Bankers Admit Mistakes In Financial Crisis
MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
ROBERT SIEGEL, host:
And I'm Robert Siegel.
The leaders of four of the nation's biggest banks appeared on Capitol Hill today. They were summoned by the blue ribbon panel charged by Congress with documenting the causes of the financial crisis. The panel's members had some tough questions for the titans of capitalism.
As NPR's John Ydstie reports, they are trying to understand Wall Street's role in creating the worst financial meltdown in more than 75 years.
JOHN YDSTIE: It was the first public testimony taken by the Financial Crisis Inquiry Commission, which will spend the rest of this year delving into the financial breakdown. The commission's chairman, Phil Angelides, a former California state treasurer, began by saying the 10 members of the panel will strive for an unbiased accounting of the crisis that produced devastating economic consequences for many Americans.
Mr. PHIL ANGELIDES (Chairman, Financial Crisis Inquiry Commission): We'll follow the evidence wherever it leads. We'll use our subpoena power as needed. And if we find wrongdoing, we will refer it to the proper authorities. That's what the American people want, that's what they deserve and that's what this commission is going to give them.
YDSTIE: Angelides then welcomed the heads of the four banks - Goldman Sachs, JPMorgan Chase, Morgan Stanley and Bank of America - to make their opening statements. The four appeared voluntarily, no subpoenas required. None provided a direct apology for his role in the crisis, but all acknowledged mistakes were made, specifically that the banks got caught up in the bubble and ignored growing signs of risk. Goldman Sachs CEO Lloyd Blankfein compared it to ignoring the dangers of hurricanes after years of quiet weather.
Mr. LLOYD BLANKFEIN (CEO, Goldman Sachs): After 10 benign years in the context where we were, look, how would you look at the risk of a hurricane?
Mr. ANGELIDES: Mr. Blankfein, I must say this, having sat on the Board of the California Earthquake Authority, acts of God we'll exempt. These were acts of men and women.
Mr. BLANKFEIN: I'm just saying�
Mr. ANGELIDES: No.
Mr. BLANKFEIN: �that you're asking me a question�
Mr. ANGELIDES: These were controllable is my only observation.
Mr. BLANKFEIN: I agree.
YDSTIE: After taking issue with the hurricane metaphor, Angelides went on to use one of his own. He chided Blankfein for Goldman's sale of mortgage-backed securities to investors while at the same time making bets against them.
Mr. ANGELIDES: I'm just going to be blunt with you. It sounds to me a little bit like selling a car with faulty breaks and then buying an insurance policy on the buyer of those cars. It just - it doesn't seem to me that that's a practice that inspires confidence.
YDSTIE: Commissioner Keith Hennessey pressed the bankers about moral hazard, that is whether the government's rescue of some firms during the crisis gave a signal to investors that their banks would be rescued, too.
Mr. KEITH HENNESSEY (Commissioner, Financial Crisis Inquiry Commission): And whether you were discussing with others, well, if things get really bad, we can always count on the government to step in.
YDSTIE: John Mack, chairman of Morgan Stanley, responded this way.
Mr. JOHN MACK (Chairman, Morgan Stanley): I think after Lehman was allowed to fail, that no investor, at least in Morgan Stanley, was thinking we were too big to fail or the government would come in and help us. As a result, the stock traded at one point down to $6.71. If they had a view that that was not the case, the stock would have never gotten that low.
YDSTIE: Mack went on to say that in the current fragile economic environment, the government would probably not allow a big financial firm to fail. But he said a year or so from now that isn't likely to be true. All the executives agreed that Congress should create a resolution process to seize and wind down big firms, much as the FDIC winds down failed commercial banks. The bankers also agreed with Goldman Sachs' Blankfein that the government had to step in in the depths of the crisis.
Mr. BLANKFEIN: The fact is the world was unsafe, the government, regulators, taxpayers took extraordinary measures to reduce intolerable level of risk to a much more tolerable level of risk and that we should all be appreciative of.
YDSTIE: The commission's hearing will continue tomorrow with testimony from state and federal regulators and law enforcement officials.
John Ydstie, NPR News, Washington.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.