Bankers are set to appear before Congress today to defend a bailout package.
If Treasury Secretary Timothy Geithner could get an earful of skepticism over the government’s financial bailout plans, the nation’s top bankers can expect no less when they make their maiden voyage to Congress as recipients of the widely criticized funds.
Eight chief executives will slip behind a witness table in the Rayburn House Office Building on Wednesday morning to face a battery of questions about how they have used more than $160 billion in taxpayers’ money.
In prepared testimony, the CEOs applauded the program for making more loans available and promised to pay their share of the money back to the Treasury over time. Anticipating confrontations over their own compensation, several asserted that none of the government’s money went to bonuses or dividends.
But members of both political parties have been smarting over the implementation of the $700 billion financial package, which started under President Bush and now is in the hands of the Obama administration. The lingering suspicions present one of President Barack Obama’s biggest obstacles as he attempts the dual challenge of prodding the financial sector to ease credit while aiming to create jobs with an economic stimulus package.
Sen. Richard Shelby of Alabama, the top Republican on the Banking Committee, assailed the administration Wednesday for what he said was a lack of details on the new bailout plan that would leverage over $2 trillion into the shaky financial system.
Speaking of Geithner’s briefing for the panel Tuesday, Shelby groused: "He had nothing really to say … He basically admitted this. He wasted about three or four hours of the Senate’s time, and we want to know where the specifics are and he doesn’t have them."
Shelby said on CBS’s "The Early Show" that he understands the administration is in unfamiliar territory. But he also said it must "do better than this."
As for the financial institution leaders, at least one banker sounded almost contrite about the industry’s grave problems.
"Many people believe — and, in many cases, justifiably so — that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system’s stability," said Lloyd C. Blankfein, chairman and CEO of The Goldman Sachs Group Inc.
Geithner’s highly awaited overhaul of the rescue program would also impose stricter accountability standards on banks and their executives. But it wasn’t enough to dispel Wall Street anxieties or silence congressional doubters.
After spending more than three hours Tuesday afternoon explaining his proposal to the Senate’s banking committee, Geithner left many senators wishing for more. And by the time he had finished with their questions, the stock market had delivered its own verdict: The Dow Jones industrials had tumbled 380 points.
"I have to be honest with you," Sen. Robert Menendez, D-N.J., told him. "A lot of questions still remain unanswered. A lot of details are necessary before I can give it my support."
Those doubts are sure to arise Wednesday when Blankfein and the CEOs of Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., Wells Fargo and Co., Morgan Stanley, State Street Corp. and the Bank of New York Mellon appear before the House Financial Services Committee.
The bankers are not sympathetic figures in Congress, particularly in the more populist House. The initial spending of the bailout funds was secretive, lacking strict requirements that the banks account publicly for how they were using the money. A government watchdog reported last week that the Treasury under Bush overpaid the banks for the assets it obtained in exchange for the capital infusion.
The banks weren’t helped by reports that Wall Street firms doled out more than $18 billion in bonuses to their employees last year or that Goldman Sachs and Wells Fargo had planned conferences in Las Vegas. Goldman Sachs moved its three-day event to San Francisco; Wells Fargo canceled its employee recognition retreat.
Last year, Congress gave an infamous grilling to auto executives when they flew into Washington in private jets to request a taxpayer bailout for their ailing industry.
But most of these bankers didn’t beg for their money. They were selected because they were relative healthy banks that could spur more banking activity and eliminate the stigma of taking taxpayer money for other financial institutions.
Two of the banks — Citigroup and Bank of America — later became less stable and the Treasury sent more targeted funds their way.
In his prepared remarks for the committee, Citigroup CEO Vikram Pandit said the government funds helped the bank expand mortgages, personal loans and lines of credit for individuals, families and businesses. He said Citigroup plans to pay the government $3.4 billion in annual dividends for the $45 billion it has received.
"Our goal, my goal, is to make this a profitable investment for the American people, as soon as possible," he said.
Wells Fargo, which acquired Wachovia on Dec. 31, reported that it had reopened lines of credit to some Wachovia customers who had been denied credit. It also reported $22 billion in new loan commitments and $50 billion in mortgages in the last quarter of 2008.
With the Vegas junket a fresh memory, Wells Fargo President and CEO John Stumpf made one other point.
"We are always careful stewards of our shareholders’ money," he said. "We have never been wasteful. … We are frugal."
On the Net:
House Financial Services Committee: http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr021109.shtml