- The Washington Times - Wednesday, February 11, 2009

UPDATED:

It came the turn of the nation’s chief bankers Wednesday to go to the woodshed for the customary congressional public spanking in reaction to perceived anger by the American taxpayer.

“There has to be a sense of the American people that you understand their anger…and that you’re willing to make some sacrifices to get this working,” Rep. Barney Frank, Massachusetts Democrat and chair of the House Financial Services Committee, told the eight contrite bankers lined up at a table before his panel.

He later told MSNBC, “Our goal is to try to make things better for the future [and to] put pressure on them to make loans…. If they do not alleviate public anger…there won’t be more resources” given to the banks.

Mr. Frank urged the bankers at the hearing to impose a moratorium on foreclosures “until we get this program” on $50 billion worth of mortgage modifications that Treasury Secretary $700 billion Tim Geithner was working on as part of phase two of the $700 billion bailout plan.

All of the banks represented by their chairman and CEOs received $165 billion of the $700 billion authorized by Congress late last year to encourage banks to loosen credit and lend money to businesses and consumers during the worst financial crisis to swamp the United States in more than 70 years. Some used the money to buy smaller banks.

The purpose of the hearing appeared intended to determine how the banks spent the funds and whether they indeed were making loans in the face of harsh criticism from President Obama on down that money was used to buy executive jets, hold lavish retreats for executives and pay year-end bonuses to themselves and other senior executives.

The hearing was reminiscent of the congressional berating received late last year by the heads of the nation’s Big Three automakers, who showed up in Washington in their financially ailing companies’ executive jets. General Motors and Chrysler have received bailout money.

At one point, Mr. Frank wanted to know why it was necessary for senior executives to receive year-end bonuses for their work.

“If you weren’t getting a bonus, what would you do?” he asked. “Would you leave early on Wednesday? Why do you need bonuses? Can’t you just get salaries?”

Vikram Pandit, chairman and CEO of Citigroup, later apologized in prepared remarks for the planned purchase by his company of a $50 million executive jet, which was canceled following public criticism. Citigroup received $45 billion in federal bailout money.

“The old model no longer works and no longer applies,” he said of the way financial institutions have been run before the crisis erupted in September with the failure of Lehman Brothers. “We need to do a better job of embracing the new realities.”

Said Ken Lewis, chairman and CEO of Bank of America, “We understand that taxpayers are angry.”

Rep. Maxine Waters, California Democrat, demanded to know why some of the banks were “paying fees to themselves” on money they were receiving from the bailout program.

Mr. Lewis, perplexed and eyes wide, replied, “I don’t know what you’re talking about.”

Citigroup’s Mr. Pandit volunteered that Ms. Waters may have been referring to fees the banks pay to underwriters to buy bonds on the open market. Ms. Waters did not seem satisfied with that answer.

The bankers reassured members of the committee in their prepared remarks that their institutions were lending money to businesses and consumers, as mandated by the rescue package.

For example, John Stumpf, chairman and CEO of Wells Fargo & Co., said his bank had made $22 billion worth of new loans and $50 billion in mortgage loans during the final three months of last year. He said 93 of 100 of his banks customers are current on their mortgage payments.

“We understand the responsibility of receiving public funds,” he said. “We have never been wasteful. We are frugal. We’re Americans first and we’re bankers second.”

Mr. Frank later told MSNBC, “They have to lean over backwards to show that they’re making loans or else the public will shut them down.”

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