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Econwatch
January 13, 2010 3:24 PM

Bank Execs Offer Head-Scratching Answers

By
Alex Sundby
Topics
Who's To Blame?
(AP Photo/Pablo Martinez Monsivais)
For all the so-called financial wizardry one would imagine the executives of four Wall Street banks could demonstrate when gathered under one roof, it was surprising when JPMorgan Chase & Co. CEO Jamie Dimon told a congressional panel Wednesday that "in mortgage underwriting, we somehow missed that home prices don't go up forever."

(At left, from left, Goldman Sachs Group Inc. Chairman and Chief Executive Officer Lloyd Blankfein; JPMorgan Chase & Company Chairman and Chief Executive Officer James Dimon; Morgan Stanley Chairman John Mack; and Bank of America Corp. Chief Executive Officer and President Brian Moynihan testify on Capitol Hill in Washington Wednesday before the Financial Crisis Inquiry Commission.)

Such was one memorable quote uttered by Dimon and the heads of Goldman Sachs Group Inc., Morgan Stanley and Bank of America during .

Dimon's revelation about home prices wasn't the only head-scratching response he gave to the panel.

"One of the surprising things about all these things, a lot of these problems with mortgages, derivatives … they were all known," Dimon said.

But in a complete 180-degree turn from the seemingly wide-eyed responses he gave during the morning, Dimon later told the panel that the downturn shouldn't be much of a surprise because he expects them to happen on a regular basis.

"Not to be funny about it, but my daughter asked me when she came home from school 'what's the financial crisis,' and I said, 'Well it's something that happens every five to seven years,''' Dimon said. "We shouldn't be surprised, but we need to do a better job."

Goldman Sachs Group Inc. Chairman-CEO Lloyd Blankfein provided just as much relief about his hand on a bank's tiller when he told the commission about the days when the financial system neared collapse in the fall of 2008.

"I know it's become part of the narrative that people knew what was going to happen at any minute," Blankfein said. "We never knew what was happening at any minute."

Blankfein acknowledged lapses in judgment in some practices leading up to the crisis.

"Whatever we did, it didn't work out well," Blankfein said. "We were going to bed every night with more risk than any responsible manager would want to have."

Toward the end of the morning's testimony, Blankfein used a baseball reference to exemplify how little he knew about the crisis in 2007:

"I remember being teased at a shareholders meeting in '07 and being asked what inning we were at in the crisis," said Blankfein. "I said we were in the seventh inning of the crisis. As it turned out, we were in the second inning."

BofA's CEO-President Brian Moynihan demonstrated a kind of political jiu jitsu in an environment where the United States has an unemployment rating of 10 percent when he told panelists that compensation levels at his bank will be higher in 2011 than they were in 2008, the year of the meltdown.

"We understand the anger felt by many citizens," Moynihan said. "We are grateful for the taxpayer assistance we have received."

Morgan Stanley Chairman John Mack summed up the banks' behavior in the most concise way, saying "We did eat our cooking and we choked on it."

Although one could argue that, given the amount of taxpayer assistance the banks received, they sold back whatever they coughed up for a good price.

  • Alex Sundby

    Alex Sundby is an associate news editor for CBSNews.com

Add a Comment
by cjs_cnet_xyz January 18, 2010 10:40 PM EST
20% of Americans unemployed. Those Americans that do find work are probably taking 20% paycuts. Yet, these bankers think that their salaries should continue to go up another 20% this year even if it could only be achieved by the taxpayers' direct funding. At least Madoff was an honest crook and admitted when the jig was up. If these are the rock stars of the financial industry, what happens to rock stars that hit rock bottom?
Reply to this comment
by olyboy January 14, 2010 11:10 AM EST
The issue is this, when you allow banks and mortgage companies to call interest only loans "loans" you allow investors to be misled. Those instruments were not loans, because the lenders knew when they made them that the only way the "borrower" could repay them was through the sale or refinancing of the property after it increased in value, not through the borrowers normal cash flow. So, the only way that the loans and interest could be repaid was if the real estate did in fact increase in value. That my friends is a speculative joint venture in real estate, not a loan. How many investors do you think would have bought bonds backed by "speculative joint ventures in real estate?" The SEC and the FASB should never have allowed the true substance of these instruments to be hidden from investors. This was the biggest ponzi scheme in history.
Reply to this comment
by burneb January 13, 2010 11:22 PM EST
What's really outrageous is that most of these geniuses still have their obscenely overpaid jobs.

Recently retired now, I worked for several private firms in different industries, and several government agencies over a 45-year span. In ANY of those organizations I would have been quickly shown the street if I had made such reckless misjudgements and bone-headed dumb mistakes as most of these guys.
Reply to this comment
by dmwj2 January 13, 2010 5:42 PM EST
Welcome to de-regulated, FREE-Trade, Capitalism, with a Socialist safety net, just in case...
Reply to this comment
by OldTimeTruth January 13, 2010 5:24 PM EST
I have heard some stories in my time but this is full of B-S and it stinks from these so called CEO?s. People close your accounts on these so called big banks and find a small home town bank or a credit union bank. In the end you will be a lot better off. A small time Iowa farmer has more common sense then these educated CEO idiots.
Reply to this comment
by sjc_1 January 13, 2010 4:39 PM EST
I have long believed in a managed economy where we design, create and manage the kind of economy that we want. Right now we have a patch work of this and that which crashes on a regular basis time after time. It is not a system and does not work well, but we keep depending on it.
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