Kings of Wall St to defend use of bailout to Congress
The kings of Wall Street will try to soothe the US Congress on Wednesday by defending their use of $176-billion in bank bailout money, but it may be a tough sell, even for the one-time “masters of the universe”.
Lawmakers are expected to seize the opportunity presented by a congressional committee hearing on the troubled bailout programme to grill the eight bank CEOs scheduled to testify, and to vent rising public anger over the economic crisis.
The chief executives will reply that their institutions have used taxpayer funds responsibly, according to written testimony released by the committee on its website.
They will say that they have increased lending since the bailout began, and that they are embracing some reforms being proposed for the badly crippled US financial system.
“Taxpayers want us to manage our expenses carefully, and provide transparency about how we are putting their money to work to restart the economy,” Bank of America Corp CEO Kenneth Lewis says in his prepared remarks. “These expectations are appropriate and we are working to meet them.”
Toward that end, Lewis says, he and other top bank managers went without bonuses for 2008, while less-senior executives had their 2008 incentive payments cut by an average of 80%.
Jamie Dimon, head of JPMorgan Chase says in his remarks that he is endorsing a proposal to create a systemic risk regulator to help oversee US markets.
“This would allow us to begin to address some of the underlying weaknesses in our system and fill the gaps in regulation that contributed to the current situation,” he says. “We stand ready to work with you on the range of issues confronting the financial services sector and our economy.”
Debt bubble burst
The United States is struggling with its worst financial crisis in generations, brought on in large part by the bursting of a massive debt bubble fueled by the banks and Wall Street.
With the economy now mired in a deepening recession, the hearing before the House Financial Services Committee will be the first time that so many bank CEOs will face what could be the full wrath of Washington politicians since the crisis fully took hold.
“It is abundantly clear that we are here amidst broad public anger at our industry,” says the written testimony of Lloyd Blankfein, CEO of Goldman Sachs Group.
Besides him, Lewis and Dimon, CEOs scheduled to testify include Vikram Pandit of Citigroup, John Mack of Morgan Stanley, Robert Kelly of Bank of New York Mellon, Ronald Logue of State Street and John Stumpf of Wells Fargo.
“The American people are right to expect that we use [bailout] funds responsibly, quickly and transparently,” Pandit said in his prepared remarks.
The hearing is being chaired by short-tempered Massachusetts Democratic Representative Barney Frank, who will press the CEOs for details on what they’ve done with the bailout funds.
“This will be great political theatre,” said Jaret Seiberg, a policy analyst at investment firm Stanford Group.
In another dramatic turn for the $700-billion bailout launched in October by the Bush administration, Obama’s Treasury Secretary, Timothy Geithner, disappointed markets on Tuesday by announcing programme changes that were greeted as too vague.
Stocks fell sharply as Geithner, on the job for only a few days as the Obama administration’s new bailout chieftain, pledged more money for reducing foreclosures, and an attempt to get private capital involved in buying toxic assets off the balance sheets of struggling financial institutions.
Such moves, while still being hammered out, could again change the focus of the massive bailout that former Treasury Secretary Henry Paulson named the Troubled Asset Relief Programme, or TARP, although it has bought no troubled assets.
Days after Paulson began buying preferred shares in big banks last October to bolster their balance sheets, questions arose about what the banks were doing with the money.
Reports surfaced of big executive bonuses, buyouts of other banks, expensive travel and hoarding cash.
There were few signs the banks were injecting the money into the economy.
Even now, four months later, bailout watchdog groups say they don’t fully understand what happened to the funds, or how much they helped to stabilize the financial system. - Reuters