Bankers apologize for role in financial crisis
But they offer no regrets on pay, which is likely to rise
WASHINGTON - Challenged by a skeptical special commission, top Wall Street bankers apologized yesterday for risky behavior that led to the worst financial crisis since the Great Depression. But they still declared it seemed appropriate at the time.
The bankers - whose companies collectively received more than $100 billion in taxpayer assistance to weather the crisis - offered no regrets for executive pay that is now likely to increase as a result of their survival. They did say they are correcting some compensation practices that could lead to excessive risk-taking.
The tension at the first hearing of the Financial Crisis Inquiry Commission was evident from the outset.
“People are angry,’’ commission chairman Phil Angelides said. Reports of “record profits and bonuses in the wake of receiving trillions of dollars in government assistance while so many families are struggling to stay afloat has only heightened the sense of confusion,’’ he said.
Lloyd Blankfein, the chief executive of Goldman Sachs, took the brunt of the questions, especially on his firm’s practice of selling mortgage-backed securities and then betting against them.
“I’m just going to be blunt with you,’’ Angelides told him. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.’’
Blankfein replied: “I do think the behavior is improper. We regret the consequence that people have lost money in it.’’ Later he defended the firm’s actions as “exercises in risk management.’’
In a moment of self-analysis, Blankfein said the financial world rationalized its way into risky transactions. Summarizing the thinking at the time, he said: “Gosh, the world is getting wealthier. Technology has done things. . . . These businesses are going to do well.’’
“You talked yourself into a place of complacency,’’ he concluded.
The panel began its yearlong inquiry amid rising public fury over bailouts and bankers’ pay. House Financial Services Committee chairman Barney Frank, Democrat of Massachusetts, said yesterday he will hold a hearing next week on bank compensation, looking to expand legislation that already passed the House. Senator Bill Nelson, Democrat of Florida, wrote to President Obama yesterday suggesting legislation that would use banks’ tax breaks as incentives for pay based on performance.
“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,’’ he 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 pay. Moynihan said compensation levels will be higher next year than they were in 2008.
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.’’
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 the 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 if performance falters.
Outside experts say the banks’ changes to executive compensation move them in the right direction, effectively tying pay to long-term performance. Giving more pay in long-term stock and allowing take-backs should discourage excess risk, said Jeff Vistithpanich, principal at Johnson & Associates, a New York financial services consulting firm.
But he said that won’t quell public outrage. “Whether Lloyd Blankfein gets $50 million in cash or stock or paper, the fury will be there,’’ he said.