Now, claiming vindication, Dorgan is trying to build political support for reviving provisions that would restore the barrier between everyday banking activities such as lending and deposit-taking and riskier areas such as derivatives trading.
The effort may pit the 66-year-old Democrat against some familiar nemeses. They include not only the banking industry, which says too many government restrictions will hamper its ability to struggle back to its feet, but also Lawrence Summers, who promoted the repeal of Glass-Steagall in 1999 as Treasury secretary and now serves as director of President Barack Obama’s National Economic Council.
Dorgan was right to oppose the repeal of Glass-Steagall because it “increased the amount of risk financial institutions could absorb without providing increased regulatory oversight,” said J. Robert Brown, a securities-law professor at the University of Denver. Yet he said banks would ensure there is “zero” chance the restrictions would be revived.
Dorgan said he is “very concerned” Obama’s economic team won’t go far enough in imposing new regulations. “It’s hard for people who come from a certain culture to be something else very quickly,” he said.
‘Sweeping Reform’
Neither Summers, 54, nor Treasury Secretary Timothy Geithner has embraced resurrecting Glass-Steagall. Calls for comment to Summers’ office were referred to Jen Psaki, a White House spokeswoman, who said he “is playing a key role in helping this administration craft a plan to impose sweeping reform on our regulatory system.”
In 1999, Summers said the legislation undoing Glass- Steagall “promotes competition by removing restrictions and barriers that are no longer warranted.”
Dorgan assailed the measure and was one of only eight senators to oppose the bill, which he said would expose financial institutions to excessive risk by erasing the wall between commercial banks, securities houses and insurers, allowing them to enter each other’s business.
The 1999 measure was pushed by Citicorp, a commercial bank, and insurance company Travelers Group Inc., which announced a merger in 1998 that needed Glass-Steagall’s repeal to be completed. The combined entity became New York-based Citigroup Inc., which lost $27.7 billion in 2008 and has received $45 billion in taxpayer funds.
Over the past year, the U.S. government and the Federal Reserve have spent, loaned or guaranteed $12.8 trillion to combat the financial collapse.
‘Just Nuts’
Allowing the creation of such large holding companies was “just nuts and yet it became such a movement,” said Dorgan.
This foresight may give him more credibility to push for a new era of regulation, said former Senate Majority Leader Tom Daschle, a South Dakota Democrat.
“It was a risk to say it when he did,” said Daschle, 61. “Now he’s more credible than he’s ever been.”
That may be why this time, Dorgan is getting more of a hearing. He has met with Obama and his senior aides, including Summers, Geithner, 47, and Chief of Staff Rahm Emanuel, 49.
“They well understand they’re getting pushed from me and some others,” he said.
‘Real Change’
Still, he said he is waiting to decide whether the Obama White House “is about real change or incrementalism.”
Last year, when he heard Obama was considering Summers as his chief economic adviser, Dorgan called the president-elect to express his concern.
“I want them all to succeed, but I also want to make sure there’s someone inside this administration pushing very hard to reconnect a portion of Glass-Steagall,” he said. “It’s not clear to me yet that that exists.”
Dorgan said he would “do most of the restoration” of the Glass-Steagall provisions, though he is less specific about some aspects of his proposal, such as how hedge funds should be regulated.
The concept has some support. In New York on March 6, former Federal Reserve chairman Paul Volcker, now an Obama adviser, called for a “two-tier” financial system that would limit risk-taking by the most important firms. The same week, Federal Deposit Insurance Corp. Chairman Sheila Bair said Congress should curtail the size of the biggest banks.
Banking Lobby
Richard Whiting, executive director of the Financial Services Roundtable, a Washington-based trade group representing major banks, said any effort to bring back Glass- Steagall is misguided.
It “would definitely be a throwback,” he said. “We would take out a lot of the efficiencies and cost advantages for consumers.”
Dorgan, who is chairman of the Democratic Policy Committee, has created a working group of seven senators to promote his cause. He also has proposed forming a select committee modeled on the 9/11 Commission to examine the causes of the financial meltdown, saying lawmakers have lagged behind state officials such as New York Attorney General Andrew Cuomo.
A new book from Dorgan due out next month, “Reckless: How Debt, Deregulation and Dark Money Nearly Bankrupted America,” examines the origins of the financial crisis.
Dorgan has played the role of populist throughout his career. At 26, he made a name as North Dakota’s tax commissioner by suing out-of-state corporations for unpaid taxes.
Junk Bonds
During his 28-year career in Congress, he has opposed trade agreements and investigated fraud in Iraq. In 1989, during the savings and loan scandal, he offered an amendment that prohibited federally insured institutions from investing in so-called junk bonds.
And in 1994, he wrote an article in the Washington Monthly that warned of the dangers of some of the derivatives that are at the heart of the current meltdown.
Dorgan attributes his activism to his upbringing in Regent, North Dakota. His parents were involved in the Farmers Union because, he said, they felt “preyed upon” by out-of- state bankers and railroads.
Dorgan often invokes populist lore, including a joke from Bill Langer, a North Dakota governor during the Great Depression.
“If you put a lawyer, a banker and an industrialist in a barrel and roll it down a hill, you’re always going to have a son of a bitch on top,” Dorgan said.
To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net
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