The Sunday NYT catches up with what many others who watch banks have known for a long time: John C. Dugan, the former banking lobbyist and Bush appointee to the job of Comptroller of the Currency, is a tool.

Dugan’s contribution to the collapse of the United States began way back in 1989. Congress had ordered the Treasury to conduct a study on FDIC deposit insurance. Dugan ballooned the project into a 750-page manifesto, titled Modernizing the Financial System: Recommendations for Safer, More Competitive Banks (1991).

The title is misleading, for the paper was a recipe for making banking more leveraged, riskier, and less-capitalized. Congress, being unable tor esist the very dumbest of ideas, did put into effect much of what Dugan proposed into law. They allowed:

• Banks to expand into multiple states without incurring additional regulatory oversight;

• Relatively safe commercial banks to merge with riskier investment banks and insurance companies (Repeal of Glass Steagall);

• The purchase of banks by commercial firms (i.e., General Electric, Sears).

Regarding the Dugan changes to bank regulation, Kansas City Federal Reserve president Thomas Hoenig, in an August 6 2009 speech, made the following observations:

“There were two pieces of legislation that facilitated our migration toward too big to fail… Interstate Banking and Branching Efficiency Act of 1994, which permitted banks to grow across state lines, and the Gramm-Leach-Bliley Act, which eliminated the separation of commercial and investment banking. Since 1990, the largest twenty institutions grew from controlling about 35% of industry assets to controlling 70% of assets today.”

Note that both of these legislations enacted into law changes proposed by Dugan.

George Washington University Law School banking scholar Arthur Wilmarth Jr., professor put it succinctly when he said: “It was the first real recipe for too big to fail.”

Zach Carter was even more blunt: Dugan, Carter declared, is a Master of Disaster.

>

Previously:
John Dugan: Architect of “Too Big to Fail” Banks (December 28th, 2009)
http://www.ritholtz.com/blog/2009/12/john-dugan-architect-of-too-big-to-fail-banks/

Sheila Bair vs. John Dugan (June 14th, 2009)
http://www.ritholtz.com/blog/2009/06/sheila-bair-vs-john-dugan/

Office of Thrift Supervision: Asshat Central (December 24th, 2008)
http://www.ritholtz.com/blog/2008/12/ots-asshat-central/

Source:
Does This Bank Watchdog Have a Bite?
ANDREW MARTIN
NYT, March 26, 2010
http://www.nytimes.com/2010/03/28/business/28dugan.html

Category: Bailouts, Credit, Really, really bad calls, 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.

18 Responses to “NYT: John Dugan is a Bank Tool”

  1. Mr.E. says:

    What dismays me the most is that Mr. Dugan has never been openly brought to task for the clear failures of the agency he has overseen for over four years. In that post he clearly should have seen the abuses and what they foretold of pending financial disaster. He stood by and not only did nothing, he steadfastly defended and directed OCC on the path that he charted.

    Why POTUS, in light of clear public evidence, allows him (and others) to continue in his (and their) appointed post(s) that serves at the President’s discretion is beyond me. It is tolerance for this kind of negligence, nonfeasance and/or misfeasance that further destroys what little confidence the American people have in the Executive and Legislative branches of our Federal government. Mr. Dugan, along with Messr.’s Greenspan, Bernanke and Geithner have all enjoyed negligent tolerance for their destructive policies and omissions under both previous and the current administrations and Congresses. It is time for action and some house cleaning in Washington.

  2. flipspiceland says:

    It’s easy to answer the question as to why certain key people are kept in positions that common sense says should be fired.

    The Dugans, Geithners, Bernankes and Greenspans do not serve at the behest of the POTUS. That’s only for public consumption to keep people thinking the POTUS is the MOST POWERFUL PERSON ON THE
    PLANET, which is complete horseshit.

    The financial guys report to the men behind the curtain, and TheBamster is told by them who he will hire and who he will fire. The POTUS is a figurehead, and a puppet.

  3. Mannwich says:

    Lol Barry. I just read part of that article and said out loud to myself, ” John Dugan is a tool”, and decided to see if you’d weighed in on it today. Needless to say, I laughed out loud when I saw your blog post. Sympatico.

  4. ToNYC says:

    When Rahm confirms the fire is getting too close, they’ll throw Dugan under the bus.
    Turn up the lights and volume.

  5. Moss says:

    Just another example of how the Government has been captured by the interests of the Financial oligarchy. The fact that he is still in the position speaks volumes about the integrity and the ‘system’.

    He has no conscience much like the rest of those who take no responsibility and attempt to shift the burden of accountability to others. Much like Tim claiming he was not a regulator while at the NY Fed the behavior of these people is sicking.

  6. bobmitchell says:

    He’s taken the bankster line anytime he has been asked-

    We were not given the authority that we needed to regulate these people.

    That they were actively lobbing for less regulation is never mentioned.

  7. Winston Munn says:

    Perhaps it is time for a U.S. Ministry of Silly Ideas.

  8. dsawy says:

    Dugan is yet another alum of Harvard. Along with such luminaries as Bush, Obama, Cox, Frank, Paulson et al, we see a generation of graduates of the Ivies that think they’re so smart that they have the universe by the tail.

    It isn’t just that they’re not that bright. It is the insufferable hubris that accompanies these clowns throughout their careers in public office that really annoys me.

  9. Mannwich says:

    @dsawy: Hence, George Carlin’s famous line about it all being “one big club……..and you and I ain’t in it”.

  10. Robert Higgs on Jan 4, 2010
    “Writing in today’s Wall Street Journal, Gary S. Becker, Steven J. Davis, and Kevin M. Murphy discuss how the government’s multifaceted efforts to “reform” health care, energy and environmental controls, financial regulation, taxation, monetary policy-making, and various other aspects of the politico-economic order have created such great uncertainty that business people are reluctant to invest or to hire new workers, and therefore recovery from the present recession, to the extent that it is occurring at all, is proceeding unusually slowly. As I read this article, I nodded yes … yes … yes … they are talking about regime uncertainty, all right…”
    “…Before I could write anything about the WSJ article, however, Brooks Wilson wrote a nice post about it at his blog, which I recommend. Wilson has artfully combined my crisis hypothesis on the growth of government with my regime-uncertainty argument to produce what he calls “the crisis paradox” — “crisis is the best time politically and worst time economically to enact fundamental economic reform.” Indeed. But, of course, that is precisely how things tend to happen, making political entrepreneurship the mortal enemy of economic prosperity…”
    http://www.independent.org/blog/?p=4646

    regime uncertainty~political risk

    an unpopular topic, to be sure, one, exacerbated by 44′s reign.

    barring previous warnings, as: “”That we are overdone with banking institutions which have banished the precious metals and substituted a more fluctuating and unsafe medium, that these have withdrawn capital from useful improvements and employments to nourish idleness, that the wars of the world have swollen our commerce beyond the wholesome limits of exchanging our own productions for our own wants, and that, for the emolument of a small proportion of our society who prefer these demoralizing pursuits to labors useful to the whole, the peace of the whole is endangered and all our present difficulties produced, are evils more easily to be deplored than remedied.” –Thomas Jefferson to Abbe Salimankis, 1810. ME 12:379

    “The system of banking [I] have… ever reprobated. I contemplate it as a blot left in all our Constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens.” –Thomas Jefferson to John Taylor, 1816. ME 15:18

    “The banks… have the regulation of the safety-valves of our fortunes, and… condense and explode them at their will.” –Thomas Jefferson to John Adams, 1819. ME 15:224
    http://etext.virginia.edu/jefferson/quotations/jeff1325.htm

    seems the only certainty, afforded by our, current, Gov’t, is that for the Banking Oligarchy..

    “”I consider the fortunes of our republic as depending in an eminent degree on the extinguishment of the public debt before we engage in any war; because that done, we shall have revenue enough to improve our country in peace and defend it in war without recurring either to new taxes or loans. But if the debt should once more be swelled to a formidable size, its entire discharge will be despaired of, and we shall be committed to the English career of debt, corruption and rottenness, closing with revolution. The discharge of public debt, therefore, is vital to the destinies of our government.” –Thomas Jefferson to Albert Gallatin, 1809. FE 9:264

    “There [is a measure] which if not taken we are undone…[It is] to cease borrowing money and to pay off the national debt. If this cannot be done without dismissing the army and putting the ships out of commission, haul them up high and dry and reduce the army to the lowest point at which it was ever established. There does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring on us more ruin at home than all the enemies from abroad against whom this army and navy are to protect us.” –Thomas Jefferson to Nathaniel Macon, 1821. (*) FE 10:193

    “To preserve [the] independence [of the people,] we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses, and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes, have no time to think, no means of calling the mismanagers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers.” –Thomas Jefferson to Samuel Kercheval, 1816. ME 15:39
    http://etext.virginia.edu/jefferson/quotations/jeff1340.htm

    “I sincerely believe… that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.” –Thomas Jefferson to John Taylor, 1816. ME 15:23
    ht tp://etext.virginia.edu/jefferson/quotations/jeff1325.htm

  11. flipspiceland says:

    Barney Frank went to Harvard????

  12. dsawy says:

    @flipspiceland:

    Harvard College, incomplete PhD, and Harvard Law. J.D.

  13. dsawy says:

    @Mark Hoffer

    Want to pull some fire-and-brimstone quotes? Check out Jackson’s war against the banks.

  14. Mike says:

    I missed that NYT piece about Dugan. You’re absolutely right about him – here’s a recent DJ column about him and the OCC when he made some noises about getting tougher on problem banks.

    IN THE MONEY: Dugan Gets Religion On Problem Banks, Too Late
    By Michael Rapoport

    NEW YORK (Dow Jones)–Now he tells us.

    Comptroller of the Currency John Dugan said Wednesday that regulators “cannot turn a blind eye” to the hundreds of problem banks, and have learned that looking the other way will only compound losses. As reported by Dow Jones Newswires’ Judith Burns, Dugan pledged to the American Bankers Association that regulators will close troubled lenders promptly; not doing so proved “disastrous” during the savings-and-loan crisis of the 1980s and 90s, he noted.

    Well, that’s nice. It would have been even nicer if Dugan and his agency, the Office of the Comptroller of the Currency, had realized this and acted on it a year ago or more, when most people who are not bank regulators could tell lots of banks were in trouble.

    Instead, Dugan and the OCC, along with other regulators, have hemmed and hawed and refused to close banks that were obviously, dangerously weak until their problems could no longer be ignored. That’s allowed the troubled-bank problem to mushroom, and may have increased the ultimate cost to the government of closing down bad banks.

    This is the same John Dugan who in October 2008–just after the banking system had narrowly avoided a meltdown, and as significant numbers of banks were starting to fail–defended regulators not going faster in seizing banks. Bank closing, he said, “is an art, not a science; sometimes it’s better to do it fast, and sometimes it’s much better to take the time, in controlled circumstances, to try to find a less costly solution.”

    This is the same OCC that allowed Corus Bank N.A., a Chicago bank crippled by condominium-loan defaults, to drag along in crisis mode for many months until a stunning 71% of its loans had gone bad, before it was finally seized last September. So much for closing troubled lenders promptly.

    Of the 33 OCC-regulated banks that have failed since the beginning of 2008, 24 were undercapitalized by regulators’ standards for at least one full quarter before their failure, and sometimes much longer–up to a year in some cases. Right now, at least 16 OCC-regulated banks are “significantly” undercapitalized by regulators’ definition but so far have been allowed to survive. That seems a lot like a blind eye being turned. . .

    Critics have long maintained the OCC is too friendly to the banks it regulates. Among other things, the OCC has blocked enforcement of state banking laws against banks with national charters, thwarting state regulators’ attempts to combat abuses like predatory lending.

    If Dugan and the OCC are truly changing their attitude–getting tougher with troubled banks, seizing them quicker–that would be great. But with their track record, they have an obligation to back up talk with action.

  15. Mike:
    Good luck with that. Dugan comes from the Greenspan school of non-action.

  16. somewhat related..
    Susie Madrak Sunday Mar 28, 2010 7:00am
    http://crooksandliars.com/susie-madrak/too-big-jail-wall-st-bailout-buds-co
    Municipal bonds are where a lot of the political kickbacks and corrupt deals are typically hidden, so I can’t say I’m surprised. In fact, it’s sort of funny that the governments dealing with these guys apparently thought they could trust them, considering how crooked the business is. Lie down with dogs, rise up with fleas, as the nuns used to say:

    March 26 (Bloomberg) — JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.

    A government list of previously unidentified “co-conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24.

    Gee, look how many were firms that were already taking money from us on the front end. They wanted the back end, too?

    The papers were filed by attorneys for a former employee of CDR Financial Products Inc., an advisory firm indicted in October. The attorneys, as part of their legal filing, identified the roster as being provided by the government. The document is labeled “list of co-conspirators.”

    None of the firms or individuals named on the list has been charged with wrongdoing. The court records mark the first time these companies have been identified as co-conspirators. They provide the broadest look yet at alleged collusion in the $2.8 trillion municipal securities market that the government says delivered profits to Wall Street at taxpayers’ expense…”

    “…The government’s case centers on investments known as guaranteed investment contracts that cities, states and school districts buy with the money they receive through municipal bond sales. Some $400 billion of municipal bonds are issued each year, and localities use the contracts to earn a return on some of the money until they need it for construction or other projects…”
    ~~
    Andrew Jackson:
    “The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.”

    “I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.”

    “It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes.”

    “If Congress has the right under the Constitution to issue paper money, it was given to be used by themselves, not to be delegated to individuals or corporations.”

    “Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.”

    “As long as our government is administered for the good of the people, and is regulated by their will; as long as it secures to us the rights of persons and of property, liberty of conscience and of the press, it will be worth defending.”

    “Every man is equally entitled to protection by law; but when the laws undertake to add… artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government.”

    “The brave man inattentive to his duty, is worth little more to his country than the coward who deserts her in the hour of danger.”
    http://quotes.liberty-tree.ca/quotes_by/andrew+jackson

    “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” — Henry Ford

    “The few who understand the system, will either be so interested from it’s profits or so dependant on it’s favors, that there will be no opposition from that class.” — Rothschild Brothers of London, 1863

    “The regional Federal Reserve banks are not government agencies. …but are independent, privately owned and locally controlled corporations.” — Lewis vs. United States, 680 F. 2d 1239 9th Circuit 1982

    “We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it.” — Congressman Louis T. McFadden in 1932 (Rep. Pa)

    “Some [Most] people think the Federal Reserve Banks are the United States government’s institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers.” — Congressional Record 12595-12603 — Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932

    “[Every circulating FRN] represents a one dollar debt to the Federal Reserve system.” — Money Facts, House Banking and Currency Committee

    “By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.” — British Lord John Maynard Keynes (the father of ‘Keynesian Economics’ which our nation now endures) in his book “THE ECONOMIC CONSEQUENCES OF THE PEACE” (1920).

    “Neither paper currency nor deposits have value as commodities, intrinsically, a ‘dollar’ bill is just a piece of paper. Deposits are merely book entries.” — Modern Money Mechanics Workbook, Federal Reserve Bank of Chicago, 1975

    “This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson} signs this bill, the invisible government of the monetary power will be legalized….the worst legislative crime of the ages is perpetrated by this banking and currency bill.” — Charles A. Lindbergh, Sr. , 1913

    “From now on, depressions will be scientifically created.” — Congressman Charles A. Lindbergh Sr. , 1913

    http://www.barefootsworld.net/banking-fed-quotes.html
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Andrew+Jackson+quotes+on+Banking

    BR,
    Apologies in advance, if I can ‘Pass the Buck’, blame it on dsawy ( :

  17. Carl Spackler says:

    What should we expect from one who lobbied on behalf of banks for years before making his debut as a non-regulator?

  18. ToNYC says:

    Gratitude from here rather than apologies, BR. There is a good reason major hedgies like to hire History majors with a passion for Economics. Jesse Livermore and P.T. Barnum are in agreement, I’m so sure.