WASHINGTON — Wall Street’s biggest banks acted like used-car salesmen knowingly selling lemons to consumers, the head of a commission investigating the financial crisis said Wednesday as top bank executives came under fire on Capitol Hill.
Former California state Treasurer Phil Angelides kicked off the first of two days of hearings with an aggressive exchange with Goldman Sachs Group Inc. chairman and chief executive Lloyd Blankfein, suggesting the investment bank was not taking responsibility for its actions in the lead-up to the crisis.
Betting against clients?
“It sounds a little bit to me like selling a used car with faulty brakes and then buying an insurance policy” on the driver, Angelides told Blankfein, who dodged a question about whether Goldman Sachs had informed clients that it was making internal bets against their investments.
Angelides said he was not trying to make Blankfein “say ‘uncle,’ ” but the two clashed for about 10 minutes, frequently interrupting and speaking over each other. Blankfein at one point said, “Let me ask you a question” — a breach of etiquette in congressional hearings — before being drowned out by Angelides.
“I wish we were much less leveraged then. Would I do something differently knowing what I know now? How could I not?” an exasperated Blankfein said during the exchange.
The exchange with Blankfein could set the tone for the Financial Crisis Inquiry Commission. The bipartisan, 10-member panel was created by Congress to investigate and report on the financial crisis, and Angelides said the scope of the panel’s work should be “similarly thorough” to the 9/11 commission, which conducted more than 1,000 interviews and reviewed millions of pages of documents.
“If we ignore history, we’re doomed to bail it out again,” Angelides said.
“We did eat our own cooking”
The executives present sought to acknowledge their missteps leading up to the financial crisis, aware of the public frustration over Wall Street profits and reports of sizable year-end bonuses to be paid to executives.
“Wall Street has to be much more attuned with what’s going in the economy,” Morgan Stanley chairman John Mack told reporters during a break in the hearing. He struck a similar tone when discussing Morgan Stanley’s experience over the last two years.
“We did eat our own cooking, and we choked on it,” he said.
Wall Street, policymakers and the public need to be “brutally honest” about the causes of the financial crisis, JPMorgan Chase & Co. chairman and CEO Jamie Dimon said, stressing the need to avoid a repeat of the events in the fall of 2008. Brian Moynihan, the new CEO of Bank of America Corp., agreed that the financial-services industry “caused a lot of damage” over the course of the crisis.
