Why Is John Dugan Being Rewarded for Failure?

Includes: C, XLF
by: Vernon Hill

Even as the Obama administration lambastes Wall Street for rewarding failure by paying big bonuses to the people who helped wreck the economy, it’s providing its own reward for a similar failure, much closer to home.

And it’s a doozy. Bloomberg News reports the administration wants to retain John Dugan as Comptroller of the Currency for the remainder of his term. Yes, that John Dugan: the same regulator who presided over the proliferation of unsound lending practices earlier this decade that have since helped bring the financial system to its knees.

The OCC, of course, is a lead regulator of the banking industry. It is charged with upholding the safety and soundness of most of the major banks in the country. The very same banks, that is to say, that have lately required a massive government bailout.

So, by all means, let’s have the comptroller stay on. It would be tough to find someone with his record, which includes:

  • Permitting Citigroup (NYSE:C), then the country’s biggest bank, to hurtle full-bore into the subprime lending business, a decision that has brought the company to the brink of failure;
  • Approving Wachovia’s act of corporate suicide, its acquisition of Golden West Financial;
  • Allowing the country’s tenth largest bank, National City, to expand so heavily into subprime that it recently had to be sold in a government-assisted fire sale.

It is an astonishing list of accomplishments. Fortunes have evaporated, even as the federal government spends staggering sums to prop up what’s left of the banking system. Meanwhile, the list of institutions that were allowed to blow themselves up on Dugan’s watch gets longer every week.

As it happens, the CEOs of every institution listed above, and many more, have lost their jobs as a result of the misjudgments they made earlier this decade. That’s as it should be. On Wall Street, as President Obama says, pay should be for performance.

Only in upside down logic of Washington does it follow that failure is rewarded.