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What the bankers ought to say

James Dimon, CEO of JPMorgan Chase & Co.; John Mack, chairman of the board of Morgan Stanley; and Brian Moynihan, CEO of Bank of America Corp., take part in a congressional Financial Crisis Inquiry Commission hearing last week.

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James Dimon, CEO of JPMorgan Chase & Co.; John Mack, chairman of the board of Morgan Stanley; and Brian Moynihan, CEO of Bank of America Corp., take part in a congressional Financial Crisis Inquiry Commission hearing last week.

Here is the testimony I would have liked to have heard from the CEOs of Wall Street's largest banks — institutions whose irresponsibility and greed nearly brought down the economy:

We at ChaseMorGoldSachs of America apologize for our inexcusable behavior. We broke the financial system, and most of us wouldn't be around today if the American taxpayer had not come to the rescue. In recognition of this, we will not be granting bonuses this year as we reconsider a compensation system that encourages too much risk. Instead, the bonus money will go to boost net capital buffers to reduce leverage and help stabilize the overall banking system.

By chasing personal fortunes we lost sight of values such as honest dealing and social responsibility. The havoc we caused has left this nation with millions unemployed. The only way to fix that is through job creation, and to that end we encourage additional taxes on our industry through a transactional tax on every financial trade with the hope that some of that money will be used for additional government stimulus. Any bonuses given out in the industry should be taxed heavily, too. Otherwise, the system that perpetuates outsized risk will rise again.

You've heard some of us suggest that things got out of control in part because regulators failed to rein in our destructive practices. But we know it was our own powerful lobbyist corps that pushed to dismantle key regulations that, had they remained in place, would have prevented our recklessness.

We also donated huge sums to politicians to enlist them in keeping regulators from doing their jobs — as we are still doing, by the way. The elected people in this town need to realize that just as our excessive pay practices will not fundamentally change voluntarily, neither will our approach to government regulation. No matter what we say publicly, we are working behind the scenes on behalf of our own interests to make as much money as we can. You need to stop taking our calls.

We know that the carving up and selling of debt is not a highly beneficial exercise for the American economy. It doesn't produce anything tangible, and it sucks up capital that could be spread to promote entrepreneurship. And if creative financing paydays weren't so big all the smart business people and mathematicians who gravitate to Wall Street would be applying their talents elsewhere. We'd be a different and better country if that were true.

The mortgage-backed securities that we created were also largely responsible for the housing bubble. Had lenders not been able to unload their subprime mortgages through us there wouldn't have been very many such loans made, and no institution would have tolerated liar loans, where a borrower's income isn't checked. By only lending to qualified borrowers, banks would have contained the "froth" of the housing market.

We knew this, of course. We say now, "Who would have thought that housing prices would fall 40 percent?" But we knew housing was hugely overvalued and people were taking out mortgages they couldn't afford. Some of us even bet that a big adjustment would come by shorting the very mortgage-backed securities we had created. We exploited our insider knowledge about the garbage loans we were packaging for our own gains to the detriment of our customers, a structural broker-dealer conflict of interest that needs reform.

The profits made us crazy. Who cared if the underlying debt would ever be repaid? We sold it to unsuspecting investors and our monster bonuses came regardless of the solidity of the investment. That is why we twisted the arms of the credit rating agencies to anoint our financial products with AAA ratings. If one wouldn't accede we'd just shop it to the next one or tweak the tranches until that gold star was won. Hey, the credit rating agencies were anxious to make it work. They only got paid when they did our bidding. Another backward incentive that needs to change.

We at ChaseMorGoldSachs of America recognize the harm we caused this country. But our bulging pockets mean that our industry won't stop greedily self-dealing until we're made to. So please, make us stop.

What the bankers ought to say 01/16/10 [Last modified: Saturday, January 16, 2010 3:30am]
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