WASHINGTON -- Challenged by a skeptical special commission, top Wall Street bankers apologized Wednesday for risky behavior that led to the worst financial crisis since the Great Depression. But they still declared it seemed appropriate at the time.
The bankers -- whose companies collectively received more than $100 billion in taxpayer assistance to weather the crisis -- offered no regrets for executive pay that is now likely to increase as a result of their survival. They did say they are correcting some compensation practices that could lead to excessive risk-taking.
The tension at the first hearing of the Financial Crisis Inquiry Commission was evident from the outset.
"People are angry," commission Chairman Phil Angelides said. Reports of "record profits and bonuses in the wake of receiving trillions of dollars in government assistance while so many families are struggling to stay afloat has only heightened the sense of confusion," he said.
Lloyd Blankfein, the chief executive of Goldman Sachs, took the brunt of the questions, especially on his firm's practice of selling mortgage-backed securities and then betting against them.
"I'm just going to be blunt with you," Angelides told him. "It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."
Blankfein replied: "I do think the behavior is improper. We regret the consequence that people have lost money in it." Later, though, he defended the firm's actions as "exercises in risk management."
In a moment of self-analysis, Blankfein said the world of high-finance simply rationalized its way into risky transactions. Summarizing the thinking in the industry at the time, he said: "Gosh, the world is getting wealthier. Technology has done things. ... These businesses are going to do well."
"You talked yourself into a place of complacency," he concluded.
The panel began its yearlong inquiry amid rising public fury over bailouts and bankers' pay.
"We understand the anger felt by many citizens," said Brian Moynihan, chief executive and president of Bank of America. "We are grateful for the taxpayer assistance we have received."
"Over the course of the crisis, we as an industry caused a lot of damage," Moynihan said.
With Bank of America having repaid its bailout money, he said "the vast majority of our employees played no role in the economic crisis" and do not deserve to be penalized with lower compensation. Moynihan said compensation levels will be higher next year than they were in 2008 -- but not at levels reached before the financial meltdown.
Jamie Dimon, chief executive of JPMorgan Chase & Co., said most of his employees took "significant cuts in compensation" in 2008. He said his company would continue to pay people in a "responsible and disciplined manner" to attract and retain top talent.
Still, Dimon said, "We did make mistakes and there were things we could have done better."
John Mack, chairman of Morgan Stanley, said the crisis was "a powerful wake-up call for this firm." He said he didn't take a bonus in 2009 and his bank has overhauled its compensation practices to discourage "excessive risk-taking."
The other executives also said their companies had tightened bonus policies, including provisions to "claw back" some of the money when performance falters.
Outside experts say the banks' changes to executive compensation move them in the right direction, effectively tying pay to long-term performance. Giving more pay in long-term stock and allowing take-backs in extreme cases should discourage excess risk, said Jeff Vistithpanich, principal at Johnson & Associates, a New York financial services consulting firm.
But he said that won't quell public outrage.
"Whether Lloyd Blankfein gets $50 million in cash or stock or paper, the fury will be there, the anger and scrutiny will be there," Vistithpanich said. "There's going to be a firestorm either way."
John Taylor, head of the National Community Reinvestment Coalition, a group that promotes affordable housing, said that if bankers missed multiple indicators that a housing crisis was upon them, "then their spirited defense of their employees falls flat."
"Based on what we heard today," Taylor said, "they should be firing people, not giving them bonuses."
The four bankers represent institutions that collectively received more than $90 billion in direct government assistance from the $700 billion federal bank bailout and availed themselves of billions more from the Federal Reserve. Goldman Sachs received an additional $12.9 billion in bailout money designated to rescue insurer American International Group.
At the White House, press secretary Robert Gibbs said that President Barack Obama on Thursday will outline his plan to make sure taxpayers are able to recoup the money they are owed from the bailouts. The president is expected to announce a new fee on the country's biggest financial firms to recover up to $120 billion.
Of the bankers' testimony, Gibbs said, "It would seem to me that apology would be the least of what anybody could expect." He said Wall Street officials need to show common sense.
The witnesses said they supported tighter oversight, but warned against going too far. Congress is considering limiting the size of financial companies or breaking up companies whose failure could collapse the whole financial system.
The commission's vice chairman, former Rep. Bill Thomas, R-Calif., said the inquiry would try "to get to the bottom of what happened and explain it in a way that the American people can understand."
Thomas, a former chairman of the tax-writing House Ways and Means Committee, said one important question is, "If you knew then what you do now, what would you have done differently?"
Dimon said a crucial blunder was "how we just missed that housing prices don't go up forever." Added Mack: "We did eat our cooking and we choked on it."