Submitted by: Jerry Rodgers

Leading executives from America s eight largest banks testified on Capitol Hill February 11, as Congress asked how they spent $165 billion in federal money. Legislators had four questions in mind:

1)Where did the money go?

2)Why aren t you lending as much as we would like?

3)How challenged for capital are you?

4)Are you really going to be frugal?

Question #1 was answered in varying degrees. Bob Kelly of The Bank of New York Mellon said the $3 billion BONY received was used to buy $1.7 billion of mortgage-backed securities and debentures and $900 million of debt securities from other healthy financial institutions ; the remaining $400 million was used for interbank lending. Goldman Sachs CEO Lloyd Blankfein told Congress that Goldman Sachs has committed over $13 billion in new financing to support our clients since getting a $10 billion TARP injection.Citigroup CEO Vikram Pandit said the TARP money translated to $36.5 billion in new lending initiatives and other new programs. Other CEOs were less specific.

Question #2 has been in the air for weeks. Are the banks actually using TARP money to lend, or simply to stabilize themselves? All CEOs maintained they were using TARP funds responsibly, and that lending levels had increased or were increasing. While praising the idea of a systemic risk regulator to supervise the U.S. financial markets, JPMorgan Chase CEO Jamie Dimon detailed that bank s 4Q activity: $50+ billion in new consumer loans, $20+ billion in new credit for small and mid-sized businesses, about $90 billion in new and renewed corporate loans, and an average of $50 billion a day in interbank lending.Bank of America CEO Ken Lewis testified that BofA arranged $115 billion in new consumer and business loans in 4Q 2008, and renewed roughly $70 billion in credit lines in addition to buying loans in bulk. Wells Fargo & Co. CEO John Stumpf said that Wells Fargo had made $72 billion worth of loans last quarter and restored lines of credit to some Wachovia customers formerly denied credit.

As for Question #3, Stumpf proudly cited a profit of almost three billion dollars last year at Wells Fargo.5 The Bank of New York Mellon s Kelly assured Congress that we were profitable every quarter last year . Blankfein pointed out that Goldman Sachs had turned a profit of $2.2 billion in 2008.Other testimonies were less specific.

Question #4 was answered with acknowledgements of what Citigroup s Pandit called a new reality . Pandit told Congress that his salary would be $1 per year with no bonuses until the situation improves. Pandit told Congress that I get the new reality and I will make sure Citi gets it too. 5 The eight testifying CEOs said they earned from $600,000 to $1.5 million in 2008; none received bonuses. However, seven of the eight CEOs admitted that their firms owned or leased aircraft. In 2008, Wall Street firms still paid out more than $18 billion in bonuses, and financial firms still planned the occasional merit-based resort getaway.

Banks need to be held accountable. Why are we in this mess? Too many banks got away from the fundamentals. For decades, they originated home loans and assumed the credit risk themselves. Suddenly, they found ways they could pass the credit risk to investors. Fast-and-loose lending was keyed to assumptions that real estate would probably always go up in value. No person would be advised to owe 25 or 30 times their net worth, but this somehow became permissible for financial institutions.

Consumers made mistakes too. In the last decade or so, American consumers were seduced away from core principles of saving and investing. As the New York Times David Leonhardt observed, too many of our financial decisions were made for our present self instead of our future self , and they mostly involved spending. The recession is teaching us to save. In December, Americans saved about 3.6% of their disposable income, three to four times more than the norm in recent years.

However, personal spending is still the engine of our economy. If we save too much, we re siphoning fuel from that engine. If the personal savings rate increases, this means more money going into banks. That s good. The question is whether we can spend and save at appropriate levels at the same time.

Can we do both? Actually, we ve done it for decades. Only recently did we get away from the fundamentals and look how that affected our economy. Fortunately, our government is working hard to shore up our financial system. We have a trillion-dollar campaign in the works to buy up toxic assets, stress test banks, and inject more capital into them. The banking system has got to be fixed; consumers have got to be encouraged. The government is positioning its resources to boldly do both tasks.

Are you planning for your future self ? It may be a challenge, yet it is also necessary. A chat with your financial consultant might give you some long-range perspective and some ideas for how to reach your short- and long-term goals.

About the Author: Jerry M. Rodgers is passionate writer and loves writing about Retirement and Financial Planning.He is quite impressed with the

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