By Amit R. Paley
Washington Post Staff Writer
Thursday, February 12, 2009
The titans of Wall Street, already humbled by the financial meltdown, were hauled before Congress for the first time yesterday to face the rage of a nation.
Lined up in a row at a nationally-televised hearing, the chieftains of eight banks that received $165 billion in federal bailout funds were pounded with ferocious questions from lawmakers demanding to know whether the firms were misusing taxpayer dollars.
"I feel more like corporal of the universe, not captain of the universe at the moment," said a sheepish Kenneth Lewis, chief executive of Bank of America.
By turns apologetic, defensive and yet hopeful they could survive the financial crisis, the executives tried to reassure the committee that they were using the bailout money to increase lending to consumers and to convince the public that they understood the depth of anger over the crisis.
The seven-hour hearing before the House Financial Services Committee was not just a public pillorying of the executives. It was also a trial for the government's initial $700 billion bailout just as the Obama administration tries to win support for its vision of how to stabilize the financial system.
None of the chief executives told the panel they needed more government funds. Seven said they didn't expect to request more federal money, with only Vikram Pandit of Citigroup saying it would depend on the details of the plan. Several executives said they never wanted even the first installment of the bailout money.
"For anyone who contends that you do not need the money and that you did not ask for it, please find a way to return that money to the Treasury before you leave town," said an exasperated Rep. Paul E. Kanjorski (D-Pa.) None of the executives took him up on the offer.
The Wall Street chiefs' testimony amounted to their most full-throated response to criticism from lawmakers and analysts that the banks are hoarding the bailout money instead of lending it out as Congress intended. J.P. Morgan Chase chief executive Jamie Dimon, for example, said his firm made $150 billion in new loans in the final quarter of 2008, with consumer loan balances jumping by 2.1 percent over the previous quarter even as consumer spending dropped.
"Make no mistake: We are still lending, and we are lending far more because of the TARP," said Lewis, of Bank of America, using the acronym for the bailout's formal title, the Troubled Assets Relief Program.
Wells Fargo chief executive John Stumpf said his firm was working to lend to qualified applicants. "We make money when we make loans," he said. "That's our business."
The bank executives were also grilled on their compensation packages and bonuses, with lawmakers demanding that they each recite their salaries (from $600,000 to $1.5 million) and their bonuses (zero for all). Pandit said he volunteered to take a $1 yearly salary until the company returned to profitability.
"Let me be clear with the committee: I get the new reality and I will make sure Citi gets it as well," he said.
The financiers were contrite and accepted part of the blame for the economic crisis.
"As an industry, clearly, we made mistakes," said Morgan Stanley chief executive John Mack. "I think the entire industry shares some of that responsibility and for that, we are sorry for it."
But that wasn't nearly enough for lawmakers like Rep. Michael E. Capuano (D-Mass.), who said he couldn't believe that the men before him have not been prosecuted. Dismissing the argument that the banks had demonstrated good faith by donating to charities and paying high taxes, Capuano said he had so little confidence in the major banks that he does not invest a penny with them.
"Basically, you come to us today on your bicycles, after buying Girl Scout cookies and helping out Mother Teresa, telling us, 'We're sorry. We didn't mean it. We won't do it again. Trust us,'" Capuano said as he glared at the executives and jabbed his finger in the air. "Well, I have some people in my constituency that actually robbed some of your banks and they say the same things -- they're sorry, they didn't mean it; they won't do it again, just let them out."
"Do you understand that this is a little difficult for most of my constituents to take?" he continued. "You created the mess we're in!"
Rep. Barney Frank (D-Mass.), the committee chairman, said the central dilemma facing lawmakers is that they are desperate to rescue the financial system -- which means that they must help banks -- and yet don't want to help the firms that caused the meltdown.
"One of the problems we have, gentlemen, is that you are the recipients of collateral benefit," Frank told the executives. "In an effort to get the credit system functioning, things will be done that will be to the benefit of the institutions over which you preside, because there is no alternative."
Lawmakers across the political spectrum said they were skeptical that President Obama's plan to direct more money to the banks made any sense and seemed unconvinced that the first stage of the bailout had worked at all.
"Who's to say that we're not putting good money after bad?" said Rep. Judy Biggert (R-Ill.).
The executives accepted the need for more oversight and regulation of the financial sector and several advocated the creation of a central regulator to monitor sources of risk across the financial system.
Despite their tongue-lashing from lawmakers, the Wall Street titans said they were confident that the bailout would end up being a good deal for American taxpayers. "My goal is to make this an extremely profitable investment for the U.S. government," Pandit said.
"Every person at this table is doing everything they can, with all of their brains and might, to fix this situation," he said. "We will beat this thing."