Summary of House Committee on Financial Services Hearing (Tian Weng, Debby Su)

1. Topic: TARP Accountability: Use of Federal Assistance by the First TARP Recipients
2. Date and Time: Feb 11, 2009, 10:00 am – 1:00 pm
3. Place: 2128 and 2172 Rayburn House Office Building
4. Chairman: Mr. Barney Frank, Chairman of the House Financial Services Committee
5. Witness List:
Mr. Lloyd C. Blankfein, Chief Executive Officer and Chairman, Goldman Sachs and Co.
Mr. James Dimon, Chief Executive Officer, JPMorgan Chase and Co.
Mr. Robert P. Kelly, Chairman and Chief Executive Officer, Bank of New York Mellon
Mr. Ken Lewis, Chairman and Chief Executive Officer, Bank of America
Mr. Ronald E. Logue, Chairman and Chief Executive Officer, State Street Corporation
Mr. John J. Mack, Chairman and Chief Executive Officer, Morgan Stanley
Mr. Vikram Pandit, Chief Executive Officer, Citigroup
Mr. John Stumpf, President and Chief Executive Officer, Wells Fargo and Co.

Eight bank CEOs from companies receiving the first TARP funds testified before the House Financial Services Committee. All testified that they distributed fund received in a manner that they thought would increase financial market liquidity, expand credits and lending in either residential or commercial loan markets, and generate enough revenues to allow them to return money to investors and US tax payers. All cited figures to confirm that they were distributing funds to the places they intended to. They denied TARP was used for dividend distributions or employee compensation.

Mr. Pandit, of Citigroup, pledged to cut his salary to $1 a year until the bank returned to profitability and took personal responsibility for the “mistake” of even thinking about buying a new $50 million private jet after getting government financing.

Mr. Lloyd C. Blankfein, Goldman’s chief executive, acknowledged “public anger at our industry.”

Mr. Lewis, CEO of Bank of America, who occasionally grew testy and red-faced at questions about lending, told lawmakers that his bank had “every incentive to lend.”

In the end, they all agreed to greater accountability on how they are spending money from the $700 billion fund.

Lawmakers struck hard on the lending issues, describing situations in which their constituents could not get loans and situations in which the rates for certain types of loans, such as credit card business and car loans, increased after the injection of the government funds intends to solve the liquidity problem. Several asked the bankers why there seemed to be a disconnect between their lending figures and the hundreds of ordinary people who continue to line up for loans. Some criticized bailout recipients like Bank of America and Merrill Lynch, who have continued to lobby--through trade associations--to block consumer protection measures, predatory lending regulations, and the Employee Free Choice Act, a measure that would ensure workers the freedom to form a union for a voice for improved wages, benefits, and working conditions.

Beyond the Troubled Asset Relief Program (TARP), some bailout recipients--who have failed to provide affordable healthcare or a living wage to their employees--are dipping into federal coffers through the backdoor, forcing thousands of employees to seek healthcare through taxpayer funded programs like Medicaid and forcing employees to apply for food stamps.

One lawmaker even suggested that banks paid fees to themselves for receiving TARP funds. Mr. Pandit denied such fee transaction. Another lawmaker pointed to the fact that top management at Bank of America received huge bonuses for the Merrill Lynch merger, when they were, in fact, actually responsible for losses that resulted from or were necessitated by the merger.

Tian Weng, Debby Su
George Washington University
Washington, DC

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