KWAME HOLMAN: The chair of the commission looking into the financial meltdown made clear at the outset of today's hearing that the panel is determined to find out what caused the collapse.
PHIL ANGELIDES, chair, Financial Crisis Inquiry Commission: To conduct a full and fair inquiry into what brought America's financial system to its knees.
KWAME HOLMAN: The bipartisan 10-member panel was created by Congress and will meet throughout the year. The commission will issue a report next December, but is not expected to make any recommendations.
The first witnesses were Wall Street executives, who apologized for the risky behavior that led to the crisis. Each of their companies received billions of dollars in government support at the height of the meltdown.
John Mack is chairman of Morgan Stanley.
JOHN MACK: We recognize our industry has much to do and to regain the trust of taxpayers, investors, and public officials.
KWAME HOLMAN: Brian Moynihan is CEO of Bank of America, which is a NewsHour underwriter.
BRIAN MOYNIHAN: I want all of you and the American people to know that I fully understand and appreciate the gravity of the crisis that we are now just coming through. We are grateful for the courage shown by government leaders to take bold, unprecedented action to preserve the financial system.
KWAME HOLMAN: But the executives also defended their firms' bonus and compensation practices, which have drawn the ire of President Obama, members of Congress, and the public.
Commissioner Heather Murren, a retired Merrill Lynch director, pressed Goldman Sachs chief executive Lloyd Blankfein on the issue. Goldman is expected to award billions of dollars in bonuses next week.
HEATHER MURREN, Financial Crisis Inquiry Commission: How can you reconcile these things, given what's going on in the country economically? And do you feel that your compensation adequately reflects your firm's behaviors, what the standards of the times are?
LLOYD BLANKFEIN, ceo, Goldman Sachs: If you look at the history of our compensation, the compensation always correlated with the results of the firm, as it did last year.
KWAME HOLMAN: Blankfein noted that he and other top executives at Goldman didn't receive bonuses last year.
Commission Chairman Phil Angelides, a former Democratic treasurer of California, sharply questioned him about Goldman's practice of packaging risky mortgages and selling them to investors at the same time the firm took financial positions betting against those troubled assets.
LLOYD BLANKFEIN: What we do is risk management. Because we had this risk, because we were accumulating positions which, by the way, we acquired from clients who want to sell them to us, we have to go out ourselves and provide and source the other side of the transactions, so that we can manage our risk. These are all exercises in risk management.
PHIL ANGELIDES: Well, I'm just going to be blunt with you. 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. It just -- it doesn't seem to me that that's a practice that inspires confidence in the markets.
I'm not talking about your own positions. I'm talking about betting against a security.
LLOYD BLANKFEIN: Every purchaser -- every purchaser of an asset here is an institution, probably professional-only investors dedicated in most cases to this business
PHIL ANGELIDES: Representing pension funds who have the life savings of police officers, teachers.
LLOYD BLANKFEIN: These are the professional investors who want this exposure.
KWAME HOLMAN: Meanwhile, Commissioner Douglas Holtz-Eakin, a Republican and former director of the Congressional Budget Office, asked J.P. Morgan Chase CEO Jamie Dimon whether his firm adequately looked at risks in the housing market.
DOUGLAS HOLTZ-EAKIN, Financial Crisis Inquiry Commission: You had been doing stress tests prior to the crisis?
JAMIE DIMON, Chairman, J.P. Morgan Chase: yes.
DOUGLAS HOLTZ-EAKIN: Did you do a stress test that showed housing prices falling?
JAMIE DIMON: No. I would say that was probably one of the big misses. We stressed almost everything else, but we didn't see home prices going down 40 percent.
PHIL ANGELIDES: Thank you all very much.
KWAME HOLMAN: Today's hearing was just the beginning for the commission. Members warned the executives that they should be prepared to answer more questions in the future.