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NYT: John Dugan is a Bank Tool

Posted By Barry Ritholtz On March 28, 2010 @ 11:00 am In Bailouts,Credit,Really, really bad calls,Regulation | Comments Disabled

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 [1], 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 [2]., professor put it succinctly when he said: “It was the first real recipe for too big to fail.”

Zach Carter [2] was even more blunt: Dugan, Carter declared, is a Master of Disaster [2].

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Previously:
John Dugan: Architect of “Too Big to Fail” Banks [3] (December 28th, 2009)
http://www.ritholtz.com/blog/2009/12/john-dugan-architect-of-too-big-to-fail-banks/

Sheila Bair vs. John Dugan [4] (June 14th, 2009)
http://www.ritholtz.com/blog/2009/06/sheila-bair-vs-john-dugan/

Office of Thrift Supervision: Asshat Central [5] (December 24th, 2008)
http://www.ritholtz.com/blog/2008/12/ots-asshat-central/

Source:
Does This Bank Watchdog Have a Bite? [6]
ANDREW MARTIN
NYT, March 26, 2010
http://www.nytimes.com/2010/03/28/business/28dugan.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/03/nyt-john-dugan-is-a-bank-tool/

URLs in this post:

[1] August 6 2009 speech: http://www.kansascityfed.org/speechbio/hoenigpdf/hoenigKBA.08.06.09.pdf

[2] Arthur Wilmarth Jr: http://www.thenation.com/doc/20100104/carter

[3] John Dugan: Architect of “Too Big to Fail” Banks: http://www.ritholtz.com/blog/2009/12/john-dugan-architect-of-too-big-to-fail-banks/

[4] Sheila Bair vs. John Dugan: http://www.ritholtz.com/blog/2009/06/sheila-bair-vs-john-dugan/

[5] Office of Thrift Supervision: Asshat Central: http://www.ritholtz.com/blog/2008/12/ots-asshat-central/

[6] Does This Bank Watchdog Have a Bite?: http://www.nytimes.com/2010/03/28/business/28dugan.html

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