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Bank CEOs: Sorry for risky behavior, bad decisions

13 janvier 2010

WASHINGTON – Wall Street executives
said Wednesday they underestimated the severity of the 2008 financial
crisis and apologized for risky behavior and poor decisions. They also
defended their bonus and compensation practices to a skeptical
commission investigating what caused the collapse.

Americans
are furious and "have a right to be" about the hefty bonuses banks paid
out after getting billions of dollars in federal help, the commission’s
chairman told chief executives of four major banks, all survivors of the deepest and longest recession since the Depression.

As the hearings opened before the Financial Crisis Inquiry Commission, chairman Phil Angelides pledged "a full and fair inquiry into what brought our financial system to its knees."

The panel began its yearlong inquiry amid rising public fury over bailouts and bankers’ pay.

"We understand the anger felt by many citizens," said Brian Moynihan, chief executive and president of Bank of America. "We are grateful for the taxpayer assistance we have received."

"Over the course of the crisis, we as an industry caused a lot of damage," Moynihan said.

With
Bank of America having repaid its bailout money, he said "the vast
majority of our employees played no role in the economic crisis" and do
not deserve to be penalized with lower compensation. Moynihan said
compensation levels will be higher next year than they were in 2008 —
but not at levels reached before the financial meltdown.

Jamie Dimon, chief executive of JPMorgan Chase & Co.,
said most of his employees took "significant cuts in compensation" in
2008. He said his company would continue to pay people in a
"responsible and disciplined manner" to attract and retain top talent.

Still, Dimon said, "We did make mistakes and there were things we could have done better."

John Mack, chairman of Morgan Stanley,
said the crisis was "a powerful wake-up call for this firm." He said he
didn’t take a bonus in 2009 and that his bank has overhauled its
compensation practices to discourage "excessive risk-taking."

The
other executives also said their companies had tightened bonus
policies, including provisions to "claw back" some of the money when
performance faltered.

Angelides, a former Democratic state treasurer of California, questioned Goldman Sachs’ Lloyd Blankfein about packaging soured assets into bond-like securities and selling them to investors — even as Goldman Sachs
was "shorting" the same securities, or making inside bets they would
fail. These included risky mortgages that were extended to borrowers
with poor credit records and helped cause the home-loan bust.

"It
sounds like selling a car with faulty brakes and then buying an
insurance policy" on the driver, Angelides said in an animated exchange
with the Goldman Sachs executive.

Responded Blankfein: "I do think the behavior is improper. We regret the consequence that people have lost money in it."

Like the other witnesses, Blankfein acknowledged lapses in judgment in some practices leading up to the crisis.

"Whatever
we did, it didn’t work out well," he said. "We were going to bed every
night with more risk than any responsible manager would want to have."

The
four bankers represent institutions that collectively received more
than $90 billion in direct government assistance from the $700 billion federal bank bailout and availed themselves of billions from the Federal Reserve. Goldman Sachs received an additional $12.9 billion in bailout money that had gone to AIG.

Angelides suggested that blame for the crisis was widespread among the nation’s largest financial institutions. "Maybe this is like `Murder on the Orient Express
— Everybody did it," he said, referring to the Agatha Christie murder
mystery. The four bankers appeared before the panel for just over three
hours before it turned to other witnesses.

At the White House, presidential press secretary Robert Gibbs
said that President Obama on Thursday will outline his plan to make
sure taxpayers are able to recoup the money they are owed in the
bailouts. The president is expected to announce a new fee on the
country’s biggest financial firms to recover up to $120 billion.

Of the bankers’ testimony, Gibbs said, "It would seem to me
that apology would be the least of what anybody could expect." He said Wall Street officials need to show common sense.

The witnesses said they supported tighter oversight, but warned against
going too far. Congress is considering limiting the size of financial
companies or breaking up companies whose failure could collapse the
whole financial system.

"The solution is not to cap the size of financial firms. … We
need a regulatory system that provides for even the biggest banks to be
allowed to fail, but in a way that does not put taxpayers or the
broader economy at risk," Dimon said.

The commission’s vice chairman, former Rep. Bill Thomas,
R-Calif., said the inquiry would try "to get to the bottom of what
happened and explain it in a way that the American people can
understand."

Thomas, a former chairman of the tax-writing House Ways and
Means Committee, said one important question is, "If you knew then what
you do now, what would you have done differently?"

Dimon said a crucial blunder was "how we just missed that
housing prices don’t go up forever." Added Mack: "We did eat our
cooking and we choked on it."

The bipartisan, 10-member commission was handed the job of
writing the official narrative of what went wrong before the financial
system nearly collapsed in the fall of 2008.

The commission is modeled on the panel that examined the causes
of the attacks of Sept. 11, 2001. But the prototype could be the Pecora Commission, the Senate committee that investigated Wall Street abuses in 1933-34. It was named after Ferdinand Pecora, the committee’s chief lawyer.

Congress has instructed the current commission to explore 22 issues,
from the effect of monetary policy on terms of credit to bank
compensation structures.

___

On the Net:

Financial Crisis Inquiry Commission: http://www.fcic.gov

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