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56–019 PDF 2010

S. HRG. 111–367 

EMERGENCY ECONOMIC STABILIZATION ACT: 

ONE YEAR LATER 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE EFFECTS OF THE EMERGENCY ECONOMIC 

STABILIZATION ACT AFTER ONE YEAR 

SEPTEMBER 24, 2009 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

KAY BAILEY HUTCHISON, Texas 

JUDD GREGG, New Hampshire 

EDWARD SILVERMAN, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

AMY S. FRIEND, Chief Counsel 

DEAN V. SHAHINIAN, Senior Counsel 

CHARLES YI, Senior Policy Adviser 

JULIE CHON, Senior Policy Adviser 

MATTHEW GREEN, FDIC Detailee 

MARK OESTERLE, Republican Chief Counsel 

JEFFERY L. STOLTZFOOS, Republican Counsel 

DAWN RATLIFF, Chief Clerk 

DEVIN HARTLEY, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
C O N T E N T S 

THURSDAY, SEPTEMBER 24, 2009 

Page 

Opening statement of Chairman Dodd .................................................................. 1 

Prepared statement .......................................................................................... 3 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 3 

Senator Brown 

Prepared statement ................................................................................... 57 

WITNESSES 

Herbert M. Allison, Jr., Assistant Secretary for Financial Stability (TARP), 

Department of the Treasury ................................................................................ 5 

Prepared statement .......................................................................................... 58 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 122 

Neil M. Barofsky, Special Inspector General, Troubled Asset Relief Program .. 41 

Prepared statement .......................................................................................... 97 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 122 

Senator Shelby ........................................................................................... 123 

Gene L. Dodaro, Acting Comptroller General, Government Accountability 

Office ..................................................................................................................... 43 

Prepared statement .......................................................................................... 104 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 127 

Senator Shelby ........................................................................................... 128 

Elizabeth Warren, Chair, Congressional Oversight Panel for the Troubled 

Asset Relief Program ........................................................................................... 45 

Prepared statement .......................................................................................... 119 

Responses to written questions of: 

Chairman Dodd ......................................................................................... 129 

(III)

(1) 

EMERGENCY ECONOMIC STABILIZATION ACT: 

ONE YEAR LATER 

THURSDAY, SEPTEMBER 24, 2009 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee convened at 9:40 a.m., in room SD–538, Dirksen 

Senate Office Building, Senator Christopher J. Dodd (Chairman of 

the Committee) presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. The Committee will come to order. Let me welcome all of our colleagues here this morning and our witnesses. 

Let me also welcome my very good and dear friend of many 

years, Judd Gregg. Judd, we welcome you to the Committee. Judd 

and I served on committees together. We serve on the Health, Education, and Labor Committee, and together, we went through the 

marathon markup earlier this summer. I guess you are going 

through it again—no, you don’t have to go through that again, I 

guess—— 

Senator GREGG. Fortunately, not. 

Chairman DODD. ——but we are a delighted you are a part of us. 

We are getting a lot of Governors on this Committee here, I can 

only say. 

[Laughter.] 

Chairman DODD. Look at the smiles here, the Governors smiling 

around the table here, the possibility of being involved in this. 

Well, Judd, we are glad you are with us, and thanks for joining us. 

We will miss Mel Martinez. Mel did a great job on the Committee. He was invaluable to us as a former Secretary of HUD and 

brought some wonderful perspectives to housing issues and others 

as a Member of the Committee, and so we wish him well. But 

again, Judd, we are delighted to have you with us in this process. 

I want to make a couple of opening comments. I will turn to Senator Shelby, our former Chairman of the Committee, and then we 

will turn to our witnesses, following the Corker rule that unless 

Members insist upon being heard before we hear from our witnesses, we will recognize them at their appropriate time in the 

process and go forward to—— 

Senator SHELBY. Mr. Chairman, that is an unwritten rule, 

though—— 

Chairman DODD. It is the unwritten Corker rule, I call it here. 

Look at him smile. He smiles every time I mention that. 

[Laughter.] 
2 

Chairman DODD. There is the Byrd rule and the Corker rule. We 

just have different rules along the way. 

Well, good morning, everyone. A little over a year ago, Treasury 

Secretary Henry Paulson, Federal Reserve Chairman Ben 

Bernanke, and SEC Chairman Chris Cox came to Congress with an 

urgent message. The American economy was on the brink of total 

collapse and they needed $700 billion of taxpayer money to stop it. 

Already, our Nation, of course, as all of us know here, was in the 

midst of an economic crisis that threatened small businesses’ ability to make payroll, cost us more than half-a-million jobs in our 

Nation, and turned the American dream of home ownership into a 

nightmare for many. It kept students from getting college loans 

and wiped out hundreds of billions of dollars in savings that Americans were counting on for their retirement. With financial giants 

toppling what seemed like every day and with businesses large and 

small suddenly unable to access the credit they needed to operate, 

we clearly needed to act. 

But when the Bush administration’s proposal emerged, it was 

clearly unacceptable. I know particularly Judd, myself, and Bob 

Corker and others were involved in those days and it was a wild 

2 weeks that went through back a year ago, one matter after another. My colleagues may recall that the original proposal asked 

Congress pretty much for a blank check with no protections for taxpayers, those on whose account it was being drawn. The proposal 

included no Congressional oversight, even wanted to prohibit judicial administrative review of the Secretary’s decisions. 

In short, the Bush administration asked Congress to put up an 

unprecedented amount of taxpayer money and executive power 

under the unchecked control of one unelected individual with no 

guidelines to ensure that it would be used properly, without even 

so much as an office with a dedicated staff to keep track of where 

it was going. Doing nothing, obviously, was not an option, but neither was the proposal that we were submitted, at least initially. 

The crisis demanded that we bring together members of the 

House, the Senate, Republicans and Democrats, and hammer out 

a better solution, and that is what happened over the ensuing several weeks. We fought hard to include taxpayer protections and 

meaningful oversight. We fought to ensure that if ordinary Americans who had done nothing wrong were going to pay for this stabilization effort, they would get to share in the benefits if companies became more profitable, an initiative driven by Senator Jack 

Reed, in fact, of our Committee. We required Treasury to put 

homeowners and the financial security of American families at the 

top of the agenda. And we established three oversight bodies that 

are before us today to keep an eye on what was happening in the 

ensuing weeks and months. And we made certain that we put first 

and foremost the principal that with this assistance to the financial 

sector would come real change so that a crisis like this wouldn’t 

happen again. 

I am glad that we had—are any of us glad that we had to spend 

this money? Absolutely not. It was a tragic time in our country, to 

go through that period of time. And do I share a lot of the anger 

and frustration that many of our colleagues and our fellow citizens 

felt at the time and still do in many quarters, that Wall Street 
3 

greed and regulatory neglect left taxpayers on the hook? All of us, 

I think, share in those emotions. 

But I am also, I think, proud of the work that we did a year ago. 

It wasn’t easy in the time constraints we were given. People 

stepped up. We did the best we could under the circumstances. 

Certainly, it was far from perfect. We all know that today, looking 

back. But in the time we were given, the circumstances we were 

confronted with, I think we did the right thing and I think history 

will prove that to be the case. 

I am relieved that we have managed to bring our economy back 

from that brink. We are not talking about a depression any longer, 

a complete meltdown of the financial services sector. And I am 

more committed today than ever to taking action so that the American taxpayers who funded the effort aren’t asked to clean up another mess they didn’t make in the future in related matters. 

We need to take action to restore America’s confidence, sense of 

optimism, and their financial security by reforming a regulatory 

system that still continues to contain far too many gaps, loopholes, 

and redundancies. The 20th century regulatory structure has been 

outpaced by the 21st century innovations in the financial services 

industry, and if we don’t fix it, we could be right back where we 

were a year ago, facing another dreadful choice between a massive 

outlay of taxpayer dollars or an unimaginable economic disaster for 

our Nation and others around the globe. 

I look forward, obviously, to working with my colleagues. Senator 

Shelby and I are good friends. We have worked hard together on 

numerous issues. I have mentioned already several Members of 

this Committee. And again, I welcome you, Judd, to this effort because of your knowledge and background and experience as we try 

to navigate these waters in the coming weeks and months to try 

to respond to the challenge before us. 

So with that, I thank my colleagues, and in a minute, after hearing from Senator Shelby, we will hear from our first witness, Herb 

Allison. 

Senator Shelby. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. 

We meet today to continue our oversight of the Troubled Asset 

Relief Program, or something we called TARP. Last year, during a 

critical phase of the financial crisis, as we all know, Treasury Secretary Paulson and Federal Reserve Chairman Bernanke came to 

Congress warning of an eminent economic disaster that could only 

be avoided by the immediate expenditure of massive amounts of 

taxpayer dollars. They argued that hundreds of billions of dollars 

were needed to purchase troubled assets from weakened financial 

institutions. 

At the time, I expressed serious reservations about this plan because I did not believe that a massive and crude bailout bill was 

the most prudent course of action. Instead, at that time, I argued 

that we should first clearly and thoughtfully determine what had 

gone wrong. Only then could we hope to develop an effective plan 

of action. 
4 

That could have been accomplished in a relatively short period 

of time. It seemed apparent that this crisis would require a wide 

range of programs and actions to stabilize the financial markets. 

Had we recognized this at the outset and addressed each problem 

by order of priority and in a coordinated fashion, I believe our response would have been more effective and made better use of taxpayer resources. 

Unfortunately, this was not the course we chose to follow. Weeks 

after the deadline for so-called ‘‘emergency action’’ had passed, we 

gave the Administration the massive check it requested, added 

some oversight provisions, and moved on. Almost immediately, our 

hasty actions produced a likely outcome. The Administration 

changed course entirely, abandoned the asset purchase concept, 

and adopted a plan to make direct capital injections into financial 

institutions. 

When the Capital Purchase Program was not enough for some 

institutions, the Targeted Investment Program was created. When 

some institutions required even more assistance, the so-called ‘‘Systematically Significant Failing Institutions Program’’ was put in 

place. Finally, the TARP became the bail-out fund for the Auto Industry Finance Program, through which GM, Chrysler, and a large 

number of auto suppliers received assistance from the Federal Government. We certainly have traveled a long way from a Troubled 

Asset Purchase Plan to where we are today. 

In addition, as I argued would be the case, TARP money did not 

address many of the core problems of our financial markets. The 

banking regulators had to contort banking law to create a program 

to allow the FDIC to guarantee billions of dollars of bank debt. The 

Treasury also had to initiate a Money Market Mutual Fund Rescue 

Program that was followed by a separate Federal Reserve Bank of 

New York program designed to achieve much the same thing. In 

addition, deposit insurance coverage amounts were significantly increased and the SEC banned short selling of the stocks of certain 

financial firms. 

The Federal Reserve also began a series of efforts, as you will recall, to address problems in the commercial paper markets and has 

stated its intention to buy more than $1 trillion in mortgage securities. The Federal Reserve cut interest rates. In fact, the Fed has 

committed over $2 trillion from its balance sheet to address market 

instability. 

Again, I believe a more deliberate process would have yielded a 

better understanding of the crisis and the need for particular actions. It would also have given the Congress the opportunity to participate more fully in the decision-making process. We are, after 

all, spending the American people’s money. 

Going forward, I believe we must continue to ensure that the 

program which the CBO is already estimating will cost taxpayers 

more than $200 billion is managed as well as possible. A great deal 

of work remains. The oversight entities should work diligently with 

Treasury and Mr. Allison to increase transparency and limit taxpayer losses. And as we approach the expiration of the TARP program, which is December 31, 2009, we must remain mindful of the 

original intent: Market stability. The Administration should not, I 

believe, pursue policy objectives through the TARP that are unre-
5 

lated to that goal. In other words, the TARP should not be extended. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

In the absence of any other Members wanting to be heard at this 

juncture, we are going to introduce our first witness, and we thank 

him for being with us. Herb Allison, Jr., is the Assistant Secretary 

for Financial Stability in the Department of the Treasury. Prior to 

this position, he served as the President and Chief Executive Officer of Fannie Mae, when that company was taken under conservatorship in September of 2008. He has also served as the 

Chairman, President, and Chief Executive Officer of TIAA–CREF, 

a leading retirement services company. He had a long career at 

Merrill Lynch that began in 1971 and culminated in being elected 

President and Chief Operating Officer in 1997. 

We thank you very much for your service to our country in this 

latest capacity and are anxious to hear your thoughts this morning, 

Mr. Allison. 

STATEMENT OF HERBERT M. ALLISON, JR., ASSISTANT SECRETARY FOR FINANCIAL STABILITY (TARP), DEPARTMENT 

OF THE TREASURY 

Mr. ALLISON. Chairman Dodd, thank you very much, Ranking 

Member Shelby and Members of the Committee. Thank you for the 

opportunity to testify before you today. As we approach the 1-year 

anniversary of the Troubled Asset Relief Program, or TARP, I welcome this chance to update you about the progress we have made 

in restoring our financial stability. 

Let me start briefly with the challenges that we faced a year ago. 

We were in the midst of one of the worst periods in our financial 

history. Major institutions were in distress, credit markets froze, 

and we faced a run on money market mutual funds. In response, 

Congress took the difficult but needed step of creating TARP 

through the Emergency Economic Stabilization Act of 2008, or 

EESA, which gave the Treasury Department unprecedented authority to stabilize the U.S. economy. 

The consequent actions taken last fall achieved the vital but narrow objective of preventing a meltdown of the financial system. But 

by the time President Obama took office in January, the Nation 

faced a full-blown economic crisis, as monthly job loss reached 60- 

year highs and home foreclosures accelerated rapidly. There was 

concern that we were headed toward a second Great Depression. 

One year later, thankfully, that is not the case. Treasury has 

made the necessary investments to restore confidence in our banks, 

restart credit markets that are critical to American households and 

businesses, and support homeowners. We still have a long way to 

go before true economic recovery takes hold, but there is little 

doubt that we have moved back from the financial brink and toward economic recovery. 

TARP has been central to those achievements over the past year. 

Of the $700 billion authorized for TARP by Congress, Treasury has 

announced programs totaling $644 billion, under which $444 billion 

has been committed to date. Throughout this process, our goal has 
6 

always been to recapitalize our financial system with as much private capital and as little taxpayer funding as possible. 

Since the release of the bank stress test in early May, banks of 

all sizes have raised $80 billion in common equity and $40 billion 

in nonguaranteed debt. That enabled more than 30 banks to repay 

their TARP funds, returning over $70 billion to the general Treasury. 

There are promising signs from other TARP programs, too. For 

instance, the Term Asset-Backed Securities Loan Facility, or TALF, 

operated by the Federal Reserve Bank of New York, has helped 

narrow spreads and improve liquidity in the markets that facilitate 

lending to consumers, students, and small businesses. 

The Making Home Affordable Program, designed to prevent 

avoidable foreclosures, is on track to reach its goal of 500,000 trial 

mortgage modifications by November 1, and perhaps even earlier. 

We do recognize, however, that there is still much more to be done 

to help homeowners. 

The weighty responsibility of the TARP mandate, to steady our 

financial system and visionally protect taxpayers’ money, is one 

that my colleagues and I take very seriously. We have instituted 

strict controls over TARP investments and operations. The programs also benefit from regular and open communication with our 

four oversight bodies, and we have implemented fully or in large 

part the vast majority of their recommendations. 

The question now is, what lies ahead? TARP was created as an 

emergency response to a major financial crisis. The use of these 

programs, by design, will decline as the financial system recovers. 

But we must remember that our economic recovery has just begun 

and significant parts of the system remain impaired. 

Foreclosure and unemployment rates remain unacceptably high 

across the country. Small businesses are still grappling with unusually tight credit. And continued decline in real estate prices, 

both in the residential and the commercial markets, could put additional pressure on bank balance sheets and capital positions. 

But ending the financial crisis is not primarily about helping 

banks. It is about restoring the mechanisms that provide opportunity to everyday Americans, to purchase or keep a home, to finance an education, or to expand a business. 

It is with these goals in mind that we have created the programs 

in TARP and President Obama’s Financial Stability Plan. Every 

day, we strive to meet these challenges to remain prudent investors 

on behalf of the American people. 

Thank you again for the opportunity to testify, and I look forward to your questions. 

Chairman DODD. Thank you very much. Thank you very much, 

Mr. Secretary, and again, we appreciate your presence here today. 

I am going to ask the Clerk, why don’t you put on 6 or 7 minutes 

and we will try and keep an eye on that so we get around to everybody here. We have pretty good participation this morning and I 

want to make sure we get to hear everyone. 

Let me start off, if I can, Mr. Allison, with the Loan Modification 

Programs. I suspect what I am about to say could be repeated by 

almost everyone on this side of the panel, of the table here, and 

that is we get calls every day in our office from people who just 
7 

feel terribly frustrated about their ability to come out with some 

modification of their mortgages to try and stay in their homes, if 

they can. I know the Administration’s plan is starting to ramp up, 

but literally, on a daily basis—and we are told maybe for different 

reasons now, given the unemployment rates, while they are not 

what they were in January, are still very high obviously, and that 

a lot of the foreclosure threats come more from that than, say, the 

subprime problems that existed a while ago. 

And the question is, what is being done about it? What can we 

do? I just find frustration. I am hearing from some people that just 

mail notices or calls, or not the contacts with the actual people who 

are not yet delinquent but are on the verge of being so, catching 

it early could maybe work something out so you can people there. 

In some cases, maybe you can’t at all, and I, for one, realize that 

is also a conclusion you ought to be able to reach. If so, then you 

move on and get the property moving, get it turned over. So there 

is some flexibility with all this. 

I gather it is a lack of personnel in some cases, getting people 

trained, asking people in institutions and banks who have never 

really dealt with the volume we are facing today to deal with these 

matters, but I want to know if there is any—what thoughts are you 

giving to this as the Administration? Are you thinking about a 

moratorium, for instance? Some people are thinking about 3 

months of a moratorium on foreclosures in order to give time for 

the ramping up of the individuals and so forth. I get uneasy about 

moratoriums because they could just forestall the inevitable and 

you can have a negative impact of unintended consequences in the 

marketplace if you do that. 

Does it need more personnel? Do we need to demand that there 

is the kind of personal contacts? If you are paying fees, if you are 

getting fees as a servicer, are those fees being used to actually 

reach out to people to find out early enough on where they are in 

their ability to meet their obligations on their mortgages or not? 

But what is presently going on is just not working, so I am very 

anxious to hear what plans, if any, the Administration has to address this problem, which appears to be growing larger again given 

some of the indications we have heard about a new wave of foreclosures coming to the country. 

Mr. ALLISON. Thank you, Chairman Dodd. We certainly do share 

your concerns. We have seen the volume of trial modifications increase rapidly. As I mentioned in my testimony, we may actually 

exceed the target number of 500,000 trial modifications by November 1. Nonetheless, we are receiving complaints, as well, from 

homeowners who are anxious, who aren’t receiving responses from 

their banks as fast as they would like. 

We are publishing now statistics by bank on their efforts and 

their success in modifying mortgages. But we also are going to be 

soon publishing reports on the service quality by each bank, and 

we hope that that daylight being shown on their service quality is 

going to provide additional impetus for them to improve their service quality. 

We also, in order to make sure that more people can get into this 

program and succeed in the program, we have to streamline the 

process of providing documentation from homeowners to their 
8 

servicers. We are trying to make that a simpler process and we are 

going to have significant progress, I think, in that over the next 

weeks and months. I think that is very important. 

We also have to reach out more across the country to make sure 

people are aware of the program and of its features and they have 

an opportunity to take part. 

So far, the servicers have contacted—sent inquiries to over 2 million people and we have offers out to over 500,000 people and trial 

modifications are now approaching 400,000. So we have made material progress over the last few months. But we are not by any 

means satisfied. 

We had a meeting with all the servicers in late July. We are 

going to have another meeting in early October, bring them to 

Washington and spend a day discussing with them the various 

issues that you have so correctly pointed out. 

Chairman DODD. A lot of this may be anecdotal, so I want to be 

careful. I haven’t done any big surveys here. But I have heard, for 

instance, I have heard that Freddie Mac does a pretty good job of 

getting the personal contact with people who could be falling into 

a foreclosure situation, whereas I have heard FHA is doing a 

dreadful job at this. Again, that may be anecdotal, I don’t know 

that, but it seems to me there seems to be an uneven application 

of the ability to—or the willingness to actually reach out to people. 

Sending people a notice in the mail or making a phone call is not 

being proven terribly successful. But where there are personal contacts with people and making an evaluation of where people’s abilities are to meet those obligations seems to be producing better results. Is the intention to do a lot more insisting upon personal contacts with these people or not? Where are we headed with that? 

Mr. ALLISON. Yes, Chairman Dodd, that is the intention. There 

have been events held throughout the country in major cities and 

rural areas with bank services. We participated in a number of 

those as observers. Freddie Mac and Fannie Mae are out there, as 

well. 

Modifying mortgages is a homeowner by homeowner operation. It 

is intensive. It requires personal counseling in many cases, and we 

need to reach out and contact as many people personally as possible. And some—— 

Chairman DODD. Well, I would appreciate hearing back on this, 

if you could. I would like to know specifically what is being done 

about that, because the complaints are mounting. I appreciate 

what you are doing, but I would like to get a far more frequent 

analysis of how that is working. 

Mr. ALLISON. We will be happy to provide you information about 

that, Chairman. 

Chairman DODD. Let me jump quickly, if I can, to the regional 

banks and the growing problem with commercial real estate, because we are hearing, all of us again, there is a wave coming in 

commercial real estate that poses some real additional threats to 

our economic recovery. 

Many regional banks are reportedly in trouble, in part because 

of commercial real estate. One study by Canadian Observers predicts that over 1,000 U.S. banks could fail. The FDIC’s list of troubled banks reportedly exceeds 400. 
9 

One, I guess, is could the failure of over 1,000 regional banks 

cause renewed financial instability of the level we have been talking about? If so, what are we doing, or are we doing all that we 

can to help these viable regional and community banks as we have 

done to the Nation’s largest banks? They are sitting out there. 

They didn’t cause any of this problem, in many ways, here, and yet 

are going to face a tremendous wave of difficulty. 

And how do we intend to use TARP monies here to reduce this 

potential for instability, if, in fact, you agree that it would create 

a significant amount of instability in our economy, if, in fact, these 

numbers that people are talking about turn out to be accurate 

numbers? What plans do we have, if any, to assist our regional 

banks and community banks that we provided the same level for 

these large money-centered institutions? 

Mr. ALLISON. Chairman Dodd, we have—first of all, last May, we 

reopened the Capital Purchase Program for smaller banks, banks 

with under $500 million of assets. We need them to be active in 

the commercial as well as the residential real estate markets. 

Furthermore, the TALF program is aimed directly at the problem 

of restarting the securitization markets, which is so important to 

providing commercial and residential mortgage-backed securities to 

individuals and businesses, and that program has been quite successful. 

We also expect to be launching the first of the Public–Private Investment Partnerships at the end of this month. We will have our 

first closing. And that is also intended to reignite trading in the 

mortgage-backed securities markets, both the residential and the 

commercial. 

It is also very important that banks continue to replenish capital 

going forward. I know that the regulators are very much involved 

with the banks in dealing with the question of the impact, the potential impact of continued downturn in the commercial real estate 

market. 

Chairman DODD. Well, thank you, and again, this is one we have 

got to maintain some close contact with the Administration on as 

this evolves. 

In fact, I have some additional questions, if we get around to 

them, to the Public–Private Investment Program, but let me turn 

to Senator Shelby. 

Senator SHELBY. Thank you, Chairman Dodd. 

Mr. Allison, the Treasury Department thus far, according to my 

understanding, has sunk close to $50 billion into General Motors. 

The Congressional Oversight Panel recently reported that in order 

for the taxpayers’ bailout to be repaid in full when Treasury sells 

its GM stock, GM would need to have a total market capitalization 

of $67.7 billion. As of yesterday, the market capital of GM was a 

mere $455 million, less than 1 percent of the target that would 

fully repay the taxpayers. For taxpayers to be fully repaid, General 

Motors’ market capitalization would need to increase by about 

14,000 percent—14,000 percent. 

Given that GM is facing a challenging environment since its current market share of U.S. light vehicle sales has fallen to less than 

20 percent, compared to a market share of more than 28 percent 
10 

in 2000, what is the likelihood, Mr. Allison, that Treasury will take 

a huge loss on its investments in GM? 

Mr. ALLISON. Ranking Member Shelby, thank you for your question. I know that is very much on the minds of the American public, as well. A number of actions, as you know, were taken to save 

hundreds of thousands of jobs by rescuing General Motors and 

Chrysler, and at the same time, requiring them to restructure fundamentally so that they could compete more successfully going forward. 

The success of those companies will depend on their management 

and their strategies. We are obviously very much very closely observing the progress of both of those companies. We are not, however, an active shareholder in those companies. We own shares in 

General Motors, but our intention is to divest those shares as rapidly as that is possible and not to get involved in the day-to-day 

operations of those companies—— 

Senator SHELBY. You are not an active shareholder, yet you are 

a shareholder, right? 

Mr. ALLISON. We are a shareholder. 

Senator SHELBY. Well, why aren’t you an active shareholder if 

the American taxpayers’ money is involved? It is part of your job 

to protect that money. 

Mr. ALLISON. Yes. What we did, Senator, is to take very strong 

actions before the bankruptcy to ensure that they would come out 

as fundamentally different companies with much better prospects 

than they had before. 

Senator SHELBY. Sure. 

Mr. ALLISON. We are also observing very closely their progress. 

And we believe that there are possibilities for those companies to 

regain market share and to increase value for the taxpayers. 

Senator SHELBY. I want to shift to AIG. The Government Accountability Office this week issued a report on AIG in which it 

stated, among other things, that it remains uncertain as to whether AIG will ever be able to fully repay the $180 billion in Federal 

assistance that has been extended to the company. In addition, the 

Congressional Budget Office has estimated that the Treasury will 

lose a sizable portion of the TARP funds it has invested in AIG. 

From your perspective, how much do you expect the Government 

to lose on its bailout of AIG, and how long do you believe it will 

take for Treasury to divest its interest in AIG? I know they are 

tough questions. 

Mr. ALLISON. Well, sir, I think first of all that the rescue of AIG 

was absolutely essential at the time to protect the financial system 

of the United States. I think the consequences of a sudden, unorganized failure of AIG would have been extremely damaging. 

We, again, are monitoring our investment very closely. The company has a new board of directors. It has a new chief executive officer. They are working very hard to stabilize the insurance companies and reduce the risk in that company. And I think they have 

made substantial progress so far, but they still have a long way to 

go. And I think the eventual outcome is still unclear, but they have 

made notable progress, and we expect further progress going forward. 
11 

Senator SHELBY. I want to shift to Citigroup. Easier—not really. 

Citigroup has received more than $300 billion in financial support 

from the Federal Government, including $50 billion from TARP. 

This is exceptional financial assistance. Because the Treasury Department received significant equity stakes in Citigroup—36 percent, I believe—in exchange for this assistance, the Federal Government now has a major say in how Citigroup will operate. You 

are the large stockholder. 

What steps is Treasury taking to restructure Citigroup to ensure 

that it does not present systemic risk or require additional taxpayer funding? It is still a sick bank. 

Mr. ALLISON. Senator, first of all, again, we are not actively involved in the day-to-day management of Citigroup. We are, as you 

correctly say—— 

Senator SHELBY. Excuse me a minute. Let me interrupt you a 

minute. I did not mean to be—you are a 36-percent stockholder, 

the largest stockholder in Citigroup—that is, the taxpayer. Part of 

your job is to oversee how this company is run, and you just said, 

as I understood you, that you are not actively engaged in the running—or what—of Citigroup. And if you are not, why aren’t you? 

Mr. ALLISON. Well, sir, we first of all believe that the Federal 

Government’s role should be limited to voting on certain matters 

as a shareholder, such as the election of directors and major corporate events. We believe that it is not the job of the Federal Government to be micromanaging companies. And, in fact, it is in the 

taxpayers’ interest for the companies to have strong boards of directors and strong management. If the Government were to interfere too much, we actually might reduce the potential value of 

those companies. 

Senator SHELBY. But looking at the history of Citigroup in the 

last 20 years, are you satisfied that Citigroup is going to grow 

strong and grow out of all this and pay all this money back? Or 

do you not have those concerns? 

Mr. ALLISON. Well, again, Citigroup has made progress since the 

crisis in reducing risk in that company and strengthening its management and especially its board of directors. So we have seen 

progress in Citigroup, and we expect further progress in the 

months ahead. 

Senator SHELBY. Well, my last question—I know my time is running. At a recent Congressional Oversight Panel hearing, Secretary 

Geithner observed that certain Capital Purchase Program investments are earning taxpayers a double-digit return. The Congressional Budget Office, CBO, however, estimates that the CCP alone 

will lose in excess of $20 billion. We will lose more than half of our 

investment in the car companies and AIG, they predict, and for the 

entire TARP program, we will lose more than a third, at least, of 

the $700 billion. 

Do you believe that CBO’s—the Congressional Budget Office— 

numbers are accurate? And if not, how do you differ with them? 

Mr. ALLISON. Well, first of all, Senator, let me mention again 

that we have received over $70 billion of repayments and close to 

$80 billion of total payments of dividends and interest and so forth. 

Senator SHELBY. That is over 10 percent? A little over? 
12 

Mr. ALLISON. Well, actually, in terms of the Capital Purchase 

Program, the total amount that was committed was $204 billion. 

We have received $70 billion of that money back. And the return 

of the banks that have completely repaid, including repurchasing 

their warrants, has been close to 18 percent. 

On November 16th, we will be publishing the valuations of all 

the assets in the TARP program, and—— 

Senator SHELBY. This would be a complete picture? 

Mr. ALLISON. Yes, sir. 

Senator SHELBY. OK. 

Mr. ALLISON. That will be a complete picture, so at that time you 

will be able to see what the returns have been so far. 

Senator SHELBY. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman, and I want to welcome Mr. Allison to the Committee. It is good to have you back. 

Mr. ALLISON. Thank you very much, Senator. 

Senator TESTER. I very much appreciate the opportunity to ask 

you a few questions. 

During the debate last fall on the TARP, I was concerned that 

there were not enough limitations on the TARP money, that it 

might end up in foreign banks. And then later on, we ended up 

dealing with the auto manufacturers, in particular, GM and Chrysler, and there was some concern by me that the money that would 

be given to them would not be spent domestically. And since it was 

taxpayer dollars, I thought it was important. In fact, I think at one 

point in time in the questioning of GM and Chrysler and Ford’s 

execs, I asked the question, you know: Where is the money going 

to be spent? What is it going to be spent on? What country is it 

going to be spent in? Because, quite frankly, these were taxpayer 

dollars, and the economy here was tanking in a big, big way, and 

I thought the right thing to do was to spend it here. 

In response to that, a few months after they received the $50 billion, GM went to the bankruptcy court and got a contract negated 

between Stillwater Mine with supplies, GM with palladium, got it 

thrown out so they did not have to live up to it. The only palladium 

mine in the United States. Instead, they wanted to use palladium 

and are using palladium from South Africa and Russia, and their 

reasoning for doing this was that they could pay back the TARP 

money quicker, even though a few months earlier they said they 

needed the money to keep their suppliers whole, of which the Stillwater Mine is one of those suppliers, 1,300 jobs, one of the largest 

employers in Montana, and these are jobs that have good health 

care benefits and good-paying wages. 

I guess the question I have is: Do you think it was appropriate 

for GM, as one of their actions—well, actually one of their first actions out of the chute—to negate a contract with a U.S. company— 

a U.S. mine, I should say, so that they could do business with a 

foreign mine? 

Mr. ALLISON. Senator Tester, first of all, we share your concern 

about maintaining jobs, not only in Montana but across the country, and that is one reason why the Obama administration has 
13 

launched the largest economic plan in the history of our country, 

as well as the financial stability program. 

Again, with regard to General Motors, we are not taking an active role in the day-to-day management of that company, and we 

believe it is in the taxpayer’s interest that we not do so. And as 

I have said, we have strengthened the management and the board 

at General Motors, and we do see progress. We, though, cannot get 

directly involved in decisions like the one that you talked about. 

Senator TESTER. But in the spirit of the TARP dollars, who gets 

involved? Because the fact is this is a half-a-million-dollar hit a 

month to this mine. It is going to result, potentially, in some job 

loss. I cannot imagine it not. And it is absolutely shipping money 

outside the country. And GM will turn around and say, yeah, but 

we are recycling with a Pennsylvania firm—that also does all the 

recycling outside this country that could be done inside this country. And part of the whole idea from my perspective with the TARP 

money was maintaining our manufacturing base, and part of that 

manufacturing base is industries in this country that supply them. 

So who does get involved? How do we hold GM’s feet to the fire? 

I think we are about—and correct me if I am wrong, Mr. Chairman—a 60-percent owner in that company, if I am not mistaken. 

Mr. ALLISON. I think, Senator, we have to look at the totality of 

the Obama administration’s economic recovery programs, where 

there is a great deal of effort and funds being directed toward job 

training, toward maintaining jobs, toward unemployment insurance, and so forth. We have to get this economy growing again so 

that we can create more jobs. And we also have to assure that General Motors is in a position to grow and to employ more people 

down the road. 

Senator TESTER. I could not agree with you more, and I guess the 

question is that I have a level of frustration in that GM, with taxpayer dollars, has chosen to do business with a mining operation 

that has very, very little environmental restrictions and very, very 

poor wages and basically sold our workers down the tube. My opinion. 

And, I guess, how do we hold GM’s feet to the fire? Or can it be 

done? Or do we just let them do their thing? I, quite frankly, have 

asked for their contracts to find out what they are paying for that 

palladium in South Africa and Russia, and we await that response, 

because I do not think they are private contracts anymore because 

this company is owned, a fair amount, by us, the U.S. 

So the question is: Who can hold their feet to the fire? Or am 

I shouting into the wind, blowing in the wrong direction? 

Mr. ALLISON. Well, sir, I think you are holding their feet to the 

fire right now by raising this issue as effectively as you are. I will 

take your concerns back with me and discuss it with my colleagues. 

Senator TESTER. I appreciate that. I do very much appreciate 

that. It is just one of those things. 

The purpose of the TARP funds—and you know—is to provide 

authority and facility to the Secretary so he can restore liquidity 

and stability to the financial system, protect home values, college 

funds, and retirement accounts. The list goes on. You know what 

they are. Keeping the original purpose of the act in mind, do you 
14 

believe this should be extended? Do you believe this act should be 

extended out? 

Mr. ALLISON. That is a determination that the Secretary of the 

Treasury will make later on this year. I know—— 

Senator TESTER. What is your recommendation to him going to 

be? 

Mr. ALLISON. This will be a decision that the Secretary will 

make. He will have a variety of inputs, and I know he is going to 

look at many different measures of the economy and the prospects 

of the economy and the financial system as he makes that decision. 

Senator TESTER. Well, I also appreciate that. OK. Keep it in 

mind, all that. 

That is good enough for now. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

Senator Corker. 

Senator CORKER. Mr. Chairman, thank you and, Mr. Allison, 

thank you for your service. 

I want to not dwell on the past much, but I do want to say, you 

know, that the three components of TARP were to focus on our financial system. That was the purpose of it because of the liquidity 

crisis that existed. We were supposed to buy things of value, and 

the money that was returned was supposed to be used to reduce 

the deficit. And I would say that had we stuck with that, we would 

have gotten the kind of yields that I think all taxpayers would 

want on their money. And it is a shame that it eroded over time 

and moved into industrial policy. You know, TARP really was not 

set up for mortgage modifications, I will say. That is not really 

what it was set up to do. 

But, with that, I just want to say that these kinds of things do 

erode trust. I know you had nothing to do with that. But, again, 

if we had stuck to the three major premises of the act itself, I think 

we would be in a very, very different situation. And I know that 

is all subject to interpretation, but let me move on to the future. 

There is a brewing commercial real estate issue, and I think everybody knows that. And it is my sense that there is a little bit of 

a moral hazard being created right now. I was in New York on 

Monday, and I know numbers of people there think that the Federal Government is going to get involved in commercial real estate. 

And for that reason, they are pausing. And we talked about the regional banks and others. The fact is that banks today can issue 

stock that they might not be able to issue in 6 months if they do 

not. And so there is a greed factor that is taking place right now. 

They do not want to dilute their shareholders by raising capital 

that they are going to need, because there will be losses on commercial real estate. And the reason they are not doing that is they 

are thinking that there may be some additional bailout, if you will, 

from the Federal Government as it relates to commercial real estate. 

I just wonder if you might address that, and would we not be 

better off to say we are not doing anything as it relates to commercial real estate? TARP is ending at this year-end. And would the 

financial system then not do the things that it needs to do to deal 

with this issue and do it themselves? 
15 

Mr. ALLISON. Thank you for your question, Senator, and this certainly is an issue that we are monitoring very closely. We are seeing deterioration in commercial real estate prices across the country, and that is one reason why we reopened the Capital Purchase 

Program, especially for smaller banks, which are directly exposed 

to commercial real estate. 

It is also important to reenergize the securitization markets, 

which play and have played a very important role in providing 

funding for commercial real estate over time. And that is why we 

are launching the Public–Private Investment Partnership. That is 

why the TALF is still active and is—— 

Senator CORKER. And I am aware of all those things, and I know 

they are just at the fringes. But back to the core issue, would we 

not be better off from the standpoint of creating additional moral 

hazard here or causing the system to be dependent, just to go 

ahead and say that you are on your own? We have these other 

things. They are going to nibble at the edges. They may prime 

some securitization, which would be good. But while they wait— 

and I know while they think that you guys may be coming up with 

something, they are basically missing the opportunity that they 

have right now, with bank stocks being up and their ability to 

issue stock, aren’t they missing an opportunity to solve their own 

problem? 

Mr. ALLISON. Well, Senator, we have seen banks restoring capital, both through capital raising as well as improving profits and 

better risk taking. And these are issues that the Secretary will 

have to be deliberating as he considers whether to extend TARP. 

But let me point out again that the securitization markets have 

not yet returned to normal. The housing markets, for instance, depend heavily on Federal activity today. And so I think he will be 

considering both the improvement in the economy, which is substantial, as well as the improvements in the market, which are 

substantial, but also looking at the areas that still remain troubled 

today in the financial markets. 

Senator CORKER. I respect your service. That is not much of an 

answer. I do hope that very soon—because I am afraid we are 

going to miss a window. I am afraid the private sector is going to 

miss a window, as they think that there are discussions taking 

place. They are not issuing stock because of dilution issues, and I 

am afraid they are going to be up here in greater numbers because 

there is this uncertainty. So I do hope at some point very soon you 

all either say you are going to do something, which I hope is not 

the case, or you are not going to do something. But I think, again, 

this mystery around it is problematic. 

Let me move on to resolution authority. Sheila Bair and others 

have been—and certainly Senator Warner and I have worked on 

this issue together, the whole issue of resolution. You came from 

the private sector. One of the huge problems that we had and one 

of the reasons TARP was created, there was no resolution mechanism to deal with highly complex bank holding companies. And because there was no mechanism, we were stuck with putting taxpayer monies in these entities to keep them alive, because there 

was not any way for them to actually be out of business. 
16 

Do we not need into the future to have something that is clear 

that, where management, shareholders, even debt holders, know 

that in these bank holding companies, the highly complex, large entities that operate around the world, that if they fail, they actually 

fail versus what the Administration has put forth in reg reform 

that says that, in essence, Treasury is going to hold unto itself into 

the future prominently the ability to do what has been done with 

TARP? 

Mr. ALLISON. Well, first of all, we think that the Administration’s 

regulatory reform actions are very much needed in order to assure 

that the larger institutions are adequately capitalized—— 

Senator CORKER. Well, I am just talking about resolution. I am 

not talking about the entire 13-title bill. Let us talk about resolution. 

Mr. ALLISON. Well, there have to be mechanisms for resolving 

the situations of very large institutions that get themselves in trouble. First of all, we have to try our best to prevent that from happening by reforming regulation over the financial industry and assuring responsibility by boards and managements regarding taking 

risk and in the way that they compensate or incent their employees. 

And as to resolution, we are seeing that if the—we believe that 

if the reforms are enacted, there will be mechanisms to resolve 

these institutions in ways that do not jeopardize the entire financial system and the economy. 

Senator CORKER. I respect very much someone like you coming 

into public service. I will say that this hearing so far has been not 

very useful, and those are pretty unclear responses. But I understand that maybe that is just the way it is. But I look forward to 

the next panel. 

Chairman DODD. Well, thank you, Senator, very much. Your 

questions are valuable, though, in this hearing. I appreciate it. 

Senator CORKER. The answers would be even more valuable, I 

would add. 

Chairman DODD. We are working on it here. 

Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman, and thank you, Mr. 

Allison, for being here. There is a lot to cover. 

I want to come to one point. I was at a function recently with 

Senator Corker, and everybody was going around the room, and 

they were describing what everybody did. And a lot of folks were 

in private equity, and it came to my turn to introduce myself, and 

I said, ‘‘I am a United States Senator, and I guess I am in the private equity business as well as this point.’’ And something that I 

hope will only be a short description and not something that will 

go long into the future. I share Senator Corker’s concerns about the 

resolution authority, and we may get a chance to come back to 

that. 

One of the other areas that Senator Corker and I have worked 

together in is with the very legitimate questions that have been 

asked by Senator Shelby, for example, about these equity holdings 

we have, wouldn’t it be better for all concerned, recognizing that 

anything the Government does, the Administration does, or does 

not do, is going to be constantly second-guessed with these equity 
17 

holdings, to take the idea that Senator Corker and I advanced and 

that I know we have discussed before of taking these equity shares 

and actually putting them out and letting them be managed by 

somebody who actually is in the equity business, in the equity 

management business? 

We have a proposal out there that would put any American interests that we have more than 10 percent of any major company 

and have these managed by an independent group of trustees that 

would be appointed by the President and with the goal of trying 

to dispose of these assets in a way that maximizes value to the taxpayers by the end of 2010. 

Why not take the management of these holdings and get them 

out of your shop and get them into some place where they can actually be managed professionally with a goal of shareholder maximization in terms of the American taxpayer? 

Mr. ALLISON. Well, under the EESA law, Senator, we can set up 

trusts or limited liability companies which could own the shares. 

But under the law, the ultimate supervision over those companies 

remains with the Secretary of the Treasury. So under the law, he 

retains oversight responsibility for those holdings. 

Senator WARNER. Well, some of us believe that the approach that 

is currently being taken is not the right one and are looking at 

ways that we might be able to change the law to insist that that 

independent management takes place. I think it would do a great 

deal for the Administration and I think it would do a great deal 

for the confidence of the American taxpayer if these equity interests were being managed to maximize our value. 

Mr. ALLISON. Senator, we are certainly working to maximize the 

value for taxpayers. I think the issue about the trusts or having 

a limited liability company, manage those independently, is what 

would be the goals, to whom would they be accountable and so 

forth. I think all of us want to maximize value for the taxpayer. 

The question is how to go about it—— 

Senator WARNER. I think we would be very anxious to work—— 

Mr. ALLISON. ——and what would be the most cost—— 

Senator WARNER. I think we would be very anxious to work with 

you to accomplish—— 

Mr. ALLISON. We would be happy to work with you on that, Senator. 

Senator WARNER. Let me come—and I know my time is—I have 

only got a couple more minutes and a lot of areas. The PPIP program, again, back to Senator Shelby’s initial comments, the original intent of the TARP was to try to get the so-called ‘‘toxic’’ assets 

off the balance sheets. And I think we have all been glad to see 

a bit of recovery in the financial sector. But as recently as earlier 

appearances you have made and other officials from Treasury have 

made, it was held out a lot of hope that the PPIP program was 

going to be the area where we could leverage private capital to get 

these assets out of the banks. 

I am concerned that we have not seen any action in that program. I know you have said there is going to be a first closing coming up. Do you have any sense of how successful this program will 

be over the coming months? Will the banks be willing to dispose 

of some of these assets, or are they going to continue to hold them 
18 

and just hope for better times? And if that is not going to be successful, should we shut that program down? 

Mr. ALLISON. Well, it is interesting that since the program was 

announced last spring, the spreads on those securities tightened 

dramatically. Just the announcement, the fact that the Government could be active in that market, did a great deal to improve 

both liquidity and pricing in the market, and we are very gratified 

about that. 

Nonetheless, we still see a need to further expand the 

securitization markets, and that is why we are launching the PPIP 

now. And we are going to monitor and see how well that performs 

and what impact that has on the markets as well. But there has 

been encouraging progress. So I would say that the PPIP program 

already, even before the first closing, has been extremely helpful in 

those markets. 

Senator WARNER. But you are not going to be willing—you are 

not willing to give us kind of a sizing of what you expect the total 

amount of assets purchased in the PPIP program will amount to, 

say over the next 6 months? 

Mr. ALLISON. Well, we will know soon enough of how the first 

program works. We are committing—— 

Senator WARNER. The first closing will be how large? 

Mr. ALLISON. The first closing will be announced at the end of 

this month. We have set aside $30 billion of funding, both in equity 

investment as well as for the debt program. And so the size of the 

program could be as large as $40 billion. But we will see with the 

final closings how large it actually is. But it seems to be progressing well. 

Senator WARNER. Mr. Chairman, I hope when we get the regular 

updates on the loan modification program we can also get the regular updates on this program, because, again, the original intent 

was to try to get some of the so-called ‘‘toxic’’ assets off of balance 

sheets, and my fear is, again, that banks are not being willing to 

bite the bullet, and we are happy to see some of the financial recovery starting to take place. But I still think there remains a lot of 

assets on these balance sheets that are going to have to be dealt 

with, and the PPIP program is one initiative. If that does not work, 

we ought to see what else works. 

One last area I would like to get your comment on. One of the 

casualties, I think, of this economic crisis has been small business 

lending, and I recognize that a lot of the small business lending 

was taking place actually in the nonbank financial sector, and we 

have seen the demise of entities like CIT and others. 

I am very concerned that, you know, as we see large-cap companies return, as we see some of the spreads shrink, one area that 

still is in desperate need of assistance is the small business financing, and particularly companies that have had perhaps a good 

track record, have been solid customers, are now in this valley, and 

will come out of this valley. But how do we get them from here to 

when we have recovery? 

I am sure I speak for a number of my colleagues. We hear from 

folks in our respective States all the time about the lack of small 

business financing, and this is a challenge. We do not want to 

micromanage the banks, I understand, but have you given any ad-
19 

ditional thought on what we can do to jump-start small business 

financing? 

Mr. ALLISON. Yes. First of all, we have to make sure that the 

small banks are adequately capitalized because they provide an 

out-sized portion of small business financing. We have seen that 

overall lending, while it has declined, has not declined as much as 

it has in prior recessions because of the financial stability programs 

that have been instituted, as well as the overall economic recovery 

programs. 

We are actively looking at other measures that we can take to 

assist small business. We share your concern that that very important segment of our economy be healthy. And so we have been talking with representatives of small business and working on various 

alternatives to provide additional assistance. 

Senator WARNER. I know my time has expired, but does that 

mean you will come back with some specific suggestions by some 

date certain? 

Mr. ALLISON. We are working and close to possibly taking a particular program and making it live. 

Senator WARNER. Is that weeks away? 

Mr. ALLISON. It should happen very soon. I would not want to 

put a pin in an actual date, Senator, but it is close. 

Senator WARNER. At least some consistency on some answers. 

Thank you, Mr. Chairman. 

Chairman DODD. Senator Vitter. 

Senator VITTER. Thank you, Mr. Chairman. Thank you, Mr. Allison, very much. 

I know when I was gone, Senator Tester asked if Treasury 

planned to extend the TARP beyond the term. It is supposed to 

wrap up the end of this year, and you said that you didn’t know. 

No decision had been made. You would look at a number of factors. 

Mr. ALLISON. Mm-hmm. 

Senator VITTER. If we were in December right now and current 

economic conditions were conditions in December, what would your 

analysis be of extending the TARP or not? 

Mr. ALLISON. Senator, again, I don’t take your question lightly, 

but the Secretary takes it very seriously and he is considering carefully what should be done, should it be extended or not. So I don’t 

want to prejudge his decision which he has not yet made. It is an 

important question. 

And again, I want to say that while there has been much improvement in the financial markets and in the economy, there are 

still troubled areas and I think he has to weigh both the progress 

that has been made and the need going forward as he makes that 

decision. 

Senator VITTER. Well, certainly the TARP was sold as an extraordinary program in light of an extraordinary threat, and it was 

clearly sold over and over in light of a threat of absolute collapse 

of the financial sector. I hope you agree with me that that threat 

is past, that that sort of threat of a collapse of the financial sector 

is minuscule to nonexistent right now. So what would be the rationale for extending TARP in light of that clear argument under 

which it was sold? 
20 

Mr. ALLISON. Well, first, let me say that we are seeing that some 

programs are already being wound down and others have definite 

termination dates and many of them have terms that become uneconomic as the markets recover. So a lot of this is going to wind 

down by itself and already has started doing so, and we see that 

we have been repaid substantial amounts of TARP money already 

as the banks recapitalize. 

Nonetheless, there are still areas that are troubled. Therefore— 

and again, I wouldn’t want to speculate on what the Secretary 

might do if conditions don’t change. That is his decision. He is 

going to weigh it very carefully, looking at a lot of factors. So I 

don’t want to in any way prejudge what he might do. 

Senator VITTER. Well, I would just make the comment, there are 

going to be areas that are troubled in virtually any economy. It 

sounds like a very different mindset than the one we were presented with when TARP was originally sold as an absolutely extraordinary response to an absolutely extraordinary threat, and I 

share the concern of a lot of Americans that this is creeping into 

status quo and a much higher permanent level of Government involvement in the marketplace. 

Mr. ALLISON. Senator, I think this Government does not have 

any interest in maintaining long-term shareholdings or long-term 

investments in banks and corporations. We would like to see this 

wound down as soon as possible, given the need to return to financial stability. And so that is the question that the Treasury Secretary has to weigh. 

Senator VITTER. Another concern I have had for a while deals 

with FHA, because I have thought for a while that that is a bit of 

a ticking time bomb that is going to be perhaps the next big bailout. The Washington Post reported on Friday that an independent 

audit of them will reveal that they will dip below their 2 percent 

capital ratio. Now, their Commissioner maintains everything is just 

hunky-dory. They are not going to need any help. Can you assure 

the Committee that the Treasury will not use TARP funds to bail 

out, to assist, to shore up the FHA? 

Mr. ALLISON. The TARP law provides that an eligible entity 

must be an institution, must be operating under the laws of the 

U.S., and so forth. So I think that is a question that you would 

need to ask the FHA. We have no current plans to provide any support ourselves to the FHA, but I don’t want to in any way speak 

for the Secretary on that matter. 

Senator VITTER. So you clearly won’t take that off the table? 

Mr. ALLISON. I—again, I think that is not part of TARP as currently contemplated. 

Senator VITTER. Well, neither was GM. How does the Treasury 

plan to deal with—is there a concrete, aggressive plan for the repayment of TARP funds from the biggest institutions, CitiGroup, 

Bank of America, AIG? What are the plans as of now? 

Mr. ALLISON. Their regulators will work with those banks to 

make that determination as to when they are eligible and able to 

make those repayments to us. We don’t make those decisions for 

the banks. 

Senator VITTER. There has been a lot of concern recently, for obvious reasons, in terms of the media reports, Mr. Allison, about 
21 

ACORN. Many of these big institutions that have billions in taxpayer funds contract with ACORN. Has there been any effort within the TARP program to ensure that taxpayer funds aren’t used in 

that way? 

Mr. ALLISON. We provided no funding to ACORN, Senator, and 

they did participate in some counseling sessions. They provided 

some counseling in the past. We have no ties to ACORN. 

Senator VITTER. Mr. Allison, I don’t think you understood my 

question. We give billions of dollars to these mega-institutions. 

Many of them contract with ACORN. Has there been any effort 

within the TARP program to ensure that those taxpayer dollars 

that are going to those institutions do not flow to ACORN? 

Mr. ALLISON. We will go back and consider your suggestion. I 

don’t know what these companies have been doing with ACORN. 

Senator VITTER. OK. So as we speak now, there is no effort in 

the TARP program to look into that or regulate that, is that fair 

to say? 

Mr. ALLISON. Well, again, we don’t get involved in the day-to-day 

management of TARP companies, and I think that that is not 

something that would really be appropriate for the U.S. Treasury, 

to get involved in their day-to-day management. 

Senator VITTER. OK. So a minute ago, you said you would look 

into it, but are you saying that it would not be appropriate for you 

all to have any policy with regard to that? 

Mr. ALLISON. I will go back and consult with my colleagues about 

your question and we will get back to you. 

Senator VITTER. OK. If you could get back to me—— 

Mr. ALLISON. I certainly will. 

Senator VITTER. ——and the Committee in writing—— 

Mr. ALLISON. I certainly will. 

Senator VITTER. ——that is obviously a broad concern. 

Mr. ALLISON. Yes, sir. 

Senator VITTER. OK. Thank you. 

Chairman DODD. Thank you, Senator, very much. 

Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chair. 

I was a strong critic of the TARP program, and in January, I was 

asked what I thought should be done to improve it and I said, we 

need to spend an enormous amount of effort assisting homeowners 

in this Nation. And the Administration sent over a letter saying 

that the Administration would commit substantial resources, $50 

to $100 billion, to a sweeping effort to address the foreclosure crisis 

and then enumerated that funds would be spent on preventable 

foreclosures, they would reform our bankruptcy laws, and they 

would revive initiatives like Hope for Homeowners. 

Right now, the GAO reports that very little money has been 

spent to assist homeowners. Are you familiar with how much TARP 

funds have been spent? 

Mr. ALLISON. Well, we have planned to devote $50 billion to the 

Making Home Affordable Program—— 

Senator MERKLEY. I am not asking about the future. How much 

has been spent—— 

Mr. ALLISON. Yes. And so far, we have committed over $22 billion—— 
22 

Senator MERKLEY. Not committed, but spent to date. 

Mr. ALLISON. ——and to date, we have spent very little of those 

funds because we are just beginning the Mortgage Modification 

Program. And the amount we are spending will ramp up rapidly 

over time, but right now, it is envisioned that for the servicers now 

in the program and the eligible homeowners—— 

Senator MERKLEY. Is very little—do you have an estimate on 

that? 

Mr. ALLISON. Actually the amount today? We, again, as I said, 

because the program is new, it is very small. 

Senator MERKLEY. OK. It is very small. It is zero. It is zero dollars according to the GAO report. They note in a footnote that 

$275,000 have been spent as incentives to participating services, 

but apparently not a dollar has gone out the door yet in terms of 

interest reduction, equity reduction, or any other form that actually 

assists the homeowner. 

Mr. ALLISON. Actually, Senator, as the trial modifications, and 

there are almost 400,000 of those already on the books, as those 

take place, the payments by the participants go down. And what 

is unique about this program is we are actually reducing—— 

Senator MERKLEY. Oh, I am very aware of how the—you are welcome to answer someone else’s question about the future. 

Mr. ALLISON. Right. 

Senator MERKLEY. I was trying to establish, and I think you are 

agreeing with me, that to date, now that we are 8 months into the 

future from the January 15 letter assuring a sweeping program, we 

have yet to spend a dime that actually helped a homeowner yet. 

You are saying—I agree with you. A big program is in place, and 

I want to turn to that. In your shop, there is a post called the Chief 

Ownership Preservation Officer. 

Mr. ALLISON. Right. 

Senator MERKLEY. Is that person in place yet? 

Mr. ALLISON. That person will be in place very soon. 

Senator MERKLEY. Why has it taken, with home ownership, so 

many millions of our Nation’s families struggling, why has it taken 

so long to fill such a critical—— 

Mr. ALLISON. Well, we have had a head of the Home Ownership 

Preservation Office since its inception, and they have been doing a 

very good job. We are now bringing in someone who will be the permanent person in that role. But that has not slowed us down from 

making great progress. 

And if I can get back to your question, I just want to emphasize 

your earlier question, that people are receiving relief immediately 

as they enter the trial modification program. We have currently, I 

think the latest statistic is we have about 1,800 people who are 

now in the actual modified loans, in the permanent modified loans, 

but they lag three to 5 months the actual trial modifications. And 

so there is a period where we are not yet paying the servicers. We 

only pay them for performance. But those payments are now commencing and will rise rapidly. 

Senator MERKLEY. And if 85 percent of the people who are in the 

trial modifications now succeed in making it through, based on the 

numbers of about $20,000 per family, we would be talking about 

expenditure of about $6 billion. If indeed, we reach a significantly 
23 

larger number of an additional 120,000 families coming into the 

trial modification per month, 80 percent of those succeeding, doing 

it over the next two-and-a-half years, we will be spending something closer to $50 billion. That does leave another $25 billion still 

on the table in this program. Are you looking at aggressive ways 

that we could do more more quickly to assist homeowners? 

Mr. ALLISON. The other $25 billion is under the HERA programs. 

It has to be spent by the GSEs, by the Government Sponsored Entities. Our program is $50 billion and we believe that that will be 

adequate to cover the mortgage modification incentives for all of 

the eligible people in the servicers who are now in the program. 

Senator MERKLEY. Actually, there was another $25 billion 

pledged, and that is in your own testimony, for the making—no, it 

is not. I am sorry. It is in the Inspector General’s testimony for the 

Making Home Affordable program. 

But I come back to the core point that we are facing—reported 

yesterday an anticipated seven million additional homes going onto 

the market through foreclosures—— 

Mr. ALLISON. Right. 

Senator MERKLEY. ——and that is folks who are either the foreclosure has already happened, it is about to go on, or it is about 

to happen. That is not including the massive number of foreclosures that will happen under the triple-option wave anticipated 

next year. So we have a significant factor in assisting America’s 

families, a significant factor in reviving and restoring the economy, 

and it seems like—I mean, to date, the score is something like this. We have spent, out the door, $288 billion to the banks, $76 bil- lion to the auto industry, and less than $1 million, $270,000, according to GAO, for our homeowners. It is disproportional. There 

are so many different things that could be done to accelerate this 

program that have come out of the focus groups around the country—electronic submission, single point of contact, increased transparency, closer work with HUD counselors, not doing punitive credit ratings when people are in the modification programs. 

We are seeing little action on these common sense approaches to 

really pay attention to the plight of the American family, so I am 

pushing to say we could do more, and as a leader in the TARP program that has made this $50 billion commitment, I am asking you 

to do more. 

Mr. ALLISON. Thank you very much, Senator. We are looking at 

all those and we are working with the servicers to try to implement 

as fast as we can streamlined procedures for people to get into this 

program. 

I want to point out that this crisis has gone on for 2 years. When 

the Obama administration got into place, they put in effect this 

program, which is by far the largest Mortgage Modification Program ever attempted. It is already the most successful, even 

though it is not nearly close to the numbers that we want to see. 

It is ramping up very rapidly. 

We are seeing that the servicers who needed time to reprogram 

their systems and train their people are starting to gain momentum. We are staying on them every day. We are meeting with them 

periodically as a group and in contact with them almost every day 

and working very close with Fannie Mae, the agent for this pro-
24 

gram, and Freddie Mac, who is auditing. We are going to be as 

transparent as we can possibly be about the results of the program, 

about the quality of service provided by the servicers, and the overall cost and effectiveness of this program. 

The results in terms of the actual payments out the door—remember, we are paying only for performance. We are paying for 

modifications completed. And so as these are completed and made 

permanent, we start these payments. And we have already, though, 

provided financial relief for about 400,000 people, and that number 

is going to be growing very rapidly. 

So we are taking this extremely seriously. If we can make improvements, we are wide open to any advice from any quarter 

about how to make this program better. 

Senator MERKLEY. Well, I am glad you are wide open, because 

many members here in the Senate have been hearing from their 

constituents—I think probably all of us have been—having great 

difficulty accessing the modification programs, and in forums 

across the Nation, the same feedback has been occurring. We have 

been forwarding the same set of pieces of advice on how it could 

be much simpler so you are not routed to ten different people and 

ten different phone calls. That is the single point of contact. So you 

can submit your paperwork in an electronic form so that the papers 

are not continuously lost, which is a huge complaint. 

Mr. ALLISON. Right. 

Senator MERKLEY. So that HUD counselors have a sense of the 

models so they can give better advice to people as to whether they 

can approach the system. And so that citizens not receive punitive 

credit ratings while they are applying to the program. Those have 

been raised time and time again, and each time I raise them, I 

hear, interesting ideas. We are looking at them. We are looking for 

more serious consideration of ways we can make this program work 

better. 

Mr. ALLISON. Let me mention on the credit ratings of people 

being affected by modifications, there already is, and it was announced, a change that is going to be made by the agencies who 

provide the FICO scores so that they are not going to affect people’s ratings materially for at least a year while they gauge the 

success of these modifications. That is a big step forward. 

Senator MERKLEY. I am pleased to hear that. 

Mr. ALLISON. And on the others, we also share your frustration. 

We are having to, in effect, revamp the mortgage servicing industry 

in order to provide the kinds of services that people need right now. 

We know people don’t want to wait months and months to get their 

modification. It is frustrating to us, and that is why we are working very intently with these servicers to try to get them up to speed 

as rapidly as possible. The service quality isn’t what we would like, 

either, and that is why I mentioned earlier that we intend to be 

publishing service quality metrics on every servicer in this program, which ought to shine the light of day on this and provide additional impetus for them to improve as fast as possible. 

Senator MERKLEY. Thank you for your comments. I apologize to 

my colleagues. I wasn’t paying attention and ran significantly over 

time. 
25 

Chairman DODD. No, no, thank you, Senator, and it gets at the 

points that I raised in my first questions. 

Again, this is a very, very important area to all of us. We are 

looking for a system that works here, making some decisions. As 

I said earlier, we would like to keep people in their homes where 

we can, but there are occasions when that may not be the case, in 

which case you have to move on. And just sort of dangling things 

out there forever, I think are creating unintended consequences in 

the marketplace, as well. So we really do need to have an expedited 

system that cuts through a lot of the bureaucracy and time out 

there so we can draw those conclusions. 

Mr. ALLISON. Right. We agree. 

Chairman DODD. I appreciate that. Let me jump—Senator Gregg, 

Senator Johanns will be coming back, but you are next. 

Senator GREGG. Oh, I thought I was—— 

Chairman DODD. We follow different rules in this Committee 

here. You showed up early, so you are recognized for your early arrival here. 

Senator GREGG. Well, I appreciate that, Mr. Chairman, and I appreciate the opportunity to be on this Committee with you and Senator Shelby. You have done great work in the area of financial 

services. It was an interesting time last fall when we negotiated—— 

Chairman DODD. Was it ever. 

Senator GREGG. And I guess some of my questions go to—first 

off, I think you ought to take credit for it worked. I recognize that 

at the margins, some of it is still an issue, but the purpose at the 

time was to step back from a catastrophe of unpredictable proportions, but we knew it was going to be horrific, and the action was 

taken and it was done in a bipartisan way. The negotiations were 

both parties sitting down and making sure that we put in place the 

best ideas we had at the time in a timeframe where we only had, 

literally, only days to take action. As a result of the action taken, 

and it may not have been the action specifically anticipated, the 

system has stabilized. 

And actually, the return to the taxpayers, at least on the capital 

investment, is going to be pretty good, I expect, before we are finished. I don’t believe CBO is going to be right. I think we are going 

to find we make a little money here for the taxpayers overall. 

In fact, if you look at the stock prices today of some of the companies that we have invested in, we have already made a paper gain 

that is very significant. And in addition, we are getting preferred 

dividends here of 8, 10 percent, which is a pretty good way to arbitrage money. We are borrowing at zero. We are getting 8 to 10 percent back. That is not bad for the taxpayer. 

But I do think there is, at least from my viewpoint, a legitimate 

question as to whether it has done its purpose and should be 

wrapped up. That is, I think, a legitimate concern. 

This discussion which you just had with Senator Merkley, that 

appears to me to be a permanent Federal program for mortgage relief, almost an adjunct to Fannie Mae and Freddie Mac, not the 

original purpose of TARP, which was obviously to do something in 

the area of mortgages, but not to create a permanent program. 
26 

So I guess my question to you is, define the systemic risk that 

you see today. Chairman Bernanke has told us that the recession 

is technically over. Obviously, a lot of people are still in pain and 

a lot of people are unemployed and clearly a lot of people are going 

through trauma. But he has told us that the recession is technically over, and therefore, I think we can assume that things are 

going to get better. So define for me the systemic risk that exists 

going forward that is going to require the type of capital that you 

presently have available to you under TARP and where you are 

going to put that capital to address that risk. 

Mr. ALLISON. Thank you for the question, Senator. 

Senator GREGG. In specifics, if you could. I mean, your testimony 

has been a little amorphous so far. 

Mr. ALLISON. First of all, let me just mention on the mortgage 

program, it is not a permanent program. The ability to add to the 

commitment on that program will expire at the end of the EESA, 

either whether that is at the end of this year or, at the latest, at 

the end of October of next year. And we will provide the required 

subsidies for some years, but no more than 5 years after the mortgage has been started. So it is not a permanent program. 

As to what are the systemic issues that might cause this program to be extended, and again, it can’t be extended beyond October of next year, again, we have seen, as you pointed out—thank 

you for your comments—we have seen great progress in restoring 

parts of the financial system that in many, they are back to normal. There are others that are not. The securitization market is 

one that still has a great deal of support from the Government behind it. That has been a very important provider of credit in this 

country, as much as 40 or 50 percent. We need to make sure that 

we have a return to stability in the mortgage market—— 

Senator GREGG. Well, the securitization market is a self-righting 

mechanism, that if you were moving out of a recession, it will selfright itself. And so I don’t take that as systemic risk. It is clearly 

a risk and there are going to be some bank failures as a result of 

the situation, but it is not a systemic risk at this point that justifies $700 billion. 

So give me a specific proposal, a specific reason why we still need 

$700 billion on the table. 

Mr. ALLISON. Well, again, I don’t want to preempt the Secretary 

of the Treasury. He is going to be considering all those questions 

that you are asking and a number of others, and also looking at 

various measures of financial stability as he makes his decision. So 

again, I understand the great interest in whether this is going to 

be extended, but I don’t feel I can speak for the Secretary. 

Senator GREGG. I associate myself with Senator Corker’s 

thoughts on that answer. 

Let me ask another question. Why in the bailout of the automobile companies, which clearly, in my humble opinion, was not 

within the context of TARP but was pursued by both Administrations, so therefore was legitimized—under the Chrysler bailout, the 

taxpayers put up about $4 billion and we got 8 percent of the stock. 

The unions put up about $6 billion by waiving liability and got 55 

percent of the stock. 
27 

When we wrote the TARP, which we spent a lot of late nights 

doing, as I recall, the language said the purpose of the TARP 

money, when invested, shall be to enhance the value of the taxpayers’ position. I didn’t note any language that said the purpose 

of the TARP money was to enhance the position of the unions’ investment, and yet the taxpayers seem to have gotten the short end 

of the stick in relationship to the unions in the Chrysler bailout. 

Can you specifically answer why that happened? 

Mr. ALLISON. Well, the bailout was done on what you might call 

close to commercial terms, where various parties who were necessary to the ongoing success of the entity, in some cases, have to 

play a role, and that—— 

Senator GREGG. Well, the taxpayers were essential to the success 

of the party—— 

Mr. ALLISON. Yes. 

Senator GREGG. ——and yet the taxpayers for $4 billion got only 

8 percent. The unions, for $6 billion, got 55 percent. What was the 

value that was brought to the table that the taxpayers got so little 

for their money versus what the unions got for their money? 

Mr. ALLISON. I think that at the time, the breakdown and the 

financing was determined on what you would call commercial 

terms. This is not a very unusual outcome, and each of these entities, whether it is the banks or the Government or the employees, 

have a stake in the survival of that company. And it was felt by 

great professionals who worked on that that this was the best outcome to secure the future of the companies and that was in the interest of the taxpayers. 

Senator GREGG. Well, I don’t see how it is in the interest of the 

taxpayer to only get 8 percent of the company for $4 billion when 

another entity gets 55 percent for $6 billion. How do you define 

that as being in the interest of the taxpayer? 

Mr. ALLISON. Well, I would have to consult with my colleagues 

who actually worked on that program, so—— 

Senator GREGG. But they were TARP dollars—— 

Mr. ALLISON. I will be happy to get back to you with a fuller explanation. 

Senator GREGG. Thank you. 

Chairman DODD. Thank you very much, Senator. 

Let me just, before I turn to Senator Johnson, just I mentioned 

earlier in my question to you that there are predictions of anywhere from 400 to 1,000 bank failures. Now, I am not—I don’t 

know whether you want to acknowledge that number as something 

that is the number that the Department of the Treasury is accepting as a realistic number of not. But if you were talking the magnitude of that, and the question being raised here about a continuation of the TARP program beyond its projected expiration date, 

does that number pose to you the issue of whether or not we would 

be looking at a return, not to the point where we were a year ago 

necessarily in September—and I understand Senator Corker’s 

point, as well. There is a way of addressing this issue and whether 

or not you are going to have the banks issue more stock or not. 

But posing the issue of having 400 to 1,000 banks, many of them 

regional, facing collapse, does that pose the kind of stability ques-
28 

tion in terms of our recovery that would warrant, in your mind, at 

least, a consideration of a continuation of the program. 

Mr. ALLISON. Again, this is one of many factors that the Secretary will have to consider as he makes his determination. We are 

seriously concerned about bank failures and we want to make sure 

that the banks have adequate capital, that regulators are consulting with these banks frequently, and that is obviously one factor that would be taken into account by the Secretary. 

Chairman DODD. Yes. And, again, last, I just want to make the 

point—and Senator Shelby and I were talking privately a minute 

ago. When I took over the gavel of this Committee in January of 

2007, we held an extended set of hearings, in February, in March, 

in April, with stakeholders in this room, those on the Committee, 

all about the mortgage crisis. And we had witnesses that were predicting a million foreclosures, and they were ridiculed for doing so. 

It was at the heart of the problem. 

I respect the fact the Chairman of the Federal Reserve Board has 

acknowledged that they did not act quickly enough. Had they acted 

in 2007 on this issue more aggressively—I cannot predict we would 

have avoided what we saw last September that Judd Gregg has 

just, I think, accurately described, but I think we would have mitigated it substantially. 

So at the heart of this crisis was the issue of the mortgage crisis, 

the mortgage failures in the country, and I just think it is important to note that in our discussion here. And while I do not disagree with you, this cannot be a permanent program. And Judd is 

absolutely correct. This cannot be seen as somehow a permanent 

program we have in place. That is why I say we have got to make 

decisions about this. If someone cannot get out of this, then the 

property ought to be put up and auctioned off or foreclosed or 

whatever you do. So I am not enthusiastic about moratoriums. I 

think it just delays the inevitable in some cases. 

But to the extent someone can be kept in their home, we ought 

to try and resolve that if we can. And if not, move on. 

Senator GREGG. Mr. Chairman, if I could just point out, during 

the negotiations of the TARP, you were absolutely insistent that 

mortgages and the foreclosure issue be part of the exercise, so it 

is clearly within the TARP, almost purely as a result of your single-minded focus on this as being where the essence is of concern. 

So it is legitimate. I just do not want to see a program that goes 

on forever. 

Chairman DODD. And I agree with you totally on that. You are 

absolutely correct on that. But I appreciate you remembering that 

night of September 18th when we sat in that room together with 

this guy here, sitting next to each other that night. So I apologize 

to Tim Johnson. I jumped here on those. But those two points—I 

find the notion if we lose 400,000 banks, that to me is pretty intimidating, to put it mildly. I do not know the answer to it. Maybe 

Bob Corker is right on this thing. And I do get worried about the 

‘‘too-big-to-fail’’ notion. This is maybe just too many to fail or something in that category. So I think his point is a good one. And we 

do need to get some answers on this. And I expect—listen, I have 

great respect for you, Mr. Allison. You are a dedicated person. You 

have had a distinguished career on the private side. You came over 
29 

to the public side to bring that wealth of experience. Let me speak 

for all of us here. We admire you immensely, and we thank you for 

what you are doing. 

Mr. ALLISON. Thank you. 

Chairman DODD. But we need to get some answers on this stuff. 

We are not going to have hearings on this every day. And so while 

you may not be able to—and I appreciate the fact you are not the 

Secretary of the Treasury. 

Mr. ALLISON. Exactly. 

Chairman DODD. But we need to get some answers back on these 

questions that have been raised so that we can—we have got some 

big decisions to make here in the coming weeks, and having your 

best judgment and the judgment of the Secretary on these matters 

is going to be critical to our consideration as we go forward, particularly in the area of reform or modernization, or whatever we 

want to call it, of the regulatory structure. 

So, again, I appreciate the fact that you are not in the position 

to answer all of these questions, and there will be others who will 

be involved in them. But to the extent you can get back to us on 

these things, we would appreciate it very much. 

Mr. ALLISON. Thank you. 

Chairman DODD. Senator Johnson. 

Senator JOHNSON. Thank you, Mr. Allison, for your service. 

There is legislation pending which would compel repaid TARP 

monies to be used to repay the deficit. Is that a good idea or not? 

Mr. ALLISON. Well, as we do receive monies, it is put into the 

general account of the Treasury, which reduces the need for Federal fundraising. So it is already helping in that regard as we receive money back. 

Senator JOHNSON. SIGTARP has recommended that the Treasury begin reporting on reviews of its TARP portfolio so that taxpayers can get regular updates on the financial performance of the 

TARP investments. Has Treasury started to do this? 

Mr. ALLISON. Senator, thank you for the question. We have very 

high regard for the work that the SIGTARP has been doing. I meet 

with the SIGTARP every week. We discuss all the issues around 

TARP and also making information available about TARP programs. 

We have provided extensive information at the end of every 

month about, for instance, the lending activity of banks. We provide a report on all of our TARP activities. We have made that 

much simpler to understand, and we have a new report that I 

think is much more accessible by the American public. 

The SIGTARP has recommended that we include more information about the use of funds, and we are going to be in our October 

quarterly report providing information about all the categories of 

use of funds that the SIGTARP has recommended. 

We have adopted about three-quarters, either totally or almost 

totally, of SIGTARP’s recommendations, and he has been very helpful to us in making these programs even better and better controlled. 

So what we are doing, though, is to provide actual data on bank 

lending and, beginning in October, a number of other bank activi-
30 

ties that is provided by the regulators. It is the most accurate information that we have about how capital is being used by banks. 

What is most important, I think, to the American public is how 

are banks using the capital in order to promote lending and financial recovery. And that information is on our Web site today, and 

we are working with the SIGTARP to see how we can enhance the 

information going forward. 

Senator JOHNSON. The SIGTARP has also recommended that the 

Treasury require more disclosure of how individual institutions are 

using TARP funds from the Capital Purchase Program. Why has 

Treasury not responded more fully to these recommendations? 

Mr. ALLISON. Again, we are making available information about 

how banks are using their capital. The purpose of the Capital Purchase Program was to strengthen the capital base of the banks so 

that they could make more loans than they would otherwise and 

also conduct other activities connected with their role in the financial system. 

It is very difficult to identify exactly how the capital, our capital 

is used, as distinguished from all the capital of a bank. And so we 

have had many discussions with SIGTARP about how we can best 

report this. 

We are going to be expanding, as I said, our reporting in order 

to show how all the banks’ capital is being utilized with actual 

data, and I think it will be an extremely useful source of information for the American public and for the Congress as to how banks 

are using capital. 

Senator JOHNSON. Now that the large banks are largely stabilized, what do you plan to do for the Nation’s community banks? 

Is there any way to modify the definition of ‘‘viability’’ to help the 

smaller banks that might just need a small infusion of capital? 

Mr. ALLISON. As I mentioned, Senator, we did reopen the Capital 

Purchase Program for small banks, banks with less than $500 million, last May. We are receiving applications every week and providing capital for smaller banks every week. 

Senator JOHNSON. Do you think the TARP money has been distributed fairly amongst banks in need, especially smaller banks? 

Mr. ALLISON. Well, the great majority of the banks that have 

been assisted by the Capital Purchase Program are midsized and 

smaller banks. And so they are playing a very important role in the 

economy, which we well recognize, and that is why we have been 

giving special attention to the smaller banks by reopening the Capital Purchase Program several months ago. 

Senator JOHNSON [presiding]. Senator Johanns. 

Senator JOHANNS. Thank you, Mr. Chairman. 

Mr. Secretary, good to see you again. 

Mr. ALLISON. Senator. 

Senator JOHANNS. As you know, as I have probably mentioned 

this to you before, in another life I used to sit where you sit while 

the Senators went around and interrogated me on what was happening in my mission area of the Federal Government. When I was 

a Cabinet member, I would work with an Inspector General on an 

ongoing basis. It is just part of the oversight of doing the job. And 

so in my brief time today to offer some questions, I would like to 
31 

focus on the Inspector General’s most recent report relative to 

Treasury and the TARP program. 

I have to tell you, and I will be very blunt with you, it is very 

damning. I am referring to the introduction, and there are four 

major findings that are identified in that introduction. 

The first one is that it is extremely unlikely that the taxpayers 

are going to get a full return on their TARP investment. 

Second, Treasury’s originally stated goal of increasing lending 

has not yet occurred. 

Number three, the goal of preserving homeownership and promoting jobs and economic growth have not been met. 

And then the very program for which I think TARP was created, 

which was to get toxic assets off balance sheets—I think that is 

really what this program was focused on initially—about that, this 

is said: ‘‘In the meantime, the risk of foreclosure continues to affect 

too many Americans. Unemployment continues to rise at levels 

Treasury finds unacceptable. And the so-called ‘toxic’ assets that 

helped cause this crisis for the most part remain right where they 

were last fall—on the banks’ balance sheets.’’ 

Now, I understand your job. I understand your need to present 

a very rosy picture. I heard your testimony that Treasury action 

has restarted credit markets, et cetera. But then I go to a report 

from an enterprise that I grew to respect as a Secretary, the Inspector General. And although their reports to me would often 

make me grind my teeth, I did come to respect their impartial 

analysis, and I paid attention to them. 

Let us just level today, Mr. Secretary. That is a very damning 

report toward TARP and the Treasury’s operation of TARP, isn’t it? 

Mr. ALLISON. Well, Senator, let me take each one of those points, 

if I may. It is unlikely—the first point is, I believe you said, that 

we are going to receive a return on TARP funds. We have already 

received $70 billion of funds back from banks, and the banks that 

have fully repaid us, including repurchasing warrants, we have 

close to an 18-percent annualized return for the taxpayers. 

Senator JOHANNS. Mr. Secretary, let us just focus here, because 

you can cite those numbers. Quite honestly, to me they are not 

very impressive. We have billions more on the line. 

Now, if you were my investment adviser—and you worked in this 

area for many, many years in the private sector—I am just going 

to guess you never would have called me the Friday before the 

President bought General Motors and said, ‘‘You know, Mike, I 

have been talking about it. I want to put you into General Motors.’’ 

Right? I mean, you would not have given me that advice. 

Mr. ALLISON. Senator, we have to look at, first of all, the expected returns on the TARP investments on behalf of taxpayers. It 

is too early to say how this is going to turn out. Some areas will 

probably see better performance than others. But we also have to 

look at the overall impact of the financial stability program on the 

American economy, on the banking system, and on the American 

public in general. And I would shudder to think what the situation 

would be if the Congress and the Administrations had not taken 

strong action to deal with this crisis by, for example, creating the 

TARP program. 
32 

So I think we have to look at returns beyond simply the returns 

of this program. I can assure you we are working extremely hard 

and aggressively on behalf of the American taxpayer—— 

Senator JOHANNS. I am not questioning how hard you are working—— 

Mr. ALLISON. ——and we will also have a report on November 

16th that will allow you to see, and the public, exactly what are 

the valuations of these assets according to the methods that are 

prescribed by the GAO, and there will be audited financials. And 

from that I think you can make informed judgments about the 

progress so far. 

We still have a long way to go, and much of the outcome is going 

to depend on the success of stability programs going forward. We 

have already seen asset prices have risen dramatically in the financial markets. It has been pointed out that share in many banks are 

up. This is helping in terms of the returns. But we are not yet declaring victory either in fully restoring stability in the financial system or in achieving the returns on the TARP program. It still has 

a way to go. 

Senator JOHANNS. You are not seriously arguing that we are 

going to get our money back on the General Motors investment, are 

you? I mean, you did not come here today to convince this Committee that is going to happen, did you? 

Mr. ALLISON. I was talking about the overall program. Again, 

some areas will perform better than others. I do not know yet what 

the outcome will be. The head of the auto program has testified, 

and his forecast or his analysis is on the record already. 

If I may, I would like to refer to the other elements of the 

SIGTARP report that you mentioned. Have we been successful in 

increasing lending? I think we have to look at, first of all, the absolute facts. Lending is down. That is normal during a recession. The 

question is: Has TARP prevented an even worse reduction in lending? And I am very confident it has, because the banks, by restoring capital in the banking system, they are able to sustain their 

lending activities. And there is no doubt in my mind that there is 

more lending going on than would have been the case without the 

TARP program. 

On the toxic assets—— 

Senator JOHANNS. Before you go on to the next one, do you have 

anything, any study, any analysis that you could provide to me 

that would prove that last statement? 

Mr. ALLISON. Well, the Federal Reserve just released information 

saying that in their view—actually, the reduction in lending has 

been less in this recession than it was in the 1991 recession, which 

would indicate—it is an association, but it would indicate that the 

TARP program and other elements of the economic recovery program have helped to sustain lending at a greater level than it 

would have been without those programs. I do not think there is 

much doubt about that. 

Senator JOHANNS. Yes, there is. That is a leap of faith. You 

know, I hear these tremendous promises, but then there is just 

nothing to support it. I mean, you know, if you could point to something that leads me to that conclusion, I would be willing to go 

there with you. But, you know, even the report here, the people 
33 

who are to provide you insight say increased lending has just simply not occurred, the toxic assets remain on the books. 

I mean, the very things that TARP was designed to deal with, 

quite honestly, it appears to me this has been a failed program. 

The very promises made to the taxpayer of what was going to happen with this money in my judgment have not been kept. And I 

just think that is very concerning. Somebody watching this hearing 

must be so frustrated, we can get billions out, we can buy General 

Motors overnight, but we cannot help a homeowner. And that just 

does not make any sense, you see. It is just—I think it is a failing. 

And I really think Treasury should come to grips with what the Inspector General is saying here and try to deal with those issues or 

close down the program. 

Mr. ALLISON. Well, Senator, I think we are being very candid 

and fact-based on what is going on in our programs. Again, with 

the homeownership program, this is a program that really got underway in May in terms of actual activity, and it is now September. 

We already have 500,000 people—no, I am sorry. We have about 

400,000 people in trial mods, and we will have 500,000 by November 1st, if not sooner. The pace of the increase is on line with our 

objectives today. 

We still have a long way to go. I am not declaring victory at all. 

We have to do many more modifications than have been done so 

far. But this is a program that was announced by the Administration in February, shortly after they took office. There has been 

great urgency to get it going. We have to work through a number 

of banks around the country. We now have close to 50 banks, and 

they account for 85 percent of eligible mortgages in this country. 

And we are working very actively with them to ramp up and to 

serve as many people as we possibly can. 

So I think that the progress has actually been good, but in an 

absolute sense, have we arrived where we want to be? No. We all 

have to do a great deal of work to get there. We are being as open 

as we possibly can. We are not declaring victory by any means. 

Senator JOHANNS. Let us wrap up. I am way over my time, and 

I appreciate the Chairman’s indulgence. I would just wrap up and 

tell you that when I got an Inspector General’s report that was this 

critical, we tried to act on it, and I hope you will because, quite 

honestly, it is very damning. 

Thank you, Mr. Chairman. 

Senator JOHNSON. Senator Brown. 

Senator BROWN. Thank you very much, Mr. Chairman. Welcome, 

Mr. Secretary. Thank you for joining us. 

I want to shift gears and talk about credit. I hear consistently, 

as we all do, from particularly small and medium-sized businesses 

about the difficulty of getting credit, that the Feds put hundreds 

of billions in TARP money, the Administration released $5 billion 

from TARP for Tier 1 suppliers, as you know, for the auto industry. 

And I think it is particularly acute, the problem is particularly 

acute for manufacturers. I bet you I get a dozen calls or letters 

every single week from manufacturers in my State, especially manufacturers in the auto supply chain but beyond that. 

The SBA has been actively making adjustments, increasing its 

loan guarantees to 90 percent, yet banks still are not lending to 
34 

companies, to manufacturing companies, and these are companies 

that have customers. They are companies that could make sales, 

that have the capacity, that have skilled employees ready to go. 

Economists will say that historically what pulls us out of recession is housing and auto, perhaps they say auto and housing, in 

that order. And the President was in Lordstown, Ohio, a week ago, 

a thousand people coming back to work at Lordstown, being called 

back to work. There are signs that that industry, partly because of 

Cash for Clunkers, partly because of perhaps Chairman Bernanke 

is correct about the country beginning to come out of recession, at 

least the recession ending. Yet if the suppliers and the component 

manufacturers, particularly Tier 2 and Tier 3 auto suppliers, and 

coupled with a lot of those auto companies are beginning to look 

at transition into other manufacturing—glass makers in Toledo 

who make glass for trucks can make it for solar panels, component 

manufacturers that make gears for cars can make gear boxes for 

wind turbines. And we are seeing that transition. 

My State is one—Toledo has more solar energy jobs than any city 

in America, and we are seeing that around my State, and a State 

that people are surprised when they hear that. 

What gives here? What do we need to do, what do you need to 

do? What tools can we give—and I know Elizabeth Warren is going 

to talk about this on the second panel, about the lack of credit in 

manufacturing and other businesses. But give me your thoughts on 

what we can do to help the Feds put more—somehow get the banks 

to begin to give credit to especially manufacturing. 

Mr. ALLISON. Well, Senator, again, we are encouraged by the 

progress that is being made. I know that the President himself was 

out there urging that more progress be made. We have to transition this economy to new industries in order for it to grow and to 

have greater stability over time. 

Important in my role is to assure that we are making capital 

available to the banking system so that they can in turn provide 

credit, as you are pointing out to small business and large. And, 

again, we have seen, I think, encouraging signs that the lending 

activity has been helped by the TARP program. It is not as robust 

as we would like. That is normal during a recession. But it has not 

been as bad a downturn in lending as it might have been and certainly would have been without the TARP program. 

Senator BROWN. I am sorry to interrupt. I appreciate that. And 

I really do believe that if we had not done a lot of things we did, 

contrary to what some in my State and some in the Senate and 

House think, it would have been significantly worse. I agree with 

all that. But I still have—the Subcommittee I chair of this Committee, the Economic Policy Committee that Senator Merkley sits 

on with me, we have had hearings on this, and we are still having 

manufacturers come to us. I said I get at least a dozen calls and 

letters and visits a week from people that cannot get the financing 

that will produce jobs. These are people that are not particularly 

high risk. 

What gives? What do we need to do? Other than saying we are 

beginning to make progress, what unfreezes this so they get credit? 

Mr. ALLISON. Well, again, a lot of credit has come for the 

securitization markets as well as the banks. It is very important 
35 

for us to increase activity in those markets, and that is why we are 

still following through with the PPIP program. That is why the 

TALF facility has been actually extended by the Fed into next year. 

And we have to look at this as a problem of total credit availability. 

And it is not only the banks, which play a vital role, but it is also 

the ability of banks to be able to take assets from their books and 

sell into the securitization markets, as was pointed out earlier. 

In order to do that, we have to have an active marketplace, and 

that is why some of these programs are so essential to getting that 

activity going on. We have seen encouraging signs. The 

securitization markets have picked up in activity dramatically 

since last spring thanks to these programs. More still has to be 

done, but the signs are encouraging, and we are seeing glimmers 

of growth in the economy in certain sectors. 

So, all in all, the economic recovery program and the financial 

stability program seem to be having a favorable impact. 

Senator BROWN. OK. Thank you, Mr. Chairman. 

Senator JOHNSON. Senator Hutchison. 

Senator HUTCHISON. Well, thank you, Mr. Chairman, and thank 

you, Mr. Allison. I know you have been here a long time, and I appreciate that you are making great efforts. 

I just want to say a couple of things. First, in Mr. Barofsky’s report, the IG, it goes through exactly what we were told last fall for 

TARP, that it was primarily to take the toxic assets off the books, 

particularly in the area of mortgages, to try to stabilize that area. 

It is my belief that had we stuck to that, maybe the stabilization 

of the housing market and the banks would have been enough and 

certainly would have kept us from going through these huge spending binges that I think are scaring people more than anything else 

in this country. 

And yet I go through my State and small business person after 

small business person after small business person says they cannot 

get loans. They cannot do the normal things that they have done 

throughout their small business experience. And so I am very concerned that part of the new programming has not even gotten up 

and going, specifically the mortgage part of the new program. 

I am just going to ask the direct question. We do not feel it out 

in the marketplace that it is getting into the home mortgage area 

enough, that it is getting into the small business area enough. And 

yet we just continue to say we are going to extend the program. 

There is $330 billion that is not spent, and we hear that Secretary 

Geithner is going to ask for an extension of the program. 

Let me just ask you this question: Isn’t this huge debt and the 

deficit as important as all of these other factors? And why wouldn’t 

you consider not extending TARP, having the paybacks go directly 

into paying down debt so that the American people can see that 

there is light at the end of the tunnel, that maybe this excessive 

spending that is causing debt, that we see beyond our children and 

grandchildren’s generations, that maybe if we stop TARP where we 

are now, about halfway through, and try to work on the paybacks 

going into debt, wouldn’t that be a signal to the American people 

that we are going to look at this debt, it is a great concern, it is 

going to be as important to the success of coming out of this recession as anything else we could do? Why not? 
36 

Mr. ALLISON. Senator, first of all, thank you for your thoughtful 

question. The payments back into TARP do go to reduce the funding of the debt—— 

Senator HUTCHISON. Let me ask you on that point, because you 

did say that to Senator Johnson. But is it going back—is the interest going back? Is the corpus going back? Because it is looking 

more like a revolving—— 

Mr. ALLISON. The interest and the corpus go directly into the 

general account of the U.S. Treasury to reduce the Treasury’s funding needs. 

Senator HUTCHISON. So is that no longer, the $70 billion, no 

longer part of the $700 billion? 

Mr. ALLISON. Actually, the way the law works, Senator, is that 

the amount appropriated remains at $700 billion, so as the money 

is paid back, that frees what we call headroom in the program, if 

needed, to provide additional commitments. 

Senator HUTCHISON. I do not think that is what I certainly envisioned, nor is it the way I heard it described when we passed this, 

that it would continue to revolve, basically. I think people thought 

there would be a finite amount, and that would be used to jumpstart the economy through mortgage-backed security purchases and 

buying the toxic assets. 

So I do not think we considered it a revolving fund, but wanted 

to get out of debt as soon as we could. 

Mr. ALLISON. Let me say, Senator, we follow the law explicitly 

and the amount that we have actually committed is $444 billion. 

We have actually invested or spent about $360 billion out of the 

$700 authorization. 

On the—let me mention about home ownership. One has to look 

at the overall programs that the Government has been carrying 

out. Mortgage rates are certainly lower than they would have been, 

which is extremely important to the American public, because of 

the activities of the Fed as well as the Treasury. And the Mortgage 

Modification Program, as I said, it is relatively young. It is 

ramping up very rapidly. We are going to be reaching a lot more 

people. 

We share your concern about is this—are these efforts reaching 

people in their communities around the country, and we monitor 

that very closely, as well. That is—— 

Senator HUTCHISON. Do you agree that it isn’t? 

Mr. ALLISON. Oh, it is. It is. But a lot of people are still suffering 

in the American public. There is still a concern, many people, about 

losing their homes or losing their jobs. We are not back to a normal, healthy economy. There are improvements that are dramatic 

in many parts of the economy, but we still have a way to go. And 

those are some of the factors that the Secretary will be considering 

as he decides whether to extend. 

But let me emphasize again, a number of these programs are already winding down and they will wind down further, and this program ends either the end of this year or no later than next year 

in any case. So we are looking toward the—some of these programs 

beginning to wind down and making sure that we are implementing the programs that are underway as well as we possibly 
37 

can to get assistance out to the public as well and as rapidly as 

possible. 

Senator HUTCHISON. Well, let me just finish by asking, why 

wouldn’t you show good faith with the American people and not 

ask for a full extension of $700 billion at the end of this year, and 

perhaps just lower the amount and put that amount into a position 

in which we would not have that available to go further into debt 

when we are seeing such a skittishness in the American economy 

about the huge debt that is being created? 

Mr. ALLISON. Yes. These are all considerations that the Treasurer—that the Secretary of the Treasury will take into account. 

These are important concerns that you are raising. We understand 

those concerns. Those have to be factored into this very complex decision that the Secretary will have to make. 

Senator HUTCHISON. I appreciate what you are saying. I don’t 

see, as you do, that people feel like the money is flowing, and that 

there is credit availability for small business people. I hope you will 

monitor that very carefully and maybe talk to people on the ground 

about whether they feel like they are able to get their inventory 

loans, their payroll loans as they have in the normal processes of 

their businesses. 

Mr. ALLISON. Yes. May I say, Senator, we share your concern. 

We do talk to many people out across the country. We are listening 

to small business associations, small bank associations. We understand the frustration of many. This is a very serious recession. We 

have taken dramatic efforts to deal with it. We look at the situation with small business constantly and discuss ways where we 

might be even more helpful. 

Senator HUTCHISON. Thank you, Mr. Chairman. 

Senator JOHNSON. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. Mr. Secretary, 

thank you for your service. 

Let me—a couple things. First of all, I held a field hearing of my 

subcommittee in New Jersey on the foreclosure crisis and one of 

the things I heard from witness after witness, including actual citizens as well as groups that are working with groups certified by 

HUD, is that the lenders have a strategy—many lenders have a 

strategy that some define as the three Ds—delay, deceive, and 

deny. It actually reflects what many of the constituents coming to 

my office and letters that I receive beyond my State reflect. 

In many cases, we have these institutions, these servicers, telling 

people what is clearly in violation of the law, is not the law, telling 

them that you have to be in foreclosure before you can get assistance. That is not the law. 

Mr. ALLISON. Right. 

Senator MENENDEZ. Taking long periods of time when a mortgage mitigation and/or readjustment is being sought, and then piling on fees and penalties months after the application has been 

made. Telling them that they need not only to be in foreclosure, but 

that they need to be delinquent in their mortgages to qualify for 

a modification. Or steering them into non-HAMP mortgage modifications. 

Now, if I can hear at a field hearing what I have heard in my 

office for months now, how is it that the Treasury Department, 
38 

which has the authority to fine servicers for not complying with the 

loan modification agreements they sign with the Federal Government, has not faced, as I understand it, one such violation? 

Mr. ALLISON. Yes. Senator, we share your concern about this and 

one of the roles of Freddie Mac in this entire program is to audit 

the program, to go into each of the servicers and determine whether they are conforming with the rules and the law, and we do have 

the power, as you said, to either withhold payments, and even to 

call back previous payments if we find that violations have been 

taking place. We are going to be looking at that. 

First, we want to be assembling information about the servicers 

and their service quality. We are going to be publishing information according to metrics of service quality on each one of these 

servicers so the American public can see for themselves who is following through with this program effectively and who isn’t. We are 

going to be meeting again with the servicers in early October. We 

are bringing them into Washington to have an all-day meeting to 

examine the state of the program and how well they are carrying 

out their responsibilities on behalf of the program and the public. 

We are sincerely concerned about this. We don’t think the service 

quality across the board is at the level that it needs to be, and we 

are committed to trying to make this better. And one answer is 

public disclosure. 

Senator MENENDEZ. Well, I appreciate that, and I am all for public disclosure, but public disclosure without consequence means 

nothing. 

Mr. ALLISON. We understand. We understand. 

Senator MENENDEZ. The bottom line is that there are incentives 

of all types proposed in the law. 

Mr. ALLISON. Right. 

Senator MENENDEZ. There clearly were incentives on the positive 

side to induce and help the servicers to do what we would want 

them to do in loan modifications. There is also a different type of 

an incentive, sometimes we call that a stick, when you don’t act 

correctly. However, if the penalty is never used, if I can go through 

the red light all of the time and never worry about being fined, 

then guess what? Very often, people will just take that red light 

when they are in a hurry. There has to be some action upon 

servicers that consistently have this MO. And if not, they will continue with impunity to the detriment of the homeowners. 

Mr. ALLISON. Yes, sir, and we will use the stick when that is 

called for. I can assure you of that. So we are assembling the information and we will be sitting down with the servicers and speaking 

with them—— 

Senator MENENDEZ. Because I have already looked at some of 

your metrics as to who, of all of these institutions, are performing, 

and it is like this. Whoosh. 

Mr. ALLISON. Exactly. 

Senator MENENDEZ. Now, I don’t know what these people down 

here are doing and when they are going to get the incentive to do 

better, but my patience is quickly dissipating, so I look forward to 

seeing what we are going to do in that respect. 

Mr. ALLISON. Thank you. 
39 

Senator MENENDEZ. Second, Professor Warren in her testimony 

soon to come says that in May, they surveyed the state of lending 

for small businesses and families and examined the TALF program 

and their report raises concerns about whether TALF is sufficiently 

well designed to help market participants meet the credit needs of 

households and small businesses. It also raised serious doubts 

about whether the program would have a significant impact on access to credit. 

Now, I know that in response to some of my colleagues’ previous 

questions—I am concerned, first of all, under all of these programs, 

that we have not seen lending be realized. I know that your answer 

to that is but for TARP, for example, it would have been much 

worse. That is not consoling to the private sector that is seeking 

to have access to capital so that they can get this economy moving 

and their own personal businesses moving again and hiring people 

and producing goods or services that our economy can move on. 

So I listen to story after story of people who talk to me about the 

incredible percentages above LIBOR in order to get a loan, and I 

then see this comment about TALF, particularly as it relates to 

small businesses, and I say to myself, why is it that we cannot 

structure the program in such a way that meets those challenges 

and what are we going to require from the TARP recipients as sufficient enough activity as it relates to lending so that, in fact, this 

is, one, yes, about strengthening those financial institutions, but 

yes, about lending in the marketplace. When are we going to get 

that reaction? 

Mr. ALLISON. Well, again, I think, as you pointed out and as I 

have said, lending is stronger than it would have been otherwise. 

Are we satisfied? No. We are—we need to make sure that, working 

with the regulators, that the banks retain adequate capital to conduct lending activities. 

There is, if you look at the normal runoff of bank loans or years, 

you would see that actually there is a great deal of lending going 

on, but there is not enough. In part, this is—there needs to be confidence on the part of businesses who borrow as well as lenders, 

and we are seeing that there are signs of greater confidence. We 

had in the month of June, for example, an increase in loan originations across the country. But it is still spotty and it is going to take 

some time to restore confidence both on the part of businesses and 

banks to get to—and the capital markets so that we have a strong 

securitization market again. 

So we are not yet out of the woods completely. We have made 

progress. We want to see progress as much as anyone, and we are 

working day and night to try to make sure that our programs are 

as effective as possible in stimulating lending. 

Senator MENENDEZ. I will just close, as my time is finished, simply by saying, plenty of people, plenty of entities I know, they have 

the confidence in their business and their business plan to borrow. 

The only thing is, when you have rates that are almost usurious, 

it is pretty difficult to borrow. 

And last, it still doesn’t answer the question on TALF and the 

small business community that is the backbone of the country that 

needs to have access to capital, that clearly is not taking place. 
40 

Mr. ALLISON. Well, TALF has been expanding and it has provided material sources of liquidity in the—especially the commercial mortgage-backed securities and the residential mortgagebacked securities markets. Also, the asset-backed securities activities have picked up, as well, thanks to TALF. There are billions of 

dollars of financing that have been provided, for instance, for credit 

cards, auto loans, floor plans, that would not have been the case 

without these programs. 

I will share your view, however, that more needs to take place 

so that rates are appropriate for borrowers and there is ample liquidity in the system. Again, I want to point out, we are not yet 

where we would like to be, but we are seeing a great deal of improvement in those markets. 

Senator JOHNSON. Senator Reed. 

Senator REED. Well, thank you very much, Mr. Chairman, and 

thank you, Mr. Secretary. 

Let me just follow up on Senator Menendez’s questions with respect to TALF. I think the Treasury reserved about $80 billion to 

lend into that program, and only about $20 billion has, I think, 

been committed, so there is a significant gap. In light of what we 

are all hearing back home, where companies can’t get credit, they 

have a good business plan, et cetera, I would think that the problem we would have is these funds would run out, not that there 

is no call on them. Can you help me understand? 

Mr. ALLISON. Yes. Well, the TALF program has been expanding 

and it has provided substantial liquidity. We have set aside funds 

for the TALF and actually recently increased the amount of commitment to the TALF program as it moves forward into next year. 

It is still a very important part of securitization, but we have seen 

overall spreads come down thanks to TALF, so funding is more affordable today than it was before and it is more ample. 

Senator REED. No, I absolutely agree with you, but we continually hear, and you do, also, that good businesses can’t get loans. 

Small businesses can’t get loans. No one can get loans. It might be 

sort of urban folklore, but it is a very powerful one. It is contributing to the confidence, or lack of confidence, of the public. I would 

think you would try to, having committed the money, expeditiously 

try to get it out—— 

Mr. ALLISON. Yes. 

Senator REED. ——not foolishly, but with purpose, and I hope 

you will do that. 

Mr. ALLISON. Well, we are doing that, sir, and we will try to keep 

that going with great momentum. 

Senator REED. Now, let me follow up another theme of my colleague from New Jersey, and that is the home foreclosure. I listened and you, I think you are aware of the problems, you are trying to deal with them. But at some point, if these measures are not 

eliciting the proper behavior, particularly after you make some 

sanctions or take some sanctions, the question is, what more can 

we do? The clock is ticking. If we don’t really, I think, turn the 

mortgage market, or build on the stability that you have helped 

provide—— 

Mr. ALLISON. Right. 
41 

Senator REED. ——by next spring or next summer, people, I 

think, will continually feel that they—the economy has improved, 

the market, we hope, is still up, but they have missed out. 

So my question is, is there anything more we can do legislatively, 

and I will sort of answer, in a way, my own question, that if these 

results continue to be as Senator Menendez described, we will do 

more things legislatively, and hopefully they will be helpful. 

Mr. ALLISON. Yes. Well, again, we are seeing that the Mortgage 

Modification Program is gaining steam and we are continually in 

dialog with the servicers to make sure we ramp this up as quickly 

as we possibly can. We are most likely going to beat our target that 

we set for half-a-million trial mortgage modifications underway by 

November 1. But we are not stopping there. We want to keep on 

ramping this up. We are monitoring which banks are lagging, 

which banks seem to be doing a good job, what is the service quality, and so forth. 

We feel the same sense of urgency, Senator, that you do and your 

constituents do. We have a long way to go, but we are hopeful that 

as we move toward the end of the year, this program will be at 

pretty much full steam and we will be moving forward into next 

year with a lot of momentum. 

Senator REED. Thank you very much, Mr. Secretary. 

Mr. ALLISON. Thank you very much, Senator. 

Senator JOHNSON. With that, Mr. Allison, thank you very much 

for being here. You may be excused. 

Mr. ALLISON. Thank you, Senator. 

Senator JOHNSON. Next comes panel number two, and it involves 

Neil M. Barofsky, who is the Special Inspector General for the 

TARP. Prior to his serving in his current position, he was a prosecutor in the U.S. Attorney’s Office with the Southern District of 

New York for more than 8 years. 

Gene L. Dodaro is the Acting Comptroller General of the GAO. 

He has worked for over 30 years in a number of key positions at 

GAO, including Chief Operating Officer. 

Elizabeth Warren is the Chair of the Congressional Oversight 

Panel. She is the Leo Gottlieb Professor of Law at Harvard University. 

Welcome to all. Mr. Barofsky, why don’t you lead it off. Welcome. 

STATEMENT OF NEIL M. BAROFSKY, SPECIAL INSPECTOR 

GENERAL, TROUBLED ASSET RELIEF PROGRAM 

Mr. BAROFSKY. Thank you, Mr. Chairman, Members of the Committee. It is an honor to appear before you today as the Special Inspector General, and it is also an honor to appear sitting next to 

my copanelists and partners in providing oversight to this historic 

program, Mr. Dodaro and Professor Warren. 

It has been about a year since TARP was enacted and EESA created this program, and about 9 months since I took office. During 

that past year, the program has changed dramatically, as was detailed earlier in the testimony of Mr. Allison. What started as a 

$700 billion effort to purchase and cleanse books—toxic assets off 

the books of financial institutions has evolved over time to 12 different programs that involve, when combined with other Federal 

programs, of up to approximately $3 trillion. 
42 

As the TARP has changed, so has our office. When I started on 

December 15, it was just me and my deputy, Kevin Puvalowski. We 

have grown in that time to 86 strong and we conduct our oversight 

through our two operational divisions, Audit and Investigations. 

Our Audit Division has been putting out audits recently advancing our goal of achieving transparency and accountability in the 

TARP program. We recently issued audits on use of funds, on outside influences on the TARP application process, and on executive 

compensation, and we have a number of audits coming up in the 

next couple weeks, including Bank of America, the initial funding, 

and the bonus payments to AIG. In the coming months, we also 

have projects that we are doing with the Congressional Oversight 

Panel on warrants and on corporate governance with GAO. 

I would like to talk very briefly about one of our audits, which 

was our use of funds audit. That was the first audit that my Audit 

Division put forward, and this was from late December, when we 

made our first recommendations to Treasury that they, in order to 

advance basic transparency, require TARP recipients to report on 

how they are using TARP funding. The last Administration refused 

this request, as did the present Administration, so we took matters 

into our own hands. 

And what we did is we sent out letters to the 364 financial institutions, which at that time had received TARP funding and asked 

them a simple question. What did you do with the money? We got 

364 responses, all of which are now posted on our Web site and 

summarized in an audit report we put out over the summer. And 

what we learned is that financial institutions did a number of 

things with the money. 

As to lending, some of them were able to use TARP funds to increase lending and others reported that they decreased lending less 

than they would have otherwise or were able to maintain lending. 

But, of course, that is not all they did with the money. As our audit 

report indicates, they reported that some institutions used money 

to build up their capital cushion to withstand future losses. Others 

used the money to acquire other financial institutions. Still others 

used it to pay off debt that they had or acquire mortgage-backed 

securities. 

The point is that, as we proved, financial institutions can and 

should be required to provide this basic transparency of letting the 

taxpayers know what happened to their money. Treasury still refuses to adopt this recommendation, and with all due respect to 

Mr. Allison, the things that he is describing that they are doing 

falls far, far short of meeting this basic level of transparency. 

Our Investigations Division has also been busy. Although I can’t 

comment on a lot of the investigations because they involve confidential ongoing criminal investigations, several things have become public. For example, we helped bring some measure of justice 

to investor victims of Gordon Grigg down in Tennessee, who was 

selling a fictional asset called TARP-backed securities. He is now 

serving 10 years’ imprisonment. 

We have also worked with our civil partners, such as the FTC, 

helping to shut down several scams that were targeting struggling 

homeowners in the Mortgage Modification Program. We also have 

other ongoing investigations that have been made public, more 
43 

complex investigations, like that of Colonial Bank, a bank that had 

received preliminary approval to receive $553 million of TARP 

funds. Following that approval, my office took several law enforcement actions, including serving subpoenas, and over the summer 

executing search warrants down in Florida, including on Colonial’s 

offices. That TARP money never went to Colonial. It is now defunct 

and our criminal investigation with the Department of Justice is 

continuing. 

Similarly, we have been supporting the numerous investigations 

into Bank of America, including the investigations by the New 

York State Attorney General, the SEC, and the Department of Justice, as we look into what happened with the merger of Merrill 

Lynch and the circumstances surrounding some of their disclosures, as well as the circumstances surrounding their receipt of additional TARP funds. 

Mr. Chairman and Members of the Committee, as I said before, 

it is an honor to be here before you. The support of this Committee 

has been absolutely instrumental to us as we carry out our role of 

providing oversight and I thank you for that. I look forward to answering any questions you may have. Thank you. 

Senator JOHNSON. Thank you, Mr. Barofsky. 

Mr. Dodaro. 

STATEMENT OF GENE L. DODARO, ACTING COMPTROLLER 

GENERAL, GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. DODARO. Thank you very much, Mr. Chairman, Senator 

Johnson, Senator Corker, Senator Merkley. It is a pleasure to be 

here today to assist your deliberations to take stock 1 year after 

the Emergency Economic Stabilization Act was passed. 

At this juncture, our overall assessment is that the TARP program, in particular the Capital Purchase Program, made a very important contribution to improving the situation with the credit 

markets, but when you look at the full portfolio of programs under 

the TARP umbrella, in many respects, they are still a work in process, with many uncertainties and challenges that lie ahead, and 

some of the ultimate return on the investment remains very unclear at this point in time. 

Now, on a positive standpoint, while it is very difficult to isolate 

TARP’s specific impact given the wide range of other programs by 

the Federal Reserve and FDIC, overall indicators that we have 

been tracking on interbank lending rates along with interest rate 

spreads show dramatic improvement since October 2008, when the 

Capital Purchase Program was announced, along with other Federal initiatives. 

And as you have heard, there have been repayments made for 

the Capital Purchase Program by many institutions, $70 billion. 

There has been $2.9 billion in warrants that have been exercised 

and about $7 billion in dividend payments. However, there are 

hundreds of other institutions that still have received TARP funds 

and are still receiving them under that program and it needs active 

management to ensure that they are complying with all the requirements. 

In other cases, there are investments that have been made, particularly in the case of AIG and the auto industry, where there is 
44 

a clear need to have a very well-defined exit strategy on the part 

of the Government that balances returning those companies to private control while managing and making sure that they are minimizing the potential losses to the Federal Government. We are 

looking very carefully at that and evaluating those exit strategies 

that are being contemplated by the Treasury Department and others. 

And as you have heard today, the Home Affordable Modification 

Program is in its very early stages and a long way from fulfilling 

the expectations that many people had for that program, and other 

programs are just in the process of getting off the ground. 

So from a total standpoint and looking at TARP, it has had some 

positive impact on the credit markets, but a lot of the programs 

have very uncertain outcomes at this particular point in time. 

Now, in order to foster greater accountability and transparency, 

GAO has issued about seven reports. We are required to report 

every 60 days. We have had 35 recommendations in those reports 

to make sure that better controls were put in place, that there was 

better oversight, greater transparency and accountability. Treasury 

has agreed with the vast majority of those recommendations and 

has partially or fully implemented most of them. 

However, many remain outstanding, including putting in place a 

chief of the Home Ownership Preservation Office, which we believe 

was very important to help give additional emphasis to that program and to have a better communication strategy. They have 

made some strides in this area, but this will be really important 

going forward, particularly as it relates to communicating whether 

or not they are going to extend or propose to extend the TARP program for another year. 

So those activities are really important. We are in the process of 

completing the first annual financial audit of the Office of Financial Stability’s financial statements. We will be reporting soon on 

that financial audit, which will include valuation of all the investments that they hold to date, so I think it will provide pretty good 

illumination on those points. 

We have efforts underway to look a the automobile industry in 

terms of steps that they have taken, GM and Chrysler, and also 

with our newest statutory authority to look at the Federal Reserve’s oversight of AIG, we are going to look at that effort along 

with the partnership efforts we have with Mr. Barofsky and his 

team to look at how the Federal Government is pursuing different 

corporate governance strategies and oversight mechanisms across a 

wide range of entities, both within the TARP program as well as 

Fannie Mae and Freddie Mac, for example. 

That concludes my opening statement, Mr. Chairman. I would be 

happy to answer questions at the appropriate time. 

Senator JOHNSON. Thank you, Mr. Dodaro. 

Next is Elizabeth Warren. 
45 

STATEMENT OF ELIZABETH WARREN, CHAIR, CONGRESSIONAL OVERSIGHT PANEL FOR THE TROUBLED ASSET RELIEF PROGRAM 

Ms. WARREN. Thank you, Mr. Chairman, Senator Corker, Senator Merkley. I appreciate the opportunity to be here today to talk 

about the work of the Congressional Oversight Panel. 

I always need to start with a disclaimer. I am the Chair of the 

Congressional Oversight Panel, but it is a five-person panel; and 

because I do not operate from a script, that means my words have 

not been preapproved. So I speak on my own behalf and not on behalf of my other four copanelists. 

I want to start this, because you asked us to talk about 1 year 

later—many people have talked about where we were a year ago, 

that we had major corporations that had failed either through 

bankruptcy, others on the brink of collapse. We had families that 

were concerned about the loss of savings. They watched their home 

equity disappear. Chaos in the markets. And TARP was offered as 

the centerpiece of the Government response: a $700 billion program 

to stabilize the financial system. 

From the outset, it was obvious that a system so large would 

need very careful oversight. In the years since then, the mission of 

TARP, the work of TARP has grown, and oversight has had to grow 

along with it. 

The Congressional Oversight Panel was your creation to help in 

part with that oversight. We are the ones who are responsible for 

issuing reports every 30 days to Congress. Here is a stack of our 

reports. We have done 10 regular reports and two special reports 

that were required by statute. I talk about those more in my written remarks, and I am glad, obviously, to answer any questions 

about them. 

In addition to our reports, we also hold hearings, and so we have 

so far had 11 hearings, including five field hearings that have 

taken us to some of the areas around the country that have been 

especially hard hit by the economic crisis. 

In fact, as I am here today, the rest of the panel is in Philadelphia in a hearing on the mortgage foreclosure mitigation system. 

We are hearing from Treasury there and from many people about 

various programs underway and how they are working on the 

ground. 

Of all the questions, though, that we get and I get as Chair of 

the Oversight Panel about TARP, perhaps the most frequent one 

is just the question: Is it working? 

It is a simple question, but it actually is a very difficult one to 

answer. And part of the reason starts with the design of TARP. We 

said in the statute that there were five specific goals: to restore financial stability, protect home values and family savings, promote 

jobs and economic growth, maximize return to taxpayers, and provide for public accountability. 

Now, any program under TARP that did all five of those things 

I think we would all applaud and say that was a success. But how 

do we evaluate programs that do only some of those? What becomes even more difficult is how do we evaluate programs that advance some of those goals at the cost of others of those goals. And 

this is not merely a question that is hypothetical. 
46 

In fact, in February, the panel released a report evaluating 

Treasury’s largest acquisitions of bank equity and warrants under 

the TARP program. Despite the assurances of Secretary Paulson 

that the initial purchases of stock and warrants of the banks were 

made at full value, our analysis showed that Treasury paid substantially more for these assets than they were worth. In fact, for 

every $100 spent by Treasury, the taxpayer received assets that 

were valued at that time on average at only $66. 

Now, these capital purchases very likely helped stabilize the 

markets. They achieved one of the key goals of TARP. But Treasury paid substantially more for these assets than their market 

value, thereby subsidizing the banks at a significant cost to the 

taxpayers. So any discussion of success has to hit this basic conundrum. 

The Oversight Panel can contribute to this discussion by investigating what is going on, assembling the data, and making the recommendations. We can press Treasury, as we have, for greater 

clarity, greater transparency, and greater accountability. But ultimately the American people will decide if the right balance between the banks and the taxpayers has been struck. 

In the last year, the apprehension that pervaded this country has 

turned into something else: frustration and anger. Today’s fragile 

stability has come at an enormous cost to the American people. 

Taxpayers have a right to know whether anything fundamental 

has changed to prevent this crisis from happening again. 

This brings us back to a topic that the panel first addressed in 

our special report on regulatory reform last January. As we said 

then, we must change the rules of the financial system to make 

certain this crisis is not repeated. 

Thank you again, and I look forward to whatever questions you 

may have. 

Senator JOHNSON. Thank you, Professor Warren. 

The clerk has asked to put 5 minutes on the clock. 

For the entire panel, each of your organizations has offered recommendations to improve the TARP program. How would you 

characterize the TARP’s receptivity and responsiveness to your recommendations? And are there recommendations that have not yet 

been implemented which all of you agree on or feel should be implemented in the near future? Mr. Barofsky. 

Mr. BAROFSKY. A number of our recommendations have been implemented, particularly on the compliance side. But at its core, our 

biggest frustration and I think the most significant recommendations that have not been adopted have been related to transparency. 

Touching on something Professor Warren said, we believe that a 

lot of this frustration and cynicism and anger comes out of the lack 

of transparency in the TARP program. Taxpayers really want to 

know and should have a right to know what is going on with their 

investments. How are the funds used? What are they worth on a 

more regular basis than the statutorily required annual review 

that GAO does? With some of the new programs they are rolling 

out, like the PPIP program, what is being purchased with their 

money? 
47 

We believe these are fundamental aspects of transparency that 

will make this a better program, a better understood program, and 

a better run program, and Treasury’s failure to adopt these recommendations in my view has been one of the great failings of the 

past year. 

Senator JOHNSON. Mr. Dodaro. 

Mr. DODARO. In general, we have received good receptivity to our 

recommendations. There are several outstanding ones. One is to 

name the new head of this Homeownership Preservation Office, 

which I think is very important given all the comments that have 

been made and questions to Mr. Allison this morning. 

But I share some of the frustration that Mr. Barofsky mentioned 

early on. In the very first report that we issued on the TARP program last year, there was a reluctance to adopt the recommendation to disclose the total lending activities of the recipients of the 

Capital Purchase Program. I think that got the program off to a 

bad start. It created a lot of skepticism about what the banks were 

doing with the money. And it was difficult to come up with a baseline as to the lending activities and whether or not—how to measure whether TARP was achieving the objectives of the statute. 

There has been significant progress since then due, I believe, to 

active oversight on the part of the Congress, to require the prior 

Administration to begin those reports, and now that we have those 

reports, they are providing better insight into the overall lending 

activities, not only for the large institutions but for the small ones 

as well. 

I would be happy to submit a detailed summary for the record 

of all 35 of our recommendations and where things stand. 

Senator JOHNSON. Ms. Warren. 

Ms. WARREN. Well, again, there has been some good news. We 

have pushed for a long time for more transparency, more accountability, more clarity on goals. And when I measured against where 

we were last November, we are in a much better place than we 

were before. However, we think there is still room to travel along 

the transparency road. 

We made some recommendations on mortgage foreclosure mitigation that Treasury used and altered their plans somewhat. I would 

like to think we had an effect on the warrants repurchase program. 

They did not specifically adopt a recommendation, but after we had 

identified that we were receiving what we thought was too little 

money, the price jumped up, and that was good for the American 

taxpayer. So there has been some good movement. 

I want to say, though, we have had some very specific recommendations that at least thus far Treasury has not shown a lot 

of interest in. 

We have recommended, for example, in our most recent report on 

autos that the taxpayers’ ownership, the shares that Treasury now 

holds in Chrysler and General Motors should be put into a trust 

to be better managed on behalf of the taxpayers. 

We have argued for repeating the stress tests and extending 

them past the 19 largest financial institutions. We have raised 

deep concerns and made many recommendations about getting the 

troubled assets off the books of the banks, where they remain. 
48 

And we have made recommendations about restarting small 

business lending, where we are very concerned that there has been 

inadequate work done. 

We also are concerned that parts of the foreclosure mitigation 

process are just—they are just ignoring big pieces of the problem 

out there. 

So we also have made about, I think—it is hard to count these; 

we do long and complicated reports—roughly about 20 big recommendations and probably about 20 more technical and smaller 

recommendations. We would be glad to offer those to you, Senator, 

in some detail and show you the extent of Treasury’s response, if 

that would be helpful. 

Senator JOHNSON. Yes. Thank you, Ms. Warren. 

Mr. Barofsky, are you prepared to delve into the lender operations and check to make sure they are following the HAMP rules 

correctly, training the staff adequately and generally living up to 

the contractual arrangements? 

Mr. BAROFSKY. We have an audit ongoing right now. A couple of 

my auditors just got back from Texas. They are doing a site visit 

on one of the mortgage servicers, and all of this is going to be encompassed within that audit, which we hope to get out late this 

year or early next year. 

In addition, we have a hotline that is up and running. We have 

received probably about 7,000—close to 7,000 inquiries on the hotline. It is available on our Web site where we have had about 26 

million hits. And a lot of these are homeowners who are complaining and letting us know their frustrations. 

We put together a management report to Treasury identifying a 

lot of the frustrations, which I heard were exposed at Senator 

Menendez’s hearing, as he described it, and brought those to the 

attention of Treasury as well as to try to get them to work with 

these servicers to make sure they are living up to their end of the 

bargain. 

Senator JOHNSON. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and I thank each of 

you for your testimony, but also for what you are doing on a daily 

basis. I do not think there is any question that having folks do 

what you do certainly causes people to attempt to be far more 

transparent, and it is a very good check and balance. 

We had a witness earlier whom I talked with in the hallway 

after the meeting, and, you know, there was not a lot of illumination for many, many reasons, I think, as to the program itself. And 

I know that you all have issued reports, and we were able to read 

those, and your testimony kind of tells us a little bit about where 

we are as far as the integrity of the program goes. 

But I would like to move more toward—we have some decisions 

or there will be decisions made, I guess, in the next several 

months. You all are out there on the ground, you know, and in 

some ways auditors, as you are in some ways, have a better sense 

of where things are in some cases than the folks who are away 

from that. 

Should we not go ahead and sunset TARP at the end of the year? 

I really feel another moral hazard being created right now, especially as it relates to commercial real estate, where I think many 
49 

institutions and investors are thinking that we are going to ride to 

the rescue; and instead of getting their balance sheets where they 

need to be by issuing stock, which dilutes ownership, which they 

are resistant to do as long as they think that the Federal Government is going to ride to the rescue, they are missing a window of 

opportunity to rectify what no doubt is going to be a problem down 

the road for them. 

Professor Warren, I wonder if you might speak to that. 

Ms. WARREN. Yes, Senator. I want to start by saying something 

that is very unpopular probably everywhere. I am very concerned 

about the stability of our banks right now. Notwithstanding the 

good news and how share price is up on Wall Street for some financial institutions, I just want to remind everyone that the toxic assets remain on the books of the banks; the commercial real estate 

mortgages are a coming crisis; small banks are continuing to fail. 

And we were talking a year ago about ‘‘too big to fail.’’ We are now 

facing an industry that is more concentrated than it was a year 

ago, and ‘‘too big to fail’’ is upon us now in a much larger sense. 

Having said that, I also have deep concerns about the impact 

that TARP has on this market. I share your concerns about the effect of ongoing taxpayer subsidies and whether any market functions so long as it believes that there is a guarantor, that there is 

someone, the taxpayer, who will continue to subsidize the decisions 

that are being made and the operations, and stand in this ‘‘too big 

to fail, we will take care of you, so if you get out there and gamble 

you take all the profits if you win, and we will take all the losses 

if you lose.’’ 

I just want to say I think it does have distorting effects on capital investment. I am very concerned about the absence of an exit 

strategy for how we are going to withdraw those subsidies and 

whether we will have confidence that we will continue to have a 

stable banking system afterwards. 

Senator CORKER. But some of the funds have been allocated— 

thank you for your response. Some of the funds have been allocated 

already for PPIP and other kinds of things. Those are not just 

going to go away, and they are primers. And I know we had some 

discussion earlier, and I agree with Senator Gregg that the 

securitization market will come back as soon as the people feel confident again in that market. There is nothing really, I do not think, 

exceptional that we necessarily need to do in that regard. 

So those programs are not jut going to go away. I mean, they are 

sort of going to wind down over time. So back to the sunset issue. 

I think as long as this cloud is out there—or this rainbow for 

some is out there—I think we are going to continue to have people 

not doing the things they could do today to get their balance sheets 

in better order. And I am just wondering if you have a recommendation regarding whether—I think it should be sunsetted, 

and I know that we have numbers of banks that probably are on 

the troubled list. I think there are resolution mechanisms in place 

to deal with them, because they are typically not the largest institutions. But I would just love to have your response. 

Ms. WARREN. I appreciate it, Senator, and I am struggling. I do 

not want to be nonresponsive to you on this, but I think this one 

is a really tough question. I am less confident that we have ade-
50 

quately arranged for the death of financial institutions that need 

to fail. And so the absolute worst-case scenario from my point of 

view is that we say, OK, this is it, you are on your own. Whether 

we do this with TARP still alive or not, if we let these banks exit 

the system and you say you are out there, you are on your own, 

you go out, you make some profits, you make some bad decisions; 

and then when they get into financial trouble they race back to the 

taxpayer and say you are going to have to bail us out again. 

So I am concerned that TARP is part of this larger fabric that 

is not only affecting investment, as you rightly identify, but it is 

also just a part of this larger decision making and risk taking and 

concern over whether or not the American Government is now in 

a position to say with credibility: Your business has failed. You 

failed. Your shareholders are wiped out. Your debt holders are 

going to take that hit, and it is on you. It is not on the taxpayer. 

So I just think we have to be really clear in that place. 

Senator CORKER. May I ask one more question? 

Senator JOHNSON. Yes. 

Senator CORKER. And, Gene, I know you may want to respond 

to the last one, and you can do that in just a second. 

There is not a resolution mechanism for the largest entities, and 

I know Senator Warner and I have drafted a mechanism that allows the FDIC to come in and do the same thing with large, complex bank holding companies that they do with most of the banks 

you are talking about now. 

I assume that you would support having that type of mechanism 

in place in lieu of what the Administration has put forth as part 

of their financial regulation, which, in essence, codifies TARP and 

gives them the ability in perpetuity to use taxpayer monies for 

large entities. 

Ms. WARREN. Senator, I emphasize I speak only for myself because others might not agree with me. But I believe that a meaningful resolution authority is a central part of getting this economy 

back on its feet, good decisions being made, and a credible statement by the Government that when you go out there and take 

risks, if you fail, you are on your own. 

Senator CORKER. Very good. 

Gene, I do not know if you want to comment. 

Mr. DODARO. Yes. Relevant to your question about making a decision on TARP’s extension, I would make two points that I think 

are very important. 

Number one, TARP should not be looked at in isolation of the 

other activities being carried out by the Federal Reserve, FDIC, 

and others. As the program has unfolded, TARP has been very 

much intertwined with joint activities—TALF being one example, 

with Federal Reserve activities being on point, TARP being the 

back-up for that activity, the PPIP program, activities there with 

FDIC, et cetera. And with FDIC now we have had 94 banks fail so 

far this year. There are over 400 banks on the troubled list that 

they publish. So that would be my first point, number one. This 

ought to be looked at and presented to the Congress as an integrated strategy on the part of all actors that are relevant to dealing 

with this issue. 
51 

Second, there is plenty of time to have a good, analytical basis 

for underpinning the decision. We are not in the same type of 

emergency situation we were before where people are rushing up 

within 2 weeks and asking for a lot of things. There is plenty of 

time here, and there ought to be a good set of indicators in place 

with clear expectations as to what will be achieved and how we will 

measure progress going forward under any extended program. 

We are looking at that issue now as part of our detailed anniversary report on TARP. We may have some recommendations on that 

going forward. 

Senator CORKER. What would be the date of that? 

Mr. DODARO. That is going to be out early next month. 

Senator CORKER. Brilliant. Mr. Chairman, thank you. 

Senator JOHNSON. Senator Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chair, and thank 

you for your testimony today. I wanted to start by inquiring about 

the commercial and small business lending. 

Mr. Barofsky, in your comments you note that it is becoming 

more and more clear that the commercial real estate market might 

be the next proverbial shoe to drop, threatening to increase the 

pressure on banks and small business. And, Professor Warren, you 

note that, ‘‘The report raised concerns about whether TALF was 

well designed to help market participants meet the credit needs of 

households and small businesses. It raised serious doubts about 

whether the program would have a significant impact on access to 

credit.’’ 

I have many, many small businesses and real estate investors 

who are very, very concerned. On the real estate side, many have 

7-year balloon mortgages. The goal for them is to roll those over. 

Many of the folks who have those loans have paid consistently, but 

the value of their asset has dropped from 7 years ago, and so even 

when they have longstanding banking relationships, they are often 

being told, ‘‘We are sorry. Because your asset has dropped in value, 

we are not going to roll over this loan.’’ Well, obviously, if you have 

a 7-year balloon loan that you cannot roll over, you are in deep 

trouble. 

And then on the small business side, I just continuously have a 

stream of small businesses that are saying whatever we are doing 

for the big Wall Street firms, it is not help us as small businesses. 

Are these as serious as it appears at the ground level? And how 

do we make progress? 

Ms. WARREN. Senator, yes, the problem is as serious as it appears at the ground level. I will start by saying we need better data 

in this area. We would like to track it with more specificity. But 

the indicators we can find all say there is a problem with small 

businesses. 

The coming problem with commercial real estate mortgages is exactly as you identify, not because the businesses are not paying, 

but because when these resets come up, the value of the assets will 

be sharply diminished, and as I understand it, banks have also 

changed their lending standards. So what used to be a 95-percent 

loan-to-value ratio mortgage is now a 65-percent loan-to-value ratio 

mortgage on an asset that has declined in value perhaps by a third. 
52 

These are just numbers that are impossible for the operator of the 

business who is trying to pay that commercial mortgage. 

Let me identify where I think at least a part of the core of the 

problem is. It is disproportionately smaller banks—not the behemoths but the intermediate size and smaller banks—that do the 

small business lending and the commercial real estate mortgages. 

That means that the health of this sector of our banking industry 

is critical to that portion of the economy, the commercial real estate 

and the small businesses. 

But those small banks right now continue to have toxic loans on 

their books. They hold these commercial real estate mortgages that 

are quite problematic for them. They hold more whole loans, which 

means they are not in the securitization business nearly as much. 

They do not have the benefits of being too big to fail. In fact, we 

are watching them fail in large numbers. And the programs that 

Treasury has designed have disproportionately gone to the largest 

financial institutions and not to the smaller institutions. 

So the problem is more systemic as we see it. We have actually 

done a couple of reports on this and gathered as much data as we 

have, but we have urged Treasury in our recommendations to reconsider its allocation of its resources to deal with the toxic assets 

that remain on the books of the small banks, because as long as 

those toxic assets are there, when money comes in they have a 

tendency to what to hold onto it to offset future losses. So deal with 

those toxic assets and have programs that will help directly jumpstart small business lending. 

Senator MERKLEY. A number of the community banks have 

called me to say the inspectors looking at their books are basically 

telling them to hold onto their funds because of the change in the 

value of these assets. So I wanted to not that because I do not 

think it is just simply their internal decision, but also decisions 

being driven by the very inspectors that we are sending out to help 

restore solvency. 

Ms. WARREN. Indeed, Senator. I did not mean to imply that they 

were doing anything wrong. They are doing what they are told to 

do so long as we have not resolved the toxic assets on their books. 

I go back to where we were a year ago since that is today’s topic. 

We started this process saying—Secretary Paulson came to this 

very room and said we need to get those toxic assets off the books 

of the banks so that, in effect, we will have a stable banking system. That means that when money comes in, it is there to be lent 

out. And we have not done that. 

Senator MERKLEY. I am basically out of time, but I want to finish 

this thought, if I can. Does it make sense then, as some businesses 

have proposed, that in a situation where there is a 7-year performing loan, that they have made all their payments, that there 

be some facility that—and if it is not TALF, how do we do it?— 

some way that banks can relend to those customers who have been 

making good payments over 7 years, even if their assets are not 

quite up to par because of the drop of the real estate market, in 

order to not only directly assist those folks, but to avoid the systemic risk imposed by the potential collapse of commercial real estate? 

Ms. WARREN. Senator, if you will permit me a slight dodge. 
53 

Senator MERKLEY. Please. 

Ms. WARREN. I will say that there is no doubt in my mind we 

are going to have to address the coming problems with commercial 

real estate mortgages, and we are going to have to be far more creative than we have been up to now. And if you will let me, I will 

stop there because my panel has not gone further. 

Senator MERKLEY. Thank you. 

Ms. WARREN. Thank you. 

Senator JOHNSON. Senator Bennett. 

Senator BENNETT. Thank you very much, Mr. Chairman, and 

thank you all for what you do and for your being here. 

I remember very clearly the discussion just a year ago where we 

created you, because the first proposal from Secretary Paulson did 

not include an Inspector General and did not include a Congressional Oversight Committee. And I remember the comments. Senator Corker and Senator Gregg were in the room. Of course, Senator Dodd was presiding at that conversation, and there was no reporter, so we are dependent on our respective memories. 

But I remember very clearly the Senator making the comment: 

‘‘I do not care who he is. I do not trust any Secretary of the Treasury with $700 billion and no reporting relationship and no oversight.’’ And it was out of that conversation that we created you, 

and we are delighted with the work you are doing. 

Let me try to look into the future. One of the advantages of being 

the last one is that I have seen all of my penetrating questions already asked and either answered or dodged, as the case may be. 

But let us look at where we stand now. We were told by Secretary 

Paulson, ‘‘I have to have the $700 billion number. I will not have 

any credibility in the world if I cannot stand up and the headline 

says in the Financial Times and the Wall Street Journal, ‘‘$700 billion.’’ 

Now, I checked with economists whose judgment I trust, and 

they said, ‘‘You cannot shovel $700 billion out the door in anything 

like the timeframe that we are talking about.’’ And I said, ‘‘What 

is the fastest we can do it?’’ And he said, ‘‘$50 billion a month.’’ So 

that is where the first 350 came from. I said, ‘‘Why don’t we give 

him $250 billion for 5 months and see how it works?’’ And Secretary Paulson’s response was, ‘‘I got to have the $700 billion headline.’’ 

So we gave them the $700 billion headline, but the fine print was 

you get 250 and then you get 100 and then you come back to the 

Congress for the other 350. So you have got the headline to tell everybody we are going to stabilize things, but we are going to watch 

you as the money goes out. 

All right. Now it is a year later, and as I understand it, the total 

amount that is disbursed or committed, less the principal repaid— 

and I will bypass the issue that Senator Hutchison raised, because 

we expected as the stuff got repaid that it would not be recycled. 

Indeed, we thought we wrote that into the law, but the Treasury 

lawyers now say we did not and tell us, ‘‘No, this is what the law 

says.’’ Well, you know, we wrote the law, but all right, we will 

leave that one. 

So $404 billion, either disbursed or committed, which leaves 

$295, $296 billion available. Let us talk about what that is going 
54 

to be used for, and do you have any sense as to—is it going to be 

the commercial real estate market that that is going to be used for? 

Where is Treasury thinking that that nearly $300 billion left out 

of the $700 billion that has not been committed or disbursed and, 

looking forward, even though this hearing is supposed to be retrospective, looking forward, with those of you who are monitoring 

this, where do you see that going? 

And to your point, Professor Warren, you said, ‘‘We were urging 

Treasury.’’ Did they listen to you? Does anybody at Treasury respond, Inspector General, when you say you have got to be more 

transparent about this, that, and the other? The GAO shows up 

and says you have botched all of this kind of accounting and analysis. Does anybody respond to what you are doing? 

So those two questions, if you would. 

Mr. BAROFSKY. To the latter question, they do respond, and although I have some great frustrations on the issue of transparency, 

they have adopted a number of our recommendations. If you take 

a look at where we were when I first took office on December 15 

compared to where we are now, a lot of the aspects of this program, 

particularly from oversight-enabling provisions and conditions in 

the contract—remember, when we first started this, money was 

being pushed out with virtually no conditions and no oversight-enabling provisions and we made a series of recommendations, I think 

on my eighth day, that have largely been adopted and the program 

is less susceptible to waste, fraud, and abuse as a result of those 

recommendations. 

So there has been some progress, and I don’t mean to suggest 

that there hasn’t. However, in certain areas, particularly with respect to transparency, I think they have got a long way to go. 

With respect to the remaining funds, I mean, Treasury has preliminarily indicated where a lot of that money they anticipated 

might go, in programs that have been announced but the money 

hasn’t formally been obligated or committed. It is just $15 billion 

to back up small business loan-backed securities, still some headroom on the Capital Purchase Program. There is a lot of money 

that they have allocated toward the TALF and toward the PPIP 

program. Although Mr. Allison said $40 billion is going to be committed, 30 of the Treasury money, they have indicated that that 

program may grow to larger amounts. So we have some guidance 

there. 

And clearly, there is still some that they are holding back to see 

what happens, if it is necessary or not, and I think commercial real 

estate is something that we have all identified as a major potential 

area where there may be a need for more Government involvement. 

Mr. DODARO. In terms of the recommendations, they have agreed 

with the vast majority of recommendations we have had, and while 

it took some effort initially last year to get moving on some of the 

reporting requirements for transparency, they have taken that and 

adopted it and we are pleased with the progress that they are making in that regard. We do have a few open recommendations that 

they are still considering. 

Now, with regard to the remaining funding, we have been pressing Treasury to try to obtain the same type of answers that have 

been tried to be sought after today and we will continue to do that. 
55 

As I mentioned in my response to Senator Corker, we are planning 

to include some information about what we think should be underpinning whatever decision is made. So far, Treasury has mentioned 

they may focus on small banks and small businesses with the remaining portion of the program. The estimates that they have currently made about the potential use of the funds are outdated and 

need to be updated. 

And I would reiterate my point, Senator Bennett, about this decision needs to be made in the context of what also the FDIC and 

the Federal Reserve and the others who are having similarly related programs. As you know, in the American Recovery and Reinvestment Act, there was additional funding for small businesses included in there and actions the SBA was supposed to take. 

So all these things, I think, need to be looked at on an integrated 

basis, because the Federal Government, by and large, is making a 

huge commitment and there needs to be clear objectives if additional funding is going to be provided. 

Ms. WARREN. Senator, we continue to remain very concerned 

about the toxic assets that remain on the books at the banks, and 

I don’t understand where Treasury is going next to deal with that 

problem. We have indications that the housing market and the resulting mortgage foreclosures are going to continue to be a huge 

problem. Treasury speaks about meeting its goals, but they are 

modest relative to the size of the number of foreclosures that are 

coming in. The commercial real estate mortgage market looks even 

more problematic going forward. 

That means that the value of the assets on the books of the 

banks may be headed down, not up. And until we find a way or 

commit ourselves to a way to say, one way or the other, we are resolving those assets on the books of the banks, whether the banks 

have to be closed, whether their equity has to be wiped out, whether their debt holders have to take the hit, whether the American 

taxpayer is going to have to subsidize it, until we get down to dirt, 

to something that is solid that we can put our feet on, our financial 

institutions are standing in a secure place, we can’t rebuild and 

know that we are safely past this crisis. 

So I wish I had an answer, Senator, but I am at a loss. We are 

in a better position than we were a year ago in two meanings of 

that word. No one thinks we are going to wake up tomorrow morning and everything will have crashed about our ears. That is obviously a real advance. We are also in a better position in dealing 

with Treasury and how they have dealt with the $700 billion, and 

it that is it is more transparent than it was before. The programs 

are more explained than they were before. 

But the big plan, the question about how we are going to get 

these toxic assets out of here at a time when the real estate mortgage market is still in trouble and the commercial real estate mortgage market may be getting into more and more trouble, I am not 

hearing the plan. So I don’t know what they are planning to do 

with this money or with any other money. 

And as Gene said, and I really don’t want to pass this by, we talk 

about TARP. You created us to be oversight for TARP and we certainly do that, but it is a larger financial context here. The Federal 

Reserve has committed substantial assets of the American tax-
56 

payers through guarantees and through loan programs. The FDIC 

is part of the overall program. These pieces all tie to each other, 

and at this moment, I can’t say that I have heard the plan for getting things resolved and getting out of this crisis. 

Senator BENNETT. Thank you, Mr. Chairman. 

Senator JOHNSON. Thank you for this testimony to this panel, 

and you may be excused. 

With that, this hearing is adjourned. 

[Whereupon, at 12:47 p.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 
57 

PREPARED STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Good morning. A little over a year ago, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox came to Congress with an urgent message: The American economy was on the brink of total collapse. And they needed $700 billion of taxpayer money to stop it. 

Already, our Nation was in the midst of an economic crisis that threatened small 

businesses’ ability to make payroll, cost us more than half-a-million jobs, turned the 

American Dream of homeownership into a nightmare, kept students from getting 

college loans, and wiped out hundreds of billions of dollars in savings that Americans were counting on for their retirement. 

With financial giants toppling what seemed like every day, and with businesses 

large and small suddenly unable to access the credit they needed to operate, we 

clearly needed to act. 

But when the Bush administration’s proposal emerged, it was clearly unacceptable. 

They were asking Congress for a blank check, with no protections for the taxpayers on whose account it was being drawn. 

Their proposal included no congressional oversight—and they even wanted to prohibit judicial and administrative review of the Secretary’s decisions. 

In short, the Bush administration asked Congress to put an unprecedented 

amount of taxpayer money and executive power under the unchecked control of one 

unelected individual, with no guidelines to ensure that it would be used properly— 

without even so much as an office with a dedicated staff to keep track of where it 

was going. 

Doing nothing wasn’t an option—but neither was this proposal. 

The crisis demanded that we bring together members of the House and Senate, 

Republicans and Democrats, and hammer out a better solution for the American 

people. 

So we fought hard to include taxpayer protections and meaningful oversight. 

We fought to ensure that if ordinary Americans who had done nothing wrong 

were going to pay for this stabilization effort, they would get to share in the benefits 

if companies became more profitable—an initiative driven by Senator Reed. 

We required Treasury to put homeowners and the financial security of American 

families at the top of its agenda. 

We established the three oversight bodies that are before us today. 

And we made certain that we put first and foremost the principle that with this 

assistance to the financial sector would come real change so that a crisis like this 

wouldn’t happen again. 

Am I glad that we had to spend this money? No. 

Do I share the anger and frustration that many Americans felt and continue to 

feel that Wall Street greed and regulatory neglect left taxpayers on the hook? Absolutely. 

But I am also proud of the hard work we did a year ago to protect taxpayers and 

introduce some accountability into the stabilization program. 

I am relieved that we have managed to bring our economy back from the brink. 

And I am more committed than ever to taking action so that the American taxpayers who funded this effort aren’t asked to clean up another mess they didn’t 

make in the future. 

We need to take action to restore Americans’ confidence—and their financial security—by reforming a regulatory system that still contains far too many gaps, loopholes, and redundancies. 

The 20th century regulatory structure has been outpaced by 21st century innovations in the financial services industry, and if we don’t fix it, we could be right back 

where we were a year ago, facing a dreadful choice between a massive outlay of taxpayer dollars or an unimaginable economic disaster. 

I look forward to working with my colleagues on this Committee and in both parties to make sure that doesn’t happen. 

PREPARED STATEMENT OF SENATOR SHERROD BROWN 

One year ago, the American economy was teetering on the verge of wholesale collapse. Credit had dried up for businesses, financial behemoths such as Lehman 

Brothers and Bear Stearns vanished, insurance giant AIG needed immediate rescue, 

and Fannie Mae and Freddie Mac imploded. 

Congress and the President had no choice but to act quickly to stabilize the financial system. We did, and the Troubled Asset Relief Program (TARP) was the result. 
58 

We enacted TARP legislation not only to stabilize the financial system but also 

to preserve homeownership, promote jobs, and generate economic growth. Now that 

we are nearing the 1-year anniversary of TARP’s creation, we are taking a look at 

whether TARP has worked. 

I agree with those who say TARP has staved off an even bigger financial catastrophe—a number of the big banks that have received TARP funds are starting to 

reap profits and have even begun to pay the Government back. 

However, TARP has not been a success for everyone. Before we pop the cork on 

the champagne, we need to consider what TARP has done for jobs, manufacturing, 

and the foreclosure rate. 

Unemployment is still way too high. In Ohio the July unemployment rate was 

10.8 percent, a full percentage point higher than the national average. That represents 641,000 people who will need unemployment benefits and other services just 

to make ends meet. 

Small and medium-sized businesses in my home State of Ohio continue to struggle mightily to get access to credit. 

Although the rate of foreclosures appears to be slowing down nationwide, there 

are still too many families losing their homes. According to RealtyTrac, in August 

11,368 Ohio homes were in some stage of the foreclosure process. I applaud the Administration for creating the Home Affordable Modification Program, but we must 

work to improve it. Too many borrowers and housing counselors complain about administrative hurdles and delays in processing applications. 

TARP has certainly staved off an even more damaging recession, but we have 

much more work to do to stabilize and strengthen our economy. And we need to do 

it now. 

PREPARED STATEMENT OF HERBERT M. ALLISON, JR. 

ASSISTANT SECRETARY FOR FINANCIAL STABILITY (TARP), DEPARTMENT OF THE

TREASURY

SEPTEMBER 24, 2009 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee, thank 

you for the opportunity to testify today. As we approach the 1-year anniversary of 

the Troubled Asset Relief Program or TARP, I welcome this chance to update you 

about the progress we have made in restoring our financial stability. 

A year ago, we were in the midst of one of the worst periods in our financial history. Fannie Mae and Freddie Mac were taken into Federal conservatorship; Lehman Brothers went bankrupt and AIG nearly followed; Wachovia, Washington Mutual, and Merrill Lynch were sold in distress; and weakness at a prominent mutual 

fund sparked a dangerous ‘‘run’’ on money market mutual funds. Credit markets 

froze as banks refused to lend, even to one another. Immediate, strong action was 

needed to avoid a complete meltdown of the system. 

On October 3, 2008, Congress rose to this challenge by passing the Emergency 

Economic Stabilization Act of 2008. With the leadership in particular of many of you 

on this Committee, Congress recognized the need to take difficult but necessary action and gave the Treasury Department unprecedented authority to stabilize the 

U.S. economy by creating TARP. 

Policy interventions executed last Fall by the Treasury Department and the Federal banking regulators, succeeded in achieving the critical, but narrow objective of 

preventing a catastrophic collapse of our financial system. But when President 

Obama took office, the financial system remained extremely fragile and the Administration faced a rapidly evolving set of grave challenges. 

In January 2009, what we faced was no longer just a financial crisis; it was a 

full-blown economic crisis. In January alone, 741,000 Americans lost their jobs, the 

largest single month decline in 60 years. Home foreclosures were increasing at a 

rapid rate. Businesses and families were struggling to find credit. It was feared that 

those banks that remained standing had too little capital and too much exposure 

to risky assets. Secondary markets for credit had essentially come to a halt; and liquidity in a broader range of securities markets had fallen sharply. In a matter of 

3 months, American families had lost $5 trillion in household wealth. 

In short, the economy was in a free fall and there was increasing concern we were 

headed toward a second Great Depression. 

The Obama administration confronted this situation by taking forceful action on 

several fronts. Again, with the leadership of many of you on this Committee, a comprehensive strategy was put in place to stabilize the financial system and the housing market, to stimulate economic activity, and to provide help to those in most 
59 

need. And as a result, we have stepped back from the brink. We still have a long 

way to go before true recovery takes hold, but we are now pointed in the right direction. 

TARP has been vital to our achievements to date, and it will continue to be an 

important part of our recovery. Today, I want to discuss what Treasury has done 

under TARP and how we have measured our success or failure. I also want to discuss what we still need to do, because our situation requires continued action and 

vigilance. The recovery has just begun, the financial system remains fragile, and the 

credit markets are not fully functioning. And with unemployment still unacceptably 

high, home foreclosures still rising, and many Americans still suffering through no 

fault of their own, we still have work to do. 

Overview 

Although much remains to be done, we believe that TARP has worked to stabilize 

the financial system and lay the foundation for economic recovery. Treasury used 

its authority under EESA to make investments that have helped to stabilize our 

system, restore confidence in our banks and restart markets that are critical to financing American households and businesses. In addition, we have begun to stabilize the housing market and help people avoid foreclosure. These efforts are part 

of the Administration’s Financial Stability Plan, designed to recapitalize our financial system with as much private capital and as little taxpayer funding as possible. 

EESA authorized $700 billion for TARP. As of September 21, 2009, Treasury has 

announced plans to provide $644 billion for specific TARP programs. Of that 

amount, we have entered into commitments of $444 billion, and we have disbursed 

$365 billion. 

A large part of the total activity to date occurred last fall under the Capital Purchase Program (CPP) following the adoption of EESA in October 2008. The more 

recent commitments include amounts extended under the Obama administration’s 

Financial Stability Plan. 

Let me highlight some of the major support provided under TARP. 

Capital Purchase Program 

CPP was the first of the programs implemented under TARP. Through CPP, 

Treasury has provided capital to 679 financial institutions across 48 States. This 

program was designed for financial institutions of all sizes and has invested in over 

300 small and community banks. CPP has been essential to stabilizing our financial 

system. The capital provided has enabled banks to absorb losses from bad assets 

while continuing to lend to consumers and businesses. To encourage continued participation by small and community banks, the application window for CPP was reopened on May 13, 2009, for banks with fewer than $500 million in assets. In addition, we continue to invest in smaller banks on a regular basis. 

In addition to the CPP, Treasury also worked with the Federal banking regulators 

to develop a plan for ‘‘stress tests.’’ This was a comprehensive, forward-looking assessment of the capital held by the largest 19 U.S. banks. The design of the tests 

and their results were made public, a highly unusual step that was taken because 

of the unprecedented need to reduce uncertainty and restore confidence. We also announced that we would be prepared to provide additional capital through the Capital Assistance Program. 

Since the stress test results were released in early May, banks of all sizes have 

raised over $80 billion in common equity and $40 billion in nonguaranteed debt. Importantly, that capital raising has enabled more than 30 banks to repay the TARP 

investments made by Treasury. We have received over $70 billion in principal repayments, and over $6.5 billion in dividends, interest, and fees from CPP participants. 

In addition, several banks have repurchased the warrants issued to Treasury in 

connection with repaying the TARP investments. Treasury obtained warrants with 

each investment in order to provide the taxpayer with an opportunity to participate 

in the potential recovery of these financial institutions. To date we have received 

almost $3 billion from the repurchase of warrants. The rate of return to the taxpayer on the investments made in all those institutions that have fully repaid the 

Treasury and repurchased the warrants to date is approximately 17 percent. I 

should note that our returns to date are not necessarily an indication of what our 

returns will be overall for this program, but this is a good beginning. 

When President Obama took office, the Treasury had outstanding commitments 

to banks under the CPP and other programs of $239 billion. Since mid-January, we 

have invested $11 billion in more than 350 institutions, while receiving the repayments noted above of $70 billion. Thus, since January, we have reduced the size of 

the Treasury’s investments in the banking system by $59 billion to $180 billion. We 
60 

now estimate that banks will repay another $50 billion over the next 12 to 18 

months. 

Public–Private Investment Partnership 

To help clean up the balance sheets of major financial institutions and restore liquidity to key markets for financial assets, we proposed the creation of a public– 

private investment program for the purchasing of legacy loans and securities. Since 

the announcement of the program, nonagency mortgage-backed securities have gone 

up substantially in price. Prime fixed rate securities issued in 2006 that traded as 

low as $60 in March have increased in value by over 40 percent as additional liquidity has come back to the markets. That improvement in financial market conditions 

has created the positive backdrop to enable us to proceed with the program at a 

scale smaller than initially envisioned. 

Following a comprehensive application, evaluation, and selection process, during 

which Treasury received over 100 unique applications to participate in PPIP, in 

July, Treasury prequalified nine fund managers to participate in the program. 

These managers have extensive experience with legacy assets. In addition, these 

firms have committed to utilizing small business and minority-owned firms in this 

process. Treasury expects to provide approximately $30 billion in equity and debt financing to special purpose entities formed by the fund managers in the initial phase of 

PPIP. Initial closings are currently scheduled for the end of this month. 

Due to the possibility of actual or potential conflicts of interest inherent in any 

market-based investment program, Treasury has worked very closely with the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) to develop 

a robust conflicts and compliance process. 

Term Asset-Backed Securities Loan Facility 

One of the many lessons of this crisis is the importance of a properly functioning 

securitization market to the availability of credit for consumers and small businesses. The Term Asset-Backed Securities Loan Facility (TALF) has been a successful effort to help restart those markets after the crisis. Opened in March 2009, 

TALF is a lending facility operated by the Federal Reserve Bank of New York 

(FRBNY) under which FRBNY provides term nonrecourse loans collateralized by 

certain types of AAA-rated asset-backed securities (ABS). Treasury has consulted in 

the design of the program and will provide up to $20 billion for the purchase of ABS 

in the event of a default. 

I am pleased to report that, since March, a total of $79.6 billion of new TALF- eligible ABS has been brought to market, of which $46.5 billion was funded using 

TALF loans. This aid to the securitization market has had a decided impact on liquidity, spreads, and the availability of consumer and small business credit. 

Making Home Affordable Program 

A central part of the President’s Financial Stability Plan is our effort to stabilize 

the housing market. Announced on February 18, the Making Home Affordable Program (MHA) offers assistance to millions of homeowners by reducing mortgage payments and preventing avoidable foreclosures. MHA gives homeowners the opportunity to modify their mortgages as well as an opportunity to refinance GSE loans, 

which in each case can lower monthly payments and enable homeowners to avoid 

foreclosure. 

The mortgage modification program is known as Home Affordable Modification 

Program, or HAMP, and is funded through TARP and the Housing and Economic 

Recovery Act of 2008 (HERA). It is designed to provide assistance to up to 3–4 million eligible homeowners before the end of 2012. We have signed contracts with 57 

servicers, including the five largest. Between loans covered by these servicers and 

loans owned or guaranteed by the GSEs, more than 85 percent of all mortgage loans 

in the country are now covered by the program. As of September 9, more than 

360,000 trial modifications are underway and 570,000 trial modifications have been 

offered under this program. We have frequent contact with the servicers to discuss 

ways of increasing borrower participation in HAMP. At a meeting with participating 

servicers on July 28, servicers committed to reaching a cumulative target of 500,000 

trial modifications by November 1, 2009. I am pleased to report that we are on pace 

to meet this goal, potentially even ahead of schedule. The participating servicers 

also agreed to work with Treasury to implement actions designed to improve program effectiveness, including the streamlining of application documents. In addition, 

we have focused on transparency and servicer accountability by publicly reporting 

servicer-specific results on a monthly basis. Treasury is also working to establish 

specific operational metrics to measure the performance of each servicer. We will 

be meeting with the servicers again next month to review progress and address on-
61 

going concerns. Treasury realizes that the housing market is vital to the ongoing 

economic recovery and that many people are still in dire circumstances. We will continue to work to make sure that these programs provide relief to those affected. 

Automotive Industry Financing Program 

The Automotive Industry Financing Program (AIFP) was developed in December 

2008 to prevent a significant disruption of the U.S. automotive industry, because of 

the risks such a disruption posed to the financial system and the economy as a 

whole. To date, Treasury has provided approximately $76 billion in loans and equity 

investments to General Motors, Chrysler and their respective financing entities. 

After the previous Administration provided initial assistance last year, the Obama 

Administration required the companies to develop long-term reorganization and viability plans before Treasury would provide additional assistance. Moreover, Treasury rejected the initial plans proposed by the automakers and required the companies to develop plans to become leaner and more efficient. We believed this was the 

only way the companies could become more competitive and the only way to protect 

the taxpayers’ investment. The assets of both GM and Chrysler were sold to newly 

created entities through the bankruptcy courts in exceptionally fast and efficient 

proceedings. The new companies are now leaner and more efficient and poised to 

help further the ongoing economic recovery and the competitiveness of the American 

automotive industry. 

Treasury’s Role as Shareholder 

As a result of the financial crisis, the Government has had to intervene in the 

economy in unprecedented ways, and I know many people have questions concerning the role of the Government as a shareholder in private companies. The 

Obama administration has given this subject careful thought, and I would like to 

explain the fundamental principles that govern our actions as a shareholder. 

First, the U.S. Government is a shareholder reluctantly and out of necessity. We 

intend to dispose of our interests as soon as practicable, with the dual goals of 

achieving financial stability and protecting the interests of the taxpayers. 

Second, we do not intend to be involved in the day-to-day management of any 

company. Our responsibility is to protect the taxpayers’ investment. Government involvement in the day-to-day management of a company might actually reduce the 

value of these investments, impede the ability of the companies to return fully to 

being privately owned, and frustrate attainment of our broader economic policy 

goals. 

Third, consistent with these goals, we will take a commercial approach to the exercise of our rights as a shareholder. We will vote only on four core matters: board 

membership; amendments to the charter and by-laws; liquidations, mergers, and 

other substantial transactions; and significant issuances of common shares. 

Daily Concerns 

I also want to discuss three concerns that I focus on every day, that are central 

to our duty to protect the taxpayer. The first is, do we have the proper controls in 

place to ensure accountability? Second, are we being good stewards of the taxpayers’ 

money? And third, are we communicating what we are doing in a transparent and 

timely manner? 

First, we know that proper controls are critical to protecting the taxpayers’ interest. In addition to review by this and other Congressional committees, EESA provides for oversight of TARP by four oversight bodies, and Treasury takes its responsibilities to these oversight bodies very seriously. Treasury personnel spend a significant amount of time meeting and communicating with these four oversight bodies (the Special Inspector General for TARP (SIGTARP), the Congressional Oversight Panel, the Financial Stability Oversight Board and the Government Accountability Office (GAO)), as well as with Congress. I meet weekly with SIGTARP to discuss our current activities and their concerns, and my staff is in constant contact 

with the SIGTARP staff. Treasury has fully or substantially implemented over 75 

percent of the recommendations made by SIGTARP. We have also involved them 

early in the process of design of a program or investment so that we get the benefit 

of their suggestions at the outset. 

Personnel from the Office of Financial Stability meet regularly with the other 

oversight bodies as well, and Treasury has given careful consideration to each of 

their recommendations. The GAO has consistently noted the progress Treasury has 

made in meeting its recommendations. 

In the unusual cases where we have declined to implement a recommendation, we 

have sought to reach the recommendation’s objectives by other means that we consider to be more practical, effective or supportive of achieving financial stability, and 
62 

have explained our approach to the oversight bodies. In those unusual situations, 

we have explained our reasons to the oversight body and to Congress in detail. 

In addition, OFS is audited by the GAO and will publish its first set of annual 

financial statements on November 16th. 

Second, we have been both careful and assertive stewards of the taxpayers’ 

money. We do not make an investment unless it complies with the statutory requirements, is necessary to restoring or maintaining financial stability and is made 

on terms that protect the taxpayer. Since the Obama administration took office, 

Treasury has provided $144.42 billion in TARP assistance, and has received repayments, dividends, interest and other payments in the amount of $70.56 billion. In 

the attached report is a chart detailing TARP investments made by month. You will 

note the general downward trend in the gross amount of capital expended. 

Third, as I committed in my confirmation hearing, we have taken many steps to 

communicate in a fully transparent and timely manner. We have never missed a 

deadline for a report. As of September 18, 2009, Treasury has published 83 Transaction Reports, 10 Section 105(a) monthly Congressional Reports, 7 Tranche Reports, 3 dividend and interest reports and 2 MHA Program Reports, all of which 

are posted on our Web site. We have recently completely revised the format of our 

monthly Section 105(a) report, a copy of which is attached. As you will see, it presents updates on our investments and programs as well as background information 

in a far clearer, more concise manner. It answers basic questions that many Americans have, such as: how are TARP monies invested? 

We have also published a monthly lending survey that contains detailed information on the lending and other activities of over 500 banks that have received TARP 

funds, as well as separate information for the largest 22 banks. These reports are 

intended to help the public easily assess the lending and intermediation activities 

of participating banks. More broadly, they also help answer the question of what 

banks are doing with their TARP funds. We believe the detailed quantitative information contained in these reports addresses the fundamental concern underlying 

that question, which is whether TARP has helped restore our banks to health so 

that they can lend to creditworthy families and businesses. Beginning next month, 

we will be expanding the report in response to suggestions from SIGTARP for reporting on use of funds. 

Additionally, we post program guidelines on our Web site, 

www.financialstability.gov, within 2 business days of any program launch. We also 

post for public review all obligations made under TARP as well as all contracts with 

Treasury service providers involved with these programs. We recognize that transparency is paramount when managing taxpayer funds. 

Exit Strategy 

TARP was designed as an emergency response to a major financial crisis, and I 

would like to address what Treasury sees as some of the next steps for TARP. Because financial conditions have started to improve, Treasury has already begun the 

process of exiting from some emergency programs. But how and when we exit will 

vary by program. For example, as I noted earlier, Treasury has received over $70 

billion in principal repayments from CPP participants. Treasury has also almost $3 

billion in warrant proceeds from the repurchase of warrants by banks that have already repaid the principal investment. For those banks that have elected not to repurchase their warrants, Treasury intends to begin auctioning those warrants later 

this year. It will, however, be some time before all CPP participants have fully extinguished their obligations to the taxpayers. 

Certain TARP programs have a defined life. For example, new lending under 

TALF is scheduled to cease in mid-2010, even though Treasury’s credit support of 

the TALF facility will continue for a number of years. Although PPIP is just being 

launched, the investment period for the fund managers is limited to 3 years. 

The Administration has established clear principles to ensure that our investments in the automobile industry and other companies that have received exceptional assistance are limited and temporary. Chrysler Financial has already repaid 

its assistance, and an initial public offering for GM is expected next year. 

At the same time, we must remember that our economic recovery has just begun 

and significant parts of the financial system remain impaired. Declining prices in 

the commercial real estate market could put additional pressure on bank balance 

sheets and capital positions, while continued downward pressure on housing prices 

could stall a nationwide recovery. In this context, it is prudent to maintain capacity 

to address new developments. By bolstering confidence, having such capacity may 

actually reduce the need to use it. 

As we look ahead, we must also not forget the lessons we have learned from this 

period. Reforming our regulatory system in a way that is stronger and better-suited 
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to manage risk and ensure safety and soundness must be our highest priority. The 

Administration has proposed a number of measures in this regard that I know you 

are already considering as you work to address this important issue. 

Conclusion 

Financial stability is a necessary precondition to the resumption of economic 

growth. Treasury and other institutions of Government have accomplished a great 

deal in a short amount of time to achieve this goal. However, we recognize that we 

have more work ahead of us on both the regulatory reform and economic fronts. 

TARP, the Office of Financial Stability, and the Office of Domestic Finance have 

been essential to President Obama’s and Secretary Geithner’s plans for financial 

stability and economic recovery. 

Ending the financial crisis is not primarily about helping banks, but about restoring the flow of credit to consumers and businesses and alleviating the real hardships that Americans face every day. Healthy and vibrant financial institutions are 

critical for this, as they are the key sources of a range of financial services that we 

depend on every day. Without healthy banks, consumers cannot access the credit 

they need to buy a home, finance an education, manage everyday expenses or make 

other financial commitments. Small businesses cannot buy the new equipment, raw 

materials, and inventory that they need to expand. Larger businesses cannot make 

the continuous adjustments required to function in a changing global marketplace. 

It is with these goals in mind that we have created the programs under the TARP 

and the Financial Stability Plan. As I work with my dedicated colleagues in Treasury on these programs, I will strive to continue to be a prudent investor on behalf 

of the American people. 

Thank you. 
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PREPARED STATEMENT OF NEIL M. BAROFSKY 

SPECIAL INSPECTOR GENERAL, TROUBLED ASSET RELIEF PROGRAM

SEPTEMBER 24, 2009 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee, I am 

honored to appear before you today to discuss the Troubled Asset Relief Program 

(TARP) as we approach the first anniversary of enactment of the Emergency Economic Stabilization Act of 2008 (EESA). I am particularly honored to appear with 

SIGTARP’s oversight partners, Acting Comptroller General Gene Dodaro of the Government Accountability Office and Elizabeth Warren, Chair of the Congressional 

Oversight Panel. 

Introduction 

Originally envisioned as a large but fairly straightforward program involving the 

purchase and management of ‘‘toxic’’ assets, TARP instead has evolved into 12 separate initiatives that are, collectively, of an unprecedented scope, scale, and complexity. From programs involving large capital infusions into hundreds of banks and 

other financial institutions, to a mortgage modification program designed to modify 

millions of mortgages, to significant infusions into the automobile industry, to public–private partnerships using tens of billions of taxpayer dollars to purchase ‘‘toxic’’ 

assets from banks, TARP affects significant portions of the financial system and the 

economy as a whole. 

From a policy perspective, any assessment of whether such a complex enterprise 

is a success or failure, particularly in light of all of the other Government efforts 

to stabilize the economy during the worst economic downturn, is a difficult task and 

depends greatly on one’s perspective. With respect to whether TARP has succeeded 

in restoring liquidity and stability to the financial system, for example, there are 

without question significant signs of improvement in the stability of the system. The 

causes for such improvement are no doubt many and complex, but there is little 

question that the dramatic steps taken by Treasury, the Federal Reserve and the 

FDIC through TARP and related programs, in the face of what can only be described as panic conditions, played a significant role in bringing the system back 

from the brink of collapse. 

Whether the other policy goals of EESA are being met, on the other hand, is less 

clear. The progress on meeting the goal of ‘‘maximiz[ing] overall returns to the taxpayer’’ is unclear. While several TARP recipients have repaid funds for what has 

widely been reported as a 17 percent profit, it is extremely unlikely that the taxpayer will see a full return on its TARP investment. For example, certain TARP programs, such as the mortgage modification program which is scheduled to use $50 

billion of TARP funds, will yield no direct return, and for others, including the extraordinary assistance programs to AIG and the auto companies, full recovery is far 

from certain. Similarly, Treasury’s original stated goal of increasing lending has not 

yet occurred, although, as SIGTARP’s recently issued audit on TARP recipients’ use 

of funds indicates, it is likely that lending from TARP recipients would have decreased far more in the absence of TARP funding. Similarly, the goals of ‘‘preserving 

homeownership,’’ ‘‘promot[ing] jobs and economic growth’’ have not yet been met, 

and the ultimate success of meeting these policy goals will depend on programs that 

are just now reaching the implementation stage, such as the TARP’s mortgage modification program and the public–private investment funds. In the meantime, the 

risk of foreclosure continues to affect too many Americans; unemployment continues 

its rise to levels that Treasury has characterized as ‘‘unacceptable’’; the so-called 

‘‘toxic’’ assets that helped cause this crisis for the most part remain right where they 

were last fall—on the banks’ balance sheets; and it is becoming more and more clear 

that the commercial real estate market might be the next proverbial shoe to drop, 

threatening to increase the pressure on banks and small business alike yet again. 

Viewed from an oversight perspective, the success of the program is likewise 

mixed. With respect to imposing internal controls over TARP programs, Treasury 

has steadily improved over time. When SIGTARP first came into being in December 

2008, Treasury was simply not equipped—from a resource perspective or in terms 

of its approach—to provide the kind of oversight and compliance functions that are 

necessary to manage such a large and complex program effectively. Treasury rolled 

out early programs with few meaningful conditions and little regard for internal 

controls: in the Capital Purchase Program (CPP) investments, for example, Treasury’s overriding oversight strategy was apparently to trust the banks to be responsible with the money. Over time, and in response to recommendations from the oversight bodies represented at this table, Treasury began to design programs with better internal controls and more effective antifraud provisions. Just 8 days after I was 

sworn in, for example, we made a recommendation concerning basic internal con-
98 

trols that was adopted by Treasury and implemented into all subsequent programs. 

Today, in response to our repeated recommendations, the Office of Financial Stability has been devoting the necessary resources to develop a professionally run 

Compliance and Risk Management function, and while we do not always necessarily 

agree with them, it is fair to say that, with each program, Treasury actively engages 

with us with an eye to making the program better from a compliance perspective 

and less susceptible to waste, fraud, and abuse. 

Treasury’s basic attitude toward transparency and Congress’ stated goal in enacting the TARP of providing ‘‘public accountability’’ for the exercise of authority under 

EESA, on the other hand, remains a significant frustration. Although SIGTARP understands Treasury’s need to balance the public’s transparency interests, on one 

hand, with the interests of the participants and the desire to have wide participation in the programs, on the other, Treasury’s default position should always be to 

require more disclosure rather than less and to provide the investors in TARP—the 

American taxpayers—as much information about what is being done with their 

money as possible. While Treasury has taken some steps in the right direction on 

this front, its continued refusal to accept SIGTARP’s basic transparency recommendations on such issues as how TARP recipients are using TARP funds and 

the disclosure of trading of toxic assets of banks in the PPIP means that TARP 

largely remains a program in which taxpayers are not being told what most of the 

TARP recipients are doing with their money and will not be told the full details of 

how their money is being invested. 

TARP in Focus, and in Context 

TARP, as originally envisioned in the fall of 2008, would have involved the purchase, management, and sale of up to $700 billion of ‘‘toxic’’ assets, primarily troubled mortgages and mortgage-backed securities (MBS). Very quickly, however, that 

framework was discarded in favor of direct investments in financial institutions, and 

TARP funds have subsequently been used, are being used, or have been announced 

to be used, in connection with 12 separate programs that involve a total (including 

TARP funds, loans and guarantees from other agencies, and private money) that 

could reach more than $2 trillion, as set forth in first column of Table 1 below. 

Treasury has announced the parameters how the $700 billion may be spent for the 

12 programs, as set forth in the second column; of this amount, Treasury has legally 

committed to expend or expended approximately $445 billion, as set forth in the 

third column. 

As noted in the chart, approximately $70.56 billion has been repaid to the TARP 

by more than a dozen financial institutions, under the CPP. Through September 11, 

2009, the Treasury Department granted permission to 41 financial institutions to 

repay $70.56 billion in Government-bailout funds. Of the 19 largest bank holding 

companies selected for stress testing under the Supervisory Capital Assessment Program, 9 institutions were approved to repay $66.6 billion. Several smaller financial 

institutions also repaid the TARP investments both before and after the 9 large institutions’ repayments. 
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Oversight Activities of SIGTARP 

Since it began operations in December 2008, SIGTARP has been actively engaged 

in fulfilling its vital investigative and audit functions as well as in building its staff 

and organization. To date, SIGTARP has hired 86 employees and plans to grow to 

160 employees. 

SIGTARP’s Investigations Division has developed rapidly and is quickly becoming 

a sophisticated white-collar law enforcement agency. As of June 30, 2009, SIGTARP 

had 35 ongoing criminal and civil investigations. These investigations include complex issues concerning suspected accounting fraud, securities fraud, insider trading, 

mortgage servicer misconduct, mortgage fraud, public corruption, false statements, 

and tax investigations. For example: 

• TBW and Colonial Search Warrants: On August 3, 2009, SIGTARP, with the 

FBI, HUD OIG, and FDIC OIG, executed search warrants at the offices of Taylor, Bean and Whittaker, formerly the Nation’s 12th-largest loan originator and 

servicer, and Colonial Bank, which applied for assistance under the CPP. Prior 

to the execution of these warrants, SIGTARP had served subpoenas on Colonial 

after it had announced that it had received preliminary contingent approval 

from the Treasury to receive $553 million in TARP funding. The funding was 

never made and this investigation, which is being conducted with both the Department of Justice and the SEC, is ongoing. 
100 

• Federal Felony Charges Against Gordon Grigg: On April 23, 2009, Federal felony charges were filed against Gordon B. Grigg in the U.S. District Court for 

the Middle District of Tennessee, charging him with four counts of mail fraud 

and four counts of wire fraud. The charges are based on Grigg’s role in embezzling approximately $11 million in client investment funds that he garnered 

through false claims, including that he had invested $5 million in pooled client 

funds toward the purchase of the TARP-guaranteed debt. Grigg pleaded guilty 

to all charges and was sentenced to 10 years imprisonment. 

• FTC Action Against Misleading Use of ‘‘MakingHomeAffordable.gov’’: On May 

15, 2009, based upon an action brought by the Federal Trade Commission 

(FTC), a Federal district court issued an order to stop an Internet-based operation that pretended to operate ‘‘MakingHomeAffordable.gov,’’ the official Web 

site of the Federal Making Home Affordable program. The FTC’s action, which 

was developed with the investigative assistance of SIGTARP, alleges that the 

defendants purchased sponsored links as advertising on the results pages of 

Internet search engines, and, when consumers searched for ‘‘making home affordable’’ or similar search terms, the defendants’ ads prominently and conspicuously displayed ‘‘MakingHomeAffordable.gov.’’ Consumers who clicked on 

this link were not directed to the official Web site, but were diverted to sites 

that solicit applicants for paid loan modification services. The operators of these 

Web sites either purport to offer loan modification services themselves or sold 

the victims’ personally identifying information to others. 

• National Housing Modification Center: On September 16, 2009, the FTC filed 

a complaint against the Nations Housing Modification Center (NHMC) and its 

principals in the U.S. District Court for the District of Columbia. With investigative support from SIGTARP and other Federal, State and local enforcement 

partners, the FTC alleged violations of the FTC Act and Telemarketing Sales 

Rules by NHMC by misrepresenting itself as a Federal Government agency or 

affiliate and falsely claiming that they would obtain mortgage modifications for 

consumers for a $3,000 fee. SIGTARP’s joint investigation is continuing. 

• Bank of America: SIGTARP continues to play a significant role in the investigations by the New York State Attorney General’s Office, the SEC and the Department of Justice into the circumstances of Bank of America’s merger with 

Merrill Lynch and its receipt of additional TARP funds under the Targeted Investment Program. 

More than 50 percent of SIGTARP’s ongoing investigations were developed in 

whole or in part through tips or leads provided on SIGTARP’s Hotline (877-SIG2009, which is also accessible at www.SIGTARP.gov). Since the SIGTARP Hotline 

commenced operations, it has received and analyzed more than 6,572 tips, running 

the gamut from expressions of concern over the economy to serious allegations of 

fraud. 

SIGTARP remains committed to being proactive in dealing with potential fraud 

in TARP. For example, the previously announced TALF Task Force, which was organized by SIGTARP to get out in front of any efforts to profit criminally from the 

Term Asset-Backed Securities Loan Facility (TALF), has been expanded to cover the 

Public–Private Investment Program (PPIP). In addition to SIGTARP, the TALF– 

PPIP Task Force consists of the Inspector General of the Board of Governors of the 

Federal Reserve System, the FBI, Treasury’s Financial Crimes Enforcement Network, U.S. Immigration and Customs Enforcement, the Internal Revenue Service 

Criminal Investigation Division, the Securities and Exchange Commission, and the 

U.S. Postal Inspection Service. 

SIGTARP’s Audit Division has completed its first round of audits. SIGTARP 

issued its first formal audit report concerning how recipients of CPP funds reported 

their use of such funds based upon a February 2009 survey SIGTARP sent to more 

than 360 financial and other institutions that had completed TARP funding agreements through January 2009. Although most banks reported they did not segregate 

or track TARP fund usage on a dollar-for-dollar basis, they were able to provide insights into their actual or planned future use of TARP funds. For some respondents 

the infusion of TARP funds helped to avoid a ‘‘managed’’ reduction of their activities; others reported that their lending activities would have come to a standstill 

without TARP funds; and others explained that they used TARP funds to acquire 

other institutions, invest in securities, pay off debts, or that they retained the funds 

to serve as a cushion against future losses. Many survey responses also highlighted 

the importance of the TARP funds to the bank’s capital base, and by extension, the 

impact of the funds on lending. As I previously noted, Treasury has failed to adopt 

the audit’s recommendation that it require TARP recipients to report on their use 

of funds. 
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SIGTARP has also completed an audit examining undue external influences over 

the CPP decision making. This audit addressed the extent to which Treasury and 

the banking regulators have controls to safeguard against external influences over 

the CPP decision-making process and whether there were any indications of external parties having unduly influenced CPP decision making. SIGTARP found no information indicating that external inquiries on CPP applications had affected the 

decision-making process, but gaps in the internal controls by the Government agencies conducting the CPP application process makes it impossible to determine if all 

attempts to influence TARP decisions were captured by the audit. Of the 56 institutions SIGTARP identified that were the subjects of external inquiries, three institutions did not meet all the CPP quantitative criteria but were approved based on 

mitigating factors considered by Treasury and banking agency officials. Among 

these three, one institution stood out. SIGTARP’s analysis indicated that discretion 

afforded this applicant in its approval was greater than that afforded other applicants. In connection with the audit, SIGTARP made recommendations regarding the 

improvement of internal controls and record keeping, which Treasury has adopted. 

SIGTARP also issued an audit examining executive compensation restriction compliance. This audit examined the efforts of TARP recipients’ to comply with executive compensation restrictions in place at the time of SIGTARP’s survey of banks 

use of funds. The audit was set against a background of the evolving rules on executive compensation for TARP recipients. Although recipients expressed frustration 

with changing compensation guidance, they were able to report the actions that they 

have been taking. 

SIGTARP also has audits nearing completion examining the selection of the first 

nine participants for funds under CPP (with a particular emphasis on Bank of 

America), AIG bonuses, AIG counterparty payments, and an update on SIGTARP’s 

use of funds survey. In addition, SIGTARP is undertaking a series of new audits, 

as follows: 

• CPP Warrant Valuation and Disposition Process: The audit will seek to determine (i) the extent to which financial institutions have repaid Treasury’s investment under CPP and the extent to which the warrants associated with that 

process were repurchased or sold; and (ii) what process and procedures Treasury has established to ensure the Government receives fair market value for the 

warrants and the extent to which Treasury follows a clear, consistent, and objective process in reaching decisions where differing valuations of warrants 

exist. This audit complements a July 10, 2009, report by the Congressional 

Oversight Panel examining the warrant valuation process. 

• Governance Issues Where U.S. Holds Large Ownership Interests: The audit will 

examine governance issues when the U.S. Government has obtained a large 

ownership interest in a particular institution, including: (i) what is the extent 

of Government involvement in management of companies in which it has made 

sizeable investments, including direction and control over such elements as governance, compensation, spending, and other corporate decision making; (ii) to 

what extent are effective risk management, monitoring, and internal controls in 

place to protect and balance the Government’s interests and corporate needs; 

(iii) are there performance measures in place that can be used to track progress 

against long-term goals and timeframes affecting the Government’s ability to 

wind down its investments and disengage from these companies; and (iv) is 

there adequate transparency to support decision making and to provide full disclosure to the Congress and the public. 

• Status of the Government’s Asset Guarantee Program with Citigroup: The audit 

will examine the Government’s Asset Guarantee Program with Citigroup. Specifically, the audit will address: (i) how was the program for Citigroup developed; (ii) what are the current cash flows from the affected assets; and (iii) what 

are the potential for losses to Treasury, the Federal Deposit Insurance Corporation, and the Federal Reserve. 

• Making Home Affordable Mortgage Modification Program: The audit will examine the Making Home Affordable mortgage modification program to assess the 

status of the program, the effectiveness of outreach efforts, capabilities of loan 

servicers to provide services to eligible recipients, and challenges confronting 

the program as it goes forward. 

• Auto Dealership Terminations: The audit will examine the process used by General Motors (GM) and Chrysler to identify which automotive dealerships should 

be maintained or terminated. GM and Chrysler reportedly have announced 

plans to terminate more than 2,000 automotive dealerships as part of their restructuring process. 
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SIGTARP’s Recommendations on the Operation of TARP 

One of SIGTARP’s responsibilities is to provide recommendations to Treasury so 

that TARP programs can be designed or modified to facilitate effective transparency 

and to deter fraud, waste, and abuse. SIGTARP has now made dozens of such recommendations, and the reader is referred to SIGTARP’s July Quarterly Report 

starting on page 188 for a full listing of the recommendations and Treasury’s responses to them. Four recommendations concerning transparency are detailed here. 

Transparency in TARP Programs 

Although Treasury has taken some steps toward improving transparency in TARP 

programs, it has repeatedly failed to adopt recommendations that SIGTARP believes 

are essential to providing basic transparency and fulfill Treasury’s stated commitment to implement TARP ‘‘with the highest degree of accountability and transparency possible.’’ 

• Use of Funds Generally: One of SIGTARP’s first recommendations was that 

Treasury require all TARP recipients to report on the actual use of TARP funds. 

Other than in a few agreements (with Citigroup, Bank of America, and AIG), 

Treasury declined to adopt this recommendation, calling any such reporting 

‘‘meaningless’’ in light of the inherent fungibility of money. SIGTARP, nonetheless, continues to believe that banks can provide meaningful information about 

what they are doing with TARP funds—in particular what activities they would 

not have been able to do but for the infusion of TARP funds. That belief has 

been supported by SIGTARP’s first audit, in which nearly all banks were able 

to provide such information. SIGTARP’s report noted that most firms reported 

multiple and sometimes interrelated uses of the funds. For example: 

• More than 80 percent of the respondents cited the use of funds for lending 

or how it helped them avoid reduced lending. Many banks reported that lending would have been lower without TARP funds or would have come to a 

standstill. 

• More than 40 percent of the respondents reported that they used some TARP 

funds to help maintain the capital cushions and reserves required by their 

banking regulators to be able to absorb unanticipated losses. 

• Nearly a third of the respondents reported that they used some TARP funds 

to invest in agency-mortgage backed securities. These actions, they claimed, 

provided immediate support of the lending and borrowing activities of other 

banks and positioned the banks for increased lending later. 

• A smaller number reported using some TARP funds to repay outstanding 

loans—some because the TARP funds were a more cost-effective source of 

funds than their outstanding debt, and some because of pressure from a creditor to use the funds for that purpose. 

• Several banks reported using some TARP funds to buy other banks. One reported that this was a cost-effective way to acquire additional deposits that, 

in turn, would facilitate an even greater amount of lending. 

• Some banks reported that they had not yet allocated funds for lending and 

other activities due to the short time elapsed since the receipt of funds, the 

weak demand for credit, and the uncertain economic environment. 

• In response to SIGTARP’s recommendation, on September 16, 2009, Treasury 

informed SIGTARP that it was expanding its Quarterly CPP Report to include 

two additional categories of information that the TARP recipients indicated in 

the SIGTARP survey responses as a way that they used TARP funds. Treasury 

said this expansion will begin with the next Quarterly CPP Report, scheduled 

to be released during October 2009. Although this expansion should provide 

some additional information on an aggregate basis, it falls short of meeting the 

goal of basic transparency regarding the use of TARP funds. For example, it 

will only include aggregate data and will not report on each institution. It will 

not capture the broader range of use of funds depicted in SIGTARP’s report, nor 

will it reflect how they may be changing over time. It also will not reflect the 

financial institution’s view of what steps it was able to take that it otherwise 

would not have been able to take absent its receipt of TARP funds. While 

SIGTARP is encouraged that Treasury has apparently abandoned its prior position that it is impossible to measure and report on TARP recipients’ use of 

funds, we remain puzzled as to why Treasury refuses to adopt our recommendation to report on each TARP recipient’s use of TARP funds. 

• Valuation of the TARP Portfolio: SIGTARP has recommended that Treasury 

begin reporting on the values of its TARP portfolio so that taxpayers can get 
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regular updates on the financial performance of their TARP investments. Notwithstanding that Treasury has now retained asset managers and is receiving 

such valuation data on a monthly basis, Treasury has not committed to providing such information except on the statutorily required annual basis. 

• Disclosure of TALF Borrowers Upon Surrender of Collateral: In TALF, the 

loans are nonrecourse, that is, the lender (Federal Reserve Bank of New York) 

will have no recourse against the borrower beyond taking possession of the posted collateral (consisting of asset-backed securities (ABS)). Under the program, 

should such a collateral surrender occur, TARP funds will be used to purchase 

the surrendered collateral. In light of this use of TARP funds, SIGTARP has 

recommended that Treasury and the Federal Reserve disclose the identity of 

any TALF borrowers that fail to repay the TALF loan and must surrender the 

ABS collateral. To date, Treasury has refused to implement the disclosure. 

• Regular Disclosure of PPIF Activity, Holdings, and Valuation: In the PPIP Legacy Securities Program, the taxpayer will be providing a substantial portion of 

the funds (contributing both equity and lending) that will be used to purchase 

toxic assets in the Public–Private Investment Funds (PPIFs). SIGTARP has recommended that all trading activity, holdings, and valuations of assets of the 

PPIFs be disclosed on a timely basis. Not only should this disclosure be required as a matter of basic transparency in light of the billions of taxpayer dollars at stake, but such disclosure would also serve well one of Treasury’s stated 

reasons for the program in the first instance: the promotion of ‘‘price discovery’’ 

in the illiquid market for MBS. Treasury has indicated that it will not require 

such disclosure. 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee, I want 

to thank you again for this opportunity to appear before you, and I would be pleased 

to respond to any questions that you may have. 
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PREPARED STATEMENT OF GENE L. DODARO 

ACTING COMPTROLLER GENERAL, GOVERNMENT ACCOUNTABILITY OFFICE

SEPTEMBER 24, 2009 
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PREPARED STATEMENT OF ELIZABETH WARREN 

CHAIR, CONGRESSIONAL OVERSIGHT PANEL FOR THE TROUBLED ASSET RELIEF

PROGRAM

SEPTEMBER 24, 2009 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee, thank 

you for the opportunity to testify today about the Troubled Asset Relief Program 

(TARP) and the work of the Congressional Oversight Panel. 

I should begin by noting that, although I am the Chair of the Panel, the views 

I express today are my own, as I cannot speak on behalf of all of the other Panel 

members. 

As we examine the year since the passage of the Emergency Economic Stabilization Act (EESA), it makes sense to consider where we were 12 months ago. By last 

October, major financial institutions that had stood strong for decades were wiped 

out of existence in a wave of acquisitions and bankruptcies. Others had been bailed 

out by the Government or were teetering on the brink of collapse. The stability of 

the American financial system was in serious question. The Secretary of the Treasury said that business credit was frozen. 

Americans were deeply concerned. Home values were dropping, sending shock 

waves throughout the economy. Families had seen their savings evaporate, their 

home equity disappear, and their retirement account values plunge as the Dow continued to fall. The fear was compounded by uncertainty: confusion as to what had 

just happened, what would happen next, and how policymakers would respond. 

TARP was offered as a centerpiece of the Government response: a $700 billion 

program, proposed by then-Secretary of the Treasury Henry Paulson, to stabilize the 

financial system. For a short while Treasury aimed to use TARP to purchase mortgage-backed securities and loans—which many came to call ‘‘toxic assets’’—from 

major financial institutions. Before Treasury completed a single purchase, however, 

its strategy shifted to buying a wide range of financial instruments through at least 

10 different subprograms. Using TARP funds, Treasury has now made significant 

investments in several hundred financial institutions, bought significant stakes in 

Chrysler and GM, and provided incentives for home loan modifications, reinvigoration of the market for asset-backed securities, and purchases of loans and real-estate based securities from banks. 

From the outset, it was clear that such an enormous program would require enormous oversight. In the year since TARP began, the scope of oversight has only 

grown. Each of Treasury’s new initiatives may serve a role in helping to restore financial stability, but each also raises questions about its design, its effectiveness, 

the clarity of its goals, and its mix of public costs and benefits. 

The Congressional Oversight Panel, along with SIGTARP and GAO, was your creation to provide that oversight. You charged our Panel to ‘‘review the current state 

of the financial markets and the financial regulatory system’’ and to report to Congress every 30 days. 

The Panel works closely with GAO and the Special Inspector General to ensure 

that our efforts complement rather than duplicate one another. We all want to ensure that the whole of our work is greater than the sum of its parts. The unique 

contributions of the Congressional Oversight Panel are that we are the only one of 

the three oversight bodies authorized to hold hearings, we submit monthly reports, 

and we are responsible for taking a big-picture view of the markets and the financial system. So far we have released 10 monthly oversight reports and two special 

reports on regulatory reform and on farm credit, as required by law. We have held 

11 hearings so far, including six field hearings that have taken us to areas of the 

country hit hard by the financial crisis. As I testify to you today, other members 

of the Panel are continuing this work at a 12th hearing in Philadelphia, where they 

are exploring the effectiveness of current foreclosure mitigation efforts at helping 

homeowners stay in their homes. 

Of all the questions that TARP raises, one that I am frequently asked as the 

Chair of the Panel is straightforward: ‘‘Has TARP worked?’’ It may be a simple 

question, but it has no simple answer. Partly this is because there is no single way 

to measure the health of our economy. EESA listed five specific objectives for TARP: 

to restore financial stability, protect home values and family savings, promote jobs 

and economic growth, maximize returns to taxpayers, and provide public accountability. 

If a TARP program advances all five of these objectives at once, then no one 

would hesitate to call it a success. But what if a program advances only some of 

these goals, or even advances certain goals at the expense of others? How should 

we gauge a program that achieves greater financial stability by taking money from 
120 

taxpayers? Should we consider a program successful if it stabilizes the financial 

markets but produces no measurable gains in the broader economy? 

The experience of the last year has demonstrated that these are not merely hypothetical questions. For example, on February 6, 2009, the day after my last appearance before this Committee, the Panel released a report evaluating Treasury’s largest acquisitions of bank equity and warrants under TARP at that time. Despite the 

assurances of Secretary Paulson that the initial purchases of stock and warrants of 

the banks were made at full value, our analysis of the numbers showed that Treasury paid substantially more for these assets than they were worth. In fact, for every 

$100 spent by Treasury, it received assets then valued, on average, at only $66. 

These capital purchases very likely helped to stabilize the financial markets, 

thereby achieving one of the key goals of TARP. But Treasury paid substantially 

more for the assets than their market value, subsidizing the banks at the direct expense of the taxpayer. Any discussion of success requires balancing these sometimes 

contradictory effects. 

The Panel can contribute to this discussion by assembling the data and making 

recommendations. We can press Treasury for greater clarity, transparency, and accountability, but ultimately, the American people will decide if the right balance has 

been struck. 

I would like to briefly expand upon these broad themes by describing each of the 

Panel’s reports since my last appearance here, as they have explored a wide range 

of important topics. 

In March, the Panel examined the causes of the foreclosure crisis and developed 

a checklist that provides a roadmap for foreclosure mitigation program success. 

Among the questions on our checklist: Will the plan result in modifications that create affordable monthly payments? Does the plan deal with negative equity? Does the 

plan address junior mortgages? And will the plan have widespread participation by 

lenders and servicers? The Panel plans to release an update to this report in October, using these metrics to examine how well the program has performed. 

In April, the Panel looked back on the first 6 months of Treasury’s TARP efforts 

and offered a comparative analysis of previous efforts to combat banking crises in 

the past. We found that the successful resolution of past financial crises involved 

four critical elements: transparency of bank accounting, particularly with respect to 

the value of bank assets; assertiveness, including taking early aggressive action to 

improve salvageable banks and shut down insolvent institutions; accountability, including willingness to replace failed management; and clarity in the Government response. Without those elements, a financial crisis is likely to create long-term economic problems. 

In May, we surveyed the state of lending for small businesses and families and 

examined the Term Asset-Backed Securities Loan Facility (TALF). The report raised 

concerns about whether TALF was well-designed to help market participants meet 

the credit needs of households and small businesses. It also raised serious doubts 

about whether the program would have a significant impact on access to credit. 

In June, we examined how effectively Treasury and the Federal Reserve conducted the stress tests of America’s 19 largest banks. The Panel found that, on the 

whole, the stress tests were based on a solidly designed working model, but that 

serious concerns remained, including the possibility that economic conditions could 

deteriorate beyond the worst-case scenario considered in the tests. The Panel recommended that, if the economy continued to worsen, stress testing should be repeated. I should note that the 2009 average unemployment rate now appears likely 

to exceed the stress test’s worst-case scenario, but so far Treasury has declined to 

call for a repeat of the stress tests. In light of the impact of unemployment on bank 

losses and the possibility of future large losses from commercial real estate, repeated stress tests may yet be necessary. 

In July, the Panel examined the repayment of TARP funds and the repurchase 

of stock warrants. At that time, 11 banks had repurchased their warrants from 

Treasury. Once again, our analysis of the numbers indicated that the taxpayer had 

received only 66 percent of the Panel’s best estimate of the value of the warrants. 

In order to ensure that taxpayers would receive the maximum value as banks exited 

TARP, the Panel urged Treasury to make its process, reasoning, methodology, and 

exit strategy absolutely transparent. We are pleased to note that since our July report was published, an additional nine large institutions have repurchased their 

warrants, generating receipts to Treasury of $2.9 billion, representing more than 94 

percent of the Panel’s best estimate of their values. 

In August, we reported that substantial troubled assets backed by residential 

mortgages remained on banks’ balance sheets and presented a potentially serious 

obstacle to economic stability. The risk to the health of small and midsized banks 

was especially high. The Panel recommended that Treasury and the bank super-
121 

visors carefully monitor the condition of the troubled assets held by financial institutions and that Treasury should move forward with one or more initiatives aimed 

at removing troubled whole loans from bank balance sheets. 

This month, the Panel examined the use of TARP funds in support and reorganization of the domestic automotive industry. We recommended that Treasury provide a legal analysis justifying the use of TARP funds in the auto industry. We further recommended that, in order to limit the impact of conflicts of interest and to 

facilitate an effective exit strategy from ownership, Treasury should consider placing 

its Chrysler and GM shares in an independent trust. 

Since EESA was enacted 1 year ago, the apprehension that pervaded this country 

has turned into something else: frustration and anger. Taxpayers have committed 

over $531 billion through TARP, and although there is no doubt that the financial 

system has begun to stabilize, families are still feeling the pain of rising unemployment, rampant foreclosures, higher bank fees, and limited access to credit. 

Today’s fragile stability has come at an enormous cost to the American people. 

Taxpayers have a right to expect full clarity, full transparency, and full accountability in Treasury’s use of their money. They also have a right to know what has 

fundamentally changed to prevent this crisis from ever happening again. It is time 

for our focus, which has been fixed upon avoiding short-term disaster, to expand to 

include this long-term thinking. We should explore ways to change the rules of the 

financial system to make certain that this economic crisis is not repeated—a topic 

that the Panel first considered in our special report on regulatory reform. 

Thank you again for the opportunity to explain the work of the Congressional 

Oversight Panel. I look forward to answering your questions. 
122 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM HERBERT M. ALLISON, JR. 

Q.1. The Special Inspector General for the TARP has recommended 

to Treasury that all TARP recipients should publicly disclose their 

uses of the TARP funds they receive. His office indicates that 

Treasury has not agreed with this recommendation. Would you explain Treasury’s response to his recommendation? What measure of 

transparency do you feel the public deserves? 

A.1. Treasury is committed to transparency with respect to programs established under the Emergency Economic Stabilization Act 

(EESA). 

We have carefully considered the SIGTARP’s recommendation, 

and will issue reports that we believe will address the issues raised 

by SIGTARP. Specifically, our expanded quarterly report will cover, 

on both an aggregate basis and for each bank participating in CPP, 

all of the significant categories of uses reported in SIGTARP’s Use 

of Funds Survey Responses, including lending, investments, capital 

cushion, repayment of debt and acquisitions. Moreover, our report 

will be based upon detailed financial information collected by bank 

regulators, and will specify the actual levels and changes of assets 

and liabilities related to each use of funds rather than simply identifying categories. Further, our report will be updated each quarter 

and will show how uses of capital by each CPP bank and by all 

CPP banks in the aggregate are changing over time. Finally, we 

continue to consider, evaluate, and discuss with SIGTARP additional ways to collect and report information about how banks are 

using TARP funds. 

Q.2. It has been reported that Treasury’s General Counsel sought 

advice from the Department of Justice as to whether Treasury was 

obliged to turn over certain documents to the SIGTARP. Subsequently, Mr. Barofsky said Treasury had withdrawn its request 

and that ‘‘We view such withdrawal as Treasury’s acknowledgment 

that SIGTARP is an independent entity within Treasury, and that 

my office and I are not subject to the supervision of the secretary.’’ 

Would you describe your understanding of the independence of the 

SIGTARP? 

A.2. I am not an attorney, and have not formed my own views as 

to the proper interpretation of the relevant statutes. I can assure 

you, however, that Treasury has never refused to turn over any 

documents requested by SIGTARP, and that Treasury will continue 

to cooperate fully in SIGTARP audits and investigations. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM NEIL M. BAROFSKY 

Q.1. During the past year, each of you has overseen the Government’s financial assistance to numerous financial institutions that 

nearly failed as a result of their mismanagement, assuming excessive risk, and being poorly regulated. 

From this experience and your perspective, what advice would 

you give personally to the Committee about what legislation or additional reforms are needed to prevent future crises? 
123 

A.1. Although it is beyond SIGTARP’s role to take specific positions 

with respect to the thorny policy questions facing the Congress on 

the issue of regulatory reform, it is clear that the existing system, 

whether in design or in application, failed to protect the American 

people from their responsible risktaking of systemically important 

firms. 

One specific issue that has arisen repeatedly throughout 

SIGTARP’s oversight work is the considerable power of credit rating agencies and their role in our financial system, in Government 

and in the current financial crisis, particularly with regard to ratings they provided for securities based on subprime mortgages. 

SIGTARP’s latest Quarterly Report discusses some of the inherent 

conflicts of interest that the issuer-pay business model presents 

and describes the lack of meaningful regulation in this area. 

SIGTARP’s report also discusses in detail how the U.S. Government reinforces the power of rating agencies by including in laws 

and regulations a reliance on high ratings. Further, SIGTARP’s recent audit concerning the AIG credit default swap counterparty 

payments stands as a stark example of the tremendous influence 

of credit rating agencies up on financial institutions and up on 

Government decision making in response to financial crises. In the 

lead-up to the crisis, the systemic over-rating of mortgage-backed 

securities by rating agencies was reflected in the similarly 

overrated collateralized debt obligations that underlied AIG’s credit 

default swaps. Once the financial crisis had come to a head, the 

credit rating agencies downgrades of AIG itself and of the underlying securities played a significant role in AIG’s liquidity crisis as 

those downgrades and the related market declines in the securities 

required AIG to post billions of dollars in collateral. The threat of 

further rating agency downgrades due to the onerous terms of the 

initial FRBNY financing, among other things, led to further Government intervention, including the TARP investment in AIG and 

the necessity to do something with the swap portfolio, i.e., Maiden 

Lane III. And the concern about the reaction of the credit rating 

agencies played a role in FRBNY’s decision not to pursue a more 

aggressive negotiating policy to seek concessions from counterparties. All of these profound effects were based upon the judgments 

of a small number of private entities that operate on an inherently 

conflicted business model and that are subject to minimal regulation. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM NEIL M. BAROFSKY 

Q.1. TARP’s Effect—Inspector General Barofsky, you stated in your 

testimony that ‘‘there is little question that the dramatic steps 

taken by Treasury, the Federal Reserve and the FDIC through 

TARP and related programs, in the face of what can only be described as panic conditions, played a significant role in bringing the 

system back from the brink of collapse.’’ 

How much of the rescue was actually attributable to the TARP 

program, which was dwarfed in size by other Federal Reserve and 

FDIC emergency relief programs? 
124 

A.1. It is impossible to state with any mathematical precision what 

portion of the solution to the panic conditions in financial markets 

in early October 2008 were attributable to TARP. As the question 

correctly points out, the TARP programs are just a portion of the 

overall Government efforts to stabilize the financial system. Indeed, to put TARP in to proper context, SIGTARP’s July Quarterly 

Report lists and describes dozens of those non-TARP programs, 

amounting to trillions of dollars of support. That being said, TARP 

certainly played a significant role in restoring some confidence to 

the financial system, particularly in conjunction with the explicit 

message that the Government would not allow the largest financial 

institutions to fail. On October 14, 2008, for example, there were 

multiple press releases announcing the Federal Government’s intent to protect the U.S. economy and restore confidence and stability in our financial system. These press releases announced (a) 

the FDIC initiatives to temporarily guarantee the senior debt of all 

FDIC-insured institutions and certain holding companies as well as 

deposits in noninterest bearing deposits transaction accounts and 

(b) the TARP investments in nine large financial institutions had 

agreed to accept TARP funds. These announcements had a dramatic effects at the time on reducing the cost of credit, freeing up 

credit markets and fostering confidence in the financial system, key 

objectives for the initial expenditure of TARP funds. The longer 

term effects of the TARP program are continuing to unfold and 

may not be fully understood for some time. 

It is particularly difficult to quantify how much of the rescue was 

attributable to the TARP program because Treasury does not require TARP recipients to report how they used taxpayer funds, 

which is the recommendation that I made to Treasury within my 

first 2 weeks of taking office and which I continue to make. Although the failure of Treasury to adopt this recommendation ultimately is a failure of transparency, SIGTARP conducted its own 

survey of how the first 364 TARP recipients used TARP funds. The 

results of that survey show that 80 percent of the recipients used 

TARP money for lending or to avoid further reductions in lending. 

More than 40 percent of the respondents reported that they used 

TARP funds to help maintain capital cushions and reserves. Other 

uses reported include paying down debt, purchasing other banks 

and investing in agency-backed mortgage backed securities. 

Q.2. Comingling of TARP Funds—Inspector General Barofsky, a 

substantial portion of TARP funds have been comingled with funds 

supplied by the Federal Reserve to create several bailout programs. 

Do the various taxpayer protections of the TARP—including your 

own investigatory authority—cease to apply when TARP money is 

used as part of the Federal Reserve’s bailout programs? 

A.2. The taxpayer protections that are set forth in EESA, in the 

regulations promulgated under EESA and in the contracts with 

participants in TARP programs generally speaking only apply to 

the TARP programs themselves and do not extend to non-TARP 

programs. SIGTARP’s authority applies, with only limited exceptions, to any actions taken under EESA and as a result SIGTARP 

asserts oversight authority, for example, over any instance in 

which TARP funds are involved in a program (whether Treasury 
125 

runs the program or not) and in instances when the TARP investments are part of a broader Government bailout. Accordingly, 

SIGTARP is actively engaged, among other things, in the oversight 

of the Term Asset-Backed Securities Loan Facility Program (TALF) 

(which involves Federal Reserve lending backed by TARP funds) 

and in AIG (in which TARP funds were expressly used to refinance 

the Federal Reserve infusions). SIGTARP is committed to investigate fraud, waste, and abuse anywhere in which it could affect 

taxpayer interests in TARP funds. Programs that do not involve 

EESA or impact TARP funds would not be within SIGTARP’s oversight authority. 

Q.3. Will you ensure that the Federal Reserve fully complies with 

all of TARP’s provisions when it uses TARP funds? 

A.3. As noted above, TARP funds are involved in the TALF program. More specifically, TARP funds were used to invest in a special purpose vehicle that will purchase and manage any collateral 

surrendered by TALF borrowers. To date there has been no surrender of collateral. 

From SIGTARP’s inception, SIGTARP has been active in working 

with Treasury and Federal Reserve staff over fraud prevention and 

compliance and control provisions related to TALF. In SIGTARP’s 

first Report to Congress, for example, we made a series of recommendations about the design of the TALF program; further recommendations were made in our subsequent reports as well. 

SIGTARP has met regularly with the Federal Reserve, with 

FRBNY and with Treasury about the design of the program, and 

the program has been improved dramatically as a result from a 

compliance and fraud prevention perspective. Moreover, SIGTARP 

has formed a multiagency law enforcement task force to address 

any instances of wrongdoing with respect to the TALF program. 

Q.4. Bank of America/Merrill Merger—Inspector General Barofsky, 

you are taking part in the efforts to investigate the circumstances 

surrounding the merger between Bank of America and Merrill 

Lynch. 

Have you come to any conclusions about whether Treasury conditioned Bank of America’s receipt of additional TARP funds on Bank 

of America proceeding with its merger with Merrill and whether 

this was inappropriate? 

A.4. In SIGTARP’s recently released audit entitled, ‘‘Emergency 

Capital Injections Provided To Support the Viability of Bank of 

America, Other Major Banks, and the U.S. Financial System,’’ we 

detailed information indicating that Treasury officials pressured 

Bank of America to proceed with the merger. Former Treasury Secretary Henry Paulson told Bank of America CEO Kenneth Lewis 

that the Federal Reserve could remove Bank of America’s management and the board of directors if Bank of America abandoned the 

merger. Mr. Paulson explained to SIGTARP that he was justified 

because of the risk to the financial system and that investors would 

perceive Bank of America abandoning the merger as poor judgment. In a deposition taken by the New York Office of the Attorney 

General, Mr. Lewis confirmed that Secretary Paulson made statements about removing Bank of America’s management and board 

of directors. However, Mr. Lewis told SIGTARP that he independ-
126 

ently came to the same conclusion that the potential failure of the 

merger would be harmful to the bank and that it was in the best 

longterm interest of the shareholders to complete the merger. Although in the audit SIGTARP does not opine as to whether Treasury’s actions were appropriate, by bringing transparency to these 

events, the American public and this Committee can use these details to inform any conclusion about the appropriateness of Treasury’s actions. 

In the interests of protecting the integrity of the process, 

SIGTARP respectively requests that it be permitted not to comment upon any pending criminal investigation. 

Q.5. Bank of America SEC Action—Inspector General Barofsky, 

one of the areas that you have focused on is the use of funds by 

TARP recipients. 

Do you know whether or not Bank of America planned to use 

TARP funds to pay its proposed $33 million settlement with the Securities and Exchange Commission prior to the court rejecting that 

settlement? 

A.5. We do not know whether Bank of America planned to use 

TARP funds to pay the settlement with the Securities and Exchange Commission announced on August 3, 2009. In response to 

a survey SIGTARP sent to the first 364 TARP recipients asking 

how they used TARP funds, Bank of America’s March 9, 2009, response stated, ‘‘[t]he initial TARP investment was not segregated 

from other funds on Bank of America’s balance sheet. Since all 

TARP investment funds are part of our operating capital, they cannot effectively be segregated.’’ Bank of America included in its response that the TARP investments had been and would continue 

to be used to originate loans, conduct other financial business, increase capital position, and invest in other initiatives. Although 

this statement appears to set forth Bank of America’s intention on 

use of the funds, this statement predates the announcement of the 

settlement with the SEC. 

Q.6. Would this be an appropriate use of TARP funds? 

A.6. Treasury placed very few restrictions on the appropriate use 

of TARP funds, particularly with respect to the first capital infusions made under the Capital Purchase Program. Paying a settlement with TARP funds would not appear to violate any aspect of 

Bank of America’s agreement with Treasury. 

Q.7. Public–Private Investment Partnership—Inspector General 

Barofsky, earlier this year, you made a number of recommendations to Treasury with respect to the operation of the Public–Private Investment Program. Among the recommendations rejected by 

Treasury was a recommendation that investment managers participating in the program set up walls to prevent them from managing 

the program funds in order to benefit the firm’s other clients or 

proprietary accounts. Another rejected recommendation related to 

public disclosure about all transactions. 

Does Treasury’s rejection of your recommendations raise questions about whether the program will benefit the fund managers 

rather than the U.S. taxpayer? 
127 

1GAO, Financial Regulation: Review of Regulators’ Oversight of Risk Management Systems at 

a Limited Number of Large, Complex Financial Institutions, GAO-09-499T (Washington, DC: 

Mar. 18, 2009). 

A.7. SIGTARP continues to be concerned that Treasury did not require walls by PPIP fund managers because it leaves taxpayers 

vulnerable to the effects of the significant conflicts of interest facing fund managers. Although Treasury did not require a wall, 

Treasury did implement a series of important conflict of interest 

rules, many of which SIGTARP recommended, that are designed to 

address, in some part, the risk that the program will benefit fund 

managers rather than the U.S. taxpayer. SIGTARP’s position remains that a strict ethical wall in addition to these measures 

would provide better taxpayer protection. At least one fund manager has enacted their own wall. SIGTARP also continues to recommend that Treasury publicly disclose PPIP transactions subject 

to reasonable protections to avoid dissemination of any confidential 

information that could harm taxpayers’ investment. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM GENE L. DODARO 

Q.1. During the past year, each of you has overseen the Government’s financial assistance to numerous financial institutions that 

nearly failed as a result of their mismanagement, assuming excessive risk and being poorly regulated. 

From this experience and your perspective, what advice would 

you give personally to the Committee about what legislation or additional reforms are needed to prevent future crises? 

A.1. Preventing future crises will entail addressing various weaknesses in our current regulatory system, in particular improving 

the oversight of risk management at large, complex financial institutions. Under the current system, no regulator has a clear responsibility to look across institutions to identify risks to overall financial stability. As a result, both banking and securities regulators 

have traditionally assessed risk management primarily at an individual institutional level. For example, as we reported in March 

2009, even when regulators performed horizontal examinations 

across institutions, they generally do not use the results to identify 

potential systemic risks. 1 The Federal Reserve analyzed financial 

stability issues for systemically important institutions it supervised, but did not assess the risks on an integrated basis or identify 

many of the issues that later led to the near failure of some of 

these institutions and to severe instability in the overall financial 

system. In addition, although financial institutions manage risks 

on an enterprisewide basis or by business lines that cut across 

legal entities, primary bank and functional regulators have generally overseen risk management at the level of a legal entity within a holding company. As a result, regulators’ view of risk management has been limited or overlapping or duplicative of those of 

other regulators including the holding company regulator. 

In addition to improving oversight of the large financial institutions whose activities and size and most likely to precipitate a crisis, we reported in January 2009 that the current U.S. regulatory 

system has important weaknesses that, if not addressed, will con-
128 

2GAO, Financial Regulation: A Framework for Crafting and Assessing Proposals to Modernize 

the Outdated U.S. Financial Regulatory System, GAO-09-216 (Washington, DC: Jan. 8, 2009). 

tinue to expose the Nation’s financial system to serious risks. 2 In 

that report we offered a framework of nine characteristics that if 

embodied into a new regulatory system for the United States, 

should reduce the likelihood of future crises. These characteristics 

include: 

• goals that are clearly articulated and relevant, so that regulators can effectively conduct activities to implement their missions; 

• appropriately comprehensive coverage to ensure that financial 

institutions and activities are regulated in a way that ensures 

regulatory goals are fully met; 

• a mechanism for identifying, monitoring, and managing risks 

on a systemwide basis, regardless of the source of the risk or 

the institution in which it is created; 

• an adaptable and forward-looking approach allows regulators 

to readily adapt to market innovations and changes and evaluate potential new risks; 

• efficient oversight of financial services by, for example, eliminating overlapping Federal regulatory missions, while effectively achieving the goals of regulation; 

• consumer and investor protection as part of the regulatory mission to ensure that market participants receive consistent, useful information, as well as legal protections for similar financial products and services, including disclosures, sales practices 

standards, and suitability requirements; 

• assurance that regulators have independence from inappropriate influence, have sufficient resources and authority, and 

are clearly accountable for meeting regulatory goals; 

• assurance that similar institutions, products, risks, and services are subject to consistent regulation, oversight, and transparency; and 

• adequate safeguards that allow financial institution failures to 

occur while limiting taxpayers’ exposure to financial risk. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM GENE L. DODARO 

Q.1. Auditing the Fed’s TALF Program—Mr. Dodaro, your testimony claims that the GAO is prohibited from auditing the Federal 

Reserve’s actions with respect to its Term Asset-Backed Securities 

Loan Facility (TALF). You also identify legislation that was passed 

in May of this year giving GAO authority to audit the Federal Reserve’s actions with respect to TARP. However, you do not seem to 

believe that this legislation provided you with the authority to 

audit the TALF. 

I believe that all interested parties came to an understanding 

that the May 2009 legislation gave the GAO the authority to oversee the joint Federal Reserve and Treasury actions taken with respect to the TALF. Why is it your belief that you do not already 

have the authority to audit the TALF? 
129 

A.1. We would welcome any additional authority the Congress believes is appropriate. The TARP legislation tasks GAO with overseeing Treasury’s TARP program and reporting on TARP’s performance in meeting the purposes of the statute. Among other things, 

section 116(a)(1)(E) of the legislation requires us to oversee TARP’s 

efficiency in using funds appropriated for the program’s operations, 

which uses include TALF. Under TALF, the Federal Reserve Bank 

of New York will lend up to $1 trillion, if needed, to help the 

securitization markets, and Treasury will provide up to $20 billion 

of credit protection. Because the TARP legislation already requires 

us to oversee all of Treasury’s TARP activities, including its participation in TALF, and because of the unusual joint Federal Reserve/ 

Treasury nature of TALF, we believe we require audit and access 

authority with respect to both the Federal Reserve’s and Treasury’s 

TALF activities in order to carry out our existing responsibilities 

most effectively. However, GAO lacks authority to audit the Fed’s 

TALF activities; the Federal Reserve believes these are part of its 

‘‘monetary policy’’ activities that GAO is prohibited from auditing 

under the Banking Agency Audit Act, 31 U.S.C. §714. Legislation 

enacted in May 2009 gives GAO new authority to audit certain recent Federal Reserve emergency actions—actions taken to assist ‘‘a 

single and specific partnership or corporation,’’ which thus far has 

included three entities also receiving TARP assistance, namely, 

Citigroup, AIG, and Bank of America. However, the Federal Reserve’s TALF is not a ‘‘single and specific partnership or corporation’’ and thus is not covered by this new authority. We therefore 

would support legislation giving GAO authority to audit the Federal Reserve’s TALF actions, together with appropriate access, as 

well as any other authority Congress may provide us. 

RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM ELIZABETH WARREN 

Q.1. During the past year, each of you has overseen the Government’s financial assistance to numerous financial institutions that 

nearly failed as a result of their mismanagement, assuming excessive risk, and being poorly regulated. 

From this experience and your perspective, what advice would 

you give personally to the Committee about what legislation or additional reforms are needed to prevent future crises? 

A.1. In January 2009, the Congressional Oversight Panel produced 

a Special Report on Regulatory Reform as required by Congress. 

The report describes how to limit the risk of future crises and is 

available on the Panel’s Web site at: http://cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf. 

In my view, two proposals from this report are critical to protecting the American financial system and preserving the ability of 

families to build wealth. 

First, it is important to remember that this financial crisis began 

one household at a time. Bad mortgages, combined with high 

household debt loads overall, were the central trigger for the financial meltdown. In effect, if high-risk products are fed into the financial system, those risks can aggregate and bring down the entire 

economy. Congress should establish a Consumer Financial Protec-
130 

tion Agency (CFPA) to ensure the basic safety of consumer credit 

products. The CFPA would require clear, transparent, and comprehensible disclosures of consumer credit products so that customers can make informed decisions on their use of credit. Lenders 

could no longer trick and trap consumers with obscure fees buried 

in dozens of pages of fine print. The CFPA would also streamline 

and coordinate consumer protection by combining under one roof 

the regulatory authority that is now spread across seven Federal 

agencies. Just as importantly, the CFPA would demonstrate that 

consumer protection is a key goal of financial regulation—that it is 

not a minor objective to be subordinated as a means to other ends, 

but rather that the protection of consumers is an end in itself. 

Second, Congress should end the era of ‘‘Too Big to Fail’’ by restoring a credible threat of failure for the largest financial institutions. America’s market economy depends on the notion that, when 

people make mistakes, they must bear the price—up to and including the ultimate economic price of bankruptcy. This threat of failure hangs over every small business, every small bank, and every 

individual in this country, and the constant threat of bankruptcy 

forces them to handle their money with appropriate caution. Unfortunately, ‘‘Too Big to Fail’’ has signaled to the marketplace that 

America’s largest banks no longer face the threat of liquidation, 

and this perception distorts markets and promotes irresponsible 

risk-taking. Before any taxpayer money can ever be used to stabilize a failing company, it must be clear that the company’s shareholders will be wiped out, their management team replaced, and 

their debt holders forced to take their losses. Taxpayer dollars 

must never be used again to prop up failing companies that are 

then allowed to profit at taxpayer expense. Congress should create 

a strong resolution authority and make it clear that no institution, 

no matter how large, can dodge the consequences of its own bad decisions. 

Other, further reforms are also critical. As detailed in the Panel’s 

report, lawmakers should also take steps to align executive pay 

with long-term corporate interests, regulate derivatives and hedge 

funds, and reform the credit rating agencies. 

Q.2. In a recent report the COP panel outlined its concerns with 

regard to the use of TARP funds to support the domestic automobile industry. In particular the panel noted that Treasury has 

not provided a legal justification for this use of TARP funds or 

‘‘clearly articulated its investment objectives.’’ 

Has Treasury responded to your request for clarification? 

Could you explain your concern with regard to legal analysis justifying the use of TARP funds? As you see it now, what are the 

legal limitations on the use of TARP funds to bailout other nonfinancial industries? 

Why is it important for the Treasury to outline investment objectives for car companies? Are you satisfied that the Treasury is 

being a diligent and prudent investor while not interfering in the 

affairs of the car companies? Is it possible to do both? 

A.2. Treasury has declined to provide the Panel with a detailed 

analysis of its legal authority to use TARP funds to invest in the 

domestic automotive industry and has not provided a response to 
131 

our concerns regarding the absence of clearly articulated investment objectives. 

The Congressional Oversight Panel found that Treasury’s authority for its use of funds under the Troubled Asset Relief Program 

(TARP) to support the domestic automobile industry was ‘‘unclear.’’ 

We further noted that the Panel is unaware of any court before 

which the issue is currently pending and there are no parties that 

would appear to have standing to challenge the issue. In order for 

Congress and the American public to understand the potential for 

Treasury to use TARP funds to assist other struggling industries, 

we urged Treasury to provide a legal analysis of its authority. 

The Panel found although taxpayers may recover some portion of 

their investment in Chrysler and GM, it is unlikely they will recover the entire amount. Absent clearly articulated investment objectives, it is impossible for the American public to determine if 

this indeed represents a failure of Treasury’s strategy. 

Treasury has acted in a commercial manner in negotiating the 

auto deal, but it has not managed the resulting shares in Chrysler 

and GM the way a commercial shareholder would do. Instead, because of the potential conflicts, it has announced its intent to remove itself from influencing the management of the companies, 

leaving, in the case of GM, the minority shareholders in control. To 

limit the impact of potential conflicts of interest and to facilitate 

an effective exit strategy, the Panel recommended that Treasury 

consider placing its Chrysler and GM shares in an independent 

trust that would be insulated from political pressure and Government interference.