morning the domestic policy subcommittee of the oversight and government reform committee will now come to order today's hearing will examine the way that common equity shareholder rights acquired by the treasury department under authorities provided in the emergency economic stabilization act of two thousand and eight have been exercised to date and to assess alternative frameworks for exercising and protecting the taxpayers interests without objection the chair and ranking minority member will have five minutes to make opening statements followed by opening statements not to exceed three minutes by any other member recognition and without objection members and witnesses may have five legislative days to submit a written statement or extraneous materials for the record today and tomorrow we will be examining how the treasury department is managing common equity or voting shares acquired under the emergency economic stabilization act of two thousand and eight as a result of activities conducted under the troubled asset relief program the government is now a principal shareholder in four large complex and troubled companies t from the financial services industry and citi group and two from the auto industry g m chrysler like it or not the united states government is today the major common equity shareholder the principal owner in two of these companies and g m and has an outsized role in two others establishing a clear chain of authority responsibility and accountability for our current exercise a fiduciary responsibility in the case of the four companies is an essential and unavoidable task if congress and in particular the house of representatives is to uphold its constitutionally defined for do share responsibility to protect the public interest the main objective of these hearings is to assess how and how well the treasury department is upheld it's the do share responsibilities in managing the resulting u s government shareholding and also to assess how and how well it has mobilized the full array of government capabilities and support of turning around these firms and their industries and in support of the broader purposes of the emergency economic stabilization act a major theme today and tomorrow will be corporate governance to an important agree the failures of all four companies have resulted from failures in corporate governance failures in risk management failures in compliance failures to appalled executives accountable failures to rein in excessive corporate pay and so the first question we have to ask is have the actions of the federal government had the effect of upholding best practices in corporate governance or rather the way in which treasury is managing our more than two hundred billion dollars stake and these four companies actually constitute a major step backward in corporate governance but this is only one part of what we need to examine remember that in choosing to provide extraordinary authorities of e e s a congress was not acting primarily as an investor or as defined in the emergency economic stabilization act of two thousand and eight the troubled asset relief program or tarp was intended to serve several purposes beyond providing liquidity to the financial system e s a has as its second main purpose to ensure that the authorities and  quote are used in a manner that unquote promotes jobs and economic growth helps homeowners stand their homes protect home values retirement accounts and life savings quote maximize overall returns of u s tax bear unquote and exhausted merely by upholding the savage best practices in corporate governance as necessary and urgent as now when it comes to broader issues there is really a fundamental inequity consider first how the treasury department has handled the financial companies when it comes to intervening in the large financial institutions and certainly a i g and citi group the u s government could have simply purchased the companies for a song or could have forced the banks through bankruptcy and forced creditors and other stakeholders to take major haircuts to share the pain but instead the path that was chosen guaranteed payoff for all the creditors and guaranteed outsized bonuses to even the employees who are most directly responsible for nearly blowing up the world economy the upshot this holiday season bankers are taking home the largest bonuses ever paid creditors have been made hall and shareholders that counted on government support and stayed with the companies are seeing values restored well others had bailed out and came back in after the tarp money was flowing and made a killing but now wait there's more on the front page of this morning's washington post we see the treasury is so eager to placate the people at citi group and help them get out from under the thumb of the paymaster that it has agreed to allow citi group to keep billions of dollars in tax liabilities it would owe as soon as it pays back the tarp funds the taxes are worth more then any alleged profit to taxpayers from the tarp repayment and interest i want the administration to know that we are going to look into this i want the administration to know that we're going to look into this deeply and i want all those citi group who have had their tentacles across this government to understand that we are watching this and we're looking at their every move that they've made and if you want any further reference you could look at matt article in rolling stone which i've read thoroughly and it raises plenty of questions about citi group and people in the administration now contrast the kid glove treatment given to the financial sector with the treatment of the auto companies and their shareholders under tarp the overall support and level of effort expended for the american auto industry and a broader impact of the isis and government intervention on u s manufacturing in the case of the auto company shareholders were wiped out and creditors including pension funds were forced to accept as little as ten cents on the dollar for their previous investments the impact of the auto rescue on employment was not to avoid major cuts in jobs or production instead it was to accelerate preexisting plans for downsizing us production work hours pay scales and dealerships by as much as four years plant closing brand reduction and as we all know dealer closure another restructurings are also advanced more difficult to see but equally important is the impact on suppliers and their employees what we do know is that even after the bailout in october g m zen cio spoke openly of sourcing even more parts from korea finally there seems to be a pattern of favoritism shown to the financial services industry and a maligned neglect when addressing issues of manufacturing job creation and decent blue collar wages to my knowledge today in tomorrow's hearings are congress's first attempt to create some measure of accountability over treasury's handling of u s shareholder interest financed through tarp what the partner policy subcommittee is found primarily a preliminary is that too much of what the treasury department has done seems to be designed to evade and obfuscate accountability this is not acceptable we need to find another way forward we need to find or establish new agencies would clear lines of authority to do the job the tarp was intended to do left up to treasury on its own those jobs are not getting done and probably never will be a gentleman from ohio mr jordan how should the government manages interest in private sector companies so as to ensure that the taxpayers are repaid as quickly as possible unfortunately tarp has become nothing more than a slush fund for the administration the trend towards the nationalization of private sector firms  not stop with the banking sector tarp has been used to secure government ownership of automobile manufacturers bail out insurance companies and subsidize mortgage modifications among other programs now president obama says that he intends to use repaid tarp funds for the so called job creation programs the second stimulus bill that slated to be on the counter today this trend of using taxpayer money authorized for one purpose for a completely different purpose is troubling and frankly it must stop many of us voted against tarp and of the chairman and i both did and  skepticism about the bailouts of private firms i think has been vindicated we've seen numerous problems at the companies under the government's control for example the committee has explored the flaws in the i g trust agreement this agreement stablish mr geithner when he was present in the new york fed creates an unaccountable entity responsible for the management of the taxpayers eighty percent interest in ai g in addition a i g has been hampered by the control of the obama stray ssion so called pays our thirteen of a top twenty five employees have already left and i just recently hired c e o and other top executives threaten to leave do the pay is ours rulings these developments reveal another pitfall of the bailouts while we don't like paying these employees competitive salaries we may not like that the reality is that with will simply not be able to repay the american taxpayers the political polarization of general motors and chrysler has also demonstrated the problems created by the bailouts in order to fully repay the taxpayers for the bailout of g m the company will have to achieve a larger market capitalization than any other time it's history making decisions that are here to the wishes of the obama ministrations auto task force benefit the unions or other special interest groups and satisfy the demands of powerful members of congress will not lead to business success and taxpayer repayment we have an obligation mr chairman to ask how and when we can escape from this mass the american people i have a right to know how this administration intends to manage taxpayer interest and all the the firms that have been bailed out we must ensure that the american people are paid back quickly and that is much of their money as possible is salvaged from this unprecedented and unwise intervention in the u s economy this is a hearing that takes us in the right direction in answering these important questions and again i want to thank you for your willingness to put this together and for our witnesses for being here this morning i thank the gentleman to recognize mr cummings of maryland you may proceed thank you very much mr chairman today's hearing highlights two issues for me that the economy is far from out of the woods and we will not know the final cause of the financial crisis for some time economists may her all the end of the technical recession but i'd hate to have to make that argument to the ten percent of our nation that is out of work the millions of small businesses that still cannot access credit or the millions of homeowners who find themselves in or near foreclosure further the american taxpayers were made involuntary investors in several firms last year to revive the financial market the stable ability necessary to ensure they kept functioning in the midst of unprecedented circumstances given a dire straits with so many americans in return for their investments in ai g g m and other firms their old not only out efforts to maximize the value of the equity they have acquired but also a frank evaluation of the manner in which those investments are managed in the last month we seen bank of america citi group and wells fargo announce the news a repayment about of these firms receiving extraordinary assistance is a sign that the financial sector has all but recovered but it also raises three critical points that we must now address first despite the public pronouncements by bank of america citigroup and wells fargo that they are off the government tab the taxpayer still retain equity positions in some of the firms highlighted by the thirty four percent decision to allow these firms to repay the government arguing that the firms have gotten out of executive pay restrictions while still presenting systemic risks therefore it remains to be seen whether we have sacrifice economic stability for the benefit of a few wall street firms third and most importantly despite propping up wall street credit is not flowing to small and medium sized businesses the start lending again mr chairman once again i thank you for holding this hearing despite the technical and of the recession and and shows of strength by wall street giants the rest of america will desperately desperately needs our help i welcome the testimony of our distinguished witnesses and look forward to a frank and productive discussion and with that mr chairman i yield i want to thank the witnesses for being here  committee will come to order i want to thank all the witnesses for their patience there are no additional opening statements and the subcommittee will receive testimony from the witnesses who are before us for those who are just joining us  this hearing is entitled the government is dominant shareholder how should the taxpayers ownership rights be exercised i want to start by introducing our first  panel or read course or if williams brown is director financial markets and community investment for work is concentrated on securities and futures oversight banking  accounting policy currently she leads geos work on a financial crisis treasury's troubled asset relief program and regulatory  professor of finance and founding director of the lyndon our center for corporate governance at the tuck school of business at dartmouth he's written widely on a variety of corporate finance related topics currently serves on the advisory board cen and assistant professor of law at george mason university school of law he's an expert on corporate governance and is published in a number of legal journals news and simson is senior portfolio manager for global equities at the california public employees retirement system the largest public pension system in the united states which is with approximately two hundred billion under management cal pers provides retirement and health benefits to more than one point six million public employees retirees in their families and more than twenty five hundred employees previously in the simpson was the executive director of the international corporate governance network a body whose members are drawn from over forty countries tonelson is a research fellow with the u s business and industry council educational foundation a washington research organization studying u s economic technology a national security policy is the title since articles on american politics foreign policy globalization technology and technology policy have appeared in nearly every florencia publication he is a frequent commentator on radio and television the next person  says ralph nader needs no introduction but i'm going to do some anyway mr nader is in the stork figure who more than any other single person has helped us to drive safer cars eat healthier food breathe better air drink cleaner water and work in safer environments been doing this work for more than four decades after nader's advocacy led to the passage of a national traffic and motor vehicle safety act he was instrumental in the creation the occupational safety and health administration environmental protection agency the consumer product safety commission the national highway transportation safety administration by starting dozens of citizens groups ralph nader's created an atmosphere of corporate and government accountability he was named by the atlantic as one of the hundred most influential figures in american history and by time and life magazines as one of the most influential americans of the twentieth century when i was mayor of cleveland ralph nader help me save a cit system something that the people of cleveland remember and are always grateful for finally i want to introduce robert weiss and who is here company mr nader robert weisman is president of public citizen nonprofit research lobbying and litigation public interest organization with out of fifty thousand members and supporters is co author of a forth forthcoming book on corporate ethics international examining how government can leverage its investment in citi group to taxpayers the structure created to administer any assistance should provide for appropriate mechanisms to protect taxpayers from excessive or unnecessary risks such as concessions by all parties controls over management and compensation for risk however the recent crisis has posed unique challenges and that hearing to this framework due to its sheer size and scope next i will touch on the government's role as shareholder which differed by type of institution and assistance provided for example the federal reserve bank of new york as a condition of the secured loans provided to a created the trust to hold the convertible preferred shares it acquired as a condition of this credit converse alee treasury obtained city common shares after city requested the treasury's initial investment be converted to common shares to strengthen city's capital structure for chrysler and m treasury obtained an ownership interest and return for the financial assistance provided to help the companies restructure according to dr jerry it has developed several core principles to guide its oversight of its investments going forward these included acting as a reluctant shareholder not interfering in day to day management decisions ensuring a strong board of directors and exercising limited voting rights treasury has established conditions such as executive compensation requirements in voting on certain limited matters and routinely monitor the company's operations finally as part of our ongoing work on ongoing work with sig tarp we are reviewing three areas the extent of government involvement in corporate governance and operations of companies that have received exceptional assistance how treasury ensures that companies are complying with key covenants and the government's management of it investments and investor strategies one issue we are exploring is the advantages and disadvantages of a trust arrangement versus direct management for example directly managing the investments gives the government greater control over these investments but it also raises potential conflicts of interest when the government is both a regulator and investor g a o insects are are also reviewing the treasury's plan for the vesting which are still evolving and except for city treasury has yet to develop exit strategies for unwinding the investments and others in closing i would like to note that treasury faces a number of competing and at times conflicting goals for example protecting the taxpayers interests must be balanced against its plan to the vest on the ship as soon as it is feasible consequently treasury may have to balance its desire to exit as quickly as possible with the need to maintain its equity interest long enough for the companies to demonstrate this efficient financial progress second establishing and monitoring benchmarks is an important part of treasury's management of these investments because they inform the ultimate decision on when and how to sell each investment regularly monitoring the benchmarks will be important for treasury to help ensure that taxpayer interests are maximized and finally while many agree that tarp funding has contributed to the stabilization of the economy the significant sums of taxpayer dollars that were invested in a range of private companies want continued oversight and development of a prudent divestiture plan thank you my colleague nick mean to testify today i argue my testimony that the government as a large shareholder to adopt a proactive stance in terms of exercising its voting rights to promote best governance practices to be clear i'm not advocating direct government intervention in the business operations of the firms in which it is a large shareholder for that the trouble farms should hire turnaround expertise i do not believe the government can morph itself into turn on expert come in competition with private equity and similar expertise but i do recommend these the foremost shareholder activism commonly exercised today by a large institutional shareholders such a pension funds in particular and which is needed to ensure that the companies operate under the most efficient governance systems my recommendation follow from the fact that the government is a large shareholder and not because it is it is the government the recommendations hold for any large shareholder state or private might notice sales benefit from the presence of a large block holder because only the latter has economic incentive to exercise voting rights in an efficient manner that the government is not in a unique position to improve inefficient governance systems and practices however to have these positive effect the government must take a proactive stance on sha defenses downside of combining the two roles of c e o on board chairmanship and executive compensation the common theme in the lying all of these areas of concern is the lack of confidence in boards should we be surprised that shareholders question executive compensation in a system where the director election system is rigged in favor of candidates nominated by corporate insiders with a firm insist on an arsenal of poisonous takeover defenses and where the top executives also runs the board things like shareholders say on pay majority rules in direct election appointment of an independent lead the rector at simply bandaids to help offset the fact that not a majority oshea holist find it too costly to actively vote in today's system if shareholders can reasonably expect to be able to replace directors who they consider incompetence or and willing to represent owners why would anyone insist on say on pay so the most important governor's task in the us today is to fix the director election system itself  government before it should actively seek directors who understand these fundamental point given the prominence of say on pay uses in today's debate how can this issue be resolved it is unlikely that shareholders are any better than boards in determining the r three points first executive pay should be structured so as to depend on for a performance the insistence on restricted stock options or stick to stocks representing large typically sixty percent of the total pay package this is in line with the recommendations recently b for tarp recipients second the more difficult issues to determine total pay package itself and not just a split between cash and stock the total pay package ought to reflect the executives value added his or her marginal productivity unfortunately while it is possible to get a reasonable estimate of the value add of those say michael jordan joining the chicago bulls which may be why no one seems to be argue that arguing that sports superstars and all this are overpaid estimating the margin  to say here boards and compensation consultants need to work harder so pay packages will also reflect their relative bargain empowered high profile executives commonly hire professional negotiators to assist in the goshes with the board the board often does not meet this challenge and risk being seen as pushovers executive pay awards largely come out of the pockets of shareholders it again comes down to whether the board understands its central role as maximizing sh cummings of maryland mr tyranny of massachusetts thank you for being here professor bret you may proceed with your five minute testimony thank you chairman to senate shrinking member jordan and distinguished members of the committee it's a privilege to testify in this the past year has seen some unprecedented events in the history of american business through the bailout our government has become a controlling shareholder in many bedrocks of the business community some political leaders have argued that since the government owns these companies it should seek to control all their day to day business decisions the reason i have joined you today is to explain why this he was not only misguided but downright dangerous to the taxpayers investment as well as the pension funds and retirement funds of ordinary americans government ownership in private companies provokes the accountability of both government and business to understand why we must appreciate that government leaders and business leaders are held accountable by entirely different means governments are accountable to voters based on their ability to get reelected business leaders are held accountable by their ability to maximize profits for their shareholders and the overwhelming majority of those profits for shareholders go to main street investors working americans like teachers firefighters policemen all depend upon this mechanism to fund their retirements maintaining a buffer between short term political interests and long term financial soundness is absolutely critical the economic evidence from around the globe is overwhelmingly clear that political ownership of private banks and financial companies results in lower g growth increased need to subsequent government bailout and politicized lending practices i am concerned that we may see politics driving business decisions such as top banks encouraged to subsidize lending in battleground states for example the treasury department owns one third of citigroup this fact has given the government enormous power over citigroup's operations consider the case of andrew hall a legendary commodities trader at citi group who generated an average of two hundred fifty million dollars a year over the last five years for citi group and citigroup's investors including the tax their investors now which would be the taxpayer and which would be the pension funds and retirement funds of everyday americans mr hall was paid a percentage of that annual two hundred fifty million dollars he generated for citi group his annual salary was definitely high but it was an entirely performance based package that pays or decided that mr hall salary was just too large to justify it to populist pressures and so citigroup was forced to sell off mr hall's vision at a deep discount losing andrew hall will cost citigroup hundreds of millions of dollars per year and that cost will fall on city's investors including the american taxpayer but the decision was politically advantageous to the executive branch in the short term and so it was inevitable because of the government share ownership the case of general motors is even worse g m has been pressured by political leaders responding to alliances with failed automobile dealerships to keep those failed dealerships open political leaders have exerted pressure to force g m to overpay when it shipping contracts so that truckers using politically favored unions like the teamsters when the bits make no mistake the cost of this crony capitalism is borne by the american taxpayer government shareholders don't have to play by the same legal rules as the rest of us a fact which will strain the governance mechanisms of our capital markets at a time when they are already in crisis bipartisan legislation pending  house and senate stand to address these problems and create a buffer between the tax payers investment and political leaders who would use that investment to pander to special interests the tarp recipient ownership trust act of two thousand and nine introduced in the house by congressman baucus and in the senate by senators warner and corker would require the secretary of the treasury to place ownership of tarp investments in trust to be held on behalf of the american people the act would task the trustees of that trust appointed by the president with a fiduciary duty to maximize the value of the investment and it would include a sunset provision to get out of top investments by december of two thousand and eleven the prospect of the government actively voting their shares in holds grave risks political leaders have stuffed the federal budget with pork barrel projects at great cost to the american taxpayer we must not permit them to do the same with the private budgets of private banks if we do the taxpayer will be left holding the tab thank you for the opportunity to thank you for a testimony progress or to recognize his mission and you may proceed for five minutes mentioned and as such i'm responsible for his corporate governance program as will be away as is the largest public pension fund in the united states we have assets of some two hundred billion that we a program we have a direct interest because regardless of the reduced values that we see in these companies we hold well in excess of seven billion dollars and both debt and equity and recipient companies we have an indirect interest why should cite perhaps a systemic interest in the success of the top program because kalpas is as close to being a universal paghman an as it's possible to be we need the companies and how we use a governance frame was to approach the difficulties those companies have and finally i'd like to say something about what we consider the best practice to look like in this failed another was what we've learned about what can what and what doesn't what and how we hope that the government and sharon a will join the community of responsible sharon was in is why companies in the most troubled by sector are identified on a number of screens what we do is then analyze the governance of the companies to see why we as an activ can have a positive impact on the company's how we look at a range of issues from the governance structures to the quality of the board and in combination the results warrant some attention  from the view that this form of transformation is something to be considered the top recipient company and we have conviction and we have we feel convincing evidence that transparency and accountability not just the top recipients but we see this is important for the in time all the issues that we think important in our recent testimony but we want to focus on the skills and experience and we would emphasise diversity in this context in order to break through some of the groupthink which doubled the companies that got into difficulty finally governance reform is no guarantee but it gives crisis which those shows no real signs of easing whatever the subject this subject of this hearing could not be more important yet yet the u s b i c is member companies are very encouraged by this committee's recognition that the ongoing debate about improving the government's performance and as a dominant shareholder or even or even make a major player in critical industries must be dramatically broadened it is of course important to achieve greater transparency and greater accountability in rescues and bailout programs it is of course important to develop sensible exit strategies but the overriding challenges facing facing facing the the a u s government in the shareholder role is how to ensure that it can not only support but spearhead a viable recovery strategy for the entire economy since the crisis ultimately stems from the american economies failure in recent decades to produce nearly as much as it consumes and its decision to fill that gap by encouraging by incurring dangerous levels of debt a viable recovery strategy clearly must focus on greatly increasing production relative to consumption that is the genuinely productive wealth creating sectors of the american economy need to start reversing the recent pattern and start to growth spurt and start to grow more rapidly than the rest of the the a us economy and those productive sectors are dominated by manufacturing now clearly our one thousand nine hundred members have a huge stake in helping to achieve this reorientation their manufacturers they have a long standing commitment to creating jobs and sponsoring innovation and spurring productivity and boosting production in this country think of them as main street manufacturers by the same token they will be prime victims of washington's continued clinging to an outmoded economic strategy that has made this us economy dangerously finance heavy but if this painful recession and this economic crisis teaches us nothing else it has to teach us that everyone else will be hurt everyone else in this economy every single actor will suffer unless this reorientation is actually completed as my written statement details since the recessions official beginning in december two thousand and seven the economy has tragically moved farther from this goal of being more production oriented not closer to it notably inflation adjusted manufacturing output has fallen four times faster than the rest of g d p perhaps even more alarmingly our manufacturing capacity not capacity utilization but the capacity itself is shrinking at the fastest rate ever because our economy's sickness has had has developed over many years the tarp and the rest of our economic recovery strategy the same recovery strategy approved by the white house and indors by this congress cannot legitimately be blamed for most of this regress sion but they haven't helped either and show little promise of actually doing so the problems reflect much more than the jaw dropping gap between government support for finance and government support for u s based manufacturing and of course government support for finance entails much more than simply the tarp program much more the problems reflect the very goals apparently set by the administration for finance and for an automotive sector that is a bellwether for the rest of manufacturing let nobody be under the misimpression that the  the only industry in the american manufacturing sector that has run into major structural problems that is far from true nothing could be less true as a goal for finance seems to be encouraging this sector to return to its pre crisis scale and full range of activities productive or not with only modest with only modest structure with only modest structural and regulatory change the first apparent goal for the us auto industry seems to be managed contraction managed dramatic contraction and even transition to needs producer status not only is the strategy likely to contribute to the shrinkage of the into the further shrinkage of the entire manufacturing sector it flies in the face of everything known today about the prerequisites for automotive competitiveness a second main goal seems to be turning the auto industry from a high wage industry into a much lower wage industry how in the world can that help middle class families repair their own finances without growth slowing belt tightening of a dramatic nature how do you ensure that government the shareholder helps refocus our economy on wealth creation again my statement makes numerous recommendations but i'll briefly focus on t coordinated with the entire recovery strategy actively and second policy success will reap well you are much better much more detailed and much privately are data about the economy as a whole and the manufacturing sector as a whole the committee seems to be here in congress the more important hearing is for the people of this country the less the press attends the hearings kind of inverse proportion here so you ought to be commended in my written and simply cannot say from an american enterprise institute framework that you have to have the rules of private enterprise when general motors and cetera fell all over themselves to be bailed out by the american taxpayer so the question we're facing is proper political judgment when the government is a common shareholder of considerable magnitude and when the government also represents a taxpayer in terms of  saving these companies which have been characterized by colossal mismanagement colossal recklessness with other people's money and colossal self enrichment so it's the management failure that even tanked their own companies although not necessarily their compensation plans that brought them to washington and there's been very little attention paid to the procedural safeguards for government bailouts for many years i have been urging congress an executive branch to stablish procedural standards so these bailouts do not reflect secret edicts over weekends or dictates from the executive branch the nature of the corporate state that is corporate government what franklin delano roosevelt told congress in one thousand nine hundred eighty eight was fascism that's the words he used the corporate state requires concentration of power in one branch of government at the expense of the other two and that branch is the executive branch this was illustrated by the weekend massive bailout of citi group when robert rubin went down and met with mr bernanke and mr paulson and emerged with a statement on the following monday with a three hundred billion dollars guarantee of citi group's toxic assets and a forty five billion dollar investment by the taxpayers there was no notice to the public no congressional input or participation no taxpayer standing is permitted to challenge this edict no judicial review no standards in other words let's face it dictatorship this is a of the congressional authority under the constitution a lot of money was involved a lot of money was obligated it was done by the executive branch and even not even reaching the contemptuous four page bill that mr paulson sent to the congress where both republicans and democrats rebelled which basically said give the treasury all the authority with no judicial review plus seven hundred billion dollars thank you very much so the procedural issue is very important here the substantive policies of course reflect the procedural standards when you have that procedures when you have autocratic secretive procedures you tend to get that performance substantive in our testimony illustrates that in some in some detail but the major thing this is a testimony is that when when the government is a dominant or controlling shareholder not of its own asking the government has an obligation not to invest passively it should use its ownership powers to clean up management and mindful of its duty to safeguard taxpayer financial interests it should also pursue stand statutory public interest mandates in areas such as consumer environment protection financial stability and financial honesty and that reflects of course the state the state of workers the state of consumers the state of investors elaborated in our testimony  three quick examples one is that the government did not condition its bailout in equity infusion of a i g on the firm's credit default swap counter parties accepting a haircut so it was basically not just a it was a bailout of goldman sachs and others again very very secretive a stunning display of executive power without congressional participation the second quick example is a double standard that you mentioned mr chairman it's really amazing how fast they move to bail out crooked and reckless companies in the financial industry but then they really hang the manufacturers out to dry not that they don't deserve a strong hand  but the contrast is really stunning in terms of the inferred dependency that the executive branch believes the rest of the economy relies on the financial sector this is delegation run run riot when m the g m deal was negotiated not by congress not by the executive branch by a delegated secretive white house tax force made up of wall street expatriates with little or no experience in the auto industry the other point i want to make is that people for by the wayside here the bankrupt system now in the corporate area is a kangaroo court congress has got to revisit corporate bankruptcy law it is a prearranged  choreographed bankruptcy system where many interested parties are given no participatory of roles or they're given arbitrary short and purchased very roles which are basically nominal and here's an example  n i would just ask that you wrap up your testimony and let me just end with this exam thank you as the general motors eliminated under bankruptcy its liability to victims of defective products it sold before the bankruptcy this is truly outrageous this is a amenophis judge's injustice which is revealed by the person of amanda din again a ten year old girl from long island new york injured by the allegedly faulty seatbelt a new g m c envoy snapped her neck in a crash her father an ironworker estimates her health care costs five hundred thousand dollars a year her loss quality of life of c b tragic that and hundreds of other cases were rubbed out by this bankruptcy court only legislation can correct this manifest injustice to innocent victims of corporate defective merchandise thank you thank you very much mr nader i'm chair i'm going to now go to the question terry i'd like the gentleman from maryland mr cummings to begin so if you would go to five minutes of questions thank you very much mr chairman i want to read an count for much barney frank might be surprised to learn that a lawsuit would have almost no chance of success in court even for a majority shareholder like the  government would most likely argue that the oft cited quote business judgment unquote rule gives management wide latitude to set compensation without shareholder interference what the government should have still points out that shareholders have the deck stacked against them and your opinion was icahn correct or is it karen model b for example the credit facility trust the best means of representing and shareholder would share the same liability to the other shareholders as the board of the executives when the government is the controlling shareholder it has sovereign immunity and so he would he would not get any liability at all any chance of liability now i'm aware that mr icahn is critical of the business judgment rule which is part of state corporate law you know sometimes shareholders when sometimes they lose i know that the child challenge to citi group is still ongoing in the delaware court chancery and it survived a motion to dismiss and you know i know that they were there there's been a number of cases that have won a number that have settled and some of them don't so i think there's a healthy debate about that position let me you know i was intrigued by your testimony professor and i'm just wondering how do you react when we have the a r g s of the world government money and then basically saying screw you to the american public as they go on and do all kinds of wonderful things junkets and bonuses and whatever how is the american public who owns it how do you think it's best that they exercise some control over that well i don't think they should have any control i worry is that the exercise of control will revert to the sort of pork barrel i got all of that but what i'm saying to you is that  i mean i know it's your law professor yes or that and i know law professors you said in those nice offices and everything but i'm talking about the real nitty gritty we've got the american people who are losing their houses losing their savings losing their jobs losing everything they give to these corporations their hard earned tax dollars and then we've got the the these corporations basically spitting in their faces and saying you know screw you and trying to figure out and so what happens from a political standpoint it becomes very difficult after you help somebody extricate themselves from a drowning situation to have them do that to you so the question becomes i got all the corporate law got that i understand it but how do the american people then get some kind of foot hole in this in this governance so that they can make sure that those things don't happen you file them saying i appreciate your can imagine a guy like me to chime in on this if you don't mind yes of course i mean we recommended a principle which basically says if the government doesn't facilitate the civic organization of the ultimate beneficiaries workers investors et regulatory or bail out process is going to be fair and going to be enforced and talking about is reciprocity look at what people have given up in voluntarily their jobs their savings their pensions their consumer protections  and what do they get in return and in your face attitude by these managers who directly or inherited reckless management that basically says we're going to continue business as usual and we're magnitude and its in its face i mean in japan they would apologize on national t v for far less transgressions the corporate executives thank you very much as you and i thank the gentleman i'm going to recognize mr jordan for five minutes understandable but when you think about where we are today and couple that with statements made by some members of congress senator schumer where he indicated that maybe in the future we should look at publicly traded company executives at those here as much as i've seen it but i think it has to do as i said before i think it has to do with a failure of boards in general so if you can trust your board you can also trust their pay policies  i don't think shareholders or taxpayers are asking for is say i'm paid because i don't like the numbers per se because i don't trust the decision process that went behind those numbers that's why i'm saying we need to reform the way answer to your question congressman jordan and also an answer to congressman cummings question i think one of my concerns is that look most of the investors in in citi group in bank of america or pension funds and retirement funds ordinary americans are investing in these companies and i think they've already been hit hard enough look they've got foreclosures they're facing unemployment and now you know government leaders are going to use their pension funds in their four one k s as a vehicle for more special interests pending for special interests and i think that's the last thing you need right now and i would also offer with respect to say on pay a lot of folks make an analogy to say on pay as it's used in the united kingdom one of the major differences between us the united kingdom is most of their investors or insure most of their large institutional investors  transparency issue that some brought up in particular nader brought up i think it's very valid i mean i happen to live in a district where they close the general motors i remember being on conference call the night before they were going to make the announcement and the folks on the mr sperling on the conference call said the access so i can see both sides of this equation but this lack of transparency when you couple that with what i believe miss brown said in her testimony exit strategies of treasury are still evolving i mean we don't know where this is going that's the biggest concern we'd like to know where this is going how the taxpayers are going to get out of this what it means for our economy so talk to me miss if you would professor about what i view as a lack of transparency with where we are right now and then i'll go to miss him so i know you want to jump in and mr mr varick you go first sure i would absolutely agree and i think that you know this is where the liability for control shareholders comes in as well usually if any other controlling shareholder would have done some of this stuff they'd have been taken to court and they'd face tremendous liability but treasury briefly i'd want to comment on this question about accountability because it's quite normal in a board election in an american company that the shareholders when i read your theory is that even though the companies came to washington on his knees looking for a bailout and that in exercising the shareholder responsibility the government should still just step back and let those same failed executives and people go about their own way without any interference that even is people with an interest in it we should just step aside let it go meaning that they can then continue to disregard it whether it's tax law label or through our regulations whatever  that protect was not always a principle shareholder i don't think i quite get that that reason well that's that's not where where i'm going congressman i would i would offer that i would like to see a trust set up to run the government investment in these companies i would like to see these trustees appointed by the president insulated from short term political pressure in the next election and that's what those sort of caught up with the relationship between those trustees deal with the taxpayers whose money is the one is what's invested in the bill that's been introduced senator warner ensign of corker and also by congressman baucus in the house they would have a fiduciary duty to to maximize the taxpayers investment much like the way that there's a fiduciary duty for these failed executives to maximize the invest of their shareholders which they did by taking exorbitant salaries and many times other violations a good management practices well you know i wouldn't bailout this trust anymore than i would have bailed out these companies and i think that's that's a big part of the problem moral hazard problems of bailouts and i'm not a supporter of the bailout any more than i think a lot of members of this body so you would have let citi group and all those banks just go down i would let some of the banks go down absolutely they've got a great deal i wouldn't give an edgy nearly as much as they did i would have cut the counter parties exposure i wouldn't  there's there's no doubt that there are some that there are steps that have already been widely discussed that urgently need to be taken and in my view in fact in the view of my organization the most important steps involve the transformation of u s trade policy and i'll be very specific there is no excuse for congress and under democrats not to have passed a strong currency manipulation bill the practice of exchange rate protectionism by china and other asian countries is an abomination too should be an abomination to anybody who styles themselves a champion of the free market it has been going on for ten years at least it has crippled the american manufacturing base american manufacturing output american manufacturing jobs  we've been talking about this problem since two thousand and two or so i can understand why a republican administration in which for in which the tune on trade policy was called by outsourcing multinational companies refused to act i don't understand why this democratic president and this democratic congress refuses to act second recommendation there are already very important buy american provisions in the stimulus bill these buy american provisions need to be expanded to cover all federal procurement and i understand there are problems regarding our world trade organization obligations unfortunately these obligations may need to be suspended we face an economic emergency it's a crisis that word is used for a reason and times of emergency require emergency measures and when international obligations like this prevent us from taking commonsense measures not only to rebalance our own economy but to really balance a dangerously lopsided dictatorships why because dictatorships impose the cost and keep the costs down like labor costs and prohibition of independent trade unions so china has not only a dictatorship advantage in terms of the terms of trade  but it also has an absolute advantage the late paul samuelson economist emeritus at mit changed his views in a recent academic paper basically said the costs of outsourcing are expanding beyond the benefits about sourcing that's what absolute advantage does so it is the undervaluation of the currency the yuan fourth is the rampant criminal counterfeiting of products that are coming into this country from china and other countries  and finally there's no consumer protection there's no consumer protection treaty with china we're getting contaminated fish defective tires gradients in our pharmaceuticals that are hazardous in one case has already killed two hundred americans there's no consumer protection treaty so you have a superior advantage of shoddy goods coming in and driving out goods that me consumer standards in this country and then we  need a level playing field the idea of all of the federal subsidies and tax expenditures favoring the fossil fuel industry creates an unlevel playing field with sustainable energy and energy conservation part of it's been remedied in congress in recent years to be sure but still the subsidies for example to the nuclear energy industry is massive in terms of no nuclear plants can ever be built in this country without one hundred percent federal lo guarantee according to white house well street finance firms so that isn't true for solar energy for example solar energy doesn't get one hundred percent guarantee and summer and you can be one of the great manufacturing segments of our economy in terms of jobs produced in terms of innovation applied here in terms of climate change and other environmental issues and above all in terms of this decentralized nature contrary to highly centralized fossil fuel and nuclear installations into every community in the country creating jobs production jobs and maintenance jobs thank you thank you very much mr attorney mr nader  i voted against the bailouts because i know i don't believe that government should be picking winners and losers in the private sector now the testimony that i've heard here from some of the witnesses and indeed the debate that goes on between this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis now you know one of the concerns that i've had is that the personnel between corporate america and the federal government is basically been interchangeable at the top you look at citi group they're in the top level decision making level in the government there are people who used to work for them as is the case of goldman sachs so you wonder why there's very little change between one of ministration another look at the bailout the terms of the state of the stock ownership you look at tarp post tarp the relationship between the federal government and the corporations if i look at what happened here with this citi group you would assume that the government if it's taking ownership would protect the taxpayers first responsibility but the cit group deal that was exposed today the government instead is protecting shareholder interests over taxpayer enters just ceding billions of dollars in taxes so it raises the question of whether or not we've had a merger that's occurred here kind of a hostile takeover of the government through the tar by wall street you want to talk about moral hazard about the destruction of a democratic system using our own money this is why  it's not only the gov i meant reaching in to direct private enterprise but it's private enterprise reaching in the other way to direct the government who  this is one of the answers to the question citi group has a blank check and i don't think i'd be different with a democrat or republican ministrations the same thing and i have a question for you know  and i speak as some we've been following these issues for years and we are going to you know fair warning for the treasury department which is coming here tomorrow they're going to be asked a lot of details and for documents on this on a citi group thing i've said it before in my opening remarks matt taibbi in rolling stone did a pretty good piece on detailing the financial connections between wall street players how they are now in the administration and how policies seem to follow that ways that help wall street at the expense of main street now the question to mr nader and mr weissman some of said that the federal government did impose conditions before bailing out the companies with respect just to the four companies which the u s now owns how would you assess the significance and effectiveness of those conditions the u s did require and what should the government have required of tarp recipients but failed to demand should really distinguish from the tarp recipients and those in which the government took a controlling interest which as an aside you know it's the nature that is the core issue at this hearing and it's completely different to receiving loans the conditions were minimal ultimo there were some very modest  executive compensation conditions imposed a case of a i g they demand the very short term c e o step down the contrast is with the conditions imposed on general motors as well as chrysler where there was an extremely intensive review of and demand of policies that were being proposed by management ousting a management new management come in as a comment that since come come and gone the case of general motors the conditions that were imposed the scrutiny that was imposed in the case of general motors i think was admirable the criteria though by which would that was applied raises of your question that is not at all clear what the aim of the taskforce was in imposing these trends in conditions can you wage cuts on the auto workers and general motors and chrysler and the bush administration to have done in its negotiations with the auto industry it makes no sense whatsoever to bring down the wages both of those workers but more importantly the standard in the end in the auto industry in manufacturing overall as owners of these companies we are not lenders to these companies we the public are owners of the company they were the dominant and we're effect they are effectively our companies we have important statutory public policy your objectives that we ought to be pursuing we're right now in the midst of climate change negotiations so who's who's interested we represent then did the government federal government represent i think in the case of its actually i'm a little bit difficult to say in the case of general motors what the objective was is i think the ultimate objective was to keep it as a going concern just as a going concern but without regard to why it is the public want to maintain general motors as a going concern and the financial area i think we actually represent the interests of of management and some extent the interests of maintaining wall street and the financial system my time has expired and i try to be fair in the allocation of time we're going to have a second round of questions i want to get back to that and ask other people to join in the chair recognizes assert bailed out companies have no legitimate interests apart from government when government becomes the dominant shareholder is it appropriate to really purpose the company's objectives and policies towards for instance consumer service environmental responsibility and worker investment and to delay  the relinquishment that these changed these change priorities are achieved are protected even if that we turn for functionality our profitability what's your opinion i think there's a congress between statutory purposes and the health of of a company like general motors after all it got into trouble one because it didn't have the seal efficient and it had a bad mix of choice of vehicles reliant so heavily on the s u v s it got into trouble because as ross perot should incur i could argue also that general motors fit and finish got them into trouble compared to honda and toyota so a lot of the statutory purposes already on the books advocated as not only taxpayer representation for value but also shareholder power would would enhance the health of general motors there all this this whole area is one of cognitive cognitive dissonance the more the government helps g m how does ford react you see if you didn't ask for government help they all kinds of conflicts here but one thing it seems to be sure is that a basic principle of capitalism is that the owners control what they own and that principle is massively and historically violated by big business that basically says to shareholders institution otherwise if you don't like the way we run the country a company that was a slip if you don't like the way we run the company sell another is x not voice and that's why in response to congressman jordan's point and that's why i'm always amazed by people who call themselves free enterprise conservatives what is say what is say on pay there's no say on pay proposed in congress or by these corporations is just a non binding referendum opinion poll by shareholders if shareholders own the company they should be able to mandate high executive salaries and they should be given a very small staff to do so so i have no problems at all in terms of strengthening corporations in this country once they desperately come to washington and get on our knees for a bailout in terms as our testimony points out in terms of exercising shareholder power as a model for the rest of the country not passive shareholders as a model for institutional shareholders who should be at least as aggressive as scalpers and also to represent the taxpayer  investment and i don't think they're necessarily contradictory at all then yeah lift just one more question connected i think you if you want to the degree that we have but you know what it's connected to jobs michigan and suffering greatly find employment when i go back to my district los angeles california they don't ask me about debt they want to know what we are doing to get them back to work so i see the connection between capitalizing the banks and bellowing out so that they can hold on to employ  the unemployment rate is unacceptable right now so can you give me a an opinion as it relates to jobs and let's bell out sure well in answer to your question i would say that i share your concerns about about jobs and about employment and i my concern is about process is about to be the ability to keep everything off budget off the federal budget we saw it once before with fannie and freddie and folks said well fannie and freddie's off budget where they're not on the federal budget where they're on there now and in fact they've been the beneficiary of the largest guarantee of these companies fannie and freddie have been the beneficiary of a four hundred billion dollars guarantee this morning the wall street journal reports that the tribune to ask for more very soon so i'm worried about mr off budget stuff you know i think we can help folks through the federal budget and not have to keep it off budget because ultimately the taxpayers going to hold going to be left holding the tab anyway in the future i think keeping it secret is is is what i as what i have a problem with but they not have the ability to really determine what the pay is going to be of their executives well right now they do have the power to get rid of compensation committees and i know that the california pension fund a number of other institutional investors do a lot of good work in targeting compensation committee members that aren't doing their jobs and they say look you've got to go and they use their majority voting powers to get rid of him i think that's a very effective way to do things i worry about say on pay just because i worry about some special interest  shareholders using this power as part of their negotiations with companies and i think we've seen some shareholders misused powers the detriment of all the ordinary americans that own shares through their four one k that's a pretty subjective view of me they say they are misusing their powers with their shareholders and who's to take the other argument that they're acting on behalf of those people that whose money they're holding and going to drive that interest which is in fact not special to them i mean everybody has a special interest every shareholder has a special int taxpayers by just saying that it is beyond some point that's not going to tax deductible well you know that the congress established a million dollar limit and i'm going to relive it and and they circumvent it with stock options and so forth it's like trying to block water going down hill and so if you are going to restrict the tax deductibility of executive compensation you have to also pay attention how they're going to circumvent it and they're very creative and circumvent it well one thing we have to understand this whole subject this committee congressman is that corporations are very fast learners in gaming regulatory and bail out and subsidy systems marchant and citi group a perfect example of that in today's post they're very very creative in gaming and it's to make sure you make sure that if you restrict it in one area you've got to take into account other evasive process but i think that if you give shareholders the authority to decide not just to give their opinion and you have pension funds and institutional shareholders that will take care of a lot of the problem and they're not going to approve the pay of seventy million dollars for goldman sachs's c e o if they're given the authority and why shouldn't they be given the authority within their framework they own the company but the split between ownership and control which is pointed out by burley and means back in one thousand nine hundred thirty s is always executives dominate the corporation and the owners of control and just a professor just noted that there could be some mischief by some shareholders well they have to get over fifty percent only if the one percent is mischief i don't know what your definition of of shareholders on one hundred percent so some shareholders vote more often than others and the folks that you know hold shares to the full in case don't have time to vote their shares every day whereas the union pension boss has time to vote their shares every day that they that they do you think is the socal union pension bosses like that of the union pension funds that are voting the head of these firms seventy billion dollars in compensation i think they're voting based on their own interests and i think they all think least of what i can get from the professor and you know better all right do you really believe that those are the people that are voting a seventy million dollars compensation package for the chief executive i think they will or will not i don't know what what they're voting for but i know they will or will not vote based on what sort of deals they can work with the company and i worry about i think our credibility suffers a loss there when you when you answer that way and you don't just forthright on that because  i really have to believe that you don't think for a minute that there was a vote in the seventy million dollars pay package if you do as a good profession maybe go back and look at your documentation a little bit on that but i would disagree completely i think that we've seen a lot of conclusion between unions and firms and on all sorts of deals and so i think they might vote for it if they got some sort of special deal for themselves as well and i think when unions and boards collide and when governments and boards collide the taxpayer and ordinary main street shareholders the one who's left holding  you know that the press is a little further so the only special interest you see sitting on boards are people that represent labor pension groups well there's all sorts of special interest involved absolutely sure there are the only ones that thank you i think that the gentleman while you are having this discussion i'm thinking of alll the workers whose pension funds began to evaporate with the fall on wall street and its pension funds get collapsed in bankruptcy could in principle allow a director to be elected with just one vote a minority shareholder would you explain or expand on what you see as the perils of passive shareholding what corporate tricks or even scandals could fester while the us is the dominant shareholder and as a follow up could the companies repeat the excessive compensation practices think it's important to start with the fact that the u s corporate system is a board driven system from the from a legal perspective so whatever decisions the board to taking is going to be binding for the firm and as we talked about earlier today shale the control of its own corporations is a function of how costly it is to replace these board members when they turn out not to be so good what about passive but what about the treasury as a passive shareholder so in my mind when you finally get these large shareholder who has all the incentives in the world to actually take the role and pay the cost of being an active shareholder which is a problem with the small ones then we would like the treasury to play that role to play the role as an active large shareholder and i would that mean that means for example it means in my mind to try to restructure the system  a broad scale to support to push for election reform for the rector's it means going to the company and vote charter amendments for example we take away staggered board  provisions we separate the chairmanship and c e o positions which is common in today in the united states is illegal in some other countries because of the conflict of interest that's involved so you take these actions in order to get and of course you get director that you think are are capable of running the company the way it should be run anybody want to chime in here any any other panelist simpson what do you what do you think about the treasury's past voting strategy  about it and that's part of what what worries me is there's no binding regulation on treasury on how it's going to how it's going to vote and i think you lose some some separation of powers and some accountability to the people in the congress through that charge we also list some exceptions to it says we won't go chairs with the following exceptions ironically it lists all the things shareholders would want to vote on election directors and dividends and and things of that nature so i think we probably share a concern with respect to you know a greater point as to what's passive at what point  when you're sitting as a large shareholder you pick up a phone talk to someone that has that can have an impact in which the transition from passive to active and is passive like a wall saying you know we don't want to look we don't want to hear anything that of course would have some hazards if you're doing due diligence just won one really fast point that is why it is so essential that this government shareholder rol be tightly coordinated with the rest of our economic recovery strategy because you don't want a situation where where where government as shareholders decides to push a certain set of policies that may be good for the wellbeing of that particular company if the whole economy happens to be moving in an entirely in an entirely and entirely different way so your government you see the position of the government as shareholder in a vast supplier and let me say i am i'm not here as the champion of g m lots of our member companies have done business with it and you know what they didn't find it to be a lot of fun ok but the a us owned automotive industry is vital to american economic success we will not be a prosperous country without a big healthy automobile industry owned by americans and that the strategy for that cannot be set simply by u s government representatives voting in piecemeal ways on individual decisions and challenges that g m faces as a company that that role has to be integrated with a much broader strategy toward incentivizing more production more job creation in manufacturing in this country you know the mr nader used the term cognitive dissonance earlier i'm sure this is something that's troubling a lot of economists and people try to see a division between the public sector and private  sector but you are putting your finger on something in terms of looking at the macro economic implications of the policies because if you have if we're told that some firms are too big to fail if we take that  you know i i don't happen to believe that i think that you break them up if they're too big to fail but since we we have this model that we've essentially of confirmed the other day then we better look at the macro economics and better play a role in determining that because on one hand we can't say too big to fail and other hand saying we can't look at what exactly and i'll give you one very specific example no one would like to see g m make a great  more than me however we have to keep in mind that no economy on this planet in its history has ever produced small fuel efficient cars profitably while keeping their automotive markets open it has never happened the europeans haven't done it because their auto markets are closed the japanese haven't done it the south koreans haven't done it their markets are closed the margins just aren't there and especially when you force american companies into competition with foreign rivals that are either highly subsidized or that put this tight lid on labor costs you have a total no win situation you are forcing g m for example to take an absolutely suicidal course you know we're in a whole new area here in the era of bailouts because what we've done we've actually unwittingly created symmetry between our bailout policy our trade policy taxpayer dollars small business taxpayer dollars go to washington to help fund a bailout of general motors the u s government owns sixty percent of g m g m's policies to move its future into china that's going to be its big market support to dislodge and hollow out communities here go to china and sport back into the us i mean you see the conundrum here these are hard questions but you certainly as a matter of principle don't want to say to workers whose taxes go to washington and small business that they are going to finance the hollowing out of their communities by g m has declared policy to expand in china and a non binding promise it temporarily  export back into the us me everybody knows that's not binding and if the us sixty percent share doesn't kick in that's the way it's going to go and this is unbelievable only stripping down our economy in behalf of motors just speaking for for us b i see has to be run in a way that will give it a real chance for success you absolutely needed a viability strategy but the federal government's viability strategy the administration's viability strategy failed completely to acknowledge the global wise nature of automotive production it just ignored that it didn't exist let's make believe it hasn't happened for the last twenty years how in the world can that succeed how can you expect general motors to succeed you know in that context with that lack of forethought is a very what do you say to all that well i don't profess to be an expert on the automotive industry so i i i and i think it's i think it's a supportable proposition that the reason why we had to support a bailout of chrysler g m was in part because they they saw that they had that safety net and i think it led him to take more risk in the need to and i think that's why i know we focused a lot of what we disagree about but i admire  chairman's vote on the bailout i think it took a lot of courage i think it's an arrow bow to vote in and a way of thinking i think we should consider more and i worry about the the off budget nature of some of the sorts of deals that governments and business tend to make when they get in bed together entity to control the united states shares now professor echo calls attention to the u k approach in your testimony in establishing a special corporation to exercise a government shareholding improve transparency provide clear lines of accountability i know that ms simpson is familiar with this as well i'd like to ask any of the witnesses what they think about this concept and in particular mr nader mr weissman to comment on what model might be implemented to facilitate the broad principles or best practices that you outlined in your testimony so mr nader would you want to comment on that mr weissman and then maybe go back to mr eko and i think everybody knows that eventually the government is going to sell its shares in general motors and these other companies so my view is instead of having another delegation from the congressional to the executive to some trust fund that th e treasury under clear standards provided by the congress behave as a as a shareholder with an four with multiple multiple obligations which i don't think are in the short term conflicting they've got to represent not only taxpayer value and shareholder value but the whole purpose of bailing out g m the main purpose is to save communities and save jobs and keep an industry  major factor in industry in this country so inescapably when g m came to washington and prostrated itself in front of the congress it went into the political arena there have to be political judgments because of all the public investments and those judgments can be made in the most in line form through congressional participation openness and standards of accountability for the record i'd like to put in this room review of corporate  and anyone else want to join in mr tonelson you want to the treasury department has absolutely no expertise in fostering productive activity in fostering wealth creation it's not the treasury's job it's not their fault but they shouldn't pretend that they have that expertise second point is how it is so what do we do then with this situation we're in right now do you have any what their needs  these responsibilities have to be given to those sections or those agencies that have that that competence and if we can find them are in the right combinations new forms have to be created but one of the one of the critical point if the u s government is not if it doesn't have a voice in making these critical decisions that will literally make or break the critical industry in a globalized world economy those decisions will be made by foreign governments and their first priority will not be the wellbeing of the american people or their economy so we have no choice but to act failing to act amounts to making policy that will damage i wanted a separation between the government the political the management of the shares per se and you create more transparency and more responsibility on the part of the trust or the corporation that you are setting up people in the trust that they need in order to manage that trust properly i just want to make one comment if i can these issues that you raise which is very important if i said taxpayer would like to subsidize employment in michigan  s congress also have more funds to do its goals which is to subsidize employment in michigan i don't think you have to tie the two together necessarily as i think the as a deal question the foot should should you be an active investor i say yes in the governance area  people say what about these all the social goals that you are pulling in the macro economy and the employment record i'm saying we should probably separate the two in my mind well you know it's an interesting point you're rais an interesting point you raised because what's happened in the latter part of the twentieth century a whole body of investment information came alive dealing with socially responsible investing and that is there was an understanding that your chrysler as well as fannie mae and freddie mac so we're actually looking at kind of what the government says it's doing and what it's actually doing and i would note that when it comes to the government being a passive investor the government's had have it has been involved in changing the board structure certain situations if you take for example there's primarily a new board in place the trustees had a role in identifying members for the board they did an analysis of what they thought the new board needed to look like the expertise they needed to bring into the board and i would also like to note that when it comes to there is a provision that  does not pay for consecutive dividend payments the government has the right to vote to members of the board of directors thank you the last question  broader question that you've been raising and i want to disagree with professor echo in a comment it's in the g a o report the g a o experts consulted said that the government should manage its shares as if it were a commercial investor the government is not  commercial investor we did not get into general motors a i g citi group because we thought there was a profit opportunity there we made a policy decision that there were certain broader implications what that required of continued existence of these firms that suggest that as we manage our shareholding opportunity we have to take into account and zachary those same broader policy considerations to your previous question i think that means therefore you do not rely just on treasury to manage the share decisions you you involve agencies like e or department of commerce they are appropriate and as a final piece and also i think it speaks absolutely to the need for congress to have much more oversight and engagement in this because it's not going to come as we see now from this administration finally to the point you raise at the outset it's also related to this we have to address the issue of exit we now have the exit strategy merging with citi group there has to be some standard about what the exit is that can just be that we got in to help you out for a little while we will get out whenever it is convenient to you to you the companies are us the government the exit decision has to be managed terms of what benefits the public and the government interest in these corporations not in the interests of the corporations themselves chairman could i clarify go ahead the  comment in our statement about the commercial manner this was not the source and that's how it should be that was part of the discussion of how the treasury explained they are managing the investment so we were not endorsing that approach but simply  the government says they want to be passive investors there's no such thing when you own sixty percent of the company in a passive investor without tilting the dynamic in favor of the non passive or the commercial investors let me give an example proper role for the government should have been to deal actively with who's going to be on the board of directors and who's going to run general motors because historically general motors has been run for the last sixty years by finance executives or marketing executives not by engineers the way henry ford and chrysler and others started the auto companies that of course degraded the concept that most people who know the industry believe is central to the recovery the auto industry it's called product product product and so now g m is run by a tell an x telephone executive with a lack of distinguished members of the board of directors they've just fired the replacement for the original c e o fritz henderson and are scarce at the top so this is what happens when the government which has major responsibilities for g m s recovery takes a stand h position and it would be good for the general accounting office to provide congress with information as to the degree if any the government ratify d's lack of distinguished boards of directors and the top management of g m as automotive news which is no patsy for the industry but it is an industry trade journal has said repeatedly especially its current issue general motors needs an auto guy you need somebody who knows automobiles production engineering and innovation and on that point of thought on that point i want to submit to the record a report that we did a couple years ago called innovation in stagnation in automotive safety and fuel efficiency well except that for the record i'm just one since i'm going to have to just once i think you may read that general motors has been denying the practical innovations that its major suppliers have been putting forth for decades and that's a management failure i want to thank you for your testimony we have another vote and we've covered a lot of territory today this is the domestic policy subcommittee of government oversight reform our topic today it's been to government as dominant shareholder how should the taxpayers ownership rights be exercised we've got a distinguished panel i appreciate each and every one of you participating you've opened up other areas for  which this committee will address tomorrow we're going to have treasury here to testify and as i said earlier we're going to be asking him about a lot of things including this city group development