WASHINGTON, D.C., <br/> Jan. 13, 2009 — -- The leaders of four of the nation's most powerful financial institutions were greeted this morning with a stern, oft-repeated message: the American public is outraged.
"People are angry. They have a right to be," said Phil Angelides, the chairman of the Financial Crisis Inquiry Commission. "The fact is that Wall Street is enjoying record profits and bonuses in the wake of receiving trillions of dollars in government assistance while so many families are struggling to stay afloat."
The commission, a bipartisan panel appointed by Congress to investigate the causes of the worst financial crisis since the Great Depression, today is kicking off a series of hearings with testimony from Goldman Sachs CEO Lloyd Blankfein, JPMorgan Chase CEO Jamie Dimon, Bank of America CEO Brian T. Moynihan and former Morgan Stanley CEO John Mack, who remains the bank's chairman.
The point of hearing testimony, Angelides said, was to help the panel "take stock of what really happened."
"We're after the truth, the hard facts, because it's our job to provide an unbiased accounting of the actions that led to devastating economic consequences for so many Americans," he said.
"If we ignore history," he said, "we're doomed to bail it out again."
The bankers all admitted that their firms made mistakes.
Banks -- especially Goldman Sachs -- have been criticized for creating risky financial instruments, such as subprime mortgage securities, and then selling them off without bearing any responsibility for them.
But Morgan Stanley's Mack said his firm did pay the price for its involvement in mortgage securities -- it kept some of its stakes in the securities, he said.
"We did eat our own cooking and we choked on it," he said.
Blankfein, the first banker to speak, acknowledged a number of financial industry missteps, including a failure to take action to compensate for looser credit standards and other problems with risk management.
Blankfein said the firm didn't see excesses "as clearly as I would have hoped."
He also acknowledged that Goldman benefited from the government's multi-billion dollar financial system bailout.
"Without question, direct government support was critical in stabilizing the financial system. And we benefited from it," he said.
But Blankfein's defense of some of his firm's actions prompted a sharp rebuke from Angelides when the Goldman chief compared the financial crisis to one historic hurricane season during which four major storms struck the east coast.
"How would you look at the risk of a hurricane?" he asked, noting that the following year, no large storms struck the area.
Banks: 'We, as an Industry, Caused a Lot of Damage'
"Mr. Blankfein, I want to say this," Angelides responded. "Having sat on the board of California's earthquake authority, acts of god were exempt. These were acts of men and women. These were controllable."
Dimon and Moynihan today conceded other mistakes.
"Over the course of the crisis, we, as an industry, caused a lot of damage. Never has it been clearer how poor business judgments we have made have affected Main Street," Moynihan said.
The crisis yielded some valuable lessons, he said, citing the importance of liquidity and making stricter assessments of a borrower's ability to repay loans.
Dimon, who has repeatedly said that his bank did not need bailout money but accepted it at the government's request, declared, "No institution -- including our own -- should be too big to fail."
With the big Wall Street banks already experiencing a public backlash about expected bonus payments this year, the chief executives sought to emphasize that they have already started to change compensation structures.
"We understand the anger felt by many citizens," Moynihan noted, explaining that Bank of America's compensation pool this year will be greater than last year's but "certainly not back to pre-crisis levels."
The commission will hear from two more panels later today, including a group of financial market participants and then a handful of leading economists.
On Thursday the commission will conduct another hearing, headlined by federal regulators such as Attorney General Eric Holder, SEC boss Mary Schapiro, and FDIC chief Sheila Bair, among others.