Financial bailout-angst: 'People are mad'

by Mark Silva

Outrage - that's what members of Congress are voicing at the bankers hauled before them to account for what happened with billions of bailout dollars.

(See the Tribune Bureau's story below about the "masters of the universe'' called on the carpet.)

But there should be just as much outrage over a lack of oversight in Washington, says one who made a fortune on Wall Street, served in the Senate and now runs a state, New Jersey Gov. Jon Corzine.

Asked about the $1-million salaries reported by banker after banker at the congressional hearing, the governor said: "I don't think anybody's losing any sleep on those salaries... I think we have been asleep at the switch on oversight of all activities.''

The governor was somewhat reserved in his criticism for the most vocal of the critical congressional questioners in an interview on MSNBC's Morning Joe.

"There were 72 people in that hearing on the congressional side of the table,'' he said. "There were a wide range of folks and a wide range of quality of questions.

"The thing that stood out - people are mad,'' said Corzine, a former co-chairman and CEO at Goldman Sachs before entering politics with an MBA from the University of Chicago. "It doesn't mean that individuals haven't made their own mistakes. But the fact is that there is a systemic problem.''

See the report on the congressional hearing by Maura Reynolds and Jim Puzzanghera of the Tribune Washington Bureau:

by Maura Reynolds and Jim Puzznghera
Reporting from Washington

Once the financial "Masters of the Universe," now they sat all in a row in alphabetical order like errant schoolboys. But instead of a scolding from the principal, the CEO's of some of the nation's largest banks and financial institutions faced hours of hectoring by indignant members of Congress.

The scene, with its echoes of earlier confrontations with once-proud executives from the auto, insurance and other industries, was the austere hearing room of the House Financial Services committee, where members poured out their anger - and the dismay of their constituents - at Wall Street leaders whose errors and missteps had brought the country to the verge of economic catastrophe.

The scolder-in-chief, committee chairman Barney Frank (D-Mass) expressed the frustration widely expressed by policy-makers and ordinary Americans alike that - given the severity of the economic crisis - they had no choice but to bailout the same banking institutions that helped cause the calamity in the first place.

"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," Frank said.

"You need to understand, as I think many of you do, how angry that makes people," Frank said.

Meantime, across Capitol Hill at the Senate Budget Committee, Treasury Secretary Timothy Geithner faced a critical grilling of his own - first about how soon the Obama administration would provide details on its financial rescue and home foreclosure plans, and second, on how much more they would cost taxpayers.

So far, a total of $387.5 billion out of the $700 billion rescue fund known as TARP has been committed since it was approved last year. That leaves just over $400 billion, part of which Congress has said must be devoted to helping troubled home owners facing foreclosure.

"I just don't believe that's enough money to fix housing and banking," Sen. Lindsey Graham (R-S.C.) Graham said of the remaining TARP money. "I just wish you would say that, because you're going to come up here and ask us for more money."

Geithner insisted that for now, the remaining rescue funds, along with loans from the Federal Reserve, are sufficient. Acknowledging the frustration and anger over how the rescue money was spent in the waning days of the Bush Administration, Geithner said the Obama administration does not want to ask for more money until it can back up the request with a detailed program.

"I also agree with you that it's important to be candid about costs," Geithner told Sen. Lamar Alexander (R-Tenn.) "But I want to be very careful not to come to you and ask you for resources and authority before we have as careful and compelling a case as possible."

On Tuesday, the stock market had tumbled after Geithner unveiled a framework for a financial stability plan but not the specifics of its major new component - a public-private partnership to leverage an unspecified amount of federal money to lure private investments to help buy up the toxic assets that threaten the financial stability of many banks.

On Wednesday, the stock market recovered a bit, with the Dow Jones industrials closing up 50.65 points, or 0.64%, at 7939.53.

Members of the House Financial Services Committee also sought assurances - in their case, promises from the chastened bank executives that they would use the government funds they received to make loans and stimulate the economy, rather than hold onto it to bolster their balance sheets.

They also wanted assurances that the money already committed from the TARP had not been wasted. The financial institutions at the hearing were the recipients of the first $125 billion in October, as the Bush administration sought to thaw frozen credit markets by lending the banks fresh capital.

"Have the funds been used to get credit flowing again, not just to financial institutions but to consumers and small businesses?" asked Rep. Judy Biggert (R-Ill.) "How do we know additional TARP money is needed? Who needs it? How much more will be used? ..... Who's to say that we're not putting good money after bad?"

The eight Wall Street CEOs - including the heads of bank giants Citigroup and Bank of America and investment houses Goldman Sachs and Morgan Stanley - insisted that they had been lending as much as they could.

"Make no mistake: We are still lending, and we are lending far more because of the TARP," said Bank of America CEO Ken Lewis.

"Last quarter alone, we made $22 billion in new loan commitments and $50 billion in mortgages - a total of $72 billion in new loans," Wells Fargo CEO John Stumpf said. "That's almost three times what the U.S. Treasury invested in Wells Fargo."

At the White House, Press Secretary Robert Gibbs defended the administration's proposals, saying they weren't intended to impress Wall Street in the short-term.
"I think we can all go back in the both recent and not-so recent history and see that one-day announcements have provided positive changes in the market for plans that ultimately turned out to be unsuccessful, just as negative reactions have sometimes been at the forefront of plans that worked," Gibbs said.

"Secretary Geithner understands that ..... this is not going to be judged on the one-day market reaction, but instead by what is best for the long-term economic health of America."
On Wednesday, a key federal regulator - the Office of Thrift Supervision, which oversees savings and loan banks - urged those institutions to temporarily suspend home foreclosures until the administration's loan modification plan is released. Geither has said it will be completed in the next few weeks.
At the House hearing, Frank urged the big banks represented there to do the same.
"I would ask all of you now to please make sure that we have a moratorium in effect,'' Frank said. "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."