The leaders of a group of Wall Street banks admitted to mistakes made by the financial industry while appearing before a commission charged with uncovering the reasons behind the financial meltdown.
The Financial Crisis Inquiry Commission held the first of a series of hearings Wednesday. Modeled after the Pecora Commission hearings in 1933 that probed the causes behind the 1929 stock market crash, the new commission heard from top bankers including Goldman Sachs CEO Lloyd Blankfein, JPMorgan Chase CEO James Dimon, Morgan Stanley Chairman John Mack and Bank of America CEO Brian Moynihan.
Over the course of the crisis, we as an industry caused a lot of damage, said Moynihan, who took over as BOA chief after the departure of Kenneth Lewis last year.
Commission chairman Phil Angelides, a former California state treasurer, grilled the panel on the excesses of the banking sector. He asked Blankfein why Goldman took failing bank loans, converted them into securities and resold them to investors. It seems like you were selling a car with faulty brakes and then buying an insurance policy on that car, he said.
Blankfein defended the bank and noted that professional investors wanted to buy the securities. However, he did admit to problems in the system. We talked ourselves into a sense of complacency and it wont happen again, at least in my lifetime, he said.
Blankfein noted that the bank had to keep track of every loan. We as a mark-to-market firm have to mark every commitment on our balance sheet, he said.
Dimon admitted that the bank had dealt with some unscrupulous mortgage brokers, but contended that the bank cut them off if it found out the mortgages were fraudulent. But he did admit to JPMorgan Chase making big mistakes in the area of mortgage underwriting. We missed that prices dont go up forever, he said.
Witnesses on a later panel criticized practices such as the use of off-balance-sheet entities. I thought during Enron we learned that off-balance sheet meant bad, said Kyle Bass, managing partner of Hayman Advisors, who testified on a later panel before the commission. Clearly we didnt learn the lesson.
President Obama is expected to propose on Thursday a multi-year fee that will be levied on banks to pay for the costs of the banking bailout and pay down the federal deficit.
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