) -- A few interesting details emerged from the great Wall Street Inquisition on Wednesday, as bank CEOs issued tacit admissions of failure, defended their firms' size and pay practices, and outlined ideas for regulatory reform.
Appearing before the Financial Crisis Inquiry Commission,
CEO Lloyd Blankfein added fuel to a scandal of secrecy about the government's handling of payouts to
American International Group
counterparties. Blankfein said regulators never asked his bank -- which received one of the largest claims -- to take a haircut on its derivative holdings.
The appearance of Goldman Sachs CEO Lloyd Blankein (above) grew contentious at times.
Blankfein's comments turned up the heat on Treasury Secretary Timothy Geithner, who was then a key decision-maker about the counterparty payouts in his role as chairman of the Federal Reserve Bank of New York. The Fed paid AIG's counterparties 100 cents on the dollar for their positions, despite the fact that those firms would have received nothing had AIG failed. Blankfein's comments indicated that the Fed did little to no haggling to preserve taxpayer money.
The House Oversight Panel has subpoenaed information from the New York Fed, and Geithner is expected to testify about the matter next week. A revelation earlier this week that the
Securities and Exchange Commission
allowed AIG to keep certain information about counterparty assets hidden until 2018 has turned the matter into something like a regulatory trifecta of secrecy.
Another interesting revelation from Blankfein and his
counterpart, John Mack, was that although the markets were terrified that banks would be nationalized at the start of 2009, the possibility never entered the minds of top managers.
"At the board level it was never discussed ... It was never discussed and never thought about," said Mack, who is Morgan's chairman, and had been CEO until the start of this year.
Jamie Dimon sung his familiar tune about the concept of "too big to fail." He said once again that regulators should let banks grow as large as they'd like and not break them up or limit their size. Instead, the government should protect the system and consumers from the ripple effects of large bank failures.
"We need a regulatory system that provides for even the biggest banks to be allowed to fail, but in a way that does not put taxpayers or the broader economy at risk," Dimon said.
He also noted, shrewdly, that the market had never priced large bank securities as though the companies couldn't fail - even when the government said explicitly last spring that it would not allow them to. Instead, stocks plunged to subterranean levels in March, and the cost of insuring against bank bond defaults skyrocketed.
Dimon also defended JPMorgan's pay practices, though his comment might have shown how out of touch high-paid bankers are with average Americans and their average wages.
He noted that JPMorgan has 235,000 employees at many different levels, from traders to tellers to technicians, and that it strives to "pay everyone fairly." He later added in a televised interview that outsiders should wait to judge the firm until its revised pay practices are unveiled in a couple of months.
The average worker at JPMorgan earned $97,000 last year. Roughly 11,000 received pay packages over $1 million, which was what Dimon took home. Though he didn't take a bonus in 2008, at the peak of the crisis, he had earned $57 million during the two previous years.
The average American now earns $20,681 per year, according to the most recent Labor Department survey.
When Mack was asked by a reporter during a break about how Americans ought to feel about big banker bonuses he responded: "Mine is zero, okay?" (The zero doesn't include $40.4 million he received from 2006 through 2008.)
Also appearing before the commission was
Bank of America's
Brian Moynihan, who was perhaps the most humble and deferential of the banking titans. But he also might have had the least to say. Moynihan has only been at the helm for 13 days, having served brief stints leading two major banking divisions immediately prior to his appointment.
When asked about "too big to fail," he preempted his thoughts on the topic by saying "I wasn't party to those discussions" with regulators.
Goldman's Blankfein, on the other hand, appeared impatient and even irreverent at times, answering snarkier questions in a matter-of-fact or testy way. At one point, he tried to explain away a seeming conflict of interest at Goldman, in which it bets against the same positions which it advises clients to take. While it must disclose those positions in a timely and honest fashion, Blankfein asserted that Goldman has no duty to ensure that clients make money.
"That's what a market is," he said.
"I do know what a market is," replied his questioner, Phil Angelides, the commission's chair, a former California State Treasurer.
Blankfein also stressed that, as an investment bank in nature - even if it's registered as a bank holding company - Goldman doesn't have the same type of interaction with consumers as commercial banking peers. He characterized its role in the financial system as just as important, yet often misunderstood.
At one point, Blankfein sought to compare the financial crisis to a hurricane, suggesting it was unexpected and could not have been prepared for. Angelides stopped him.
"Having sat on the board of California's earthquake authority, acts of god were exempt," said Angelides. "These were acts of men and women. These were controllable."
Of the four CEOs, Mack was the most welcoming of new regulation, portraying the Fed's constant presence at Morgan headquarters as helpful, and urging again, as he has in the past, the creation of a single, powerful, global regulator. Mack also appeared to be the most willing to admit fault.
He put the mortgage mess simply, in his familiar Southern drawl: "We did eat our own cookin' -- and we choked on it."
Shares of the companies were mostly higher in late trades after many pulled back in the sessions leading up the hearing. At last check, Bank of America's stock was up 2.2%, Goldman's stock was rising 0.3%, JPMorgan shares were advancing 1.8%, and Morgan Stanley's stock was tacking on 0.8%.
-- Written by Lauren Tara LaCapra in New York