Bankers vow to work for financial system reform
WASHINGTON — Facing a disgusted public and Congress, bank CEOs agreed with demands for greater accountability Wednesday in the first testimony on how they're spending money from the taxpayer-funded $700 billion bailout.
"Both our firm and our industry have far to go to regain the trust of taxpayers, investors and public officials," John J. Mack, head of Morgan Stanley, told the House Financial Institutions Committee.
Added JP Morgan Chase & Co.'s Jamie Dimon: "We stand ready to do our part going forward."
The eight top bankers appearing before the panel were generally contrite and conceded they have work to do to win over a bitter public and an exasperated Congress. They had little choice but to acknowledge as much, given intense anger and anxiety as the troubled financial system continues to spiral downward in an ever-worsening recession.
Taxpayers are furious with big banks that benefited from the federal bailout designed to get credit moving again, but which also spent lavishly on executive bonuses, company retreats and office redecorating.
Lawmakers also are feeling the heat for signing off on the bailout package plan, which was conceived last year under President Bush and now is in the hands of President Barack Obama.
Across Capitol Hill, senators pressed Treasury Secretary Timothy Geithner on whether the Obama administration will need to request more money to fund its financial industry rescue plan. Obama's finance chief declined to speculate and told the Senate Budget Committee that more requests are possible.
"So you have no clue," Sen. Lindsey Graham, R-S.C., told Geithner. "Why not just ask for more? We know you will."
A day after unveiling an effort to pump up to $2 trillion into the financial system, Geithner defended the lack of detail in the plan that caused fresh heartburn on Wall Street and Capitol Hill. He said the plan was presented in mistakes of the past 12 months where things were rushed out before they were ready, and strategy had to be adapted because of that."broad strokes to avoid repeating the "
Over more than five hours in the House, the CEOs were met with deep skepticism from lawmakers who aggressively quizzed them on how they have used more than $160 billion in taxpayers' money.
Rep. Barney Frank, chairman of the panel, told the CEOs as the hearing opened. "There has to be a sense of the American people that you understand their anger ... and that you're willing to make some sacrifices." Frank, D-Mass., also asked banks to impose a moratorium on mortgage foreclosures until Geithner comes up with a systemwide mortgage modification.
The panel's top Republican, Spencer Bachus of Alabama, said the bankers and Congress must sway people by "winning back their trust and their confidence."
Repeatedly, lawmakers were scornful and treated the financial heavyweights almost like naughty schoolchildren, ordering them to raise their hands to indicate their responses to blanket questions about their own use of perks and any policy changes made since accepting the bailout money.
"You created the mess we're in," scolded Michael Capuano, D-Mass. "And now you're saying 'Sorry. Trust us.' ... America doesn't trust you anymore."
At one point, under questioning from Rep. Dennis Moore, D-Kan., the CEOs went down the line disclosing how much bailout money their institutions received last year and how much they personally made. Their salaries ranged from $600,000 to $1.5 million annually, without bonuses.
The initial spending of the bailout money was secretive, lacking strict requirements that the banks account publicly for how they were using it. Banks weren't helped by reports that Wall Street firms doled out more than $18 billion in bonuses to their employees last year or that Goldman Sachs and Wells Fargo had planned conferences in Las Vegas.
One by one, the CEOs applauded the financial bailout program for making more loans available and promised to pay their share of the money back to the Treasury over time. Several asserted that none of the government's money went to bonuses or dividends.
Citigroup CEO Vikram Pandit said his salary would be set at $1 with no bonus until the company makes money again.
He also struck an apologetic tone for letting the bank consider buying a private jet plane after receiving bailout money. The bank ultimately scrapped the plan under pressure from Obama.
"We did not adjust quickly enough to this new world," Pandit said. "I get the new reality and I will make sure Citi gets it as well."
"We understand taxpayers are angry" and they are right in demanding that institutions receiving their money take a "conservative, sober and frugal" approach to using it, said Kenneth D. Lewis of Bank of America.
Meanwhile, New York Attorney General Andrew Cuomo accused Merrill Lynch & Co. executives of corporate irresponsibility by secretly and prematurely awarding $3.6 billion in bonuses as taxpayers were bailing out the industry. Cuomo made the claims in a letter to Frank, saying that Bank of America, which acquired Merrill last fall, was apparently complicit in the move to award bonuses before Merrill's dismal fourth quarter earnings were announced.
Pressed about the report at the House hearing, Lewis said Bank of America urged Merrill to reduce the bonuses "substantially" as it prepared to take over the failing company but couldn't force it to make changes.
On the Net:
House Financial Services Committee: http:www.house.gov/apps/list/hearing/financialsvcs—dem/hr021109.shtml