Leaders of the country's biggest banks defended themselves on Wednesday against accusations of greed, while insisting before Congress that they have used all of the $165 billion worth of taxpayer funds granted to their institutions appropriately.

On Capitol Hill, CEOs of the eight banks that received the most money from the government --


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Vikram Pandit,

Bank of America's

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Kenneth Lewis,

Goldman Sachs'

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Lloyd Blankfein,

Morgan Stanley's

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John Mack,

JPMorgan Chase's

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Jamie Dimon,

Wells Fargo's

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John Stumpf and

State Street's

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Ronald Logue -- each gave testimony outlining the manner in which they have used their banks' rescue funds.

They also asserted that while taxpayers have a right to know how funds are being spent, some of the criticisms being lobbed against them are unwarranted or irrelevant.

Public outrage has been stoked by stories of

Merrill Lynch

CEO John Thain redecorating his office for $1.2 million last year as the firm lost $27 billion, of Bank of America spending millions to host a five-day Super Bowl party last month, or of a $343,000 event hosted by


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at a posh resort right after it received $85 billion in emergency government loans.

Congress promised taxpayers economic recovery in return for a commitment of $700 billion to keep the banking industry solvent. Yet the average American is facing layoffs, climbing unemployment, deteriorated household wealth, plummeting home values, foreclosures and in some cases bankruptcy. When that average American believes his meager tax dollars are going to finance corporate jets, $35,000 commodes and billions of dollars worth of banker bonuses, he's understandably perturbed.

"These guys are just beyond tone deaf because there is populist anger out there," says Ben Heineman, a senior fellow at Harvard University's Law School and Kennedy School of Government, referring to the CEOs.

However, a large part of the public disgust stems from mischaracterizations and a confluence of news stories that tie unrelated things together.

Beneath the circus of congressional hearings and the distractions on television, there are a few core truths about the banking industry. First, it will not hoard capital to hurt economic development -- banks make money by lending it. Second, they have a history of wining and dining potential clients at lavish events which seem expensive, but also attract new business, to make more money.

Third, CEOs of these companies are wooed with huge pay packages in cash and stock, which often include stipulations to boost the upside and protect them from any downside. One can argue that no CEO whose company receives a government bailout should be handsomely compensated, but many of those pay packages were negotiated before the capital injections and can't easily be altered. There are also lower-level managers and executives in the bonus pool whose businesses performed well last year despite the economic malaise. Completely cutting incentives leaves little reason for top talent to remain and help the banking sector revive.

"If you pay below fair market

compensation, you get below fair market value, period," says Kevin Nussbaum, a consultant with CBIZ Human Capital Services. "You can't lose your A-level talent in times of crisis."

Still, the CEOs took pains to outline sharp cuts in bonuses, salary freezes, or forfeiture of compensation. Some also insisted that TARP funds were going for the intended purpose -- lending to other banks, businesses and consumers -- not for bonuses, dividends or acquisitions. And while JPMorgan bigwig Jamie Dimon didn't earn any cash, stock or option bonuses in 2008, he asserted that pay for other employees was "appropriate," based on performance of the individual, business unit and overall firm.

Firms may have altered compensation structures, and corporate culture may have shifted from a mood of celebration to one of somber regret, but recent missteps have still come to light.

In a letter to House Financial Services Committee Chairman Barney Frank on Tuesday regarding his investigation of Merrill Lynch's bonuses last year, New York Attorney General Andrew Cuomo characterized the awards as "a surprising fit of corporate irresponsibility." He also pointed out the "apparent complicity" of the firm's acquirer, Bank of America.

Robert Goldberg, a former Wall Street investment banker and adjunct professor at Adelphi University, is not surprised by such displays of corporate greed, and says Congress will have a tough time imposing regulations without hampering firms' competitiveness. The government has a right to demand that firms limit compensation, perks and opulent events, and foster responsible lending for creditworthy borrowers, he says. But micromanaging every expense and pushing indiscriminate lending practices could just make matters worse.

"This is the problem when you try to marry capitalism and socialism," says Goldberg. "You can't have it both ways, and we're trying to have it both ways. So either leave the banks alone and let the weak ones go under and deal with the consequences, or, if you're going to lend money to them, you need to put some restrictions in, but understand you're changing the nature of the beast."

Harvard's Heineman agrees that some employees did deserve bonuses, and firms need to spend money to draw in new business. But it was foolish to make such expenditures or receive deliveries of corporate jets paid for in years past, he says, without any explanation. He also believes many of the compensation issues legislators are railing about today are merely for show. Even the Obama camp's proposal that top-level pay be limited at $500,000 has a loophole: If it can be proven that the executive didn't take "excessive risk," he can receive more.

"They can't change contracts and deals from the past that are already made, and

executives will easily get out from under these caps. They're what I call soft caps," says Heineman. He adds that the hearings and stipulations are "much more about process than substance. It's a lot more bark than bite."

Another hot topic on Wednesday was whether the banks are using TARP funds to help the economy, a question each banker answered with his own resounding yes.

All of the CEOS said their firms are lending more than they would have without the capital injections. Goldman doled out more than $13 billion since receiving funds, up from $4.5 billion in the previous quarter. Morgan Stanley has issued $10.6 billion in commercial loans and $650 million worth of consumer loans.

Bank of New York Mellon

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has already used all of its $3 billion in TARP funds to buy debt securities and foster interbank lending.

An analysis by Ladenburg Thalmann analyst Richard Bove found that the country's 12 biggest banks boosted lending in the fourth quarter by anywhere from 0.1% to 15.6%, when adjusting for loan-loss provisions and amortization. (The analysis excludes Bank of New York Mellon, whose results were skewed by

Lehman Brothers'


The results are impressive when considering weakened demand for loans in the struggling economy, and the fact that many of those still seeking loans do not necessarily have stellar credit. If a bank lends irresponsibly, it will not help its financial state, its credit ratings, its solvency, or the broader economy. All of those factors can compete with the demands of regulators and legislators.


The fact is," says BofA's Lewis, "it is in all our interests that we lend as much as we responsibly can -- maximizing credit while minimizing future losses."