WASHINGTON (Reuters) - The top executives of Goldman Sachs, JPMorgan, Morgan Stanley and Bank of America testified Wednesday at a Financial Crisis Inquiry Commission hearing.
Also questioned were financial services executives from Calyon Securities, Hayman Advisors and Peter J. Solomon Co.
The 10-member commission, created by Congress to examine the causes of the 2008 financial meltdown, is holding a two-day public hearing this week. Following are quotes from the first day:
PHIL ANGELIDES COMMISSION CHAIRMAN, FORMER CALIFORNIA STATE TREASURER
“It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,” he said of Goldman’s practice of selling subprime mortgages while betting against the securities.
“Some already speak of the financial crisis in the past tense. The truth is, it is still here.”
“People are angry. They have a right to be... I see this commission as a proxy for the American people... If we ignore history, we’re doomed to bail it out again.”
BILL THOMAS COMMISSION VICE-CHAIRMAN, FORMER CHAIRMAN OF HOUSE WAYS AND MEANS COMMITTEE
“It’s most appropriate to tell anyone who’s listening, watching or hopefully will read anything about this hearing today, that the opportunity to submit written questions to who it is that you wish that question to be submitted is an opportunity that ought to be available to all Americans.”
Goldman “got caught up in and participated in and therefore contributed to elements of froth in the market.”
“We talked ourself into ... complacency which we should not have gotten ourselves into, and which, after these events, will not happen again in my lifetime as far as I‘m concerned.”
“Rationalizations ... were made to justify that the downward pricing of risk was justified.”
“We rationalized because a firm’s interest in preserving and growing its market share, as a competitor, is sometimes blinding -- especially when exuberance is at its peak.”
“I think we have a very, very tough regulator,” he said of the bank’s current regulation by the Federal Reserve.
“We did make mistakes, there are a number of things we could have done better.”
“To be sure, there are a number of things we could have done better: the underwriting standards in our mortgage business, for example, should have been higher, and we wish we had done an even better job in managing our leveraged lending and mortgage-backed securities exposures.”
“But let me be clear: No institution, including our own, should be too big to fail.”
“The solution is not to cap the size of financial firms.”
“We did eat our own cooking and we choked on it,” he said of the company’s mortgage investments.
“In retrospect, many firms were too highly leveraged, took on too much risk and did not have sufficient resources to manage those risks effectively in a rapidly changing environment.”
“There is no question that we did not put enough resources into our risk management system.”
“Interconnectedness,” not bigness, led to need for taxpayer bailouts
“We need to consider the downside of debilitating large financial firms by requiring them to shed economies of scale or permitting them to service only part of a corporate customer’s needs.”
”Capitalism without bankruptcy is like Christianity without hell... There is a role for leverage and for aggressive risk taking in the economy, but that role should be played by firms that are open and susceptible to the risk of insolvency.
”Retail banking has essentially become a public utility, and should be regulated as one -- with the limits as well as the associated guarantees.
“One of the options to prevent this (becoming too big to fail) is a hard and fast balance sheet cap that is not gamed by risk weighting. At a certain nominal gross balance sheet size, a firm is deemed too big to fail and subject to new limits on risk taking and asset concentration. As a firm approaches this balance sheet size, it would be ... warned that continued growth would put it into a new and tightly controlled regulatory regime that would force it to divest certain assets and unwind certain positions.”
Testimony from the hearing was posted at the commission's web site at: www.fcic.gov
Reporting by Kim Dixon; Editing by Julie Vorman