Banking CEOs Defend Bailout Before Congress

Treasury Secretary Timothy Geithner testifies before the Senate Budget Committee. i

Treasury Secretary Timothy Geithner testifies Wednesday before the Senate Budget Committee about revisions to the government's financial rescue plan. Win McNamee/Getty Images hide caption

itoggle caption Win McNamee/Getty Images
Treasury Secretary Timothy Geithner testifies before the Senate Budget Committee.

Treasury Secretary Timothy Geithner testifies Wednesday before the Senate Budget Committee about revisions to the government's financial rescue plan.

Win McNamee/Getty Images

CEOs of the nation's largest banks and financial institutions faced a congressional gantlet on Wednesday, testifying in their own defense about how they spent $176 billion in taxpayer bailout money.

Lawmakers wanted to know where the money went and why it hasn't resulted in more lending to middle-class Americans.

Members of the House Financial Services Committee also demanded an explanation for billions of dollars in executive bonuses and employee junkets that came just as some of the banks — burdened by sour mortgages — received disbursements from the $700 billion Troubled Assets Relief Program, known as TARP.

Committee Chairman Barney Frank (D-MA) warned the bank executives of "a great deal of anger" across the country. He said Congress faces "a dilemma" because lawmakers must help some of the same people whose bad lending practices sent the economy spiraling into reverse.

"I urge you going forward to be ungrudgingly cooperative," Frank told the gathered witnesses. "There has to be a sense of the American people that you understand their anger ... and that you're willing to make some sacrifices."

The image of the banks has taken a beating in recent weeks because of reports that Wall Street firms had doled out more than $18 billion in bonuses to their employees last year. Goldman Sachs and Wells Fargo also had set conferences in Las Vegas but later, under scrutiny, changed their plans.

No 'Golden Parachutes' At Goldman

The first witness, Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs, outlined the $13 billion in new financing he said was made by Goldman after it received $10 billion in TARP money. But he was careful to sound a note of contrition.

"Many people believe — and, in many cases, justifiably so — that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system's stability," Blankfein said.

He also emphasized that Goldman Sachs "never had golden parachutes ... for its executives."

Besides Goldman Sachs, the heads of Bank of America, Wells Fargo & Co., JPMorgan Chase, the Bank of New York Mellon Corp., Citigroup, State Street Corp. and Morgan Stanley also answered questions before the committee.

JPMorgan Chase CEO Jamie Dimon said emphatically that his firm was lending. He endorsed a "systemic risk regulator" to help oversee U.S. markets, a move he says "would allow us to begin to address some of the underlying weaknesses in our system and fill the gaps in regulation."

"We stand ready to work with you on the range of issues confronting the financial services sector and our economy," Dimon said.

Citigroup Chief Pledges To Cut Salary

Citigroup CEO Vikram Pandit said he has told his company's board to limit his salary to $1 per year with no bonus "until the situation improves."

"I know we are in a new reality," Pandit said, adding that he wanted Congress to know that "I get the new reality and I will make sure Citi gets it too."

Current salaries for the assembled CEOs ranged from $600,000 to $1.5 million per year, not including any bonuses.

Many of the executives stressed that the firms they represent accepted the TARP money only at the urging of the government. They also were quick to say that none of the government's money went to bonuses or dividends.

Those involved in real estate lending said they had done their best to help troubled homeowners avoid losing their homes.

Pandit cited the social stigma attached to foreclosure as a reason that so many people had not tried to work out bad mortgages until it was too late.

"Half the foreclosures we handle come from people we've never talked to," he said.

The executives were asked whether they thought massive credit card losses were likely in the next year.

"Clearly, this is going to be an awful year for the credit card industry," Bank of America CEO Kenneth Lewis said. He cited "optimistic" projections of unemployment at 8 or 8.5 percent "that would cause a very high — very high loss rate in ... credit card portfolios."

Geithner Defends Banking Rescue Plan

Meanwhile, Treasury Secretary Timothy Geithner also got an earful from lawmakers who are skeptical of a plan he outlined on Tuesday to redirect the financial rescue.

Geithner proposed a $2 trillion infusion into the banking system to buy up bad assets, restore credit and revive lending at lower mortgage rates.

"We are going to bring together the government agencies with authority over our nation's major banks and initiate a more consistent, realistic and forward-looking assessment about the risk on balance sheets," Geithner told the Senate Budget Committee.

He said a request for further funds beyond the original $700 bailout program was possible.

That did not satisfy Sen. Lindsey Graham (R-SC), who said: "So you have no clue. Why not just ask for more? We know you will."

At a White House briefing, press secretary Robert Gibbs defended Geithner's plan and brushed aside the Dow's 381-point drop on Tuesday, when the Treasury secretary's plan was unveiled.

Gibbs said the financial rescue was not designed to effect "a one-day market reaction."

The plan, he said, "addresses not simply the needs of banks but also the financial system in general, as well as the needed access to capital by America's businesses and families."

Meanwhile, New York Attorney General Andrew Cuomo, in a letter to Rep. Frank, accuses Merrill Lynch executives of corporate irresponsibility for secretly and prematurely awarding $3.6 billion in bonuses as taxpayers were bailing out the industry.

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