot.com/2008/03/occ-and-model-validation-part-2.html

The Big Banks’ Best Friend in Washington
Steven Pearlstein
Washington Post, May 27, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052603150.html

Category: Bailouts, Credit, Politics, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

35 Responses to “Sheila Bair vs. John Dugan”

  1. Yogizuna says:

    Regarding why Obama has kept Dugan on, we must always remember that he (Obama) is a member in good standing of our now very corrupt and entrenched establishment, so why anyone would expect real reform and positive change from him is beyond me.
    And yes, we did vote for him over McCain, but only as the “lesser of two evils”. Yo

  2. Greg0658 says:

    just back from walkin the dog .. got a minute before heading off to a project as a hired gun (with camera)

    I am worried that the cascading problems and technicalities of everything has just about all of us wondering the correct action to repair situations without lost steps or backpeddling .. both costly .. and there is little room for error these days.

    Or course a hired gun in the right postition helps make those decisions easier for some when the game is in hyperdrive.

    One more reminder .. the consumer is the boss / not your boss … without a consumer who has the ability to consume it all stops .. ask the boss if thats right.

  3. call me ahab says:

    i’ll second yogizuna’s comment

  4. willid3 says:

    is there a term that Dugan must be allowed to complete? if not, maybe they are still looking for a replacement? Given time, I think he sounds like he is prompting his own exit. maybe today. we can hope right?

  5. call me ahab says:

    Joseph Stiglitz writes-

    “In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self serving rules which put at risk the entire global economy—and then, when the day of
    reckoning came, turned to Wall Street to manage the recovery. They see continued redistributions
    of wealth to the top of the pyramid, transparently at the expense of ordinary citizens. They see, in short, a fundamental problem of political accountability in the American system of democracy. After they have seen all this, it is but a short step to conclude that something is fatally wrong, and inevitably so, with democracy itself.”

    http://www.fullermoney.com/content/2009-06-12/VanityFair_Stiglitz_WallStreetsToxicMessageJul09.pdf

    pretty powerful stuff

  6. CNBC Sucks says:

    Ritholtz, Akismet ate my first comment attempt because I tried using those bad words again.

    Not only are you correct in calling Dugan an “asshat” for his comments, but the government is actually hurting the small banks by bending over backwards with taxpayer dollars to keep big, bloated zombie banks alive. How can small banks become big banks if the government protects those who should become extinct by their own actions?

    By the way, I have been reading about Chinese cannibalism during the Great Leap Forward and the Cultural Revolution and I am not liking it too much. I pray America always has good potato pancakes, pork rinds, beef ribs, jalapeno peppers, and other wondrous foods in its big, beautiful, glorious grocery stores. May overweight Americans stay that way forever with plenty of food options besides their fellow Americans.

  7. call me ahab says:

    cnbc sucks-

    jalapeno peppers- you can eat as many as you want- fat american’ has to do with no activity- and gallons and gallons of soft drinks and cheap processed carb’s-

    you can eat all the ribs you want- just keep it easy on the BBQ sauce

  8. call me ahab says:

    emigration anyone?-

    http://paul.kedrosky.com/archives/2009/06/most_livable_ci.html

    honolulu is suspect- probably made it for climate alone- Singapore- ok to visit but wouldn’t want to live there-

    amsterdam, berlin and vancouver are great cities- can’t speak for the rest- haven’t made it there yet

  9. gloppie says:

    Kucinich President, Dr. Paul Vice-Prez, Mish for Fed Chair and you Barry as Comptroller.

    All kiddin’ aside, I wonder why nobody has taken on Phil (you’re a bunch of whiners) Gram and his wife Wendy of Energy deregulation and Enron fame. Those two have hurt this country a pretty good deal too, as far as I can tell.

  10. CNBC Sucks says:

    ahab, I run 3 – 4 miles per day so my BMI is actually in the low 20s. I don’t actually put much stock in BMI because muscle is heavier than fat – and I work out too when I am not busy overposting on the Ritholtz blog – but my point was that I hope those Americans who choose to be overweight can stay overweight.

    On Kedrosky’s list, I have been to Zurich, Munich, Vienna, Paris, Berlin, and Amsterdam, and of those, I would choose Amsterdam. I don’t know anymore if I would like to live in Singapore a la Jim Rogers, so close to so many cannibals in China.

    But thanks, ahab, for the excuse to write: If any ladies want to know more about The Great, Fit, and World Travelin’ CNBC Sucks, you just holler. I know there are 1 or 2 women who read Ritholtz.com every other week.

  11. Dogfish says:

    @ call me ahab/ishmael/tibbs, 9:20

    Thanks for the link to the article by Stiglitz… it reads a LOT like Naomi Klein’s “Shock Doctrine”. Have you read that, perchance?

    I would recommend it and “Confessions of an Economic Hitman” by John Perkins to anyone interested in reading more along those lines.

  12. Dogfish says:

    @ gloppie, 10:03

    If McCain would’ve been elected, I think Phil Gramm was in line to be his Treasury Secretary. THAT would’ve been interesting… I wish people like him were held more to account, that they aren’t speaks to the level of complicity and/or incompetence amongst the major media outlets.

  13. Stillaway says:

    Not until public attention and outrage can be redirected from Brittney Spears’ lack of underwear to the hypocrisy and self-dealing in DC will there be effective change. Perhaps the solution is for the MSM to cover DC in an Entertainment Tonight or Reality TV format?

    Imagine a camera crew following a Senator around 16 hours a day:
    There’s Senator Asshat trashing the TARP Bill on national TV. There he is voting for it three hours later.
    Here’s the Senator’s earmark book. What’s this? Five million dollars to dredge out the Stinkwater Canal. Here’s a shot of the Senator’s vacation home on the Stinkwater Canal.
    There’s the Senator meeting with a lobbyist. What’s that document sliding across the table? A bill written by the lobbyist’s client that the Senator will introduce as legislation.

    Of course, the problem would be getting advertiser money. What corporation would want to pull the rug out from underneath their own feet?

    And I’ll bet the Great CNBC Sucks is not outraged by Brittney’s lack of underwear?

  14. Yogizuna says:

    “In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self serving rules which put at risk the entire global economy—and then, when the day of
    reckoning came, turned to Wall Street to manage the recovery. They see continued redistributions
    of wealth to the top of the pyramid, transparently at the expense of ordinary citizens. They see, in short, a fundamental problem of political accountability in the American system of democracy. After they have seen all this, it is but a short step to conclude that something is fatally wrong, and inevitably so, with democracy itself.”

    There is nothing “fatally wrong” with democracy itself, but when democracy is saddled with a population that does not care enough to “right the wrongs” happening all around them left, right and center, and chooses instead to play their video games, go on Facebook, and watch a never ending stream of sports and movies, etc, etc, then of course democracy will fail when the people have become in fact “sheeple”.
    With the same old democrats, the same old republicans, the same old stale establishment and or “powers that be”, how can anything seriously change for the better in the long term scheme of things? Yo

  15. Dogfish says:

    @Stillaway, 10:17

    Corporate influence over everything is, to me, the hulking gorilla in the room. There are three entities sitting at the table vying for power: government, business, and the people… and business has produced all kinds of shiny objects that either obstruct or distract the people (their own fault), and thus all the decisions are being made by business and government, without the people serving as an effective check against government overreach. People check Government who checks Business who checks People. It’s like the three branches of government on a societal scale, but right now it’s broken, because too many believe that the government and business are there to truly help them instead of pulling the wool over their eyes and exploiting them.

    “Fascism is capitalism plus murder.” -Upton Sinclair

  16. CNBC Sucks says:

    Fellas, and I do mean fellas because this blog is 99.9% male, after having read about cannibalism in modern China, I am inclined to think:
    1. I am definitely not outraged by Britney’s lack of underwear, nor photos of Britney’s lack of underwear, but I would definitely object to John Dugan’s lack of underwear (have to keep this on topic)
    2. I couldn’t care less what developing countries think of us — I want us to stop putting so much pressure on ourselves and focus on our own problems
    3. I can leave the US, but I don’t want to, not even for Amsterdam – this is a wonderful, great, blessed country, even if we have to share it with Republicans like me
    4. America has always had 90% sheeple, 10% movers and shakers. The top 10% carry the bottom 90% and make this country great. You people on this blog are smart enough to be in the 10%, so go out there and make a difference.
    5. I need to work on my upper body, and focus on my new finance project, so I am going to be a member of Ritholtz’s massive silent audience for a while. Enjoy your country!

  17. call me ahab says:

    dogfish-

    one of my favorite ales by the way- Dogfish- 60 minute pale ale- East Coast- made in Delaware I think-

    have not read “Shock Doctrine” but have read articles by her in the “Nation” – I know she is anticorporate-akin to Kalle Lasn of “Adbusters”- and believes that corporations try to control people through advertising and brand identity-

    http://www.adbusters.org/

  18. Stillaway says:

    ahab,-

    On the topic of consumerism – I too thought of the ale when I saw the moniker Dogfish. Ever sample any of Flying Dog’s products? Being more of malt man than a hop head, I think their Gonzo Imperial Porter is simply divine. It’s viscous and has head like the crème on top of an espresso. I’ve had to lay off of it though. I drank it exclusively for one winter and gained 8 pounds.

  19. Marcus Aurelius says:

    As we are learning, incompetence and cronyism do have costs. John C. Dugan should be sent packing. Asshat is much too kind and benign a word. Asshats are laughable — this dude has a major case of da’ crazy (as is evident by his disconnection from reality), yet he still holds a position of power. That’s dangerous.

    gloppie: I’d vote that ticket over any other (although there should be no Fed, so Mish would be out of a job, and I don’t think BR, love and respect him as I do, would be suitable for, or happy in, a public service role).

  20. Mannwich says:

    Just read that article a half-hour ago. Pretty timely post. It’s pretty absurd that Dugan thinks the bigger banks should be protected even more, likely at the smaller banks’ expense. Not even worthy of a response, really.

    On another note, I’ve come to the conclusion that 90%+ of the public doesn’t really give a rip about any of this. Was out yesterday at lakeside bar on Lake Minnetonka, and I can tell you, nobody gives a rat’s ass. It’s summer in Minny and the weather is gorgeous. The outdoor bars are packed and most everyone seems to not have a care in the world. We’re in the eye of the storm now. Everyone wants to be in a good mood, so everyone is in a good mood, despite “For Sale-Bank Owned” signs all over the lake at prime properties (reality hasn’t set in there yet that these homes aren’t worth a fraction of what they want for them in this market), and “For Lease” signs at virtually every commercial real estate building I’ve seen recently. Those sign-makers must be happy. Maybe those are the people out at the lakeside bar enjoying some revelry and extra exposed flesh.

    Having said that, I’m out of here. Off to a enjoy the afternoon on a friend’s boat on Lake Minnetonka. Good to have friends with boats.

  21. Dogfish says:

    @ CNBC Sucks

    I agree this is still a great country, but it will only remain as such if we can get the focus back on helping people and having a strong middle class… which is essential in any democracy.

    I will feel better about our chances if we lose the huge negative stigma attached to unions. As long as we have corporations, we need to have unions to maintain a balance of power between capital and labor. Otherwise things go out of whack and you have what we are experiencing now.

    I do disagree on your percentages, however:
    http://www.urbandictionary.com/define.php?term=five%20percent

    (I link to that as a young middle-class suburban white guy)

    :)

    ====

    @ call me ahab

    Despite my name, I find myself preferring Hennepin and Chimay Blue over Dogfish the Beer. It’s still tasty, but for some reason I can’t get down on it regularly.

    Thanks, again, for the link, I think I had heard of AdBusters, but never have gone to the site. I will check it out further.

    “Shock Doctrine” is less about the branding and corporate influence that her usual fare offers, and follows the same line as Stiglitz’s article, but goes into more detail. She follows the history of the Chicago School’s influence from the 60s to the modern day, and how many countries were used as test beds of it’s theories… From South American countries early on, to Poland and Russia in the 90s.

    “Confessions of an Economic Hitman” follows along the same lines, but more on the IMF/World Bank side of things. Perkins was supposedly an IMF analyst, and his basic premise was that he’d write up overinflated analyses of large-scale projects for developing countries (power plants, factories, ect). These countries would take out loans from the IMF, and then they would default on those loans (as planned). Then the IMF would take their “pound of flesh” in the form of privatization of natural resources, forcing of further laissez-faire policies, etc.

    May we live in interesting times.

  22. Sheila Bair an examplary FDIC chairwoman? I’m afraid I’m with John Hempton on this one:

    http://brontecapital.blogspot.com/2009/03/sheila-bair-is-either-criminal-or.html

    http://brontecapital.blogspot.com/2009/04/seemingly-criminal-sheila-bair.html

    http://brontecapital.blogspot.com/2008/10/sheila-bair-disgrace-sequence.html

    Other than that, I agree that Dugan seems to be an “asshat”.

    PS: I love your blog and you’ve been a huge influence on the way I think about things, so I’m pretty shocked to see your comments about Bair. She is an idiot and maybe even an “asshat” as well.

  23. Sheila Bair an examplary FDIC chairwoman? I’m afraid I’m with John Hempton on this one:

    http://brontecapital.blogspot.com/?cx=partner-pub-0595730163827774%3A9ml79bovwqh&cof=FORID%3A10&ie=ISO-8859-1&q=Bair&sa=Search#1067

    Other than that, I agree that Dugan seems to be an “asshat”.

    PS: I love your blog and you’ve been a huge influence on the way I think about things, so I’m pretty shocked to see your comments about Bair. She is an idiot and maybe even an “asshat” as well.

  24. DeDude says:

    Completely out of touch with realities – and outright lying also. Must have been an oversight to allow this old republican to remain in the new administration. Hopefully they fix than sooner rather than later.

    The FDIC fees as well as capital requirements should be made progressive. The bigger the bank the higher the fees and the less leverage should be allowed. That would help keep banks from growing “to big to fall” and eventually allow us to be able to handle the fall of one of those top 20 banks.

  25. franklin411 says:

    I’m going for a run and then shopping, but I will point out that Dugan was America’s first major cartoon character:

    “The Yellow Kid,” from R. F. Outcault’s Hogan’s Alley (created for the newspaper the New York World in 1895), was the first very popular, heavily-merchandized comic strip character in America.

    The Kid was an Irish tenement brat named Mickey Dugan who always dressed in the same dirty smock.

    http://333comix.wordpress.com/2009/01/

  26. johnbougearel says:

    Thanks Barry for sticking your two cents in,

    I had no idea we had such reckless advocate of the big bad banks at the OCC.

    I suspect John Doofus Dugan is sucking up and ass-kissing these big bad banks in hopes the revolving door will sweep him into some irresponsibly high paid banking job someday.

    I hope Obama’s shoe leather kicks Doofus Dugan’s ass so hard that he can’t sit for a month. It is high time Doofus Dugan be given a permanent time out

  27. call me ahab says:

    stillaway-

    have tried some “flying dog”- not the porter though- will try sometime based exclusively on your recommendation- porter tends to be a bit on the sweet side though-

    in the summer I buy the cheapest mass produced beer I can get my hands on- miller & PBR come to mind- just needs to be “ice cold”

    dogfish-

    I must have read a review or something on the “Shock Doctrine”- because it sounds very familiar- will have to give it a read- I know she has a few other books as well- so maybe I’ll start from the oldest and work forward- “hitman” sounds like its worth a look as well

  28. Thor says:

    Manwich – On another note, I’ve come to the conclusion that 90%+ of the public doesn’t really give a rip about any of this. Was out yesterday at lakeside bar on Lake Minnetonka, and I can tell you, nobody gives a rat’s ass.

    I would have to agree with you on this one. I don’t take quite the pessimistic view on this as do many of the other posters here. My belief is that rather than an example of America’s decline, it is simply human nature that most people, wherever they are in the world, just go about living their lives, knowing full well that in the end, there is not a lot they can do about it. I used to talk to my grandparents a lot about The Depression and I was always fascinated that, at the time, most people just went about and lived their lived. They didn’t concern themselves with policy decisions or international banking rules.

    Again, I think this is human nature, I have traveled quite a bit in the last several years and have kept in contact with many of the people I met around the world. From what I can gleam from my friends, they’re mostly about like us. The average Joe in Sweden, or Morocco, or Argentina, is not spending great amounts of time thinking about these things.

    We, on the other hand, find these topics of great interest. What frustrates me is when I hear people lambaste the average Joe because they do not share our concerns. Reminds me too much of growing up in San Francisco where the typical attitude would be something like this: “What do you mean you’re not recycling? Don’t you care about the environment, don’t you see how important this issue is? What’s the MATTER with you?”
    Last quick example. I do not have, nor do I ever want, children. I cannot understand what would compel a person to want to bring a child into the world as it is, knowing what we do about global warming, the future of the economy, indebtedness, etc. I do, however, respect those of you who wish to bring children into this imperfect world because I know that your priorities are not the same as mine . . . .

    Just a thought :-)

  29. patfla says:

    > http://www.nytimes.com/2009/06/14/us/politics/14power.html

    The photo at the top of this is great. So much for the neutral and objective eye of the lens.

    Of course whatever one thinks of Dugan vs. Bair, it’s still probably not inaccurate to say that Ms. Bair may have larger political ambitions.

  30. MikeG says:

    I wonder why nobody has taken on Phil (you’re a bunch of whiners) Gram and his wife Wendy of Energy deregulation and Enron fame. Those two have hurt this country a pretty good deal too, as far as I can tell.

    Both of the Gramms deserve to rot in the nastiest jail on earth for the trillions in damage they have done to the US economy with their self-dealing ideological corruption. Leading exhibits for the sleazy Texas-bred corporatist cronyism the Bush wrecking crew brought to Washington.

  31. Greg0658 says:

    on the 90% out to lunch in our democracy .. really now – what else is there but make the best of day to day life … we get to vote once every 4 years for someone who can do as pledged .. or decide to go for the money (4 years isn’t a lifetime)

    ok you can (without breaking the law) .. vote / buy (or not) / procreate (or not)

    I always thought we needed referendum style democracy with elected people enacting the dotted Is and crossed T guidelines. These days in capitalism we would need quick recall or clawback facilities to keep business from going to far. Keep ‘em wondering if they are overstepping the line and it’ll cost ‘em.

    but (always a but) I too, am worried at the 90% out to lunch …
    Squeeky Wheels and Old can’t afford to replace broken Cars

  32. alfred e says:

    @MikeG: Agree more than totally. And yet Phil claims no wrong. Blames it on subprime to this day. Boil him in oil and save the world. Ooops. Too late.

    Just a sign of how corrupt and incompetent we have become.

    Jefferson (help me out here MEH): “Democracy requires an educated populace”.

  33. Onlooker from Troy says:

    MikeG

    AMEN! re: the Gramms. He should spend a good long time with a cell mate named Tiny who has been well versed in the litany of greedy actions that Phil and Wendy have spent their lives perpetrating. And she with a cell mate named Hilga.

  34. Yogizuna says:

    “Democracy requires an educated populace”.

    Then heaven help us, we are doomed!