Page last updated at 18:33 GMT, Wednesday, 13 January 2010

US financial crisis panel begins in Washington

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Goldman Sachs chairman Lloyd Blankfein has admitted that financial innovation has put the US economy at risk.

Mr Blankfein was speaking at the opening hearing of a panel set up by Congress to delve into the root causes of the financial crisis.

He agreed that government support was critical during the crisis. "We benefited from it," he said.

Three other senior bankers also gave evidence in which they all admitted to making mistakes before the 2008 crisis.

Findings and the report of the panel will be presented to Congress and President Barack Obama by 15 December.

Jamie Dimon, chief executive of JPMorgan Chase said: "We did make mistakes, there are a number of things we could have done better."

In particular Mr Dimon admitted that his bank had failed to prepare for the possibility of US house prices falling by 40%.

"We somehow missed that home prices just don't go up for ever," he said.

The BBC's Michelle Fleury in Washington said that the executives appearing before the panel had "stopped short of giving a full apology", which may annoy critics of the bankers.

"There is a feeling that the bankers have benefited from government largesse as the economy continues to struggle, where one in ten Americans are out of work."


The session lacked the edge of many past Congressional hearings into financial scandals.

Questioning focussed on particular misjudgements, rather than the bigger picture of whether major conglomerate banks should be broken up.

After the 1929 Wall Street crash, the authorities forced the main banks to hive off their speculative trading activities.

While accepting the dangers of innovation in finance, Mr Blankfein also insisted: "Taking risk completely out of the system will be at the cost of economic growth."

Asked by the panel's chairman Phil Angelide to point out the two biggest instances of negligent behaviour and apologise, Mr Blankfein declined to take the bait.

"Clearly, I wish we were much less leveraged then," he said.

"We were going to bed every night with more risk than any responsible management would want."

John Mack, Chairman of Morgan Stanley, said his bank had overhauled pay to to discourage excessive risk taking.

Bank of America boss Brian Moynihan said he understood the anger felt by the public over large levels of compensation being planned at financial institutions that were bailed out by the government over the past year.

"We are grateful for the taxpayer assistance we have received," Mr Moynihan said. He also defended his employees, saying the majority worked hard and were not responsible for the financial crisis.

Mr Moynihan said bonuses in 2009 would be higher than 2008, but would be below pre-crisis levels. Bank of America has now paid back the $45bn bail-out it received in 2009.

The 10 commissioners, appointed by Republicans and Democrats, also include a former Wall Street analyst, Heather Murren, the chairman of the board at technology company Symantec, John W Thompson, and a market regulator and lawyer, Brooksley Born, as well as former elected officials from both major political parties.

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Business Day Wall Street titans grilled over credit crunch - 9 hrs ago
Arab News White House wants apology from bankers - 12 hrs ago
Sky News Wall Street Chief Admits 'Risks' At Hearing - 13 hrs ago
Times Online Wall Street four admit financial failures - 15 hrs ago

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