Frank: Obama Will End Bailout Abuses

The Obama administration will be more trustworthy than the Bush administration in making certain there are no abuses in the disbursement of bank bailout funds, according to the head of the House Financial Services Committee.

Rep. Barney Frank of Massachusetts told CBS' The Early Show Thursday that the Treasury Department under President Barack Obama has agreed to place stronger restrictions, including legal penalties and compensation restrictions, on financial institutions accepting federal TARP (Troubled Asset Relief Program) funds.

"If they get the money, they are legally bound to follow certain rules," Frank said. "How so? In the same way that if you do things you shouldn't do - you're subject to legal penalties."

Frank sought to distance the Obama administration from the Bush administration, which administered the first $350 billion of the bailout. Mr. Obama's White House was given the go-ahead by lawmakers to release the second $350 billion.

"I think the error is to assume that because the Bush administration resisted compensation restrictions, resisted a requirement that refused to do anything about foreclosures or make sure that these people got more money, that the Obama administration will do the same. In fact, the Obama administration is behaving very differently."

Frank said a "significant chunk" of the money will go toward reducing foreclosures and banks taking federal funds will be required to show the government how they plan to increase lending.

On Wednesday, Frank chaired hearings that brought eight top bank CEOs to Capitol Hill for the first time since the bailout last October. The executives acknowledged they had lost the public's trust and agreed to greater accountability standards on the remaining bailout.

"Both our firm and our industry have far to go to regain the trust of taxpayers, investors and public officials," John J. Mack, head of Morgan Stanley, told the House Financial Institutions Committee.

Added JP Morgan Chase & Co.'s Jamie Dimon: "We stand ready to do our part going forward."

In general, the eight top bankers appearing before the panel were contrite and conceded they have work to do to win over a bitter public and an exasperated Congress. They had little choice but to acknowledge as much, given intense anger and anxiety as the troubled financial system continues to spiral downward in an ever-worsening recession.

Repeatedly, lawmakers were scornful and treated the financial heavyweights almost like naughty schoolchildren, ordering them to raise their hands to indicate their responses to blanket questions about their own use of perks and any policy changes made since accepting the bailout money.

At one point, under questioning from Rep. Dennis Moore, D-Kan., the CEOs went down the line disclosing how much bailout money their institutions received last year and how much they personally made. Their salaries ranged from $600,000 to $1.5 million annually, without bonuses.

Bankers are hardly sympathetic figures to Congress.

The initial spending of the bailout money was secretive, lacking strict requirements that the banks account publicly for how they were using it. Banks weren't helped by reports that Wall Street firms doled out more than $18 billion in bonuses to their employees last year or that Goldman Sachs and Wells Fargo had planned conferences in Las Vegas. Goldman Sachs moved its three-day event to San Francisco; Wells Fargo canceled its employee recognition retreat.

Most of these bankers didn't beg for their money. They were selected because they were relative healthy banks that could spur more banking activity and eliminate the stigma of taking taxpayer money for other financial institutions.

One by one, the CEOs brought a message of accommodation and gratitude. They applauded the program for making more loans available and promised to pay their share of the money back to the Treasury over time. Several asserted that none of the government's money went to bonuses or dividends.

"We are frugal," said Wells Fargo's John Stumpf.

Citigroup CEO Vikram Pandit testified that he has told his board of directors to set his salary at $1 with no bonus until the company makes money again.

He also struck an apologetic tone for letting the bank consider buying a private jet plane after receiving some $45 billion in bailout money. The bank ultimately scrapped the plan under pressure from Mr. Obama.

"We did not adjust quickly enough to this new world," Pandit said. "I get the new reality and I will make sure Citi gets it as well."

Most, if not all, were contrite.

"We understand taxpayers are angry" and they are right in demanding that institutions receiving their money take a "conservative, sober and frugal" approach to using it, said Kenneth D. Lewis of Bank of America.

Added Lloyd C. Blankfein of the Goldman Sachs Group, Inc.: "We have to regain the public's trust and do everything we can to help mend our financial system to restore stability and vitality."

Robert P. Kelly of The Bank of New York Mellon promised "a very good return on the investment for taxpayers" and acknowledged "we still have a long way to go" to jump start the U.S. credit market.

[motard117]

As you listen to congress brow-beat the CEO''s of bailout recipients for their "evil" bonuses, keep in mind that some in congress also wanted $200,000,000 of OUR money to re-sod the National Mall in Washington (among many, many other ridiculous things).

[broadws-2009]

Frank is guilty of fraud...and everybody knows.
Pelosi and company did nothing for the last two years...and everybody knows.
The U.S. is in trouble because of a do-nothing Congress with and all-time low rating...and everybody knows. Washington is over run with fools and the new Emperor has no clothes...and everybody knows.

[samthetvcat]

---"They stand on the basis that nationalization is communism...."---
Posted by Texanna10

---"Yes those d@rned obstructionists keep standing in the way of the well-intentioned attempts to transform our country into communism after all major communist nations transformed themselves away from it."---
Posted by txgrouch2009

I must have struck a nerve because the everytime you Republicans get exposed to reality your agitation escalates - I was expecting counters of ''socialism'' . . . it''s now up to ''communism''!

It sucks that time and again so many centrists still get swayed by that sort of fear-mongering. Because the old 90''s hypothesis of having ''mastered risk'' with CDO''s and that the market was ''self-correcting'' everybody agrees has now been debunked, and the new hypothesis is that avoidance of bank collapes into perpetuity can only be achieved through Government involvement.

There''s a disconnect there with the public because to a large extent, the election was a referendum on those two competing ideas and the GOP got taken to the cleaners. Yet when asked whether we ought to nationalize banks, people balk.

Maybe if the label were to be taken away and the pros/cons of the options on the table were presented, people might feel a lot differently about what''s the best course of action (?)

[wardoglrs]

The Federal Reserve Bank Robbing & Killing Americans since 1913

[samthetvcat]

So I guess Dems just can''t bring up the idea of nationalization of banks because it''s political suicide because of the way Republidorks''ll go nuts with the cries of ''socialism'' or whatever.

But how ideologically wed to the current plan are Republicans in reality, because a failure to nationalize is in tension with their ideal of fiscal conservatism, minimizing deficits, lack of Government oversight of corporations, etc.

And the public rage at bankers for their ''greed'', which is actually CEO duty to corporation and shareholder, cuts across party lines.

I mean if people want a plan that works above all else, then Sweden clearly offers the model of what to do and Japan clearly offers the model of what not to do, and they both point towards nationalization of banks, don''t they?

I said this morning that for Governments to impose legal obligations on banks to hold a duty to the public already means capitalism is dead as far as the banks go, and if only the Government lacks the conflict of interest to turn banks around, then doesn''t the successful turnaround of banks hinge on how willing Republicans are willing to let go of their temptation to want to use the ''socialism'' line of attack to gain political points?

Where do they stand on this?

[chuckcardiff]

If I were a bank exec I would have said, "OK, Barney, we''ll call in all the loans we made with that bailout money and then you''ll see what a real crisis is like, you simpering fool." Frank is such a profoundly stupid man it amazes me anyone can take anything he says seriously.

[smt451d]

Barney''s been catching so long he can''t think without bending over.

[jmrubino]

I''m a Democrat, but a Democrat without blinders on. I am embarrassed to have Barney Frank as the messenger here. His own actions, plus his relationships, both professional and personal, to the people involved in creating, enabling, and continuing the Freddie Mac failure have been well-documented. This is not partisan conjecture, but fact. We need somebody else delivering these kinds of messages to the American people. He has no credibility in my book.

[mitch5511]

It''s always easier to say "I''m sorry" afterthefact but it still doesn''t resolve the problem.

Set a timetable when the full amount of repayment is due or the taxpayers own those banks outright. If payment is not received by the end of 2010, turn those corporate banks into co-ops and let the taxpayer reap the benefit, not their CEO''s.

[jxknowles]

This situation could only get better. There is now a high probability the taxpayers will get the $700 billion back with 5-10% interest. We''ll swallow some toxic assets at a loss, but with the new regulations they''re promising, things are finally back on track.