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Robert Rubin, Alan Greenspan, and Larry Summers each made significant errors that accelerated the financial crash of 2009. But the crash would not have happened but for the architect and his masters. John Dugan was the architect; as a Treasury official in the administration of George Bush. He created a master plan in 1989 that Bill Clinton picked up and put in place under his deregulation drive.

John Dugan was appointed Comptroller of the Currency in 2005 by George W Bush. Dugan is chief regulator for the largest US banks, those now known as "Too Big To Fail." He is still on the job, working for his third master.

Obama's challenge upon taking office was to prevent a string of massive failures that could take the nation down with them. Obama avoided that disaster but the sword of Damocles still hangs heavy over our heads. If that condition is not fixed soon, another crash will surely happen again, with consequences that are as dimly lit as they are dangerous. Read on for further commentary.

The Glass-Steagall act of the 1930s was passed to prevent banking excesses. Of course times change. But human nature doesn't, and that was and remains the real problem; call it avarice or greed. It is inborn, a relic of evolution where greedy humans survived hard times more successfully than others. Their selfish genes survived.

If our legal system cannot protect us from ourselves, then where are we?

Still in the jungle; that's where.

As a society, we keep looking in the wrong direction, especially during good times. We look for scapegoats when we should be examining the system and repairing it along the lines of the Glass-Steagall Act of the Great Depression that stabilized banking such that it was up to the challenges of WWII and the Marshall Plan. But we Americans have short memories, and we are not taught the important histories at the K12 levels we all traverse. This leaves far too many of us in the dark as to how the government and financial systems work.

With Bill Clinton's critical push, John Dugan's master plan undid the handiwork of Glass and Seagall, brick by vital brick. Clinton in particular, pushed two pieces of legislation: The Gramm-Leach-Bliley act removed the barrier between commercial and investment banks, and the Interstate Banking and Branching Efficiency act permitted bank to expand across stale lines.

George W Bush accelerated and worsened the situation by handing direct bank control over to the architect of the plan that could only create situations too tempting for ordinary humans to resist. And so it came to pass that a number of our largest banks became insolvent in their greed to expand. There was a second effect, also consistent with human genetics: "Profits were privatized, losses were socialized," as one observer astutely put it. And there is yet a third effect, also genetically consistent: Executives were/are rewarded to the extreme, with no regard whatever for capital creation.

Bonus payouts were/are made in the billions for simply corralling money. Las Vegas casinos don't have it that good.

What about the stockholders?

Meanwhile, Joe and Jane American were/are suckered simply because they did/do not understand what was/is going on. How could they? Media in the hands of the powerful do not keep us posted; educators in the dark themselves cannot teach the vital history much less follow modern developments. The rest of us go along with our daily lives as our main, perhaps only, concern. Our very living standard makes us apathetic--"why bother?"; "who cares?", typical responses go--among people we know.

These are all features that contribute to a system corrupted by a universal conflict of interest that, in effect, legalizes theft of the nation's capital. This condition is far too tempting for far too many to resist. Opportunities for plutocrats to enrich themselves at tax payer expense abound in the present banking system. This paramount conflict of interest must end.

For the record, some of the behemoths regulated by Dugan and listed by Obama include: Bank of America, Chase, Citi bank, and Wells Fargo. Obama apparently did not include GE Capital because it is not large enough. But it and several others are in deep trouble.

What did Dugan's plan accomplish that was so bad? Primarily three big things along with many smaller ones:

  • Dugan's plan allowed banks to expand into other states without any regulation. States with conservative bank regulation lost all regulating control. This invited excesses such as sub-prime mortgages to proliferate.
  • Dugan's plan allowed commercial and investment banks to merge with each other as well as with insurance companies. Commercial banks thus became infected with riskier policies.
  • Dugan's plan went all the way by commercial firms to purchase banks. In other words, real capital became subject to the vagaries of the money markets and health of the economy.

Behemoths resulted from these combined policies. More than banks were involved. General Electric, via GE Capital, was hit hard. GE Capital issued nearly $74 Billion in debt guaranteed by the government. Companies with substantial real capital holdings were endangered or put into bankrupt positions as a result of risky banking practices. Beyond that, these behemoths involved banks and investors from all over the world. When the down turn came, it was felt world-wide. Obama's bail-out Band Aid worked like the Band Aid it was. Paying the piper has only begun. It could even get worse lacking legislation with teeth that can enforce banking discipline.

What to do? For starters on the political front:

  • Repeal the laws and regulations that repealed and deregulated The Glass Steagall Act.
  • Pass legislation that allows bonuses only in proportion to the creation of material capital, not corralling it, across all entities of the US economy.
  • Bring all corporations under anti-trust laws. There is no reason to exempt any sector, and there is every reason to strengthen anti-trust law and enforce them rigorously. Who knows we might even be able to afford health insurance again!
  • Penalize violations of the above at the felony level as the frauds they are: financial restitution required and incarceration proportional to the magnitude of the fraud.
  • Educate future citizens during K12 in these matters, capital in particular. Capital comes in three forms: 1) Human labor, 2) What human labor creates, and 3) The medium of exchange between the other two--money. There must be wealth in the other two forms for money to represent lest it be worthless. Capital creation is progressive. Cornering capital is tantamount to theft when it is excessive.

Congress should immediately enact legislation along these lines; the sooner the better. It should also stiffen anti-trust law to prevent any company or financial institution from becoming so large that bankruptcy would in any remote way endanger the economic sector it resides in. The "Too Large to Fail" feature of our society has to go. Dugan also has to go, and the sooner the better. His term runs out this year. He actively prevented states from trying to make sense of the housing bubble by forbidding banks from cooperating with state agencies. Dugan is both the architect and building-contractor of the "Housing Bubble." Of course he had a lot of help, special interests and Congressmen in particular.

In reference to our thesis on this site, Dugan bears at least some of the trappings of the psycho-sociopath. That Obama has kept him on his wreaking job bodes ill for both Joe citizen and his own legacy.


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