Bankers Face Congressional Criticism Over Bailout

The CEOs of eight of the nation's largest banks went to Capitol Hill Wednesday to answer criticism that they have failed to lend money to help the struggling economy. Lawmakers wanted to know what they had done with the $165 billion in bailout money they've received.

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This is MORNING EDITION from NPR News. I'm Renee Montagne.

The CEOs of eight of the nation's largest banks were called on the carpet on Capitol Hill yesterday. Lawmakers wanted to know what they've done with the $165 billion in bailout money their banks have received. The executives defended themselves against criticism that they failed to lend the money to help the struggling economy.

NPR's John Ydstie reports.

JOHN YDSTIE: Amid complaints from businesses and consumers that they can't get loans and stories about Wall Street bonuses and corporate jets, members of the House Financial Services Committee were angry. Among the most peeved was Michael Capuano, a Democrat from Massachusetts.

MICHAEL CAPUANO: Basically you come to us today on your bicycles after buying Girl Scout cookies and helping out Mother Theresa, telling us we're sorry, we didn't mean it, we won't do it again; trust us. Well, get our money out on the street.

YDSTIE: But all of the eight CEOs at the witness table, including John Stumpf of Wells Fargo and Ken Lewis of Bank of America, argued they were recycling the TARP money back into the economy.

JOHN STUMPF: Last quarter alone we made 22 billion in new loan commitments and $50 billion in new mortgages.

KEN LEWIS: In the fourth quarter, alone, we made more than $115 billion in new loans to consumers and businesses.

YDSTIE: So, if that's the case, asked New York Democrat Gary Ackerman, why is the story different in the world of his constituents?

GARY A: Where people can't get loans, where people can't refinance their homes, where people can't buy automobiles, can't send their children to college. It seems to me, and to some of us, that this money hasn't reached the street, that you're not loaning it out. How do you explain that?

YDSTIE: The reason, said Jamie Dimon, CEO of JPMorgan Chase, is not that banks aren't lending, it's that other parts of the financial system have pulled back credit, and that's what consumers are experiencing.

JAMIE DIMON: There is a huge amount of non-bank lending which has disappeared: finance companies, car finance companies, mortgage companies, money funds, bond funds that did withdraw money from the system and make it much harder in the system. That created some of this crisis we have.

YDSTIE: Congressman Brad Sherman, a Democrat from California, focused on another sore point - a report from the TARP oversight board last week that found the value of the shares the government had received from the banks getting TARP funds was more than $70 billion less than the government had invested. Sherman targeted Vikram Pandit, CEO of Citigroup to answer.

BRAD SHERMAN: So, why are you unwilling to issue additional securities to make the taxpayers fully compensated?

VIKRAM PANDIT: Congressman, I haven't looked at this analysis. I don't know where all these numbers come from. But I will tell you...

SHERMAN: That comes from the Congressional Oversight Panel and the hearings of last week.

PANDIT: I appreciate it. Ultimately, my goal is to make this an extremely profitable investment for the U.S. government. I plan to pay it back. In the meantime we're paying $3.4 billion annually as dividends on this investment.

YDSTIE: All of the CEOs said that in light of the economic situation and the government aid, they had taken no bonuses for 2008. But Pandit and Citigroup went even further.

PANDIT: We will hold ourselves accountable, and that starts with me. I told my board of directors that my salary should be $1 per year with no bonus until we return to profitability.

YDSTIE: All of the questions at yesterday's hearing weren't aimed at drawing blood. Many were focused on how future regulation might help avoid a repeat of the current crisis. Surprisingly, CEOs who might have fought all efforts to tighten regulations a few years ago, seemed very open to tougher government oversight now.

John Ydstie, NPR News, Washington.

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Banking CEOs Defend Bailout Before Congress

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

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

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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