Barry L. Zubrow, chief risk officer with JP Morgan Chase, told the Senate Banking Committee that a portion of the $25 billion capital infusion it received from the Treasury Department was being deployed to "expand the flow of credit" and to assist with rewriting residential mortgages for up to 400,000 families.
Zubrow and executives with Goldman Sachs Inc., Bank of America and Wells Fargo & Co. told the committee that that none of the $85 billion they have received collectively from the government is being used to pay salaries or bonuses.
"The committee has asked whether (bailout) funds would be spent on executive compensation," said Jon Campbell, regional banking president for Wells Fargo & Co. in his testimony. "The answer is no. Wells Fargo doesn't need the government investment to pay for bonuses or compensation."
But lawmakers said there was little evidence that the bailout money had been used to expand lending as intended, and pressed bank leaders for commitments.
"Let me say as clearly as I can," said committee chairman Sen. Christopher Dodd, a Democrat. "Hoarding capital and acquiring healthy banks are not - I repeat are not - reasons why Congress authorized $700 billion in emergency funding."
With, Dodd said the bailout has done little to "stop the bleeding," reports CBS News investigative correspondent Sharyl Attkisson.
"It is still confounding to me why the Secretary of the Treasury and others refuse to understand this is the heart of the problem," he said.
Sen. Charles Schumer, a Democrat, said he and other lawmakers are looking at requiring banks to make more loans as a condition for taking part in the $350 billion second half of the bailout. "Any new capital injections must come with tougher requirements," he said.
Treasury has already loaned out or committed $290 billion of the first half. Democrats are working on a bill they hope to pass next week that would devote another $25 billion to the beleaguered auto industry, with the specific intent of helping General Motors Corp. avoid bankruptcy.
Lawmakers hoped that that the infusion of capital to banks would enable them to increase lending. But so far that hasn't happened, lawmakers say.
Sen. Tim Johnson, a Democrat, said he was alarmed by reports of continued generous compensation packages and benefits for executives of companies getting bailout funds.
"The intent of the bailout was to stabilize troubled financial institutions and help those businesses and individuals and Main Street affected by the credit freeze," said Johnson. "Those making the decisions on how to spend the $700 billion, and those receiving the funds, must remember this intended use."
Goldman Sachs and Morgan Stanley have each reportedly set aside more than $6 billion for end-of-year bonuses, reports Atkisson. The bankers promise it's a different pool of money from the taxpayer funds, but some senators remained skeptical.
"It flies in the face of reality that you can somehow draw these bright lines between public monies and private monies and retained earnings when it comes to some of these issues," said Dodd.
Congress can block release of the second $350 billion. It can also rewrite the law to put new conditions on its use.
On The Early Show, Sen. Dodd was asked if he thought bankers who attended Thursday's committee hearing got the message.
"Well, I'd like to tell you they did, but I doubt it," he said.
He blasted bankers for not showing that the billions of dollars in federal assistance that they have received are being put to proper use and accomplishing their intended public benefits.
"And the question everyone asks: Where is the commensurate responsibility to mitigate foreclosures, to get money out the door to lenders, to understand you don't give bonuses or necessarily dividends to shareholders? The major job here is to get credit moving. Only one bank yesterday said they even had a committee established to see if they couldn't seek out credit-worthy bowers to get money out to, to start credit flowing.
"There is more than a level of exasperation," Dodd said. "Without any question, I'm tired of the jaw-boning. I started pleading two years ago, then sort of begging them to do things, then jaw-boning on it. but obviously we're running out of patience on that."
In the light of yesterday's depressing foreclosure numbers - more than a quarter of a million houses in foreclosure, and 84,000 homes reported now vacant where their owners have just walked away, Dodd focused on the families who are hurt.
"Put it in these terms: 9,128 foreclosures per day now. That's every single day, close to 10,000 families are adversely affected by this and that is the root cause of our financial difficulties. If you can put a tourniquet on that you really do begin to get to the bottom of this and reverse this cycle."
Dodd said two courses of action need to be taken: rewriting a provision of the $700 billion bailout package which would help families avert home foreclosures, as backed by Federal Deposit Insurance Corporation chairwoman Sheila Bair. "The treasury is still reluctant to move on it as they should," Dodd said.
"The second is, if you have a boat, a vacation home and a principal residence, under bankruptcy law your boat and your vacation home are protected, you get to keep those, but your principal residence goes. Assume you're an American like most people are who only have a principal residence: under that of course the bankruptcy court can take it. Why don't we just change that provision of law? That would get borrowers and lenders to negotiate. Those two things I think would do a tremendous amount."
Hedge Funds Under The Microscope
Separately, the House Oversight Committee met today to examine the role that hedge funds may have played in recent market turbulence.
The broader debate on the use of the bailout fund may not be resolved until President-elect Barack Obama takes office on Jan. 20 and pursues policies for administering the rescue program that are likely to be more closely aligned with his Democratic allies in Congress.
The economic meltdown that Obama will inherit was publicly declared a recession on Thursday by a major global economic cooperative, the Organization for Economic Cooperation and Development, of which the United States is one of 20 members.
The Paris-based OECD said in a statement that the economies of the U.S., Japan, and Europe were in recession, and the developed world's collective economy was on track to shrink 0.3 percent during 2009.
Attkisson reports that the massive taxpayer bailout of the banking system - sold to the American public as transparent - is veiled in secrecy.
Treasury Secretary Henry Paulson announced Wednesday that thewhat had originally been the centerpiece of the program - a proposal to buy troubled assets to get them off the books of banks as a way of promoting increased lending.
Instead, the government is using tax dollars to buy massive shares in some of the nation's biggest and most successful banks - with virtually no strings attached, reports Attkisson. And that's all allowed under Congress' plan.
Attkisson and the CBS News investigative team decided to ask the banks directly what they are doing with Americans' tax money. Their responses were, on the whole,.