The chief executive of Goldman Sachs
Lloyd Blankfein said Wall Street firms got caught up in the pursuit of profits and ignored risks.
Worse, decisions on compensation and other actions taken and not taken, particularly at banks that rapidly lost a lot of shareholder value, look self-serving and greedy in hindsight, Blankfein said at a Council of Institutional Investors conference.
Goldman Sachs, the fifth-largest U.S. bank, received $10 billion from the government in October under the Troubled Asset Relief Program. It plans to pay back the funds this year, as the money comes with strings attached, such as caps on executive compensation, dividend restrictions, and limits on share repurchases.
Blankfein was interrupted twice by protesters, who waved a large pink poster saying We Want Our $$$$ Back and yelled that taxpayers want to know why they should bail out Wall Street.
Amid boos from the crowd of investors directed at the protesters, Blankfein said their message was nevertheless real and visceral.
I think that reflects a prevailing view in the world, he said.
But Blankfein also said it was important for the public to understand the capital provided to banks was meant as a broader stimulus effort to get the financial system back on its feet, not a bailout of individual firms.
Banks should pay back the taxpayer money as soon as it is feasible, as the capital injections were never intended to be permanent capital, he said.
Looking to reform, the Goldman chief said firms need to develop better risk regulation and better compensation practices that reward performance over time, not just short-term returns.
The financial industry also needs a systemic risk regulator that can look at every firm, product or practice that may pose a danger, he said.
In this vein, all pools of capital that depend on the smooth functioning of the financial system, and are large enough to be a burden on it in a crisis, should be subject to some degree of regulation, Blankfein said. Yes, that includes large hedge funds and private equity funds.
(Reporting by Karey Wutkowski in Washington; additional reporting by Joseph A. Giannone in New York; Editing by Lisa Von Ahn and John Wallace)