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Public Statements

Morning Session of a House Financial Services Committee Hearing

Location: Washington, DC





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REP. FRANK: (Gavel sounds.) The hearing will come to order.

And before the clock starts let me -- I'm going to make some procedural announcements. I don't know why I said "let me" since I'm in charge, so I'll just do it. First of all, this is not an audience participation event. There are police officers here. We expect this to go well, but we will not have disruptions.

I am a great believer in free speech but there are time-and-place restrictions that are totally consistent with a free-speech absolutist position. Interruptions, shouts will interfere with the discussion. People are totally free to go outside and to other places, and not during the meeting time, and say rude things about any or all of us -- but not during the hearing, and I will enforce that.

I also will urge people to withhold applause, forceful laughter and other interjections, in part, because this is a larger committee than I wish that it was, and we have a great deal of interest in this subject, and I do not want to lose time that we would otherwise be able to put to these constructive purposes. I regret the fact that I've had to take up this time now.

I will also make the members aware I am going to be enforcing the five-minute rule, and this means the following -- after yesterday I remind you of this: Members are entirely free, in their use of the five-minute rule, to spend four minutes and 54 seconds speaking, and then announcing at a minute before second-55 that they have a question. Do not expect an answer. If you leave eight seconds for a complicated answer, you probably won't get it here.

And I will say, -- (inaudible) -- in defense of some of the witnesses it may be necessary, that if it appears they're not answering the question it will be because members haven't left them time to do it.. We will, of course, take those in writing. So I would urge members, if you are asking a question to which you want an answer, please leave some time for there to be an answer.

If you just want to say something and ask a rhetorical question, that's your right, it's in the House rules, but I do want to explain that I'm not going to be allowing people to extend their time by leaving a question of some complexity with only a couple of seconds to be answered. With that, we will begin. And I will now start the clock for my own strictly-enforced five minutes.

The separation of powers becomes relevant here. There's a great deal of anger in the country, much of it justified, about past practices, and a number of people can legitimately be criticized. There is also a concern that there may have been things done for which there should be some action -- civil recoveries. In some cases people have been talking about prosecution, although I do not mean to imply that anyone here faces that.

The role of the Congress, however, is different. We are not the Executive Branch with enforcement powers. We are not the Securities and Exchange Commission or the Comptroller of the Currency. We are not ourselves regulated, we formulate regulatory policy. I believe our major function, and the purpose of this hearing, is to help formulate policy going forward.

Understanding what happened, why it happened, what didn't happen -- those are essential elements of formulating policy going forward. And so, yes, this hearing will focus on what had happened, but that's in the context, I believe -- given our legislative function, of trying to devise what we do going forward.

Now, we have this dilemma: Because, I believe, of an absence of sensible regulation -- not deregulation but non-regulation, a series of new financial activities, and in some cases entities, grew up in our country. And those activities did a lot of good, but as will happen when you have a total absence of regulation, they also did some harm -- more harm than almost anybody had anticipated. And, in consequence, we are now in a very seriously -- we're in a serious negative economic situation.

We have two roles: One is to adopt rules that will make it much less likely that we will have a repeat of this -- and I think that's the easier job, intellectually, and I even think, politically, because of the view in the country -- but we have to get out from under where we now are. And here's the dilemma: There is, in the country, a great deal of anger about the financial institutions, including those represented here -- there's anger about us, there's anger about the Executive Branch, there's a great deal of anger. We have this dilemma: It is essential, if we are to reverse the economic negativism that we now confront, that we, among other things, get the system of extending credit back into its fullest operation.

I suppose, theoretically, you could junk the current system and start a whole new one. The amount of time that would take -- and effort, would obviously make that totally impractical. We have no option, if we are to get credit flowing again in this country, other than to work with the existing institutions -- not every institution, as it was originally constituted, but with the existing institutions. And the problem is that there's a great deal of anger at the institutions, and it is impossible to get the credit system working again without doing some things that will be seen to benefit the institutions.

I've said this is the opposite of that terrible problem in warfare of collateral damage -- when innocent people are injured in the course of trying to obtain a military objective. One of the problems we have, gentlemen, is that you are the recipients of collateral benefit. That is, in an effort to get the credit system functioning, things will be done that will be to the benefit of the institutions over which you preside because there is no alternative.

But, you need to understand, as I think many of you do, how angry that makes people. And, in the interest of getting the system working again, I urge you strongly to cooperate with us -- not grudgingly, not doing the minimum, but understanding that there is a substantial public anger. And alleviating that public anger -- not with mumbo jumbo, but with reality, is essential if we're going to have the support in the country to take the right steps.

I admired much of Secretary Paulson's tenure, but beginning last September, when he asked us for the $700 billion authorization and I raised the compensation issue, he was very resistant. And I must tell you that he blamed you, to some extent -- not you individually, but you as a profession. He said if we put strict compensation restrictions on, people won't cooperate.

I hope that's not true. I hope the argument that people would put their own economic self interest, in the narrow term, ahead of a necessary program to get the country back, isn't the case. We need to look at that. We need to talk about it. I think that some of you have been laggard in understanding that.

I urge you, going forward, to be ungrudgingly cooperative and understand that these are extraordinary times. We are going to be taking, and have been taking, extraordinary measures which will be to the benefit of some of the institutions, or all the institutions over which you preside. There has to be, on the sense of the American people, that you understand their anger, their frustration, and that you willingly cooperate and, in fact, are willing to make some sacrifices so that we can get this whole thing working.

The gentleman from Alabama.

REP. SPENCER BACHUS (R-AL): Thank you, Mr. Chairman.

Gentlemen, we in Congress, I think, have screwed up health care pretty badly, and K through 12, through our involvement. And now we're turning our attention to you. May god help us, and help you, and all the American people as we do that. I think that, together, it's important that we don't engage in name-calling or blame-game; that we take a forward look, and that we, together, try to do what's best for the American people. And, to a certain extent, that's going to be on your part and our part, as the chairman said, winning back their trust and their confidence, and we can best do that by doing it as partners.

I hope that the questions focus on how we can get this economy moving and what your institutions can do. I do want to say this -- a word of caution, these are several different institutions, eight different institutions. Some wanted the money, some didn't want the money. And I'm not sure the American people -- I think they're going to look at you as a unit. But I hope they don't do that because that would be a mistake, because you're all in a different situation, your financial condition is different and you should not be treated as one.

And I think you and I both agree that we need to get the government and government investment out of the banks as soon as we can, and get about the business of you doing what you do well and with a minimum of unnecessary influence and interference from us. So, thank you very much for your presence.

REP. FRANK: I used five minutes. The gentleman only used two. Do you want to go to Mr. Royce now? Is Mr. Royce ready?

A minute and a half -- Mr. Royce.

REP. EDWARD R. ROYCE (R-CA): Thank you, Mr. Chairman.

In the United States, the mortgage-backed securities market was kick-started and has been sustained here by the activities of what we call government-sponsored enterprises. And the first (GMA ?) guaranteed mortgaged-backed security was issued back in 1970. Fannie Mae first securitized its first pool in '81. And Freddie Mac issued the first CMO backed by 30-year fixed-mortgage rates in 1983. Now, the pool was refinanced with the issue of three classes of securities that matured sequentially.

We've all watched this evolution as we've watched the leveraging of 100 to 1 by these institutions and the warnings to us by the Federal Reserve that something had to be done otherwise it was going to create systemic risk. Indeed, we've also watched the demand on these institutions that 10 percent of that $1.5 trillion portfolio go into loans to people that frankly wouldn't have the capacity to pay them back. And indeed, we had at least a $1 trillion loss out of Fannie Mae and Freddie Mac just out of that.

National mortgage conduits, such as Fannie Mae and Freddie Mac, do not exist in Europe. And without depth and liquidity of MBS, ABS asset-backed, you know, markets, securitization is not as valuable. It cannot be as popular, especially when banks have alternative techniques at refinancing their mortgage portfolios there.

For example, in the U.K., it strikes me, that's the largest market in Europe for these types of securities. Six percent of U.K. mortgages are securitized. In the United States right now, it is 60 percent -- 60 percent.

And one of the questions I have, and we'll listen to the testimony here, but to what extent was the securitization process --

REP. BARNEY: The time --

(Cross talk.)

REP. ROYCE: -- (inaudible) -- (GSEs ?) helped cause this --

REP. FRANK: Let me be clear. This is an allocation that the minority gave me. The gentleman was given a minute and a half. I cleared this with the minority. This is no arbitrary -- he's got other people he wants to deal with. When I do (sound ?) the gavel, I hope people will understand we are operating within the limits so other members get a fair chance.

So the gentleman's time has expired. The gentleman used an extra 38 seconds. And I will now recognize the gentleman from Pennsylvania for two minutes.

REP. JIM GERLACH (R-PA): Mr. Chairman, today we will learn how some of the richest and most powerful men in America are spending billions of dollars of taxpayer money. Because some of my colleagues will probably ask our witnesses to explain their enormous bonuses being issued at a time of great national suffering, I will not do so. And because my colleagues will likely inquire as to their ownership of numerous vacation homes while millions of Americans face foreclosure on the only home they have, I will leave that subject alone. Because some of the members will undoubtedly seek to understand how you can underwrite privileged junkets when most Americans would almost do anything to get a job let alone a vacation, I will defer that question, too.

Instead, I want to know where the money has gone and why it went there. My constituents in Pennsylvania regularly ask me why you needed their money and how you are using it. This is your opportunity to explain to them just exactly what you are doing. And for anyone who contends that you do not need the money and that you did not ask for, please find a way to return that money to the Treasury before you leave town.

As executives at large companies, you once lived in a one-way mirror, unaccountable to the public at large and often sheltered from shareholder scrutiny. But when you took taxpayer's money, you moved into a fishbowl. Now everyone is rightly watching your every move from every side. Millions are watching you today, and they would like some degree of explanation and responsibility. I do, too.

REP. FRANK: The gentleman from Texas is recognized for one and a half minutes, Mr. Hensarling.

REP. JEB HENSARLING (R-TX): Thank you, Mr. Chairman.

I believe I'll have plenty of opportunities to disagree with our president in the next several years, not the least of which is a piece of legislation known as the stimulus package that I believe will stimulate big government much more so than the economy. But let me make a point where I do agree with our president. In announcing the executive compensation limits, our president said, quote, "This is America. We don't disparage wealth. We don't begrudge anybody for achieving success, and we believe success should be rewarded. But what gets people upset and rightfully so are executives being rewarded for failure, especially when those rewards are subsidized by the U.S. taxpayers."

I hope that this committee hearing does not turn out to be a time for class warfare. But I do hope it becomes a time and an opportunity for taxpayer accountability and taxpayer transparency. I believe in the hours to come that you gentlemen before me will certainly have lots of opportunities to be criticized, castigated, second-guessed and otherwise publicly pilloried.

I have a couple of observations. Number one, some of that will be richly deserved. My other observation is is that many who dish it out to you are also partially responsible for the mess in which we find ourselves in now. Outside of the soft-money actions of the Federal Reserve, no matter how noble the intentions, federal registration --

REP. BARNEY: Thank the gentleman. (Laughter.) (Inaudible) -- though I certainly don't want to discourage that as a precedent, so I thank the gentleman.

The gentlewoman from California for two minutes.

REP. MAXINE WATERS (D-CA): Thank you very much, Mr. Chairman.

This is an important hearing today. The question has been asked over and over again, what did the banks do with the taxpayer's money? The taxpayers of America are very, very upset about the fact that they allowed the banks to borrow their money, the taxpayer's money in unprecedented amounts, billions of dollars. And when the taxpayers went back to the banks to say, may I have a loan, may I have a loan to buy a car, may I have a loan to pay my student fees, may I have a loan for a mortgage, the banks are saying, no.

And to add insult to injury, the banks have sent out notices to credit card holders, taxpayers again who have loaned money to the big banks, the banks are saying to the credit card holders, oh, we're going to increase your interest rates. We know that you were paying 13, 14, 15 percent already, but now it's going to cost you 18, 19, 20 percent. So the taxpayers have lent their money to the big banks, who are supposed to be big-business persons, expertise in business management, who are failing, they've gone back to ask for some assistance, they're being denied.

And in addition to that, Mr. Chairman, I want to talk a little bit later on when I question about the fact that these banks not only took huge amounts of money from the taxpayers under the banner of TARP, they then charged and made money, on the money that we gave them, in fees. We have not talked about the fees that these banks have made as they've processed our money. But I'm going to reveal here today that they took the money and they earned more money on the money that we gave them instead of allowing that money to be managed by others who were waiting to participate.

I yield back.

REP. FRANK: I thank the gentlewoman. She almost met the gentleman from Texas' standard. You were very close.

The gentleman from South Carolina Mr. Barrett for a minute and a half.

REP. J. GRESHAM BARRETT (R-SC): Thank you, Mr. Chairman.

Gentlemen, normally, I would strongly oppose the nature of this hearing. There are few things more dangerous to me than letting government run our banks or having a bunch of politicians make your business decisions. But now that you've received hard-earned taxpayer money, you owe my constituents some explanation on how you've gotten yourselves into this position and how you've spent their money.

Like other states, South Carolina is struggling, and too many of our people are losing their jobs due to your actions which have driven this economy into the ground. Small businesses back home, people I know, friends I go to church with are closing their doors, losing their jobs, and they're not getting bailed out. And folks simply haven't seen the evidence that the money that you were given is working or making their lives better.

So I look forward to this hearing today. And I hope that you gentlemen will provide us the answers that we all need.

Thank you, Mr. Chairman.

REP. FRANK: The gentlewoman from Illinois for a minute and a half.

REP. JUDY BIGGERT (R-IL): Thank you, Mr. Chairman. And thank for holding today's very important hearing.

Last year in December, nearly two months ago, I joined Republican Leader Boehner and 81 other House Republicans and signed a letter requesting this hearing. I'm glad that this has finally happened. We should have had a hearing before passing legislation on the floor to reform TARP. TARP was a rushed job. When Congress passed the financial rescue package, it was to stave off immediate and dire threat to our entire economy. And we're by no means out of the woods yet.

Treasury needs to provide much greater transparency and show us where the American taxpayer's money is going before requesting more and before rolling out a new plan to use trillions -- let me repeat, trillions -- more of taxpayer dollars.

Have the funds been used to get credit flowing again, not just to financial institutions but to consumers and small businesses? How do we know additional TARP money is needed? Who needs it? How much more will be used?

Only today, for the first time, have we had the opportunity to publicly hear about the first $350 billion that was used by eight of the 362 firms, (including ?) two of the Big Three auto companies across the country that received taxpayer TARP funds. What went wrong? Who's to say that we're not putting good money after bad? I hope today's witnesses will shed some light on these looming questions.

And let me be frank. My constituents in Illinois are angry and so am I. We don't believe that taxpayer money has been spent wisely, we don't have the answers that we need. Thank you and yield back.

REP. FRANK: The gentleman from Georgia, Mr. Scott, for one minute.

REP. DAVID SCOTT (D-GA): Thank you very much, Mr. Chairman.

I think it's very important as you -- you gentlemen represent the heart of our system, the very foundation of our system. And it is shaking at the roots. The confidence of the American people are at a low ebb. I think if there's one thing that you gentleman can do today it's to illustrate very firmly that was has happened in the past, $18 billion of this money, of taxpayer's money, going out to you, is an aberration, and to send a very important message to the American people that you understand this is not the Congress' money, it's not your money. This is money that's coming directly from the pockets of the American taxpayers, but more importantly, it's coming from our grandchildren and our children's indebtedness.

The future foundation of our economic system is going to weigh on this hearing today because at the heart of it is confident (sic). If we leave here today knowing that we have restored the confidence of the American people, then this hearing will be most certainly worth it.

Thank you, Mr. Chairman.

REP. FRANK: Gentleman's time has expired.

The gentlewoman from Kansas for one and a half minutes.

REP. LYNN JENKINS (R-KS): Thank you, Mr. Chairman.

Our economy continues to lag. Every day Americans struggle to pay their mortgages and put food on the table while their home values drop. Businesses have had to scale back, forcing massive layoffs and furloughs. There is no question times are tough. Congress has had to act quickly to make difficult policy decisions in unchartered territory. Yet those circumstances do not give government a blank check. Times like these call for increased scrutiny before rushing to spend billions of hard earned taxpayer dollars on programs which may not effectively address the root of the problems we face.

Today we'll hear from institutions that received billions in government aid. The question remains was 700 billion (dollars) in TARP funds a wise use of taxpayer dollars and effective in its mission to return stability to financial markets, and this on top of actions by the Federal Reserve, FDIC, and others with the price tag well into the trillions. My constituents in Kansas sent me to Washington with a clear mandate, to protect the dollars they send to Washington. Being tight fisted with taxpayer dollars shouldn't lead to inaction, but to increased accountability, transparency and scrutiny. Congress injected hundreds of billions in TARP dollars. I'm eager to hear from today's witnesses on programs or lack -- progress or lack thereof on reviving our struggling economy and financial markets.

I yield back the balance of my time. Thank you.

REP. FRANK: The gentleman from Texas is recognized for a minute.

REP. KENNY MARCHANT (R-TX): I thank the Chairman. I look forward to this panel today. I think we can, maybe call this a shareholder's meeting because although I didn't vote for the TARP program, the American taxpayers have put money into your entity. And so I think what they're going to be looking forward to hearing from the CEOs that are managing their money is how are we doing.

I think one of the things that concerns me is that there was a lot of criticism of the GSE format in our country of government sponsored entities where we had basic competing interests, we had shareholders and we had basically political interests. And unfortunately that was a flawed model, but yet we have now employed that model for the rest of the financial industry. So instead of calling you GSEs I'm going to call you TSEs and that's taxpayer- supported entities.

I don't support that model, I think it is a flawed model because it is a competing interest, but now that the American people are your shareholders, there is a new accountability structure that will come, and I hope today you'll be able to articulate how this money that the American people have invested in your entities has benefited you, but more importantly, what they want to hear is what's it doing for them. So I'll look forward to the testimony today.

REP. FRANK: And finally I recognize for unanimous consent request the gentleman from Texas, Mr.Green.

REP. AL GREEN (D-TX: Thank you, Mr. Chair. I ask by unanimous consent that HR 387 be placed in the record, the TARP Accountability Act which will deal with transparency in lending as it relates to the TARP funds.

REP. FRANK: Without objection, so ordered. That, I believe, is the bill that passed as an amendment in the House by the gentleman, Mr. LaTourette.

REP. GREEN: Yes, sir, Mr. Chairman, that is correct.

REP. FRANK: Right. We will now hear from our witnesses and I will begin, I don't know what order -- appears to be alphabetical. Yes, it does appear to be alphabetical so one will read any significance into it. And I will begin at the top of the alphabet with Mr. Blankfein.

MR. BLANKFEIN: Thank you, Chairman Frank, Ranking Member Bachus, and members of the Committee, I appreciate the opportunity to appear before you

REP. : (Off mike.)


It is abundantly clear that we are here amidst broad public anger at our industry. Many people believe -- and, in many cases, justifiably so -- that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system's stability.

We have to regain the public's trust and do everything we can to help mend our financial system to restore stability and vitality. Goldman Sachs is committed to doing so.

We take our responsibility as a recipient of TARP funds very seriously. We view the TARP as important to the overall stability of the financial system and, therefore, important to Goldman Sachs. We serve a number of important roles, including that of advisor, financier, market maker, asset manager and co-investor. Our business is institutionally dominated with the vast majority of our capital commitments made on behalf of corporations and institutional investors. We are not engaged in traditional commercial banking and are not a significant lender to consumers.

As a financial institution focused on this wholesale client base, Goldman Sachs actively provides liquidity to institutions which helps the capital markets function. In short, our businesses require that we commit capital, and our ability to do so has been enhanced since receiving this investment under the Capital Purchase Program.

As a financier, clients frequently expect our advice to be accompanied by access to the capital necessary to make that advice actionable and practical. For instance, we often provide back-stop or contingent credit, such as a commitment to make a bridge loan, until other sources of more permanent capital can be arranged.

Since receiving the $10 billion of capital on October 27th and through January 2009, Goldman Sachs has committed over $13 billion in new financing to support our clients. This compares with $4.5 billion in the three months prior to receiving the government's investment.

For example, we put our capital to work on behalf of Sallie Mae to allow them to provide more than $1.5 billion of student loans. We made a significant investment in the C.J. Peete Apartments Housing Complex, a mixed-income housing project in New Orleans. We also committed capital to Verizon Wireless, Pfizer and a number of other significant corporations.

As a market maker, we provide the necessary liquidity to ensure that buyers and sellers can complete their trades. In dislocated markets, we are often required to deploy capital to hold client positions over a longer term while a transaction is completed. Last month, for instance, we provided short-term liquidity to a portion of the mortgage market through a large agency mortgage transaction. This significant extension of our capital helped keep mortgage rates from increasing by allowing billions of dollars of mortgage securities to be financed.

We also are an active co-investor with our clients. Over the summer, we established a $10.5 billion senior loan fund which makes loans to companies in need of capital. The fund invests both our own capital and that of our clients. Already, it has made approximately $5 billion in loan commitments.

The Committee has also asked us to address our compensation policies and practices. Since we became a public company, we have had a clear and consistent compensation policy. We pay our people based on three factors -- the performance of the firm; the performance of the business unit; and the performance of the individual. We believe this approach has incentivized our people to act in a way that supports the firm as a whole and not narrow-minded about their specific division or business unit. More broadly, it has produced a strong relationship between compensation and performance.

From 2000 to 2007, Goldman Sachs earnings grew twice as fast as our aggregate compensation expenses For our nine full years as a public company, which includes an exceptionally difficult 2008, the firm generated an average return on equity of 21 percent for our shareholders.

While the firm produced a profit of $2.2 billion in 2008, our revenues were down considerably. End of year bonuses were down on average 65 percent. Our most senior people, the firm's 417 partners, were down 75 percent.

The bulk of compensation for our senior people is in the form of stock, which vests over time. I would also note that Goldman Sachs has never had golden parachutes, employment contracts or severance arrangements for its executive officers.

We also recognize that having TARP money creates an important context for compensation. That is why, in part, our executive management team requested not to receive a bonus in 2008, even though the firm produced a profit.

Mr. Chairman, our firm recognizes the extraordinary support the government has provided to the financial markets and to our industry. We will live up to the spirit and letter of the responsibilities our regulators, the Congress and the public expect of us. And we will do so whether we still have TARP funds or not.

We appreciate that the TARP funds were never intended to be permanent capital.

When conditions allow and with the support of our regulators and the Treasury, we look forward to paying back the government's investment so that money can be used elsewhere to support our economy.

REP. FRANK: Next, Mr. Dimon.

MR. DIMON: Chairman Frank, Ranking Member Bachus, members of the committee, my name is Jamie Dimon, and I am the chairman and CEO of JPMorgan Chase & Co. I look forward to today's discussion. I ask that my complete written statement be entered into the hearing record.

I'd like --

REP. FRANK: Without objection, all statements and any supporting material from any of the witnesses will be made part of the record.

MR. DIMON: I'd like to highlight a few key points in written testimony.

First, JPMorgan is lending. Through our 5,000 branches in 23 states, we continue to provide credit to tens of millions of customers -- including individual customers and nearly 2 million small businesses clients, large corporations, other banks, not-for-profits and states and municipalities.

While we did not seek the 25 billion (dollars) TARP funds we received on October 28th, 2008, it strengthened our already strong capital base, which is the foundation of all of our lending activities. We are putting that money to use in a way that respects the spirit of TARP, while maintaining the safe and sound lending practices and -- (inaudible) -- balance sheet that has helped to make and to keep JPMorgan a health and vibrant company -- a company that employs 224,000 people worldwide, gives away $100 million to charity and pays approximately $10 million in taxes -- state, local and federal governments over the last 10 years each.

Over 50 million Americans own our stock and our stockholders include people from all walks of life -- retirees, teachers, union members, our own employees -- and we feel a deep obligation to honor this faith in us, including the investment of the government made to us in TARP, by maintaining prudent underwriting standards.

In the fourth quarter, despite reduced customer demand for credit, we made over $150 billion in new loans. In addition, we lent an average of 50 billion (dollars) every night to other banks. Also during the fourth quarter we purchased almost $60 billion of mortgage- backed and asset-backed securities, which had the benefit of supporting the agency debt markets and promoting liquidity in the housing capital markets.

Overall, in the fourth quarter our consumer loan balances increased by 2.1 percent compared to the third quarter, while overall personal consumption expended in the company in the country decreased by 2.3 percent. That is to say we lent more, even as customers were cutting back their spending during the quarter.

Second, JPMorgan is committed to keeping borrowers in their homes by making sustainable property underwritten loan modifications, in some cases even before a default occurs. We have extended our modification efforts to cover not only the mortgages we own, but also the investor-owned loans that we service -- about $1.1 trillion of loans.

We believe we will avert 650,000 foreclosures by the end of 2010. We believe this is the right approach for the consumer and for the stability of our financial system as a whole. Homeowners should have equal access to a sustainable mortgage modification without having to resort to bankruptcy and put their credit histories at risk. We urge Congress and the administration to help adopt a uniform, national standard for loan modification programs.

Third, JPMorgan has been willing to take very significant actions to help stabilize the financial system and we stand ready to do our part going forward. In March 2008, at the request of the U.S. government, we worked with regulators to prevent an uncontrolled collapse of Bear Stearns. In September of 2008, we were the only bank prepared to acquire the assets of Washington Mutual, after the FDIC seized that institution. Taken together, these two transactions saved nearly 40,000 jobs and prevented further market instability.

Finally, it must be said that today's economic crisis is the result of a lot of mistakes by a lot of people and all of us who are here today -- and many who are not here -- bear some measure of responsibility for the current state of financial markets. The ongoing financial crisis has exposed significant deficiencies in our current regulatory system, which is fragmented and overly complex. There is a great deal we need to do to address and overcome these weaknesses.

We agree with Chairman Frank that Congress and the president should move ahead quickly to establish a systematic risk regulator. In the short term, this will allow us to begin to address some of the underlying weaknesses in our system and fill the gaps in the regulation that contributed to the current situation.

There are tremendous challenges facing the financial services industry and the American economy, but the United States has faced serious problems before. The measure of strength for a country and a company is not whether or not they have problems. It's how they deal with those problems, overcome them, identify them and move on.

I am confident that we will do this again and that we will emerge -- all emerge better because of it.

Thank you and I look forward to your questions.

REP. FRANK: Next Mr. Robert Kelly.

MR. KELLY: Mr. Chairman, Mr. Bachus, members of the committee, my name is Bob Kelly. I'm chairman and CEO of the Bank of New York Mellon. I appreciate the opportunity to speak with you about our participation in the Capital Purchase Program.

The business model of The Bank of New York Mellon is very different from a traditional retail or commercial or investment bank. In contrast to most of the other companies here today, our business model does not focus on the broad retail market or commercial banking or investment banks and we don't focus on mortgages, credit cards or auto loans. In fact, we don't do typical lending to corporate businesses.

A good way to think of The Bank of New York Mellon is that we are a "bank for banks." We are an infrastructure bank. The lion's share of our business is dedicated to helping other financial institutions be more successful around the world. We invest mutual fund and pension monies and administer their complex "back-office" processes. We also provide critical infrastructure for the global financial markets by facilitating the movement of money and securities through the markets. And finally, we provide some financing to other banks so they can make mortgages and other loans and other instruments available to consumers and businesses.

You should know that we were profitable every quarter last year. We paid over $4 billion in income and other taxes globally. While some of our assets were invested in mortgage-backed securities, which did incur losses, they have been more than offset by our profits throughout the year. We continue to have the highest debt ratings of U.S. banks rated by Moody's and we have the second highest rating by Standard & Poor's.

In October, the Treasury allocated to us $3 billion of the $350 billion that it has allotted to date. The financial markets were very dangerously in total gridlock at the time and deteriorating rapidly. We were in a deep financial crisis at that time. We understood that a clear goal at the time was to have a range of institutions, including relatively healthy companies like The Bank of New York Mellon, participate in the Capital Purchase Program, removing any stigma that might be associated with accepting Treasury capital and helping reassure the markets of the stability of the financial system. We were strongly encouraged to participate and we did very quickly.

In exchange for the $3 billion investment, the U.S. government received preferred stock and warrants that we agreed to pay the government -- $150 million a year in dividends -- until we repay the $3 billion. The $3 billion in capital that we received from Treasury has allowed us to do quite a bit more than we would have otherwise to improve the movement of funds in the financial markets.

We purchased 1.7 billion (dollars) in mortgage-backed securities and debentures issued by the U.S government, through the government- sponsored agencies. This helped to increase the amount of money available to lend to qualified borrowers in the residential housing market.

We purchased 900 million (dollars) of debt securities of other healthy financial institutions to improve liquidity and help them lend to consumers and businesses; and we used the remaining $400 million for interbank lending to other healthy financial institutions. Again, it was both liquidity, funding and stability.

We have not used any of the funds to pay dividends, bonuses or compensation of any kind nor will we. In fact, we will not use any of the funds to make acquisitions either. We will still have a long way to go to get the credit markets and the U.S. economy functioning properly again. Bank capital must be rebuilt; low-quality assets must be sold or written off; sound lending must occur and confidence in our system must be restored.

The Bank of New York Mellon will not only repay the $3 billion to the Treasury, but we also fully intend to deliver a very good return on investment for taxpayers.

Thank you.

REP. FRANK: Mr. Lewis.

MR. LEWIS: Thank you, Mr. Chairman, Congressman Bachus.

I'd like to start by making two key points: First, all of us at Bank of America understand the responsibilities that come with access to public funds. Taxpayers want to see how we are using this money to restart the economy and want us to manage our expenses carefully. These expectations are appropriate, and we are working to meet them.

Second, as we manage our business going forward, we are doing our best to balance the interests of customers, shareholders, and taxpayers. But the fact is, it is in all of our interest that banks lend as much as we responsibly can -- maximizing credit while minimizing future losses. That's how consumers and businesses can prosper. It's how investors -- including taxpayers -- can earn returns.

Bank of America serves more than half of all U.S. households and millions of businesses. We know that the health and strength of our company depends on the health and strength of the U.S. economy. We have every incentive to lend. And, despite recessionary headwinds, we are lending. In the fourth quarter alone, we made more than $115 billion in new loans to consumers and businesses. We also renewed about $70 billion in credit lines and made some bulk purchases of loans to reach a total of $181 billion in total lending activity, which was included in our TARP report. We also reaffirmed three 10-year nationwide goals that are critical to the health of our communities: $1.5 trillion for community development lending; $2 billion in philanthropic giving; and $20 billion in environmental lending and investment.

We are working to keep people in their homes. While Bank of America exited subprime lending in 2001, we inherited a substantial portfolio when we acquired Countrywide. We modified 230,000 loans in 2008 and have more than 5,000 associates working full-time with homeowners to meet our target of up to 630,000 loan modifications. We remain committed to investing in our communities and are proud of our six consecutive CRA outstanding ratings.

Last fall, at the urging of the U.S. government, Bank of America accepted $15 billion in TARP money. Additionally, the government agreed to provide $10 billion to Merrill Lynch and an additional 20 billion (dollars) to enable the closing of our acquisition and thereby prevent another shock to the financial system.

We'll make our first dividend payment to the Treasury of more than $400 million next week, we will pay about $2.8 billion in interest for the year and we intent to pay all the TARP funds back as soon as possible.

But we understand that taxpayers are angry, and they deserve to know how their funds are being used. We recently announced that we will regularly make a full report to the public about our business activities in 10 categories that are important to the nation's economic recovery. The $115 billion in new loans we made last quarter is a good example. It is obviously not the whole story.

The real issue, I believe, is this. Taxpayers feel, and rightfully so, that if a bank is receiving public money, all its financial decisions should signal a conservative, sober and frugal approach to the financial health of the company.

I will simply say this. Bank of America has for years been the most financially efficient large bank in the country. When we expend resources we do so only after careful analysis of how that expenditure will strengthen our business and generate returns for investors, now including U.S. taxpayers.

Our core business is strong. Even in midst of a deepening recession we earned more than $4 billion last year. Even so, that performance was disappointing and I therefore recommended to our board of directors, and they agreed, that we would pay no year-end compensation to me or any of our most senior executives in 2008. Executives at the next tier down had their year-end incentive payments cut by an average of 80 percent.

The financial services industry is undergoing wrenching change. Now is a good time to remind ourselves that we play a supporting role in the economy, not a lead role. Our job is to help the real creators of economic value -- people who make things and people who use them -- get together and do business. We bankers should find some humility in that.

This is also a time for getting out there in the marketplace and making every good loan we can to boost the economy and restore confidence to the markets. It's a time for determination in the face of our generation's greatest economic challenge.

Thank you.

REP. FRANK: And now Mr. Logue.

MR. LOGUE: Mr. Chairman, Ranking Member Bachus, and members of the committee, thank you for inviting me here to testify here today. I appreciate this committee's critical role in overseeing the taxpayers' investment in State Street. And we're pleased to have an opportunity to describe our use of that investment.

State Street Corporation is one of the world's largest providers of services to institutional investors such as mutual funds, pension funds, endowments and foundations. Unlike more traditional banks we do not directly provide ordinary retail banking services including mortgages, credit cards, or other consumer credit. We have no retail branches.

Our loan activity primarily relates to the provision of credit and liquidity to our core customer base of institutional investors.

Our role enables the investment process to run smoothly and as intended and ultimately to help our customers customers, citizens with savings, average Americans, to be able to access their investments when they need to.

With this unique role, even prior to the receipt of the capital purchase program funds, we were responding to the market turmoil following the collapse of Lehman Brothers in September by increasing our provision of liquidity and credit to our core institutional investor customer base. And even with the increased challenges presented to the post-Lehman financial markets, State Street was profitable in all four quarters of 2008 and we also expect to be profitable in 2009.

I believe State Street was asked to be one of the first banks to participate in the capital purchase program because of our unique and critical role as the back office for the global securities industry. Our $2 billion investment from the capital purchase program was announced on October 14, and shortly afterwards I set a goal to immediately deploy $2 billion in additional capacity to our institutional investor customers.

For example, following the collapse of Lehman Brothers many mutual funds faced increased demands for redemptions. Our provision of liquidity to these funds helped to ensure that investors in these funds had access to their money when they needed it.

As of the end of January we have approved more than $1.5 billion in liquidity requests for 19 customers representing hundreds of mutual funds. And we can and do account for every dollar.

Let me state categorically that we have not used capital purchase program funds for employee compensation or dividend payments. We've also implemented all applicable executive compensation restrictions and requirements.

In recognition of the unprecedented circumstances the industry is facing, I am forgoing incentive compensation for 2008 along with six other members of our leadership team. We have also imposed a salary freeze and reduced by 50 percent overall incentive compensation for all but our most junior employees.

In conclusion, we believe our use of the capital purchase program funds follows the intent of Congress, consistent with our role in the marketplace. Specifically, we focused on providing badly needed credit and liquidity to our core institutional customer base, which in turn helps to enable individuals to have access to their investments or retirement funds during this time of unprecedented turmoil.

And I would be pleased to answer any questions.

REP. FRANK: Mr. Mack.

MR. MACK: Mr. Chairman, Ranking Member Bachus, members of the committee, I appreciate the opportunity to speak to you today about our role in the TARP program. I was trying to pull a fast one, I'm sorry. (Laughter)

I'll skip the prelims then. Thank you for having me here. I look forward to answering questions and really talk about how we use our TARP capital with this credit squeeze that's hitting the American economy. Also I'd like to discuss some of the changes we're making at Morgan Stanley as well as broader reforms we would urge you to restore confidence in our industry and the markets.

The events of the past month have shaken the foundation of our global financial system, and they've made clear the need for profound changes to that system. At Morgan Stanley we've dramatically brought down leverage, increased transparency, reduced our level of risk and made changes to how people are paid.

We've maintained a high level of capital through the crisis. Before the TARP investment our tier one capital ratio, a key measure of regulatory capital, was approximately 15 percent, one of the highest in the industry. We also delivered positive results for 2008 to our shareholders.

But we didn't do everything right, far from it. And make no mistake as head of this firm I take responsibility for our performance. I believe that both our firm, our industry, have far to go to regain the trust of taxpayers, investors and public officials. As a recipient of investment from the U.S. government we recognize our serious responsibilities to the American people. It's our goal and our desire to repay the taxpayers in full as soon as possible.

Morgan Stanley's business, in contrast to some of our peers, has always been focused primarily on institutional and corporate clients. And our business model is less about lending than about helping companies raise debt and equity in the capital markets.

Between October and December we increased the total debt raised for clients as lead manager nearly four-fold. Indeed, during the fourth quarter we helped clients raise $56 billion in debt to invest in their business, including American companies like Pepsi and Time Warner cable.

We've also helped clients raise 40 billion (dollars) in equity to fund their businesses including a major capital raise for GE. And we made 10.6 billion (dollars) in new commercial loans.

In our much smaller retail business Morgan Stanley made 650 million (dollars) of commitments to lend to consumers during the last three months of '08.

I've told you how we're putting TARP capital to work and we're also filing monthly reports with Treasury detailing our use of capital. But I should also tell you what we haven't done with TARP funds. We have not used it to pay compensation, nor did we use it to pay dividends or lobbying costs.

I know the American people are outraged about some compensation practices on Wall Street. I can understand why and I couldn't agree more that compensation should be closely tied to performance.

At Morgan Stanley the most senior members of the firm, including myself, did not receive any year-end bonus in 2008. I did not receive a bonus in 2007 either and I've never received a cash bonus since I've been the CEO of Morgan Stanley. The only year-end compensation I've ever received was paid in Morgan Stanley equity so that my interests are aligned with shareholders.

We also were the first U.S. bank to institute a claw-back provision that goes beyond TARP requirements. It allows us to reclaim pay from anyone who engages in detrimental conduct or causes significant financial loss to our firm. And we're tying future compensation more closely to multi-year performance.

We have much work to do in our industry and across the markets. Real problems remain that are preventing economic recovery. We need to find ways to increase lending and restore consumer and market confidence. Perhaps most importantly we need to enact reforms to the most fundamental issues laid bare by the recent turmoil.

First, we need to fundamentally improve systemic regulation. Our fragmented regulatory structure simply hasn't kept pace with the increasingly complex and global market. I agree, Mr. Chairman, with your proposal to create a systemic risk regulator.

Second, we need greater transparency in our financial markets, both for investors and regulators. To regain trust in the markets investors and regulators need a fuller and clearer picture of the risks posed by increasingly complex and financial instruments.

Morgan Stanley shares your desire to restore faith in our financial markets and get the American economy going again. We know that won't be easy and we know it will take time, but we are committed to working closely with you, as well as our regulator and other market participants, to achieve these important goals.

REP. FRANK: Mr. Pandit.

MR. PANDIT: Mr. Chairman, Ranking Member Baucus, Members of the Committee. I am Vikram Pandit, chief executive officer of Citigroup, and I appreciate this opportunity to speak with you today.

Americans from all walks of life are facing crippling economic hardship. Foreclosures, lost savings and widespread layoffs are having a devastating impact on millions of Americans. Institutions, are searching for ways to respond to this crisis. Against that backdrop, the American people are right to expect that we use TARP funds responsibly, quickly and transparently to help Americans. They also have a right to expect a return on this investment. I know that the TARP funding decision was difficult for Congress, but I intend to make sure that when it comes to Citi, you will look back on it and know it was the right decision for our nation's economy and for American taxpayers.

Last week we published this report. This describes exactly how we are using TARP funds to expand the flow of credit. We have posted the report online, and we will update it each quarter. In late December, utilizing TARP capital, we authorized our line businesses to provide $36.5 billion in new lending initiatives and new programs. These programs are expanding mortgages, personal loans and lines of credit for individuals, families and businesses and creating liquidity in the secondary markets. Our TARP report explains these efforts in detail, and I would ask to submit it as an addendum to this testimony.

More generally, in the fourth quarter of 2008, we provided approximately $75 billion in new loans to U.S. consumers and businesses -- a significant commitment given the difficult economic environment, and we will continue our lending activities throughout 2009 in a responsible and disciplined way.

Since the start of the housing crisis in 2007, we have worked successfully with approximately 440,000 homeowners to help them avoid foreclosures. We also are adopting the FDIC's streamlined model for loan modification programs. In the last year, we have kept approximately four out of five distressed borrowers in their homes. We extended our foreclosure moratorium to help millions of other eligible homeowners whose mortgages we service. And we continue to reach out to homeowners who may be experiencing financial difficulty, despite being current on their payments.

These efforts demonstrate that we're committed to supporting American businesses and helping families stay in their homes. Equally important, we are committed to providing the American public with a return on its investment in Citi. We will pay the U.S. Government $3.4 billion in annual dividends on that investment, and our goal, my goal, is to make this a profitable investment for the American people, as soon as possible.

The best way for us to make this happen is to return our company to profitability. When I became CEO a little more than a year ago, I demanded accountability. I removed the people responsible for Citi's financial distress. I formed a new management team. I restructured the company. I streamlined our core businesses. I installed new risk processes and new risk personnel, and I continue to make the tough and necessary decisions to put the company on a strong footing.

Mr. Chairman, the world is changing very fast and we need to acknowledge and embrace this new world very quickly. We understand that the old model no longer works and the old rules no longer apply. I would also like to say something about the airplane that was in the news. We did not adjust quickly enough to this new world, and I take personal responsibility for that mistake. In the end, I cancelled delivery. We need to do a better job of acknowledging and embracing the new realities. Let me be clear with the committee: I get the new reality and I will make sure Citi gets it as well.

One final note, Mr. Chairman. Our responsibility is to promote the recovery of our financial system and benefit our shareholders. We will continue to do everything we can in that regard at this critical moment in history. We will hold ourselves accountable, and that starts with me. I am personally accountable: My goal is to return Citi to profitability as soon as possible, and I've told my board of directors that my salary should be $1 per year, with no bonus, until we return to profitability.

Thank you, Mr. Chairman. I look forward to your questions.

REP. FRANK: Mr. Stumpf.

MR. STUMPF: Thank you, Mr. Chairman.

REP. FRANK: Before you -- this is a very important subject. There's beginning a kind of a buzz of conversation. It accumulates. I would ask people, please keep down the conversation. I'm talking about us up here. If you have to talk, go off. It's getting a little distracting.

Mr. Stumpf.

MR. STUMPF: Mr. Chairman, Ranking Member Baucus, and members of the committee, I'm John Stumpf, president and CEO of Wells Fargo & Company.

Our company has been serving customers for going on 158 years. We're virtually in all businesses and our team members are in all the different states of the United States. We are a community bank. We have 281,000 team members. They live and work in thousands of communities, big and small, across North America. I've been a community banker with our company for almost three decades. I personally have lived and worked in places in Minnesota, Colorado, Texas and now California.

Across the country, many of our customers are facing difficult times. We're very proud that Wells Fargo has been open for business for our customers. In the last 18 months -- when many of our competitors retrenched -- Wells Fargo made $540 billion in new loan commitments and mortgage originations. Last quarter alone, we made $22 billion in new loan commitments and $50 billion in mortgages -- a total of $72 billion in new loans. That's almost three times what the U.S. Treasury invested in Wells Fargo. With the merger, we have reopened lines of credit to some Wachovia customers who previously had been denied credit. We do business and lend money the old-fashioned way: responsibly and prudently. As a result, we earned a profit last year of almost $3 billion.

We understand the very important responsibility that comes with receiving public funds. We are always careful stewards of our shareholders' money. The investment by the government is being used in the same prudent way. We have never been wasteful. We spend money to support business and make a profit for our investors, and we are frugal. Last year, our overall corporate expenses actually declined 1 percent while our revenue rose over 7 percent. We said from the start that we'll use the government's investment to help make more loans to creditworthy customers. We said we would use the funds to find solutions for our mortgage customers who are late on their payments or facing foreclosure so they can stay in their homes. We also said we would report on our progress. We have done just that.

We recently announced our first dividend payment to the taxpayers of more than a third of a million (sic) dollars. We're Americans first and bankers second, so we see this taxpayer investment, first and foremost, as an investment in the future economic growth of our country. We're proud to be an engine for that growth. In the last quarter of 2008, we had double-digit loan growth in areas like student loans, agricultural loans, middle market commercial loans, SBA or Small Business Administration loans, and commercial real estate loans.

Now, as to mortgages, last year we made $230 billion in mortgage loans to 1 million customers -- half for purchases and half for refinances to lower mortgage payments. At year end we had $71 billion of mortgages still in process, up threefold annualized from the third quarter -- a sign of strong momentum going into 2009.

Our mortgage lending is built on solid underwriting and responsible servicing. Because of that, 93 out of every 100 of our mortgage customers are current on their mortgage payments. That performance is consistently better than the industry average. In 2008, we nearly doubled our team dedicated exclusively to helping customers stay in their homes, which improved our outreach. Because of that, we were able to contact 94 of every 100 customers who are two or more payments past due on their mortgages. Of those we contacted, we were able to provide solutions in seven out of 10 of those we contacted. This resulted in our being able to deliver 706,000 solutions to Americans, avoiding foreclosure, in the last year and a half alone. That is 22 percent of the 3.2 million solutions reported by the industry. Last quarter alone, we provided 165,000 solutions to our mortgage customers. That was three times as many as the last quarter of 2007. Across the country, we're partnering with real estate agents, cities and nonprofits to speed up the selling of bank- owned properties so they can become, once again, owner-occupied.

Mr. Chairman and members of the committee, thank you, and I would be happy to answer questions.

REP. FRANK: Mr. Stumpf, before my turn starts, I would just -- I think you said a third of a million and you meant a third of a billion. It was 271 million (dollars), so let's just make sure we have that corrected.

Let me announce before, again, I get to my questions, I think this will be as important today in dealing with the economy of this country as we are likely to have, in many ways, short of voting on major things. My intention would be -- it's a large committee; there's a great deal of interest. I appreciate the forthcoming nature of the testimony. My intention would be to take a break at about 12:30 to 1:15 and then ask people to come back and stay. I mean, I assume, from your standpoint, the day is shot anyway, and if you can come back and maybe we can stay until 5:00. It may be an imposition, but I think, given the importance of what we are all trying to do together, that that's justified, and I want to maximize the ability of my colleagues to be able to ask questions.

So with that I will now -- one other thing. We have a statement submitted to me by the Reverend Jesse Jackson on behalf of Rainbow/PUSH -- I ask unanimous consent to put it into the record -- talking about the need for home foreclosure, for opening the credit markets, for student loans and minority participation, and I ask that this be made part of the record. Without objection it will be made part of the record.

Now as to my questions, let me begin -- and this is something I discussed with my colleague from Ohio, Mr. Driehaus -- Mr. Dimon, you said that you hope the administration will be adopting a uniform mortgage modification program. Mr. Geithner has said that he plans to do that. Let me say this: I have been unwilling to join in general calls for moratoria on foreclosures when they were open-ended because I wasn't sure that they would be helpful or even applicable -- we don't know who they'd be applicable to -- but it does seem to me here we have the commitment of Secretary Geithner that he will be putting at least $50 billion, in addition to other resources that are already available from Fannie Mae and Freddie Mac and IndyMac, et cetera, at least 50 billion (dollars) additional funding into a sort of system- wide effort to do mortgage modification. I believe that we're going to be pushing for even more, if that works -- that there could be more.

I would ask all of you now to please make sure that we have a moratorium in effect. It would be until we get that program and until you know if people can qualify. You know, we know the tragedy of the people who get killed or injured in a war after a ceasefire. Having someone suffer foreclosure because two weeks hadn't gone by for this program would be unacceptable. So I urge you and I urge everybody who is in this business to withhold foreclosure until we get Mr. Geithner's program, and then we can -- and, again, I would assume no one would be foreclosed who could meet that.

The second point I want to make is I understand that not everybody volunteered for the money, and in some cases, let me acknowledge -- Bank of America, I understand that -- an administration which was, I think, severely affected by the negative reaction to their allowing Lehman Brothers to go under, I understand they were eager for you to go ahead with the Merrill Lynch purchase, and I do think it's fair to note that the second round of TARP funding was in conjunction with your taking on a purchase that they very much wanted you to do.

But we are now talking about some restrictions, and I hope you will -- you know, legally there are limitations on what we can do retroactively, but there are no limitations on what you can voluntarily do retroactively. We're going to be imposing some restrictions going forward. There are going to be some tough requirements coming from the inspector general, Mr. Barofsky, to ask you for some very specific accounting. I just want to make this very clear: In the bill that passed the House, involving the second half, we have a provision that says, if you don't like the conditions and if you think you're being ill-treated by our request that you tell us how you spent it, we will take it back. If you're ready to give us back all the money with an appropriate interest rate, and your regulator doesn't have a problem with that, then -- that wasn't yet in the law, but let me tell you, if you want to give back the money, we will take it, and if there are any obstacles to your giving it back, legally we will undo those obstacles. I believe there would be great support for doing that.

Now, let me ask you, on the incentive -- and I'm glad to say that you're not -- many of you are not taking bonuses, but I have to say this: If you believe in bonuses, then is that something bad? I mean, I guess the question is this: You've got bonuses over time. If, in good times, you were told you weren't going to get a bonus, what part of your job would you not do? I mean, if you weren't getting a bonus, would you like leave early on Wednesday or would you take longer lunches? Would you bypass a certain class of investors? I guess that's -- you say -- and somebody said, well, your incentive comes in shares. That aligns your interests with that of the company. Here's one of the punches: Why in the world are some of the most highly paid, talented people, who have jobs that are fun -- let's be -- not always fun; this is not amusement park time -- why do you need to be bribed to have your interests aligned with the people who are paying your salary?

And this is part of the problem. I mean, I know it's instructive. And also there are also people at the other end who get bonuses and that's built into their compensation. But at your level, again, why do you need bonuses? Can't we just give you a good salary -- or give yourselves a good salary; you're in charge of that -- and do the job? This notion that you need some special incentive to do the right thing troubles people. Anyone who wants to answer, please go ahead.

MR. MACK: I'll try, Mr. Chairman. It's a good question and it's complicated. At least from the investment banking perspective, we all grew out of small partnerships. It was historical. Morgan Stanley did not go public until 1986. When I joined the firm, there were 325 people and probably 20 partners. They took very low salaries, and at the end of that you got a bonus if the firm did well. I think what we've seen, at least from investment banking, is a carryon of that methodology, and without question, given the kind of risks that we take today, the global nature of our business, and the size of our business, all that has to be looked at again.

To answer your question specifically, at least at my level, and I think my colleagues here would say the same, we love what we do. If you gave me no bonus in the best year, I would still be here.

REP. FRANK: I thank you. I will not -- and I appreciate that answer, and I thank you very much. And so it does seem to me that if there weren't bonuses, we'd still get our money -- (inaudible). So I will not bill you for my services as an efficiency consultant, and I appreciate the answer.

The gentleman from Alabama.

REP. BAUCUS: Thank you. The chairman mentioned this as being a very important day. I agree, not because of the vote on the stimulus package. I believe that it could be a very important day because I think this hearing and the testimony today could go a long way towards restoring confidence in our financial services industry and in the people that run it, if they publish the right story tomorrow. You never know what the story will be. But what I heard, which -- and a lot of this I know, but I don't think most of the American people know it -- is that we gave taxpayers, or you gave taxpayers an equity share in your businesses at depressed prices, and as many of you have said, there's going to be, in some cases, a handsome profit, and in others a profit, and, you know, as with all investments, there may be some losses. But I truly believe, unless there's a worse-case scenario for the next five or 10 years, taxpayers are going to -- actually they're going to -- this is going to be one of their best investments. We paid a dividend of 5 percent, and that's -- a lot of people would love to have that today.

You've made mortgage modifications by the millions. Government efforts, on the other hand, have almost been -- they've been very unsuccessful. And you did that at no expense to the taxpayers. You underwrote the losses. So you kept millions of Americans in their homes, families. You assumed failing institutions at the urging of the regulators, and in most cases, if not all cases, this was a great benefit to the taxpayers, who ensure those deposits. That's a real plus. As Mr. Mack says, you've reduced risk and leverage, something that has to be done. It's a necessary thing. And, as I've heard, you've maintained a high level of charitable contributions. And so I commend you on all of that.

Now, the thing that we need to talk about is lending. I will tell you that in an economy as bad as our economy is, and in a challenging time and with deposits in some cases eroding, and an economy in certain areas in shambles, I was simply shocked that lending wasn't down 10 or 15 percent across America. And when it came out that it was down 1 percent across the board, I thought that was wonderful news, that our economy could go through that type of shock and lending would go down 1 percent. I almost don't believe that. But it's a very good number. And I thought it should have been a wonderful, positive story, and I think that the capital injection cases in some case made a difference, although I don't know how much.

I had one question, one urging. I hear from responsible borrowers who are not in default and who are paying their payments on time, they're interest payments in some cases, that their principal is being called, that they're being asked to do a 10 percent, you know, call down on their principal or that their credit lines are being restricted. And I know in some cases that this is probably good lending practice because you're seeing some deterioration.

But I would ask you, can we do a better job in that? And can the regulators assist you in that? Is there something that we can do to avoid those cases because there are people that can make interest payments now but they cannot begin to pay down principal? It's just the wrong time. So to any of you who would like to answer that question.

Well, I'll call on Mr. Lewis or Mr. Stumpf you didn't want the money, you took it, and you wish you didn't, I'm sure. And we're going to make money on that investment. But you might answer the question.

MR. STUMPF: Thank you. And we've clarified our statements. We are happy to have the money. It strengthened the industry, and that's good.

REP. BACHUS: Yes, and I guess what I meant is first you said, we don't need the money.

MR. STUMPF: With respect to borrowers, in our company, frankly, we've been growing loans the last 18 months. As I mentioned in my testimony, many others have retrenched. And we think these are actually good times to make loans to credit worthy borrowers. We make money when we make loans. That's our business. We want to serve customers, help them educate children, buy homes, small businesses to, you know, develop products and services that they can sell and serve other customers.

In some cases, it's prudent, you have to cut back on a line. But we have not done a systemwide, it's been much individual one customer at a time working with them. And we want to stick with them if we possibly can. But also, you know, unfortunately, not every borrower who wants or needs money can afford it today. And we have to be prudent.

REP. FRANK: If the gentleman would yield, please. That is such an important question that so many of us have been asked to get answers to. I would ask those to whom it's relevant -- obviously, not Mr. Blankfein or Mr. Kelly or Mr. Logue or Mr. Mack -- but for the commercial bankers, if you could answer in writing, that would be very helpful, I think we would all like (that ?) because that's one of the most frequently asked questions we have. So for Mr. Dimon, Mr. Lewis, Mr. Pandit, Mr. Stumpf, if you can elaborate on that in writing, that would be very helpful.

MR. STUMPF: If I could add one other thing. We have about $175 billion of untapped lines of credit, home equity lines, credit card lines, small business lines that are not being used. So there is credit out there, and we're winning new customers or getting new ones every day.

REP. FRANK: The gentleman from Pennsylvania.

REP. GERLACH: Thank you very much, Mr. Chairman.

I'm going to take the opportunity of having eight of the world's finest financial minds lined up before the committee as too great of an opportunity not to ask some simple but I think important questions. We're going to be called upon constantly to re-look at re-regulation. And the common expression (in Washington ?) so this never happens again. How often we've heard that as we go through history. Well, I'm not quite that optimistic that we have the capacity to stop the natural adjustment of the marketplace and it never happening again.

But I do wonder -- and anyone could take the question to start with -- when did you first realize that the economy was in trouble? What actions did you take, either privately within the corporation or publicly, to alert those of us in government and the leadership of government? And just when was that? And why does it appear to the general public that all the finest minds in finance missed the most obvious, this disaster if you will?

I don't want you to stampede now in wanting to answer that question.

MR. LEWIS: I'll start, sir.

REP. GERLACH: Go ahead, Mr. Lewis.

MR. LEWIS: To Secretary Paulson's credit, I can vividly recall him calling me in August of 2007 when things really started to melt down. So late July to early or mid August was kind of the timeframe that we saw real challenges in the economy.

REP. GERLACH: Let me stop you there and try to jump in because I'm really interested in this question. That's when the marketplace and subprime loans started to disintegrate.

MR. LEWIS: Correct.

REP. GERLACH: But everybody was starting to see it then. Was that the first inclination you had as a banker that we had trouble?

MR. LEWIS: It was for us in terms of capital markets. And we were not in the subprime business, so we don't make subprime loans, so we wouldn't have seen that. But the capital markets meltdown in August was the first time that we began to see the severity of what was going on and became very concerned. And there was a lot of communication with Treasury and the Fed by that time.

REP. GERLACH: So is it right for me to conclude that you thought everything was going to continue and go along at the level of leverage that existed in our system and there wasn't going to be any repercussions from that?

MR. LEWIS: I think more so, we did not see the economy -- we thought the economy was in relatively good shape going into the third quarter of 2007. And so that was more, as a commercial bank, was our focus than necessarily the leverage and the capital markets piece.

REP. GERLACH: Mr. Blankfein, you're out there on the cutting edge of putting money out. Is that approximately the same time you saw this?

MR. BLANKFEIN: We had some signals before that with respect to the market. But if you remember, and this kind of commentary came out of our central bank and other places and commentators, there was a bifurcation that was in the air at the time. These are problems of Wall Street, not problems with Main Street. When there were conversations about whether we needed an interest rate cut or not. The conversation -- should we do something that helps Wall Street maybe that's contrary to the interests of Main Street because it was thought at the time that these problems in subprime and real estate were mostly in securities and an isolated problem and were the problems of Wall Street?

And I think one of the lessons we learned is that that was kind of a foreshadowing. The problems that we saw in the securities markets were directly related to, because they all sprang from the real estate sector, was a foreshadowing of what we saw in the real economy. But for a long time, people made the bifurcation and separated Wall Street from the real economy.

I think one of the lessons we learn now is they're inextricably wound together. Wall Street can't prosper with Main Street in poor economic health because we lend money and we need to be paid back for sure. And obviously, we know now, absent credit and liquidity, the real economy suffers. And so I think that's one of the lessons learned from this incident.

REP. GERLACH: Okay. I have very little time left, but I'm going to ask the question anyway. What do you see in the future? Have we seen the worst of this thing? Have we failed to describe the problem adequately to the American people and for the public generally? And if we had failed to do that, is it important that we describe this problem in as great a detail and dramatically as possible so we get everybody signed onboard? And that if we do that, do you have any fear that will precipitate a further negative reaction?

REP. FRANK: I'm afraid there won't be time for that question, the answer.

The gentleman from Texas.

REP. HENSARLING(?): Thank you, Mr. Chairman.

One of the things, there's been a lot of focus on all of the bailout activities. The TARP plan was primarily directed at toxic assets. That's the big topic. And somehow, if we fix the toxic assets, we've fixed the economy. I don't necessarily agree that that's the case.

But one of the things that I hear from a lot of other people that I talk to is that the reason that nobody is selling their assets is because they don't like the price, that there is a market for some of these assets out there and that there's a reluctance on the sellers because they keep hearing people from government say, you know what? We may have a plan to help you. And so nobody wants to go out and start taking those hits that they've hopefully written down on their books and then find out later on they missed out on a good deal.

The other piece of it is that everybody's solution is somehow to sanitize these toxic assets with taxpayer money. I don't think that's necessarily in the shareholder's or taxpayer's best interest.

I think the couple of questions I have is, is it time for the government just to kind of step back and let the markets work through this? If you've got these assets written down appropriately, then it shouldn't be affecting your balance sheet that much. It's just going to, you know, affect your liquidity. And at the same point is we're taking some of these very extreme measures, we're really not asking your bondholders or your shareholders to get in the game with us.

But more importantly, the primary question that I want to know is, at what point in time do we say, you know, this is enough and the market's just kind of got to work this thing out and we back off of the government intervention? Because the deeper we get into this, the tougher the exit strategy is going to be. And how we ever get the markets, quite honestly, where they were will take a long, long, long time.

So Mr. Blankfein, you want to start with that?

MR. BLANKFEIN: You know, again, as a commentator because, again, we're not in the consumer businesses as such. And we are under a mark-to-market accounting regime, so we are required to mark at the fair value price that's in the market today. But as a commentator, I'd say that counting regimes, I think, for banks -- and people can comment on this -- allowed people to mark securities, certain kinds of instruments that they have on their balance sheets, essentially where their expectation will be that those assets will be economically valued over time.

Right now, because of the lack of capital in the market, those assets couldn't be sold at that price, even though if held on the balance sheet, a bank can reasonably expect that they would get value for that at a higher price, but if they tried to sell it today, there's really no risk capital that would pay that price. The supply and demand would only cost at a much lower level.

So I think banks would generally say, we're going to hold these securities, earn the fair value over time and not hit a big where it would clear today. That's disadvantageous for the system because I think what the system would like is for banks to sell. But there's no incentive to sell at a price that they perceive as too low because that low price is generated by the fear and the general crisis in the environment and the lack of risk capital coming in.

REP. GERLACH: Well, some people would say that one of the reasons that they don't want those transactions to start is they're probably going to start at a much lower level than they've actually been marked on the books.

MR. BLANKFEIN: That's correct. It would be lower.

REP. GERLACH: And so then there's this fear that now I'm going to have to actually write down my assets more. And I'd rather just sit here. And now that the government is propping up my balance sheet, I can sit here and kind of ride this storm out. The question is, how does that stimulate the economy? I say it probably doesn't.

Mr. Pandit, do you want to take a shot at that?

MR. PANDIT: Congressman, we have sold a lot of assets. We've sold half a trillion (dollars) of assets just in the last year of which 150 billion (dollars) is what you would call these challenged assets.

Every time there was a market, we took advantage of it. And we have been keeping on doing that where there is a market, (although ?) we continue to do that as well.

We too mark to market. And those marks are reflected in the losses that we've taken, as well as in our income statements and balance sheets. The reality is that, as we speak about what's going on, it's not only an issue of credit not flowing, lending not flowing, there's not enough funding out there in the marketplace for people who have risk capital to step up and say, I want to buy a lot of these in size.

To say there's always a market, that's a tautology -- I can sell a hundred dollar bill for a dollar. But the point is that when we look at some of the assets that we hold, we have a duty to our shareholders. And the duty is, if it turns out they're marked so far below what our lifetime expected credit losses are, I can't sell that. That's not right for our shareholders, to sell it. I'm not going to sell them at a dollar.

So, everything you're working on is just right -- it's about credit starting in the marketplace, it's about funding flowing, it's about capital flowing. When that happens you will get a real bid. In the meantime, when we find one, we're always there to sell these assets and get them off our balance sheet.

REP. KANJORSKI: The gentlelady from California, Ms. Waters.

REP. WATERS: Thank you very much.

Mr. Chairman and members, let me just say to our captains -- "captains of the universe" who are sitting here before us that it seems that all of my political life I have been in disagreement with the banking, and mostly financial services community, because of practices that I have believed to be not in the best interests always of the very people that they claim to serve.

I've been through the redlining fights. I've been through the fights on discriminatory practices, over the years, on a lack of business lending and available capital to small and minority businesses. I've been through -- and still, I suppose, am engaged, in a fight about predatory lending. And so, I come to this with very, very strong opinions about what we need to do to regulate this industry.

Let me just ask a few questions, and I won't ask you to expound on them. But I would like to know if any of you, or all of you -- any of you, since you received TARP money, increased the amount of interest on the credit cards by sending out letters to the consumers, to your credit card holders indicating that 'this is part of the contract, even though it may have been in small print,' and you now have the ability to do it.

Did anyone -- did any of you do that?

MR. LEWIS: Let me start, Congresswoman.

REP. WATERS: (Off mike) -- (Rep. Waters takes counsel from staff.)

I would just like to ask each of you -- Bank of America, -- (inaudible) -- did you do this?

MR. LEWIS: Yeah, I was volunteering. First of all, I feel more like "corporal" of the universe, not "captain" of the universe at the moment, but --

REP. WATERS: Did you increase your credit card interest rates?

MR. LEWIS: In 2008, we increased rates on 9 percent of our customers.

REP. WATERS: Okay, thank you very much.

Anyone else increase the credit card rates after you received TARP money? Anyone else? If so, would you just raise your hand.

Thank you. You sent out the letters that I'm trying to describe, saying that you have the authority to do that.

Did any of you reduce the amount of credit that was available to credit card holders because they shopped at certain stores? Just raise your hand if you did.

None of you did. Let the record reflect no one raised their hand.

On loan modifications, where you claimed to do such a good job, I disagree with you. Many of you know that I have to implement loan modifications working with my constituents.

I'd like to thank Wells Fargo for the response that you gave to me when I brought to attention how poor your loan modification work is under your servicing company.

I have not heard from Bank of America, even though they know that I've spent hours on the phone trying to connect with your loss mitigation department.

Bank of America, do you still have loss mitigation departments off-shore where you're using foreign companies or individuals to respond to our taxpayers?

MR. LEWIS: If we have a loss mitigation department off-shore, I do not know about it.

REP. WATERS: I'm sorry, (I can't ?) -- you do have them off- shore, who are supposed to be doing loan modification work, or loss mitigation work for you. Is that correct?

MR. LEWIS: I do not know that we -- that we have or we haven't. All I know is we have 5,000 people working on the issue.

REP. WATERS: Thank you. So, you do have off-shore loss mitigation work going on.

Now, we have many of our constituents who try to get to you to get a loan modification before they get in trouble. How many have a policy that says you have to be two months or more behind before you will deal with them on loan modifications?

All of you -- none of you require that you must be two months or more behind before you can get loan modifications from your banks, is that right?

MR. PANDIT: Congresswoman, I would speak on behalf of Citi. We have a new program where we're reaching out to half a million customers, where we reach them, recent -- even if they are current on their payments. It's not about whether you're behind on your payments for a couple of months, this is a very --

REP. WATERS: I just want to know, sir, how many of you require that you have to be behind for two months?

Okay, we will get the -- if I may, Mr. Chairman, I just want to also say that I think it's important for us to understand why you paid yourself fees on the money that we gave you.

As a matter of fact, Bank of America, you paid yourself $30 million in fees just to accept our TARP money.

Citigroup, you paid yourself $21 million in fees to accept.

Why do you do that?

MR. LEWIS: I don't know what you're talking about.

REP. WATERS: Do any of you understand what I'm talking about, in terms of processing the TARP money that you got and the fees that you have --

-- yes?

MR. (PANDIT ?): May I answer, Congresswoman?


MR. (PANDIT ?): You're referring to the $17 billion of debt we issued under the FDIC guaranteed program on which we paid underwriting fees to underwriters. Us, and a lot of others, we have to raise that money in the market and we have to follow the practices by which we raise it, which is to underwrite that debt and we have to pay the underwriters to raise that money. I think that's what that --

REP. WATERS: You do the guarantees -- you get guarantees, but you absolutely collect fees to do the work, to place the money. Is that right?

MR. (PANDIT ?): We have to pay underwriters and other people who sell those bonds.

REP. WATERS: But, you're not paying anybody, you're keeping the money yourself.

REP. KANJORSKI: Ms. Waters, I'm just going to have to call you down because when the chairman gets back he's going to penalize me. And I don't know what that penalty --

REP. WATERS: I appreciate that very much. But, let the record reflect that we need to find out why they are paying themselves fees on the money that we give them. And, we need to have a roundtable discussion with them to find out what they're going to do to discontinue this practice.

REP. KANJORSKI: Gentlemen, you heard the question. If I could make the request, perhaps individually, for your companies you could respond in writing to Ms. Waters' question.

And next we have Governor Castle.

REP. CASTLE: Thank you, Mr. Chairman.

Gentlemen, this all seems to come in waves. And I sort of see another tidal wave behind the mortgage foreclosure, and the other waves, and that's the area of credit cards. There are many economists, and others, who believe that with the breakdown of the -- in the economy that we're going to have been multi-trillion dollar losses, as far as credit cards are concerned. And this could actually lead to a situation in which we have bankruptcy in industry, and a lot of this obviously relates to the unemployment rate and to people just not having the ability to pay who had the ability to pay before.

My question -- and perhaps I'll ask Mr. Dimon and Mr. Lewis this question, is, are you prepared for that? Or, perhaps, you disagree with the premise that this is going to happen, but there are many who do speculate -- in the next few months, to a couple two or three years, that we're going to have significant problems in the credit card industry. And I don't know what your level of preparation for that is.

MR. LEWIS: It's clear that this year, in particular, this is going to be the year of consumer credit losses because it's so intertwined with the performance of the economy. With regard to credit card losses, the general rule of thumb is, add a percentage point to the unemployment rate to get your loss rate -- at least in our mix of portfolios.

And so, clearly, this is going to be an awful year for the credit card industry and for all credit card portfolios. There's no doubt about it, because we -- you know, the more optimistic views are unemployment at 8 or 8.5 percent, and that would cause a very high -- very high loss rates in the credit card portfolios.

REP. CASTLE: Are you prepared to manage that?

MR. LEWIS: We are doing everything we know to do -- in our loss mitigation efforts, in our call-center efforts, to mitigate as much as possible and to cut expenses as much as possible.

REP. CASTLE: Thank you.

Mr. Dimon?

MR. DIMON: Sir, I think -- I think it's not as dire as that, because I think all credit card debt in America is maybe a trillion dollars. And when you have a credit card business you know that there's going to be cycles.

It usually follows unemployment. It'll get worse when unemployment goes up. We expect and we've told our analyst community that our losses will be probably seven and a half, maybe 8 percent this year. It will be worse than -- 8 percent of total outstanding. That's well over $10 billion of losses. And yes, we are more than adequately prepared to deal with that. We're properly reserved for it. And that's one of the costs of being in the business.

REP. CASTLE: Thank you.

Mr. Pandit, you and actually others who testified indicated that you're handling your mortgage foreclosures, that you're actually hopefully doing a good job with respect to those mortgages with you. We have had a plan put forth in legislation by Congress, which has not been particularly successful to this point. We've had discussions of other plans. Mr. Geithner yesterday mentioned that in part of his plan, which a lot of people feel is a little bit ill-defined at this point.

My question to you is, are you satisfied with what you and other bankers are doing, or is there a plan that we should be adopting, maybe not with respect to the companies represented here but to other not only banking interests but mortgage interests created for that purpose that weren't particularly well-funded, et cetera, in helping those who are going into foreclosure that we should be doing? Do you have a precise recommendation with respect to that?

MR. PANDIT: Congressman, what I would say is that when we can talk to the individual who is in the home, we have a very, very high percentage of success in keeping that person in the home.


MR. PANDIT: The challenge is, when times get tough, people don't want to own up and say, "Hey, I'm going to have an issue." And so people put their heads in the sand and they don't own up, and that's really a bad place to be.

What we find is half the foreclosures that we enter into are for people we've never talked to. Anything you can do to have more community service, more efforts to say to people, "You know what, there's no shame. There's no stigma. We're going through this together. Open up. Figure out some way to go to your lenders." That would be good for us, because we think we can help those people.

REP. CASTLE: I assume, of all the commercial banks here, that you're in the same basic position, that you talk to the people; you will try to work out a plan to help them with their foreclosure circumstances. You all represent large pretty well-capitalized entities that, according to your report today, are doing reasonably well. I am more concerned about the mortgages that were created by mortgage banks who are no longer in business and perhaps have been assigned or sold to other entities at this point and which are going to be true foreclosures.

Do any of you have any ideas about what we as a government should be doing to help in those circumstances? And I appreciate what you're doing individually as companies.

MR. : I think one of the legitimate issues is that people, if they don't who their servicer is and they don't know who to call, that there are some great ways to modify loans. We should find ways to make sure that (old ?) loans are modified that way. And we've shared with the Treasury, the FDIC, the OCC, which several banks here have best practices, and we think that everyone should follow best practice, and we'll do the best job we can for everybody.

REP. CASTLE: (Inaudible) -- in the last year.

REP. FRANK: The gentlewoman from New York.


First I'd like to welcome the panelists, some of whom are headquartered in the district I am honored to represent. And I particularly would like to thank Bank of America for deciding to build a major headquarters in New York in the dark days after 9/11. It was very important for our morale. Thank you.

But Mr. Lewis, as a New Yorker, I followed the Bank of America/Merrill Lynch merger with great interest. Earlier this year, I believed that the government intervention to add $45 billion to get the merger done, along with $188 billion guarantee for the bad loans of Merrill, was in the interest of the American taxpayer and our economy.

But recently Secretary Geithner said that we were shoring up banks not for the sake of the banks but for the sake of American taxpayers. But in the case of this merger, some alarming facts have come out in a report that was recently issued by Attorney General Andrew Cuomo.

In it he points out that bonuses to Merrill employees -- they doled out over $3.6 billion just days before Bank of America bought the collapsing firm with the help of taxpayer money. Also we learned that Merrill moved up the timing of these bonuses for the fourth quarter of 2008 to December 8th, a full month before the fourth quarter earnings came out on January 16th, and Merrill's fourth quarter earnings were terrible. They lost over $16 billion, capping a year in which they lost a jaw-dropping $27 billion. And I can understand paying bonuses for outstanding performance, for building jobs, growing the economy. But how can you justify paying bonuses to managers that were running their company into the ground to the point that they were forced into a merger?

Also we learned that the $3.6 billion in bonuses were not distributed fairly or over the board to all the employees, but was highly concentrated to the top. The top 14 employees received about a quarter of a billion dollars. The top four employees received a combination of $121 billion -- million; and the top 30, about $20 million apiece. So those that were most responsible for the losses were the most richly rewarded.

And for me, the worst aspect of this business is that Merrill paid these bonuses out just before the January 1 merger with your bank. And couldn't this reasonably be described as looting the company prior to the merger? And since Merrill's contribution deteriorated and its condition so much in November and December, even those bonuses were paid out -- when they were paid out, the government had to inject $45 billion to make the merger happen.

So it appears the American taxpayers, they're the ones who are stuck with the bill for paying huge bonuses to the very people whose poor judgment and mismanagement cost this country billions of dollars.

So my question to you is, did you know how big these bonuses were going to be? Did you know that they were going to be paid? Did you discuss it with anyone prior to the merger? And were you aware that government taxpayers were going to have to pay for these bonuses for the losses to the company? Thank you.

MR. LEWIS: Thanks for the question, and thanks for the first comment.

My personal involvement was very limited, but let me give you my general understanding of what happened. First of all, I do know that we urged the Merrill Lynch executives that were involved in this compensation issue to reduce the bonuses substantially, particularly at the top.

I will remind you, though, that they were a public company until the first of this year. They had a separate board, separate compensation committee, and we had no authority to tell them what to do; just urge them what to do. So we did urge.

There was some feedback in that, to your point, at the very top there were some contracts that were tens of millions of dollars to several individuals that were legal contracts that Merrill had made to those individuals. And it's my understanding those skewed these amounts pretty substantially.

I can only contrast that to Bank of America's policies. First of all, as I mentioned, nobody on my management team received any incentives. Nobody on my management team has a contract or a golden parachute or severance. And then finally, we pay our bonuses on February the 15th of the following year. So major changes will be made, but we could not make them until we owned the company.

REP. MALONEY: Thank you. My time has expired.

REP. FRANK: The gentleman from New York.

REP. PETER KING (R-NY): Thank you, Mr. Chairman.

I want to thank the witnesses for their testimony today.

I'd like to direct my questions to Mr. Dimon and Mr. Mack. Our chairman, Mr. Frank, has proposed the creation of a systemic risk regulator. And in your testimony, Mr. Dimon, and yours, Mr. Mack, both of you endorsed the concept of a systemic risk regulator.

I'd like to ask you several questions and then just turn it over to you for the balance of the time. If we do establish this systemic risk regulator, which existing regulators would this replace? Do you have concerns that the regulator would be created in such a way as to impede our competitiveness with the rest of the world? And secondly, how would this regulator have worked? Looking back at the last several years, how would this regulator have mitigated or even prevented the current situation we have? And with that, I ask Mr. Dimon and Mr. Mack if they could answer the question.

MR. DIMON: Well, Congressman, the world has turned into a global trading market. So the idea of a systemic risk regulator, I think, is critical. Our businesses are much more complex than they were 40 years ago when I first got in the business.

And I would argue -- and you heard from Secretary Paulson that if you go back, some of our existing laws were written right after the Depression. We had Glass-Steagall at that time. It was a real separation of risk-taking. So, on one hand, you had the Federal Reserve with regulatory authority clearly with the banks, and the SEC with the investment banks.

There needs to be, I believe, a coming together of regulatory oversight. So that's at the first level. And I think it's up to a number of hearings and discussions on how that takes place. But I would like to see a combination of some of our regulators.

If you go back, very short time ago, the New York Stock Exchange had a regulatory arm and ASD had regulatory arm and they've put it together as FINRA. I think that consolidation of regulatory authority needs to continue.

I also think there needs to be some type of global regulatory coordination much more efficient that we have today. And again, that's complicated because each country, especially the major companies where we're doing trading or sales. And not just for the investment banks but clearly for the banks also. The coordination I think is critically important.

I also think, you know, as you look at the different jurisdictions whether now that we report to the Fed and the SEC you're also involved with the commodities business. You're involved FDIC. We need to have a coordinated super regulator for the financial services business. How we put that together is going to be a number of conferences and meetings. But I do urge all of you to pursue that and we will be as helpful as possible in trying to help define what the issues are.

Thank you.

REP. KING: Okay. Mr. Dimon.

MR. DIMON: So first I want to start by saying that there are a lot of things that need to be fixed in the regulatory system, they were not to blame for all the things that happened. So, it's not -- I'm not trying to push the blame to anyone else. But we should've recognized these issues and problems and fixed them if we want to fix these problems going forward.

We have a byzantine alphabet soup of regulators that get involved in the systematic regulation. And I also want to point out, by the way, a lot of companies that were heavily regulated had problems and a lot of companies that were not heavily regulated had problems. So, it isn't quite clear that that was the solution. But the OTS had enormous problems with WaMu and Countrywide who are no longer here and were acquired by somebody currently at the table. Fannie Mae was regulated by the -- I forgot the name at the time but it's got a different name today. We have the SEC, the CFTC, the OCC. A lot of unregulated businesses that caused some of the problems from the mortgage business, the unregulated mortgage part of the business was far worse than the regulator part which is in the commercial banks. And I think it would've been good to have been taking a good look at that.

And some other problems were caused by insurance companies that really weren't under the jurisdiction of a regulator that was into the global capital markets along with AIG and some of the monolines.

So I think it would be a tremendous benefit to have one regulator looking at anything that can cause a systematic risk, that is constantly looking for things like -- then trying to look around the corner. And it should be a U.S. system and globally coordinated. But it doesn't, obviously, have to be exactly the same in every single country. I think there's a regulator who kind of does a lot of this already which is the Federal Reserve. I think if you try to invent a new one it'll take a long time. And I think they do have the capability, the people, the knowledge, and maybe each should have a broadened mandate to do this too.

REP. KING: In the few seconds I have left, are any of you opposed to having a systemic risk regulator? (No audible response.)

Okay. Mr. Chairman I yield back.

REP. FRANK: The gentleman from Illinois, Mr. Gutierrez.

REP. LUIS GUTIERREZ (D-IL): Thank you, Mr. Chairman.

First I'd like to begin by thanking Mr. Pandit for coming and visiting with me yesterday. It was a good meeting and very helpful. And then ask him, how do you see going forward, what it is we do in terms of pricing the assets that you have one your books so that we can figure out, going forward, what it is we do with them and thereby begin a real recapitalization of your financial institutions and other financial institutions? How do we get a market price so that we know that that -- of our credit crunch right now?

When we had Paulson here before us in the beginning he said he was going to go and buy or somehow take toxic assets. Then a couple of months later, much to my surprise, after we had authorized the money he simply infused money into financial institutions, some $350 billion and spread it out.

How do we get to a pricing so we know what our economic situation truly is?

MR. PANDIT: Congressman, I appreciate that question. And let me start by saying that the first and foremost line of attack has to be do everything we can in the capital markets to improve liquidity, improve credit flowing, improve private capital coming in because that can unfreeze the markets and maybe that's the way in which you get these assets out in the marketplace. So that is the front line. And we heard some of that yesterday from Treasury Secretary Geithner as well.

The valuation question is, of course, difficult because we own all kinds of assets that are market to market assets and there are assets that are called accrual assets where you take losses as they go.

REP. GUTIERREZ: So if we took the largest 50, starting with the eight of you and largest 50, and we took all of these assets so that we know -- so that the investment community can come in and say, okay we know what the standing of Bank of America is, JPMorgan Chase is -- we know what you have on your books. How would we do that?

MR. PANDIT: It is an extraordinarily difficult question and that's -- but on the other hand there have been countries around the world who have addressed that.

One way in which countries have addressed that is by saying, we will take these assets, we will accrue the losses we take on these, and we'll send you a bill when we get to a more stable economy. And that's been the prevalent approach that's been taken in Netherlands, it's been taken in U.K., it's been taken in a variety of different parts of the world, which is rather than to address where to price them today because today's prices are affected by so many things, lack of liquidity et cetera.

REP. GUTIERREZ: I don't think anybody can price them, right?

MR. PANDIT: Exactly. And so you have to say, let's put them on the side, take them, create a bill of the losses and then come back to the banks and recover those losses on the back end. That's been a popular --

REP. GUTIERREZ: Let me ask you then, are we -- is there a formula, is there a mechanism, are there discussions between the federal government and the banking community to get that done, in your opinion?

MR. PANDIT: We have not had those discussions, Congressman.

We think that at the right time -- and hopefully now that Treasury Secretary Geithner has laid out his framework it may be an appropriate time to start talking about different ways in which we can do that. As I said, again, we don't necessarily need to reinvent things. They have been done around the world today and we should be able to take a look at that but we welcome that dialogue.

REP. GUTIERREZ: Okay. Let me ask you -- let me just say to all eight of you that are here before us this morning -- I would like for all of you to just kind of put in writing so that we could have it on the record, and I don't expect the answer here this morning -- if each of you could just tell us how much your bank has paid itself on FDIC guaranteed or other government guaranteed financing and what percentage of those finances were completed solely for the purpose of funding your bank?

Example, I won't name the bank but you go out and you take $3 billon in one deal, and you go out with FDIC insurance and you go to the market and you sell $3 billion worth of bonds in order to give yourself more liquidity. And they're FDIC insured. Are you then paying your own investment banking firm (gavel sounds) -- I'm sorry, Mr. Chairman.

REP. FRANK: The question could be answered in writing.

REP. GUTIERREZ: Are you then paying your own investment banking firm and how much are you paying your own staff in terms of underwriting fees for selling what a kindergartener could sell out in the market today?

REP. FRANK: Let me just say as we conclude this, we'll take these answers in writing. Also, all members have the right to submit further written questions, I think this is important, there'll be some clarifications. So we will be submitting some further written questions as well.

And next Mr. Royce.

REP. ROYCE: Thank you, Mr. Chairman.

I'll go to Mr. Dimon and Mr. Stumpf for a question. And this would go back to my opening statement that I was raising, sort of the root causes of the problem we're in.

I recall in 2005 the Federal Reserve testifying before us, saying that Fannie Mae and Freddie Mac was creating a systemic risk to the U.S. financial system, so I'll go back and pose this question. To what extent was the securitization process led by the GSEs part of the problem here in terms of the bubble? You know, we had leveraging 100- to-1 at these institutions, they had a portfolio of 1.5 trillion (dollars) that they'd arbitraged to get to, it was a loss eventually of $1 trillion in that sector. So was there a market perception because government-backed corporations were at the heart of the U.S. housing sector that this was a safe and secure investment and did this play a role in ballooning up this market and creating the moral hazard problem that some economists argue came into play?

MR. STUMPF: Congressman --

REP. ROYCE: Mr. Stumpf, please.

MR. STUMPF: -- yeah, thank you for the question. Let me just say that I think this problem started a lot earlier than 2007. Back in 2002 and '03, Wells Fargo was the number one mortgage company in the country, and we saw crazy things happening. Things about the so- called liar loans, leveraged risks to subprime borrowers, the so- called negative AM loans. We didn't negative any loans in our business and why would you ever do that for a home owner for probably the most important asset they'll ever have, where they could owe more later on the mortgage than what they started with?

So I think there's a lot of issues. So we backed out, we didn't do any of those loans, we didn't see how it would be helpful to our customers and ultimately to our shareholders, so we didn't participate in that. There's no question that Fannie and Freddie played a part, I don't know what percentage it was, I know that credit became too available and too inexpensive and the risk and reward got separated through innovation.

The day I got my first mortgage, the bank that made it, put it in their portfolio and if they did have bad ones, they'd probably fire the banker and now you'd have people originating the mortgage that was separate from the person who packaged it, who's separate from the person who owned it, and there was a lot of, the risk and reward got separated.

REP. ROYCE: Yeah, one of the things that struck me was who would've bought some of those Countrywide subprime loans except Fannie and Freddie and Congress had given them an allocation or a goal that 10 percent of their portfolio would be a certain type of loan, it's typically Alt-A or subprime.

Let me go to Mr. Dimon for his thoughts on this.

MR. DIMON: Albert Einstein says keep things as simple as possible but no simpler so I'm going to give you what I think are the three root causes.

Housing in total, okay. There was a bubble and I would say securitization -- and a lot of things added to that, securitization, very low interest rates, I wouldn't blame the GSEs but I'd put them in the category, most importantly bad underwriting on the part of some banks, on the part of a lot of mortgage companies, and part on the regular business. A lot of companies here didn't do option ARMs but option ARMs obviously some Countrywide probably Wachovia and a Wamu, so the whole housing issue was one.

I think when the economists talk about what caused some of the lower rates and things like that, I would put in the category the excessive trade deficit and Fed policy over an extended period of time created a little bit of a speculative bubble. And I would put in the category excess leverage and that excess leverage was in consumers, it was in hedge funds, it was in banks, it was in investment banks, it was in European banks, and it was pretty much around the world. Some of these things by the way were known, in articles, talked about, but no one predicted the ultimate outcome. Maybe people just thought we'd have a regular type of recession and this stuff would clean up on its own.

REP. ROYCE: And Mr. Blankfein, I saw your piece in the Financial Times on the rating agencies. What role did they play?

MR. BLANKFEIN: Well one of the big problems is that people subcontracted risk management out to rating agencies and I think we've all done that to some extent, I think we're all culpable that, so we join the rating agencies in the problem. But obviously they got these things quite wrong and never reinvestigated and they probably were too much relied upon by institutions. So for example when loans were packaged and resold, once they bore the stamp of a rating agency at a certain level, no more investigation was done and that certainly contributed to -- you know, to the accumulation of assets on people's balance sheets that they wish weren't there.

REP. ROYCE: Thank you. Thank you, Mr. Chairman.

REP. FRANK: Thank you. The gentlewoman from New York, Ms. Velazquez.

REP. NYDIA VELAZQUEZ (D-NY): Thank you, Mr. Chairman.

Mr. Pandit, last January we learned that Citigroup was supporting legislation that will let bankruptcy adjust mortgages for its risk borrowers. And I would like since you are such a -- quite a convincing person that you provide the rationale for supporting that legislation so that your colleagues that are sitting at the table understand why it's important to support that type of legislative initiative.

MR. PANDIT: Thank you very much, Congresswoman. None of these decisions are easy, let's start there. But these are unusual times. They need unusual tools and we've got to admit that. What we found is that when we talk to home owners, we can figure out a way to keep them in their homes. And so when we go back to this particular legislation to us what was important was to say let's apply it retroactively, meaning it is for loans that have been made up to now, it's not about the future of the market.

REP. VELAZQUEZ: So what you're telling me is that what you're doing in supporting bankruptcy cramdowns is better -- is a better answer than foreclosure?

MR. PANDIT: To me, the proposal that's in there that says the home owner has to have had a negotiation with its bank or mortgage owner for 10 days before bankruptcy gives us the opportunity to talk to them and renegotiate that. We think that's good for America. And by the way if they do go into bankruptcy, we have enormous confidence --

REP. VELAZQUEZ: So I would like to go down the table here starting with Mr. Blankfein and ask you would you be supportive?

MR. BLANKFEIN: I agree with Mr. Pandit said about in difficult times you can make difficult decisions and I would say we would not be supportive in general because these things have consequences and if you allow these contracts to be changed in bankruptcy and admit the vagaries of that kind of uncertainty, one of the consequences we may find that may be unwanted is that less capital flows into these markets because --

REP. VELAZQUEZ: So are you implying that Citigroup lost their mind?

MR. BLANKFEIN: No, as I started out by saying, you --


MR. BLANKFEIN: -- could come out --

(Cross talk.)

MR. BLANKFEIN: -- outside of a bubble --

REP. VELAZQUEZ: -- I just want a yes or no answer. I don't have much time.

MR. BLANKFEIN: If they have, it's not because of this issue.


MR. DIMON: No, we don't agree. No, we don't agree. (Laughter.)

REP. VELAZQUEZ: Mr. -- next Mr. Kelly.

MR. KELLY: Limiting foreclosures are incredibly important I think to America and we have to solve that. But cramdown legislation is problematic.

REP. VELAZQUEZ: Okay. Mr. Lewis.

MR. LEWIS: We think something could be worked out, but we want encouragement for the borrower to talk to the lender for some period of time first.

REP. VELAZQUEZ: Okay. Mr. Logue.

MR. LOGUE: We think as well that anything we can do to help their mortgage foreclosure area is good. However we do think there are also consequences that could be not beneficial.


MR. MACK: I'd agree with my colleagues on the right. We need to negotiate and try to work things out.

MR. STUMPF: And I agree also that we need to work without bankruptcy. I think bankruptcy has some real negative consequences.

REP. VELAZQUEZ: Thank you.

Gentlemen, there have been talks about a $68 billion merger between drug giants Pfizer and Wyeth.

About $22.5 billion or about a third of this transaction will come from bank loans -- and especially banks that are taking TARP money.

While you're giving away money to corporate giants, the Federal Senior Loan Officer Survey showed that over 74 percent of respondents reported tighter credit lending standards on loans to small firms in the last quarter of 2008. And I heard some of you saying that you're lending to small businesses. Well, let me just say that the numbers don't lie. This is the Federal Reserve's own survey. Credit for small firms is lower than it has ever been in the history of the Fed survey.

So can you explain why your institutions are finding money to fund a multibillion merger that will produce 19,000 job losses, but will not find more money to lend to small businesses? (No audible response.) Of course, you're not going to provide an answer.

So let me just say, here is the case of a businessman -- a responsible businessman from Florida who was paying his loan on time to a bank that received $3.4 billion in TARP money last year. And he asked for an extension on the maturity date of his loan to continue to make payments until the market settled, and he was denied. The bank took their property. And that is what we have here on this table.

REP. FRANK: The gentlelady from West Virginia.

REP. SHELLEY MOORE CAPITO (R-WV): Thank you, Mr. Chairman.

I'd like to thank the gentlemen.

I have two questions, I hope, in the time I have allotted. I have several constituents that I've heard from -- we all have heard from constituents about the credit card debt issue.

One gentleman, a minister, 77, holds a Chase card. His rate has just been jacked up on him. He now thinks he has to get a second job to be able to pay for the medicines. He's never missed a payment and he's not delinquent on anything.

Another is a woman who's had a Citigroup card for 14 years. She's never missed a payment. She called Citigroup and they said, you've never abused your account. We're not going to raise your interest rate. Her interest rate was raised from 6.74 (percent) to 24.99 (percent). Her payment's now -- she doesn't pay the whole balance, obviously, every month but she had never missed a payment in 14 years.

These folks feel -- and I think that -- and when I saw Citigroup's -- your report to Congress, you mentioned here since receiving the first installment of TARP, Citi has made plans to expand its lending activities further and extend affordable credit to lower- risk borrowers. Well, that's not what I'm hearing from my constituents.

Can you please help me with this and help them, because they feel as though their good credit and their good faith and their good practices -- it's on the backs of them not only taxpayers, but also as creditors. They're asked to be paying more.

MR. PANDIT: I appreciate that, Congresswoman.

We did not raise rates on cards for two years. Our funding costs went up -- as did everybody else -- credit costs went up dramatically. The question was one of keeping credit flowing. So we finally decided that in order to keep credit flowing in a responsible way, we had to change rates on these cards.

What I'll also tell you is together with that program, we also expanded our forbearance program. And the forbearance program is in talking to individuals and customers to lower their rates where it's appropriate.

So we kept the credit flowing, but we also created a mechanism either for people to opt out and/or to change the rates on those cards on a case-by-case basis.

REP. CAPITO: Do you have --

MR. DIMON: Congresswoman, I would say, first of all, I think JPMorgan Chase tries to uphold the highest standards. And several years ago we got rid of universal default, double-cycle billing. Universal default allows you to raise rates on someone for information that you don't know, but something like a change in a FICO score.

There are very limited rate increases. There are also rate decreases, so both take place, but they're very limited. And whenever we hear about a circumstance like this, if we did the wrong thing we should fix it. Send it to me and we'll take care of it.

Sometimes I hear this and the facts aren't what you were told.

REP. CAPITO: Well, I think we're hearing across the country and I think --

MR. DIMON: Then send them all to me and we'll deal with them one by one and we'll treat the client in the proper and appropriate way.

REP. CAPITO: All right, thank you. Thanks for your response.

Last question: Many of your institutions over the years have had significant acquisitions. And one of the stated intents was to spread the risk so that if one part of your business is not doing as well, the other parts can hold it up.

We've got a whole new lexicon here in the last several years in the financial services business, but one that was, I don't think, set up for a financial institution who's now too big to fail.

Are you too big to fail and how do you respond to that? Mr. Pandit?

MR. PANDIT: We are a large bank and we are in 109 countries. We help American businesses around the world; we help Americans at home and there's a size that comes with that.

What we've found, Congresswoman, is that in the environment we're going through nobody has been spared. People have talked about decoupling -- there is no decoupling. Every asset class has been linked, and so diversification has not necessarily been the driver of why Citi is the size it is. The driver has been, what do our clients need and how do we provide them those services? And that has led to the size of the operations that were at.

Having said that, for our own sake, we reduced the size of the company. We reduced the assets and we are restructuring City into two parts. One's going to be our ongoing business, which is a lot simpler than the business we had before and a lot smaller.

REP. CAPITO: How much time do I have left, Madame Chair?

REP. MAXINE WATERS (D-CA): A couple seconds left. (Scattered laughter.)

REP. CAPITO: Anybody else?

All right, thank you.

REP. WATERS: Thank you very much.

The gentleman from North Carolina for five minutes.

REP. MEL WATT (D-NC): Thank you, Madame Chair.

And I'm actually going to follow up on the question that Ms. Capito has raised here, because -- and I want to follow it up with Mr. Lewis and Mr. Stumpf, because they are the two banks that have the largest presence in my congressional district. But I suspect it's a question that's applicable to all of these folks, because if you were asked to take TARP money, then you probably fit into the category of too big to fail.

I think I started this discussion with Hugh McColl some years ago around the issue of deposit caps and became convinced of the merits of having banks large enough to be worldwide competitive, and so I understand that aspect. I've had the discussion with Ken Thompson and even back to John Medlin when they were saying that Wachovia didn't have to worry about that, because it didn't have a nationwide footprint. But now, Wells Fargo -- the owner of what used to be Wachovia -- does have a nationwide footprint.

And then most recently, yesterday Mr. -- Secretary Bernanke started to raise more concerns about this whole question of too big to fail. So I guess my question is whether in that context an even more aggressively regulatory framework for larger banks -- and maybe even not only banks, but institutions that have systemic risk potentials might be appropriate.

What is your assessment of that, Mr. Lewis, and then Mr. Stumpf? And the rest of you all can respond in writing, I guess, because we won't have time to hear from everybody.

MR. LEWIS: Well, on the positive side, think if you -- instead of looking at size, you're looking at the beauty of diversity --the beauty of diversity of people and products and geography.

Despite the fact that this has been an incredible time frame in terms of a recession environment, it seems like the diverse companies certainly have done better than the mono lines and the ones that were so focused on a co-sell funding.

So I think there has been some strength admitted or obviously -- obvious in this time -- from banks that have that diversity.

The size thing, I think, is more an issue of not size, but how you -- or what your role is in the capital markets and markets in general. And therefore, do you suppose a systemic risk no matter what your size is? And we saw some of that when we saw the Lehman failure and the things that happened from there.

So I don't think it's too big to fail as an issue, but if you're systematically important the consequences of an institution failing is pretty severe.

REP. WATT: And should you then have a more aggressive regulatory framework? Or how would you address that, I guess, is the question that I'm trying to get to the bottom of?

MR. LEWIS: I think that therefore calls for an overlay of supervision beyond what we have now.

REP. WATT: Mr. Stumpf.

MR. STUMPF: Thank you, Congressman.

I think success and failure's more a condition of culture and leadership and values than it is as it relates to small or large. In our case, we have a strong culture. We are able to buy a firm, merge with a firm using our own money.

REP. WATT: I don't want to cut you off but I know where you're going and I'm not sure that that's going to address the public necessity because then that leaves it to the individual goodwill or good intentions or good execution which is a -- if it's a systemic problem, may work out well, may not work out well.

Let me ask one other question going back to credit card risk and the impact on the economy in general. Is it you all's estimate that the -- and you can submit this in writing -- that the size of this stimulus is sufficient to serve the purpose for which it's being represented? And I'll let you respond to that later.

REP. WATERS: Thank you. Gentleman from Texas, Mr. Hensarling.

REP. HENSARLING: Thank you Madame Chairman. Gentlemen, if there's one overarching message from a number of us it's what you do with your money is your business, what you do with the taxpayer money is our business.

Having said that, in my opening statement I spoke about the administration's executive compensation proposals; I'm still studying every comma and semicolon within it, but although sometimes life is full of lousy options, I tend to err on the side of the taxpayer.

One thing that did concern me was a front page article in The Financial Times -- I think it was yesterday. The headline is Deutsche Bank chief says U.S. pay curb could spur defections. President Obama's sweeping restrictions on pay at U.S. banks could push their best staff to defect to overseas rivals -- Joseph Ackerman, chief executive of Deutsche Bank, Germany's biggest bank, predicted yesterday. Clearly, there must be some balance here but are you concerned at the loss of talent through this program? Anyone who cares to comment, we'll take the first volunteer. Mr. Mack?

MR. MACK: Yes, Congressman, I think at the most senior levels I'm not as concerned but at levels below that -- and we are seeing it already with some of our European managing directors and executive directors. Some of the European banks have already gone out and put packages and multi-year guarantees in front of them. So it is a competitive issue but I think it's for that group of individuals below the most senior management. I am concerned about it, though.

REP. HENSARLING: A second question. I think a number of you have indicated that in retrospect perhaps you didn't exactly volunteer to take the capital infusion from the federal government and if you had your druthers you would pay it back. Aside from market conditions, which we are all painfully aware of, is there a legal impediment -- and I don't have the wording of these investment vehicles in front of me -- but is there a legal impediment if Congress wanted to allow you to pay the money back and you wanted to pay the money back, what is it that is preventing that? Mr. Dimon, would you --

MR. DIMON: Part of the agreement was that if you pay it back before the end of three years, which is now somewhat less than that, you have to replace it with equivalent type of capital. So a lot of the firms that might want to pay it back don't want to go raise all that capital which they don't necessarily think they need. So that is a legal impediment at this point. Chairman Frank mentioned that may get changed but that has not been changed yet.

REP. HENSARLING: Other comments? Seeing none, we'll go on to the next question.

I want to echo some of the sentiment that I've heard from my colleagues -- a lot of angst from my constituents in the 5th District of Texas who don't understand about their credit limits being limited as capital previously available to them. I'm curious, as you continue to hear a message from many in Congress saying loan, loan, loan; I continue to hear anecdotes from bankers I know saying they're hearing the opposite message from their regulators saying contract, contract, contract. Now all of this evidence I'm hearing so far is anecdotal, but could somebody speak to that dynamic? Perhaps my anecdotal evidence is -- Mr. Stumpf?

MR. STUMPF: Congressman, maybe I'll take a shot at that. Clearly, all of us want to make good loans and just making loans for loans sake isn't going to help anyone. Actually we're finding opportunities to make good loans and the regulators are not, at least in our case, any different than they were before about concern about safety and soundness as they should be but we're not being encouraged by them not to make loans.

REP. HENSARLING: Anybody else wish to comment on that? If not, speaking for myself and many others, if you don't think they can repay it, please, don't loan them the money; it's kind of what got us into this economic crisis in the first place. I want to go back to the issue of systemic regulator. Some of us still have concern that institutions that are deemed systemically significant -- it becomes a self-fulfilling prophecy that they are too big to fail. Witness Fannie and Freddie.

Chairman Greenspan -- I didn't agree with everything eh said and did -- but for years and years and years warned that one of the greatest points of systemic risk in our economy was Fannie and Freddie, yet many members of Congress fought for years and years and years to make sure they didn't have any regulation. Many said that Congress would never bail them out and now we have bailed them out. And so does that not become a self-fulfilling prophecy?

REP. WATERS: Time has expired. Thank you. The gentleman from New York?

REP. GARY ACKERMAN (D-NY): Thank you Madame Chair. Sometimes some of us think that we're living in two different worlds -- one world is here and we listen to the group of you giving us very calm assurances that everything is okay, under control, and there are no problems, that you're lending out all of this money and that everything is hunky-dory; and then we leave here and go home to our districts all over America and I think we all hear basically the same thing and that's the voices from the other world, the real world, where people can't get loans; where people can't refinance their homes; where people can't buy automobiles; can't send their children to college.

And we listen to you and we hear words, words, words and no answer. It seems to me and some of us that this money hasn't reached the street; that you're not loaning it out. When the press makes inquiries as to what you did with the first traunch of money that we gave you -- many billions of dollars -- your answer is it's none of your business and we don't have to tell you because we weren't' required to. And, you know, if you want new restrictions on what we do and what we have to do then put it in the next traunch of money.

The fact that we heard from so many of you that you've made so many loans in the past year is not reassuring because that's what you're supposed to do. But what did you do with the new money? And that's not really anything that many of you have addressed today.

And it seems to me that of the $302.6 billion that have gone out in TARP, the eight firms that you represent have received $165 billion -- much more than half of all the money that we've lent to almost 300 institutions across America. How do you explain that?

MR. DIMON: Can I take a crack at that, Mr. Congressman?

REP. ACKERMAN: Yes, Mr. Dimon?

MR. DIMON: First of all, I think what you've heard is everybody -- I think what I heard is that every person up here believes that the government absolutely has the right to ask the question about the TARP money, what we're doing, that we're doing things in the best interest of the company.

REP. ACKERMAN: Why didn't we get answers? Why didn't the press get answers?

MR. DIMON: I can't explain with the press. I'm telling you that everyone here has said they're doing everything they can to do it right.

There is something that explains part of the difference of what you're saying, and bank lending is kind of flat year over year, up a little bit or down a little bit -- and one of the other Congressman mentioned it. There is a huge amount of non-bank lending which has disappeared -- which is the same thing to the consumer. Finance companies, car finance companies, mortgage companies, Countrywide, funds, money funds, bond funds that did withdraw money from the system and make it much harder in the system -- that created some of this crisis that we have.

REP. ACKERMAN: Can you give us a list of what you did -- how many billion did your company get?

MR. DIMON: We got $25 billion.

REP. ACKERMAN: Could you tell us what you did with $25 billion -- not what you did with all of your other money but with that $25 billion?

MR. DIMON: I believe that we lent out probably -- exclusively because of that -- probably 50 (billion dollars) to $75 billion within a couple of weeks of that; most of that being in government not-for- profit; $1 billion for the state of Illinois; inter-bank lending; the purchase of mortgage securities; asset-backed --

REP. ACKERMAN: Why can't people get mortgages?

MR. DIMON: I believe that we did -- I forgot the number -- $35 billion of mortgage originations.

REP. ACKERMAN: What did you do last year and the year before?

MR. DIMON: In this same quarter, I don't remember the number but I'd say approximately the same.

REP. ACKERMAN: So with 25 billion (dollars) more you gave out the same as you did the year before. So there's no increase.

MR. DIMON: In that product. Some products were up and some products were down, some --

REP. ACKERMAN: Yeah, but if you did 35 billion (dollars) last time and you did 35 billion (dollars) this time, and we gave you 25 billion (dollars) more to do it and then nothing of that went out then. Could you each send us in writing what you did with all of those billions of dollars that you got? Is anybody unwilling to do that at this point? Is anybody going to say it's not your business, we don't have to? We'll expect that from each of the eight of you in writing then, okay.

The $165 billion that we've put into you all's companies shows that we have some degree of confidence in what you're going to do with that money and that you're going to be around. Each of you are individually wealthy. Could you go down the line and just give us a number how much of your personal money you've invested in your company in new money during the last six months? And zero is a number. Mr. Blankfein?

MR. BLANKFEIN: New money to buy accumulated wealth is largely in my company --

REP. WATERS: Could you speak into the microphone please?

REP. ACKERMAN: Just a number.

MR. BLANKFEIN: My wealth is in my company because that's how I get compensated and my --

REP. ACKERMAN: No, how much of your --?

MR. BLANKFEIN: New money went in -- zero because my money's already in my company.

REP. ACKERMAN: Thank you. Mr. Dimon?

MR. DIMON: Twelve million (dollars).

MR. KELLY: I did not put any new money in.

MR. LEWIS: I bought 400,000 shares and I've forgotten the amount but I bought 400,000 new shares.

MR. LOGUE: Nothing.

MR. MACK: Nothing.

MR. PANDIT: Eight-point-four million (dollars).

MR. STUMPF: Nothing new. All of it's in.

REP. ACKERMAN: Thank you, Madam Chair.

REP. WATERS: Thank you very much. On that note we will recess until 1:15. So I'd like to ask all the members and our witnesses to please return promptly at 1:15 so that we can continue our questions. Thank you very much.

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