By Kevin Drawbaugh
WASHINGTON (Reuters) - The chiefs of Wall Street's biggest firms defended the lucrative pay practices and huge size of their businesses, but conceded regulatory changes are needed at the first hearing of a congressional commission investigating the 2008 global financial crisis.
With U.S. unemployment near a 26-year-high after the worst recession in decades, public fury is growing over the crisis, taxpayer bailouts and huge bonuses for bankers.
Raising their right hands Wednesday to be sworn in before reading prepared statements, Goldman Sachs Chief Executive Lloyd Blankfein, JPMorgan Chase CEO Jamie Dimon and other executives braced for sharp questions from the panel.
Phil Angelides, chairman of the Financial Crisis Inquiry Commission, told the CEOs his panel will hold hearings through the year and take testimony from hundreds of individuals.
"People are angry. They have a right to be," Angelides said, citing Wall Street's bonuses and profits.
Blankfein said his firm reaped rewards from government support during the financial meltdown.
"We believe that the government action was critical and we benefited from it," he said. "The system clearly needs to be structured so that private capital, rather than government capital, is used to stabilize troubled firms promptly before a crisis metastasizes."
Dimon told the commission that there may be legitimate concerns that bonuses contributed to excessive risk taking, but he defended JPMorgan's pay practices, saying "they have been and remain appropriate."
The commission's hearing could fuel popular resentment of the banks and at the government's role in rescuing a powerful industry seen by many Americans as greedy and irresponsible.
The basic causes of the crisis are well known. From a real estate bubble and subprime mortgages, to runaway securitization and exotic debt instruments, the financial system failed spectacularly in the final months of the Bush administration.
The 10-member commission may be hard-pressed to unearth new revelations on that score, but its work is still expected to have an impact, according to analysts.
"We're in a very volatile period now, with all the bonuses and with the hearing starting tomorrow," said Greg Valliere, policy analyst at investment advisory firm Soleil Securities.
"The hearings could be explosive and further intensify public indignation... You just have to wonder if the politicians can contain the anger," he said.
The panel, due to report by December 15, is modeled after the Pecora Commission, which investigated the Wall Street crash of 1929. Its findings helped lead to the formation of the U.S. Securities and Exchange Commission and other key reforms.
Whether the Angelides Commission has a similar impact is yet to be determined.
The hearings will unfold with the U.S. Senate Banking Committee engaged in sensitive closed-door negotiations on a sweeping overhaul of financial regulation, the aim being to prevent another banking crisis in the future.
The Obama administration and some senators are concerned about the timing and potential impact of the commission's hearings, said Joseph Engelhard, a policy analyst at investment advisory firm Capital Alpha Partners.
Worries center on "any revelation which creates a populist outburst that could possibly derail compromises that are being made on the Hill," he said.
But at least one member of the banking committee, Senator Bob Corker, told Reuters that he looks forward to the commission hearings and what they will reveal.
"The commission meetings, from my viewpoint, are nothing but helpful... I'm actually meeting with some of the witnesses while they're in town. It's all good as far as I'm concerned," said Corker, a Republican, in an interview.
(Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn)
