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Bank CEOs defend their use of taxpayer money

They tried to reassure Congress and regain the trust of an angry public on Wednesday.

By Staff writer of The Christian Science Monitor / February 11, 2009

CEOs of large financial institutions testified before the House Financial Services Committee Feb. 11. They are (from left) Goldman Sachs' Lloyd Blankfein, JPMorgan Chase's Jamie Dimon, Bank of America's Ken Lewis, State Street's Ronald Logue, and Morgan Stanley's John Mack.

Larry Downing/Reuters


America’s top bank executives faced an intense grilling on Capitol Hill Wednesday, a sign that the future of their industry has become unusually tethered to Washington politics.

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The banks are in financial trouble. Now that they are on the public dole, they are answerable to a frustrated Congress, and their survival could depend on further support.

In many ways, the capital of American finance is now Washington, not Wall Street.

For the economy’s sake, the federal government must make sure that the banking system survives as it confronts a historic wave of credit losses. It’s the government that has the deep pockets needed to conduct that rescue.

Playing defense

All this put bankers on the defensive Wednesday, as lawmakers asked what they’re doing with that government help.

The shift of financial power to Washington also puts pressure on policymakers themselves. It will take Congress, the Obama administration, and private-sector players to dig out of the credit crisis.

In that light, the CEO hearing was partly a dialogue aimed at reconciliation and setting the stage for future cooperation.

“We have to regain the public’s trust and do everything we can to help mend our financial system to restore stability and vitality,” Lloyd Blankfein, CEO of Goldman Sachs, told the House Financial Services Committee.

He conceded that “we are here amidst broad public anger at our industry…. 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.”

Aid used for loans

The bankers said they have helped hundreds of thousands of homeowners avoid foreclosure and are using the government aid as seed money to make new loans.

They also noted that they are paying billions of dollars in annual dividends on the taxpayer infusions of capital.

The CEOs touted their efforts to restore their firms’ health by restructuring and they talked of curbing rich perks and big pay packages, as they work through the crisis.

“I get the new reality,” said Vikram Pandit, CEO of Citigroup, citing a recent about-face in which the company canceled the publicized purchase of a new corporate jet.

“Now is a good time to remind ourselves that we play a supporting role in the economy – not a lead role,” said Ken Lewis, Bank of America’s CEO. “Our job is to help the real creators of economic value – people who make things, and people who use them – get together and do business.”

Congressmen angry

All this came after a knuckle-rapping statement by Barney Frank (D) of Massachusetts, as he opened the meeting. He described the effort to rescue banks as the opposite of “collateral damage,” such as when innocent civilians are harmed during a military action.