WASHINGTON — The Financial Crisis Inquiry Commission's first public hearing on Wednesday gave the industry's top leaders an opportunity to express remorse for their role in the collapse of the financial markets but did little to enhance the public's understanding of the meltdown.
Much of the hearing examined topics that have already been noisily debated during the crisis, including executive compensation, risk management and the threat posed by institutions that are considered "too big to fail." Though executives from Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley made no new revelations during the hearing, panel members said the real digging will take place behind closed doors.
"Seven-eighths of this is going to happen underwater," the panel's vice chairman, former Republican Rep. Bill Thomas, said during a brief interview. "This is just one-eighth."
Thomas added that members of the commission have struggled to determine the scope of their investigation.
"One of the biggest problems was to figure out how far back do we go," he said.
Today the commission will question top officials from the Federal Deposit Insurance Corp., Securities and Exchange Commission and Justice Department.
As public anger toward the industry continues to mount and the White House plans to levy new fees on banks, the executives testifying Wednesday took pains to shoulder at least some responsibility for the crisis.
"I want to be clear that I do not blame the regulators," said Jamie Dimon, JPMorgan Chase's chief executive. "The responsibility for the company's actions rests with the company's management."
Morgan Stanley's chairman, John Mack, told reporters that Wall Street "needs to be more attuned to what's going on with the economy."
Brian Moynihan, the new CEO at Bank of America, said it has never been "clearer how mistakes made by financial companies can affect Main Street."
Goldman CEO Lloyd Blankfein acknowledged there was "a systemic lack of skepticism" in the industry during the boom years. He said one of the industry's biggest mistakes was rationalizing poor decisions made earlier in the decade.
"While we recognized that credit standards were loosening, we rationalized the reasons with arguments such as: the emerging markets were more powerful, the risk mitigants were better, there was more than enough liquidity in the system," Blankfein said. "We rationalized because a firm's interest in preserving and growing its market share, as a competitor, is sometimes blinding — especially when exuberance is at its peak."
But those explanations are unlikely to allay feelings of animosity toward Wall Street.
"They said some of the right things, but I don't see anything in place at Wall Street firms to prevent another crisis," said Jacob Zamansky, a New York securities lawyer who represents investors who have lost money during the financial crisis. "It's all lip service."
Michael Mayo, a managing director and financial services analyst at Calyon Securities Inc., chided banks for concentrating so much business in real estate.
"No one understood the risks," Mayo told the commission. "I compare it to bad sangria. A lot of cheap ingredients packaged together might taste good for a while, but eventually it leaves you with a headache."
The executives offered different explanations for what triggered the crisis. Blankfein said it was fueled by a combination of growth in foreign capital that came as low long-term interest rates and policies from the U.S. government that supported and sometimes subsidized housing. Dimon, meanwhile, pointed to excessive leverage and a large trade imbalance as principal factors.
All the executives offered general support for reforming financial regulation. Moynihan supported rules that are "clear and globally consistent" for resolving complex firms but said "we can never write rules on liquidity or resolution that will cover every crisis." Mack supported greater consolidation of financial regulators, though he did not call for a single banking supervisor as Senate Banking Committee Chairman Chris Dodd, D-Conn., has advocated.
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