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.
"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 roughly 10 minutes, frequently interrupting and speaking over one another. 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 responded during the exchange.
The exchange with Blankfein 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" as the 9/11 Commission, which conducted more than a thousand interviews and reviewed millions of pages of documents.
The hearing highlighted the divide between Wall Street and many in Washington, who feel the financial-services industry hasn't atoned for its role in the current economic malaise. White House spokesman Robert Gibbs said an apology is "the least" that could be expected from executives.
"There are some on Wall Street that seem to believe that nothing has changed," Gibbs said.
But J.P. Morgan Chase & Co. Chairman and CEO James Dimon suggested many of the questions executives faced from panelists on the commission were too broad. They "have to be very specific when [they] ask for apologies," Dimon said.
Angelides told Dow Jones Newswires he wasn't satisfied with the executives' acceptance of their role in the financial crisis.
"We learn from the pain of our mistakes and Wall Street was spared any pain because of the government bailout and therefore it's important there be a self examination and I think we're well short of that at this moment," he said.
The executives present did seek 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, policy makers and the public need to be "brutally honest" about the causes of the financial crisis, 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.
Despite those concessions, the executives were quick to warn of any overreaction from policy makers that could hurt their businesses and the broader economy. They were particularly wary of burgeoning congressional efforts to limit the size or even break up firms that could be considered systemic risks to the economy.
"The solution is not to cap the size of financial firms," Dimon said. "We need a regulatory system that provides for even the biggest banks to be allowed to fail, but in a way that does not put taxpayers or the broader economy at risk."
Blankfein similarly warned of congressional overreach, advising against a response "that is solely designed around protecting us from the 100-year storm." He also sought to deflect the responsibility for the financial crisis from Wall Street's board rooms, saying there was "enough blame to go around" for the financial tumult.
"Without trying to shed one bit of our industry's accountability, we would also further our collective interests by recognizing other contributing causes to the severity of the crisis," Blankfein said. He cited the growth in foreign capital, a long period of low interest rates and the promotion of homeownership as "broad underlying factors" contributing to the financial crisis.