FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2011 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 

APPROPRIATIONS 

JOSE ́ E. SERRANO, New York, Chairman 

DEBBIE WASSERMAN SCHULTZ, Florida 

ROSA L. DELAURO, Connecticut 

CHAKA FATTAH, Pennsylvania 

BARBARA LEE, California 

ADAM SCHIFF, California 

STEVE ISRAEL, New York 

TIM RYAN, Ohio 

JO ANN EMERSON, Missouri 

JOHN ABNEY CULBERSON, Texas 

MARK STEVEN KIRK, Illinois 

ANDER CRENSHAW, Florida 

NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full Committee, and Mr. Lewis, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

LEE PRICE, BOB BONNER, ANGELA OHM, and ARIANA SARAR

Subcommittee Staff 

PART 5 

Page 

Internal Revenue Service ...................................................... 1 

Treasury Department ............................................................. 65 

Financial Crisis and TARP .................................................... 147 

( 

Printed for the use of the Committee on Appropriations 

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FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011 

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FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2011 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 

APPROPRIATIONS 

JOSE ́ E. SERRANO, New York, Chairman 

DEBBIE WASSERMAN SCHULTZ, Florida 

ROSA L. DELAURO, Connecticut 

CHAKA FATTAH, Pennsylvania 

BARBARA LEE, California 

ADAM SCHIFF, California 

STEVE ISRAEL, New York 

TIM RYAN, Ohio 

JO ANN EMERSON, Missouri 

JOHN ABNEY CULBERSON, Texas 

MARK STEVEN KIRK, Illinois 

ANDER CRENSHAW, Florida 

NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full Committee, and Mr. Lewis, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

LEE PRICE, BOB BONNER, ANGELA OHM, and ARIANA SARAR

Subcommittee Staff 

PART 5 

Page 

Internal Revenue Service ...................................................... 1 

Treasury Department ............................................................. 65 

Financial Crisis and TARP .................................................... 147 

( 

U.S. GOVERNMENT PRINTING OFFICE 

62–166 WASHINGTON : 2010 

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COMMITTEE ON APPROPRIATIONS 

DAVID R. OBEY, Wisconsin, Chairman 

NORMAN D. DICKS, Washington 

ALAN B. MOLLOHAN, West Virginia 

MARCY KAPTUR, Ohio 

PETER J. VISCLOSKY, Indiana 

NITA M. LOWEY, New York 

JOSE ́ E. SERRANO, New York 

ROSA L. DELAURO, Connecticut 

JAMES P. MORAN, Virginia 

JOHN W. OLVER, Massachusetts 

ED PASTOR, Arizona 

DAVID E. PRICE, North Carolina 

CHET EDWARDS, Texas 

PATRICK J. KENNEDY, Rhode Island 

MAURICE D. HINCHEY, New York 

LUCILLE ROYBAL-ALLARD, California 

SAM FARR, California 

JESSE L. JACKSON, JR., Illinois 

CAROLYN C. KILPATRICK, Michigan 

ALLEN BOYD, Florida 

CHAKA FATTAH, Pennsylvania 

STEVEN R. ROTHMAN, New Jersey 

SANFORD D. BISHOP, JR., Georgia 

MARION BERRY, Arkansas 

BARBARA LEE, California 

ADAM SCHIFF, California 

MICHAEL HONDA, California 

BETTY MCCOLLUM, Minnesota 

STEVE ISRAEL, New York 

TIM RYAN, Ohio 

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland 

BEN CHANDLER, Kentucky 

DEBBIE WASSERMAN SCHULTZ, Florida 

CIRO RODRIGUEZ, Texas 

LINCOLN DAVIS, Tennessee 

JOHN T. SALAZAR, Colorado 

PATRICK J. MURPHY, Pennsylvania 

JERRY LEWIS, California 

C. W. BILL YOUNG, Florida 

HAROLD ROGERS, Kentucky 

FRANK R. WOLF, Virginia 

JACK KINGSTON, Georgia 

RODNEY P. FRELINGHUYSEN, New 

Jersey 

TODD TIAHRT, Kansas 

ZACH WAMP, Tennessee 

TOM LATHAM, Iowa 

ROBERT B. ADERHOLT, Alabama 

JO ANN EMERSON, Missouri 

KAY GRANGER, Texas 

MICHAEL K. SIMPSON, Idaho 

JOHN ABNEY CULBERSON, Texas 

MARK STEVEN KIRK, Illinois 

ANDER CRENSHAW, Florida 

DENNIS R. REHBERG, Montana 

JOHN R. CARTER, Texas 

RODNEY ALEXANDER, Louisiana 

KEN CALVERT, California 

JO BONNER, Alabama 

STEVEN C. LATOURETTE, Ohio 

TOM COLE, Oklahoma 

BEVERLY PHETO, Clerk and Staff Director 

(II)

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FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2011 

WEDNESDAY, FEBRUARY 24, 2010.

FY2011 BUDGET FOR INTERNAL REVENUE SERVICE 

WITNESS 

DOUGLAS H. SHULMAN, COMMISSIONER, INTERNAL REVENUE 

SERVICE 

Mr. SERRANO. The Subcommittee will come to order. We welcome 

the Commissioner of Internal Revenue, Douglas Shulman. 

OPENING STATEMENT, CHAIRMAN SERRANO

Before we begin, we want to express our most sincere condolences to you, the staff, and the families of the folks that were 

caught up in that horrible tragedy. There is very little that can be 

said at times like these, but please stand assured that if there is 

any assistance you need from us to deal with that particular issue, 

we stand ready to assist you. 

And please convey, on behalf of this Committee, to the employees 

of the IRS, that we support their work, that we feel their tragedy, 

and that we personally—I personally believe that no violent action 

against government employees can be justified, regardless of how 

anyone feels about any issue in this country. 

So before we begin today’s hearing, and this is the first hearing 

of the year for us, we just want to convey that. And I turn to Mrs. 

Emerson. 

Mrs. EMERSON. Let me also express my sincere sympathies, and 

please let all of the almost 100,000 IRS employees know that we 

are very impressed by their resilience in the face of such tragedy. 

And our thoughts and prayers are with the family of Vernon 

Hunter and all of the employees. 

Thank you. 

Mr. SERRANO. Thank you. We welcome Commissioner of Internal 

Revenue, Douglas Shulman, back for his third appearance before 

the Subcommittee. The IRS employs more than 100,000 people, 

processes more than 140 million tax returns each year, and collects 

more than 95 percent of the revenues that fund the Federal Government. 

Recently, the IRS has also been involved in implementing an 

array of tax benefits containing last year’s Recovery Act, in addition to preparing for the requirements of the annual tax filing season. 

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What is still fresh in our minds is last week’s tragedy at the IRS 

facility in Austin, Texas. Our hearts go out to those who were 

killed, those who were injured, and their families. This Subcommittee will do its part to ensure that the IRS will recover from 

the difficulties caused by the terrible event last week. 

In its fiscal year 2011 budget submission, the IRS is requesting $12.6 billion, an increase of $487 million, or four percent above fiscal 2010. 

I want to continue to emphasize the importance of the IRS’s taxpayer service mission. Taxpayers who need information and assistance to deal with the complexities of the Tax Code should be able 

to come to the IRS for help. Good taxpayer service can lead to increased compliance and lower IRS costs in the area of enforcement. 

The IRS continues to provide assistance through its walk-in sites, 

partner organizations, and the IRS website and toll-free telephone 

hotline. 

I am pleased that in this budget request the IRS is attempting 

to address its problems in the area of telephone assistance, and to 

implement improvements to the IRS website. At the same time, I 

am disappointed that the budget proposes to reduce funding for 

grants to low-income taxpayer clinics and volunteer income tax assistance sites. Both of these programs have provided essential assistance to low and moderate income taxpayers throughout the 

country. 

The budget request also reduces funding for tax counseling for 

the elderly grants. However, I am pleased that the budget request 

continues the IRS enforcement initiative aimed at offshore tax evasion and corporate and high income taxpayers. The level of tax 

non-compliance in these areas continues to be a problem, and this 

initiative will help to address the problem. 

In addition, I greatly appreciate Commissioner Shulman’s announcement last month of an IRS proposal to increase its oversight 

of paid tax preparers by requiring registration, testing, and continuing education requirements for preparers not already subject to 

oversight. Paid preparers are a prominent part of the tax system, 

and the vast majority of paid preparers are both helpful and ethical, but, as I have pointed out before, there have been many cases 

of scam artists who bilk taxpayers out of their money. 

We have also heard of incompetent preparers who do not make 

sure that people are able to get all of the benefits for which they 

are eligible. This has been a problem in neighborhoods, including 

my own in the Bronx, where the need for the tax benefits is greatest. 

The paid preparer initiative is very much needed and will go a 

long way toward helping taxpayers utilize these services. And I 

really thank you and congratulate you for that. I thought it was 

a bold step and one that was due. 

I look forward to a very interesting discussion today on these and 

other issues facing the IRS. Commissioner Shulman, we thank you 

for your testimony today. I would like to turn to my amiga—how 

is that? That will create—see, he is scampering all over. 

Mrs. EMERSON. Instead of amigo, amiga. 

Mr. SERRANO. Yes. There is a difference. Yes, it is amiga. Our 

ranking member, Mrs. Emerson. 

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OPENING STATEMENT, RANKING MEMBER EMERSON

Mrs. EMERSON. Thank you, Chairman. Since this is our first 

hearing, I just want to say for the record that I enjoyed working 

with you and other members of the Subcommittee last year. 

Mr. SERRANO. Thank you. 

Mrs. EMERSON. Because we have jurisdiction over such a diverse 

group of agencies, many of which have a profound impact on Americans’ lives and financial stability of our economy, it is good when 

we try to work in a bipartisan way. And I look forward to continuing that practice this year. 

I also want to say that, with the federal debt at more than $12 

trillion, I sure hope we can work to find ways to minimize and reducing spending this year as we construct a bill that also safeguards the integrity of our nation’s financial system. 

Welcome back, Commissioner Shulman. I really do appreciate 

your being here with all of the—your employees and their families 

on your mind. And it is important for all of your employees, too. 

Hopefully they know how deeply moved and how deeply you have 

been touched by this tragedy as well. 

Let me just start by addressing an issue that I know you are 

hard at work on, and that has to do with tax cheats, for lack of 

a better way of saying it. Over the last decade, surveys by the IRS 

oversight board have noted a general downward trend in the acceptability of cheating on your taxes. 

However, the 2009 survey reported an increase from six to nine 

percent of those who feel it is acceptable to cheat on their taxes a 

little bit here, a little bit there, and similar increases over the next 

few years of those who believe it is acceptable to cheat on their 

taxes may highlight a major problem. So hopefully we will be able 

to work with you to find ways to prevent people from accepting the 

notion that it is okay to cheat. 

As I have stated in the past, I am committed to making sure that 

you have all of the necessary resources to educate taxpayers on 

how to comply and identify those who have not paid their fair 

share, those who willfully file frivolous returns, or conceal assets 

at home or overseas. But I have to say, with our FY2010 deficit 

projected to be at $1.6 trillion, and deficit spending expected to continue throughout the next decade, I think it is really critical to review every single area of government spending. 

So I need to ask, probably more rhetorically at this moment in 

time than not, if a $487 million increase to the total budget is really necessary. I am grateful and appreciate the fact that you have 

proposed a number of cuts and efficiencies in the budget request, 

but I am interested to know if there are any additional areas that 

might be trimmed back as well, and look forward to your testimony. 

Thanks so much. 

Mr. SERRANO. Thank you. 

Commissioner, we are ready for you. And after all of these wonderful things we have said about you, we now have to tell you that 

you have five minutes, and that the rest of your statement can go 

in the record, so that we can take time to grill you today. 

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STATEMENT OF COMMISSIONER DOUGLAS SHULMAN

Mr. SHULMAN. Thank you, Chairman Serrano, Ranking Member 

Emerson, members of the Committee. I am glad to be here to talk 

about our 2011 budget. Before I do, let me say a couple of things 

about the tragedy in Austin. 

As you know, a plane was intentionally flown into an IRS building targeting IRS employees. I just came back yesterday from Austin, and am going back down tomorrow. What I will tell you is 

what I told the employees. I am incredibly proud of this agency. 

Thousands of people have reached out to me from across the country, and (a) said they will do anything to support those employees 

who are traumatized—we lost a life—and (b) said that it is not 

going to deter them from their work. 

I tell folks that as a leader of a government agency, I stand on 

the shoulders of those who came before me, to try to improve the 

agency, to continue with excellence. We are all now going to be 

standing on the shoulders of a colleague who served two tours in 

Vietnam, and then died at his desk working for the IRS. 

We are going to stand on his shoulders and the shoulders of the 

people who are traumatized, and try to make this agency better. 

And I will definitely convey to the workforce your thoughts, and I 

very much appreciate them. 

Moving to the budget, I am very pleased that the President recognized the critical role we play in this country, both serving taxpayers and collecting the money needed to run the government. 

The unique thing about the IRS is that we have a positive return 

on investment, so investing in us actually brings more money in 

and it does have a net positive outflow. 

This budget recognizes that, but also recognizes the need to have 

a balance between service and enforcement, as well as technology 

and people investment, so we are investing in the long-term future, 

not just in next year. 

On the service side, we tried to balance all of the IRS’ needs, 

from processing paper to dealing with people in person. We increased funding for telephone service, and we increased funding for 

the web, which meet the greatest variety of needs. And I would be 

happy to talk to you more about the issues that you brought up 

earlier around VITA and low income taxpayer clinics. 

On enforcement, we are continuing to focus on high income individuals, international evasion, and non-filers. This is a relatively 

balanced portfolio. We try to maximize impact, maximize deterrent 

effect across the entire economy, but do so in the least burdensome 

way to taxpayers while continually respecting their rights. 

On the modernization side, we have asked for an increase in our 

funding for our taxpayer database. I believe that by making this 

investment we will be able to have all individual taxpayers on a 

centralized relational database by the end of fiscal year 2011, meeting the promise of faster refunds, better service, and providing consistent information about what a taxpayer owes in our database. I 

think we are on a path to that promise that we set out to meet in 

the late ’80s, and actually finish it with the funding in this budget. 

There is also judicious investments in people, so we make sure we 

have the workforce to do the job. 

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Let me end by just saying there are a number of legislative proposals. A lot of the reason for our phone level of service going down 

and other things, is legislation being passed that results in us 

being given more and more responsibilities to both distribute 

money and collect taxes. We have asked for some legislative authorities that will actually allow us to better collect taxes, better 

serve customers, and better do our jobs. 

Let me just highlight three. One is repealing the requirement of 

a partial payment when you try to get an offer in compromise, especially in these difficult economic times with high unemployment. 

We do not think people who want to settle their tax debt should 

have to pay a 20 percent downpayment. They should be able to 

come in, and we should be able to settle their tax debt with them 

and get them to pay what they owe. 

Second is a proposal relating to Section 530 of the Tax Code, 

which would allow us to create more certainty for small businesses, 

large businesses, and individuals about whether they are an independent contractor or an employee. And, third, there are a variety 

of international proposals in the budget that will help us do our job 

better, including support for a bill that is before Congress right 

now, which is called FATCA, which gives us better tools to detect 

non-compliance by those hiding money overseas. 

So, Mr. Chairman, this concludes my oral testimony. I would be 

happy to answer questions. 

[The prepared statement of Commissioner Douglas Shulman follows:] 

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TAX RETURN STATISTICS

Mr. SERRANO. Thank you so much. Let me ask you a question. 

Does the agency have any information on how many tax returns we 

get in the country? 

Mr. SHULMAN. Give or take, 140 million individual returns annually. 

Mr. SERRANO. Okay. And of those, do we know how many folks 

prepare it themselves, how many have an accountant, and how 

many just go somewhere other than an accountant? 

Mr. SHULMAN. The last year for which we have the data analyzed 

and collated is ’08. About 60 percent of people used a preparer, 

some form of a paid preparer. About 20 percent used software 

packages, so they were doing it themselves with the assistance of 

technology. And then, about 20 percent just do it themselves on 

their own. 

What I will tell you is, interestingly, the numbers are on the rise 

around people who do it themselves and file directly on the Internet. We have a horrendously complex tax code, but I believe we 

should have as many people as possible able to file themselves and 

do it for free. And so that is why we have a variety of outreach. 

We prepare millions of returns between us and our partners. 

We also put online a web application that allows you just to fill 

out the form and the application does the math calculation for you. 

It does not go as far as the software, which guides you through 

your answers. And so I think more and more people are trying to 

do self-service. I would be happy to talk later about the return preparer initiative, which is incredibly important because of those 60 

percent of people that are getting service from a return preparer, 

which is also affecting their compliance. 

PAID PREPARER INITIATIVE

Mr. SERRANO. Right. And that was my question. It was a leadin to the fact that I commended you for the position you took, and 

you noted in your written statement that the IRS is increasing its 

‘‘knock and talk’’ visits with tax preparers this year. What are the 

specific steps that will be taken over the next year to begin implementing the paid preparers initiative? 

Mr. SHULMAN. The preparer initiative has multiple components, 

and the goal is, really, to make sure preparers are providing people 

good service and making sure preparers are helping us make sure 

people pay the right amount of taxes. So it is a compliance and 

service initiative. 

People are going to register, take a test, and make sure they are 

prepared through continuing education. We are going to have a 

database once everyone takes the test, so the public can look and 

say, ‘‘Am I using a registered preparer?’’ And then, we are increasing enforcement. 

This is going to be a multi-year effort. We estimate about a million people are preparers, and so to implement this kind of regulatory regime for the preparer community is not an overnight 

thing. This year we sent out 10,000 letters reminding people of obligations, and we stepped up calling people and saying we were 

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going to come talk to them, make sure they were doing things 

right, audit preparers, etcetera. 

And so that effort is happening right now, and ‘‘knock and talks’’ 

include calling them and telling them, but also some undercover 

visits where we suspect fraud. 

We are going to get guidance out this year. Our goal this year 

is to get everybody to have a preparer number, so we can start 

tracking them. Our goal next year is to start the testing regime 

and let everyone have about two years to test in and be a preparer, 

and also next year to start pushing out continuing education. 

And so within three years, the initiative will be fully implemented. Anyone providing any peparation service will have been 

tested and be in a database available for the public. It is our goal, 

but this is all very fluid. One of the things I am committed to is 

a very open process for this initiative. We held public hearings. We 

have talked to people. We signaled what we were going to do. We 

took comment. And so we have listened to taxpayers, we have listened to consumer advocates, we have listened to the preparer community, and we are trying to make this a smooth transition to ultimately help the tax system. 

The last thing I would say is that this initiative is potentially the 

most transformational step that we will take while I am here to 

really increase compliance and service. What we are really doing 

is saying let us make sure those million people who are part of the 

overall tax system are qualified. And if we are going to have a complex tax code where people have to go to preparers, let us make 

sure they are part of the overall solution to serving Americans. 

Mr. SERRANO. Right. You know, with that in mind, we all come 

to Congress bringing with us our likes and dislikes, those things 

we feel strongly about, and those things that make us nervous. I 

may be totally off base here, but I tell you, it makes me nervous 

to see in my district a person dressed in a Statue of Liberty outfit 

handing out cards, saying down the block, ‘‘We will prepare your 

taxes for you.’’ 

Now, in a way, that is a contradiction to who I am, because the 

person who is dressed in the suit is probably otherwise unemployed, and that is the job they have. And the people who are taking the card to go see that preparer cannot afford to go to where 

I go or to where JoAnn goes to get her taxes done, or do not have 

access to a computer, or would not even dare try to fill out their 

own. 

So, in a way, I realize that as I am making this statement I am 

kind of contradicting myself, because I am commenting on the very 

people that I know somewhat about the condition they find themselves in. But paying your taxes, filing your taxes, to me is one of 

those issues that is very serious. 

EARNED INCOME TAX CREDIT AUDITS

And the whole idea of a circus attitude around it makes me nervous, so I support anything that happens in the direction of finding 

out whether the person who taxpayers meet after they walk 

through the door is qualified to give them the best assistance. That 

is something that you will get a lot of support on from this Committee and from this Chairman, because it just makes me nervous 

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that we are heading towards a major problem, which leads me to 

the next point, and that is, as you recall when we first met, my 

biggest complaint was the fact that—what was it, 44 percent of all 

the audits were being conducted on 17 percent of the taxpayers? 

Which were the—if I have got my numbers right, the EITC folks? 

And I suspect that a lot of the EITC issues were not necessarily 

harassment by the IRS, but the people who were preparing these 

forms. What was there, intentionally or otherwise, that caused so 

many audits? 

Mr. SHULMAN. You and I have talked a number of times about 

EITC. It is a tricky issue, because in one respect, we are incredibly 

proud that the IRS is part of the process of putting out about $50 

billion a year to help raise people out of poverty, about 24 million 

people. But when there is a large refundable credit, there is also 

opportunity for fraud. 

I think you hit the point right on, which is a lot of fraud is happening not because the taxpayer is intending to defraud, but they 

go to unscrupulous preparers who help coach them through. They 

say, ‘‘You can get more EITC if you have a child living with you 

for six months,’’ and so the taxpayer says, ‘‘Well, they were with 

me five months.’’ And the preparer says, ‘‘Well, why not just put 

down six months and you can get a bigger refund?’’ and then these 

people get a refund anticipation loan and it all churns. 

We have, over the years, had a steady number of EITC audits. 

The have gone down as a percentage of overall audits, because we 

have been increasing the number of audits, for instance, in the last 

five years, on millionaires. And we have increased the audits on 

people earning over $200,000. We have not increased EITC audits. 

With that said, EITC audits bring in or save, because we stop money before it goes out—about $3 billion a year. And so our main 

focus is to keep it steady, to not unfairly target people who get 

EITC, but in the same respect, have a decent coverage rate because 

big refundable credits are where there is often incentive for fraud. 

And then, the preparer strategy, we think, is a cornerstone to reducing that fraud and error, because error is a big issue with 

EITC. It is a 68-page form. It is incredibly convoluted. 

And so part of this initiative is educational outreach, and our 

whole EITC program is all about maximized participation, minimized fraud. As with a lot of things we do at the IRS, we have got 

to get that balance right, and that is what we try to do. 

Mr. SERRANO. Thank you. 

Mrs. EMERSON. You know, let me mention something interesting. 

I recently, probably two weeks ago now, did a—had all of my community organizations come in and we actually did a taxpayer clinic 

with a lot of these community-based organizations and some of the 

organizations that actually do free computer—you know, like Intuit 

and, well, the TurboTax people and all those folks, just to help 

train some of these folks to then assist their clients who would be 

able to claim the EITC. 

And one of the interesting things that we did talk about, too, 

though, are those refund anticipation loans which I hate. It is like 

going to the payday lender and getting all sorts of outrageously 

high interest rates and, in essence, you know, those companies are 

ripping off the people who, you know, need that short-term help. 

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But hopefully through your business systems modernization, and 

other services that you are able to provide, will make the refund 

so much faster that they do not have to get those anticipation 

loans, because I do not like that whole concept, just because they 

have to pay so much interest. 

TELEPHONE LEVEL OF SERVICE

I wanted to ask you a little bit about the telephone service. And 

if I could, just because it is such an important part of your mission, 

just looking at the figures, between FY2007 and FY2008, the level 

of phone service plummeted from 82 percent to 53 percent. And we 

have been told that was attributable to all of the demands placed 

on the agency by the passage of nearly 50 new tax provisions, of 

course that we imposed upon you all from Congress. 

But in looking at this year’s budget request, your goal is to get 

from 71 to 75 percent, which I do not find particularly exciting. I 

mean, it does not seem to me for $20.9 million that four percent 

of an increase is enough of a stretch I guess. I would think that 

we would want to expand the phone service a little bit better. 

But does not it make sense that if we want to improve tax compliance then the phone service should be a guaranteed avenue 

available to all taxpayers to get their answers? Are you comfortable, or do you find 75 percent acceptable? 

Mr. SHULMAN. No. I am glad you asked me about phones because 

there has been a lot of focus on it. Let me just start by saying I 

am not happy where we went, but let me also put it in context. We 

were hitting the 80 percent level of service. Let me explain what 

level of service is because 80 percent level of service does not mean 

20 percent are not getting through, which is important. But we 

were hitting our level of service internal numbers for a number of 

years when we were getting about 65 million calls a year. 

When we sent out the stimulus checks we went from 65 million 

to 150 million calls that year. Last year, as we were cleaning up 

from the stimulus checks and implementing the Recovery Act, we 

had about 100 million calls. And so, while this one number everyone has been focusing on—level of service—has been dropping, we 

have been answering five million more calls every year. 

Telephone level of service is a composite number that includes 

people who get through, people who cannot get through, and people 

who voluntarily hang up. And one new feature we made available 

is estimated wait time. If you call at peak season, first week of 

April, first thing in the morning, you are going to have a longer 

wait than if you call later in the evening or you call at a different 

time. 

We put a wait time on the phone lines, which was a service, so 

you tell taxpayers it is going to be a six-minute wait to talk to an 

assistor. And if someone does not have six minutes, he or she 

hangs up and calls back at a different time. 

If you look at last year, our 70 percent number, and you take 

away people who hung up within three minutes, because this is the 

first time it ever said it would take this long, that number went 

up to 79 percent. And so included in there is what we call voluntary disconnects. 

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26 

I will also tell you the phone calls are taking longer, because the 

tax law is getting more complex. There are a bunch of new tax laws 

in place. We are doing a lot of Recovery Act calls, and so that is 

important. 

And the last thing I would say before I answer your question directly about the 75 percent is look at the main service number, 

which is the American Customer Satisfaction Index. Again, it is not 

how many people are happy, but it is what is the taxpayer experience with filing, phones, walking in, Internet. 

So it is really looking at all of our channels, not just one of our 

channels. That score actually jumped this year from 68 percent to 

71 percent, so we continue to make it easier for people to deal with 

their taxes. But the phones are an issue. 

The reality is demand is driving these numbers, and so we are 

going to answer more calls this year than we answered last year, 

and we are going to answer more calls next year than we answered 

the year before. We are anticipating more calls than before. 

My goal is to next year, in ’11, get it back up to 75 percent, but 

we have those wait times, so it is well over 80 percent if you take 

away the people who are hanging up right away. We will keep driving that back up to historical levels. Hopefully we do that by getting back to historical levels of tax changes every year, as well as 

helping drive demand down. 

TAXPAYER SERVICE FUNDING LEVELS

Mrs. EMERSON. Well, I hope so, too, because since we are giving, 

you know, a fair—I used to think that $20.9 million was a lot of 

money, but as we start using the ‘‘trillion’’ word somehow it does 

not seem quite as high as it used to. But, nonetheless, hopefully 

you will be able to achieve those goals. 

And let me just mention, too, because Joe did as well, the VITA 

services that you all provide have been tremendously helpful in my 

district, and I actually went on a couple. Have you ever been on 

one? They are great. To go with—to go to like a senior center and 

have the voluntary—the tax preparers there. And it is hugely popular, and I just would like—I am not happy with the amount of 

money for that service being cut, and hopefully, Mr. Chairman, you 

will be able to figure out how to add some more back, so that the 

Commissioner—— 

Mr. SERRANO. Is this without adding to the deficit, or what? 

Mrs. EMERSON. I am sure we could take a little bit from here, 

but we do not—— 

Mr. SERRANO. I know. 

Mrs. EMERSON [continuing]. Want to have to ask the Commissioner to say bad things about OMB. 

Mr. SERRANO. Right. 

Mrs. EMERSON. All right. I will stop there and—— 

[Laughter.] 

Mr. SERRANO. Thank you so much. And, by the way, I was 

unpopularly trying to be funny. 

Mrs. EMERSON. I know. 

Mr. SERRANO. But you are right, there are services that should 

not be considered part of a concern about how we spend money, because those services have to be there. 

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I am supposed to make a statement right now, since it is the beginning of our second season of hearings, for members to stick to 

the five-minute rule. But I am not worrying too much about it, 

since I broke it at the beginning. 

Ms. Lee. 

OPENING STATEMENT, CONGRESSWOMAN LEE

Ms. LEE. Well, thank you very much. You are a very fair chairman. And thank you, it has been a pleasure being on your Committee. I think last year was my first year on the Committee, and 

it has been very enlightening and very helpful for me and my district, so thank you, Mr. Chairman. 

Mr. SERRANO. You are quite welcome. 

Ms. LEE. Good morning, Commissioner Shulman, and let me just 

thank you, first of all, for your testimony, also for your service during this very challenging period. 

And I want to also associate myself with the remarks of my colleagues. My sympathy goes out to the family and members and 

staff of the IRS, and to yourself, and just know that we all stand 

to help you during this very tragic period in anything that we need 

to do to help your family, our family, move forward. 

Mr. SHULMAN. Thank you very much. 

Ms. LEE. I want to also just thank all of the dedicated staff for 

rapidly and efficiently putting into place some of the very vital tax 

breaks for working families that the Congress passed and the 

President signed during the height of the economic crisis. 

I know that many of the provisions have really directly impacted 

the work of the IRS, like the homeowners tax credit, the make 

work pay credit, and the extended child tax credits, as well as the 

COBRA extension. Your leadership and the work of your staff really has ensured that taxpayers were able to take advantage of these 

vital programs during the downturn that really did help stabilize 

the economy and helped to reduce the terrible impact of this financial crisis. 

The ongoing recession, rising unemployment, this means that 

millions of Americans continue to face the harsh reality of living 

in poverty. The work of the IRS to rapidly follow through on implementing the credits and other initiatives that the President, you 

know, put forth, that has kept untold families out of poverty, those 

hanging right on the edge, and also has provided vital assistance 

to families who find themselves facing the brunt of this economic 

crisis. So I have to thank the IRS for that. 

Oftentimes we do not focus—at least many in my district do not 

focus on the positives of the IRS. The IRS sometimes becomes a 

very difficult agency for many people to deal with, but I think they 

have seen a different side of the IRS during this very serious economic downturn. 

I want to ask you—well, first of all, I am glad that you are getting Americans to file taxes electronically and streamlining the filing process and the refund process. I also support the increased 

funding that the IRS requests for business systems modernization, 

and it is my hope that strategic investments in these systems will 

make tax time more efficient for the IRS and the American taxpayer. 

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READY RETURN PROGRAM

Now, in California, which is my home state, we have a program 

called Ready Return where the state sends a pre-populated or prefiled—pre-filled tax return to tax filers, and they are very simple, 

these returns. Taxpayers then just simply review the form for errors, and, if everything is correct, they just sign it and mail it in. 

And I believe the President has supported the possibility of a propopulated return as—a pre-populated return as well. 

I think that the IRS could save a lot of money if you implement 

this national Ready Return Program. It will save time, it will increase compliance, it will make tax season really a lot less painful. 

And so I would like to know if you looked at that. Do you think 

that makes sense? And how can we help if it does? 

TAX EXPENDITURE CHART

And then, secondly, let me just say I think it would really be an 

important public service to provide the American taxpayer a breakdown of how much of their tax dollars go to programs like housing, 

education, science, technology, transportation, infrastructure, 

health care, defense. 

And I would like to ask you, and I would like to ask the chair, 

if we could consider including a detailed graph or chart of how the 

United States—how our government spends tax dollars with each 

tax form distributed by the IRS, you know, maybe a pie chart or 

some kind of a graph or something that really shows the taxpayer 

how their money is being spent. 

BUSINESS SYSTEMS MODERNIZATION AND READY RETURNS

Mr. SHULMAN. On a couple of the points you raised, one is thank 

you for your support for BSM, our business systems modernization. 

I have run big technology projects outside of the government, and 

coming in I saw the IRS had some missteps in the ’90s around its 

modernization, but for an agency that interacts with 140 million individual Americans, not to mention all the non-profits and businesses, and processes, two billion information returns, crunches 

huge amounts of data, I think we have underinvested in our technology over the years. And so getting us back on a prudent path 

makes sense. 

I also think that modernization is linked to any concept of prepopulated returns. A lot of what this investment is is getting us to 

the point where we have all of the data on the taxpayer in one 

place. It is getting this relational database done. 

And so we certainly have looked at and are very familiar with 

the California Ready Return example. I think there is a question 

of how many people would be eligible, because I understand the 

California program is for single people who take the standard deduction who only have wage income. There is a set of criteria 

around it, and so it is not 140 million eligible people. 

But, you know, I think our goal is to get this modernization done, 

and then really open our eyes and say, ‘‘How can we better service 

taxpayers once we get this investment over the goal line?’’ 

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TAX EXPENDITURE CHART

On the chart idea, it is very interesting. I tell people that people 

say, ‘‘Oh, you are the tax collector.’’ And I say, ‘‘Yes, well, that is 

our moniker, and that is what the IRS thinks of, but we are also 

the people who make it possible to have national defense, and to 

have environmental protection, and to have whatever else you 

want the government to do for you.’’ 

And so communicating that kind of a message is a big part of 

what I try to do as a leader of the IRS. I will not speak to the specific proposal. I view it as probably a broader policy call whether 

you want to tell people exactly where their tax dollars are going, 

but I know you directed that to the chairman. [Laughter.] 

Ms. LEE. Thank you very much. But also, Commissioner, I would 

like to just hear your feedback, and thank you for your feedback. 

But, Mr. Chairman, I would like to talk to you and our ranking 

member about that, because I think the more transparency taxpayers have about where their tax dollars go the better equipped 

taxpayers are, you know, to really communicate to us what they 

think about our priorities. 

Mr. SERRANO. Thank you so much. As the saying goes, you collect it, we spend it. [Laughter.] 

Mrs. EMERSON. And then spend and spend. 

Mr. SERRANO. Please stop. [Laughter.] 

We are very frugal on this Committee. 

Every time that we have a hearing I ask my staff, are we on TV? 

And I want to tell you the reason is because I love that tie, and 

that tie should be on TV. [Laughter.] 

Mr. Crenshaw. 

Mr. CRENSHAW. Thank you, Mr. Chairman. I like your tie, too. 

Mr. SERRANO. Thank you. 

Mr. CRENSHAW. Yes, it is a nice tie. 

TAX GAP, INVESTMENTS AND RETURN ON INVESTMENT

But thank you for your service in the difficult times, and thank 

you for your testimony today. I wanted to ask you about this socalled tax gap. You know, it has to do with compliance I guess. I 

mean, everything I understand about compliance is that either people—they underreport their income or they do not pay all their income, or they just do not even file a return. 

But most of the non-compliance, as I understand it, is just underpayment. And everything I read that—for every dollar you collect 

you miss maybe $15 or $20, that the so-called tax gap is about 15, 

20 percent of the overall tax revenues. And if that is the case—and 

you can comment on that—but if we collect, let us say I guess, $2.7 

trillion, you figure it up, then maybe—and I have read that the tax 

gap is about $350 billion, which kind of fits, about 15 percent of 

that $2.7 trillion, I just wonder—and I guess from time to time we 

have all heard some of our colleagues, you kind of use the tax gap 

as kind of a piggybank. And they say, ‘‘Well, I have a new program. 

It costs $50 billion. So if we just spend a little more money on enforcement, then we will get $50 billion.’’ 

And in your budget, you have got almost $6 billion, almost half 

the money you spend you spend on enforcement. And so I have alWReier-Aviles on DSKGBLS3C1PROD with HEARING

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ways been curious about that. Number one, how do you kind of determine what that tax gap is? How do you decide that this year’s 

ballpark is going to be $350 billion, or whatever? And then, number 

two, how do you decide—I mean, obviously, it is not that simple, 

because if you say—if you appropriate $6 billion, then the tax gap 

will only be $350 billion, which is a lot of money, and somebody 

would say, ‘‘Well, why do you not ask for $12 billion, and then the 

tax gap maybe would go down by half, $175 billion, and that is 

money well spent.’’ 

So I guess it is not that easy, or you would just say, ‘‘Give us 

more money for enforcement, and we will eliminate the tax gap altogether.’’ So talk about that. How do you kind of figure out what 

it is? And then, how do you decide how much money you want to 

spend on enforcement? For every dollar you spend, you know, is 

that money well spent in decreasing that tax gap? 

TAX GAP

Mr. SHULMAN. Let me try to address it in a number of ways. The 

tax gap is basically the voluntary compliance rate in the country 

because we have a voluntary tax system in general. We are not 

going in to everybody and taking the money before you ever have 

it. Generally, people get their money, and they fill out a tax return 

themselves, and they send it in. Then we have audit coverage, we 

have programs, et cetera. 

The tax gap number to which you are referring, I would say is 

imperfect. It is very hard to say what it is. You know what you get. 

It is hard to figure out what you do not get. The way we do it is 

through a National Research Program. Usually when we do an 

audit, we go and do it because there is some indication of error or 

fraud. We have a variety of formulas and algorithms that point us 

in the direction of places that it would be fruitful to do audits, as 

well as doing some geographic coverage and industry coverage, so 

people know that in general, they are just not going to get off scotfree. 

NATIONAL RESEARCH PROGRAM

To study the tax gap, we actually have a program called the National Research Program, which does random audits. So instead of 

going and doing an audit and finding out how much someone really 

owed because we had some indication to conduct an audit, we audit 

people where we have no indication of issues and see what that 

spread is. And, as you said, the gap runs about 16 percent, but we 

then bring in about two percent, so it runs about 14 percent. 

There are only five other countries that try to measure their tax 

gap, and generally it is all about the same as ours. There is some 

level of noncompliance, and it depends on how your society runs: 

how much cash economy you have, how much information you 

have. I have told a variety of people, there are some Nordic countries where you are born and you are given a number, and you 

have that number in the hospital, and that is your number at your 

school, and that is your number for your health care, and that is 

your number for your employment, and there is a lot of tracking. 

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That is not how our society works. We do not have as much government intervention. You could go in a different direction and 

probably narrow that gap. 

LEGISLATIVE PROPOSALS

Half of the money we bring in, we bring in from people who pay 

their wages by having taxes withheld at the source. So half the taxpayers are 99 percent compliant. So your schoolteachers, your firemen, your policemen, we get their W–2, they get their W–2, their 

employer withholds taxes, and there is no noncompliance. 

Almost all of the noncompliance in the tax gap comes where we 

do not have third party information or there is no withholding. And 

so a lot of the thrust of where you have seen my major initiatives 

and the administration’s initiatives over the last several years, supported by President Obama and the Secretary and others, are 

around information reporting, better information reporting for us, 

so that we are less intrusive. So we are not doing audits, as much 

as we are matching information and sending a letter that says, 

‘‘We see a mismatch.’’ And there are a bunch of proposals in the 

President’s budget. 

For international compliance, where money crosses the border 

and you do not see it, it disappears, we are asking for some information on cross-border transactions, as well as heightening the responsibility for banks to give us information on their clients once 

they leave the country. 

Then, we have this preparer initiative that the Chairman was 

talking about, again, enlisting them to help us do our job. In this 

budget we have roughly $300 million of pure enforcement investment. That is going to return $2 billion. We do audits, we get 

money from that effort. The deterrent effect is much higher than 

that, and we do not try to, especially for Appropriations Committees and budgets, say exactly what that is. 

But if we are focusing on high income individuals who have nonreporting, the word is going to get out there. So we are going to 

get a certain amount in the audits, but we are also going to deter 

noncompliance. But a lot of the future to get the real money in the 

tax gap is some of these much broader programs, from information 

reporting, the preparer initiative, and some of our international 

strategy. 

But I think there is a real tradeoff. You are never—I do not 

think you want a society where there is no tax gap because it 

means the government is so intrusive. I am the IRS Commissioner 

and I think it is a balance between how intrusive the IRS is, how 

much burden is imposed, and bringing in the money. And we try 

to balance all of those along the way. 

RETURN ON INVESTMENT AND THE BUDGET

Mr. CRENSHAW. Just one quick followup. There is really not any 

empirical data, like if you spend an extra dollar—when you decide 

you want—like you said, it is not only enforcement money, it is a 

lot of the other programs, so that you really cannot quantify, say, 

‘‘If I just had $1 million more to spend on enforcement, I could pick 

up an extra X dollars.’’ It is not really that sophisticated. 

Mr. SHULMAN. Oh, no. We absolutely can do that. 

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Mr. CRENSHAW. Then, why do you say, ‘‘We want $5.7 billion for enforcement,’’ and not say, ‘‘We want $6 billion,’’ which is another 

$300 million which might get you, you know, more than you spent. 

Mr. SHULMAN. I mean, I think you have to balance the investment with capacity. And so we have rough orders of magnitudes. 

When we bring people on, it actually takes three years to get them 

fully up and trained and productive. We have to take our best people offline to recruit and analyze if we are getting a good person 

who can do financial forensics, who has an accounting degree. 

Then, we take good people offline to do training. So a lot of this 

decision is about capacity. I mean, this is basically what we think 

we can handle. What you really want to do is a multi-year investment that is somewhere in this range over multiple years and 

buildup. If you gave me $1 billion and said, ‘‘Hire a bunch more 

agents next year,’’ I would say, ‘‘I do not want that,’’ because I have 

got to run the operation, I have got to have my exam coverage this 

year. I think the way we came up with this $300 million is, how do 

we invest money to make sure we are part of bringing down the 

deficit, collecting the money that is due? What is a prudent investment, given what was invested last year? What are the other priorities of the agency? 

But this revenue-producing enforcement money, we have formulas, and they are heavily vetted between OMB and CBO. They 

have done a 10-year look-back. They have said, ‘‘What have we 

brought in based on what has been invested?’’ And so the pure enforcement numbers are very clean, and we know that on average 

it is about a seven-to-one investment. 

What is harder to quantify is BSM, our business systems modernization. I can guarantee you that is going to help compliance. 

There is going to be better service; there is going to be better enforcement. It is very hard to get a number that the budgeteers 

around Washington and the analysts will all agree on. The preparer strategy is going to bring in money. 

Those investments do not have return on investment attached to 

them in the submission because we do not have the 10-year history 

around them. That is part of the trick of how do you run an agency? How do you make bets on the future? How do you keep getting 

better every year in a world in which throwing a dollar at an examiner is the thing that you know returns the investment but you 

have still got to move the agency forward? 

Mr. CRENSHAW. Thank you. Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. I want to take this opportunity to inform the Committee that David Reich, our Committee Clerk last 

year, is now the Committee Clerk for the Labor-HHS Subcommittee. And Mr. Lee Price, this very studious-looking gentleman watching over my shoulder here, is our new Committee 

Clerk. And he has promised, Mrs. Emerson, singlehandedly to 

make sure our bill gets through the Senate as a stand-alone bill. 

[Laughter.] 

Mrs. EMERSON. And come to the House floor? 

Mr. SERRANO. Oh, it will come to the House floor. It will pass. 

I mean, but then no omnibus bill. You know, there will be a signing 

ceremony for you and I to attend. 

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Mrs. EMERSON. And in return? 

Mr. SERRANO. In return, I just told a lie. [Laughter.] 

Welcome. Welcome aboard. 

Mrs. EMERSON. Welcome, Lee. 

EFFECT OF COLLECTION ACTIONS ON TAXPAYERS

Mr. SERRANO. Commissioner, the IRS taxpayer advocate, in her 

most recent annual report, argues that the IRS too often does not 

consider the impact of its enforcement actions on low income taxpayers. In particular, the taxpayer advocate argues that IRS lien 

filings are too often counterproductive, damaging the taxpayer’s 

credit score and thus harming their ability to find employment, 

making them less able to pay their tax debt and future taxes, obviously, if they are not working. 

How does the IRS respond to this concern? And, secondly, why 

does the budget propose a five percent cut in funding for low income taxpayer clinics, which help low-income taxpayers who experience difficulty as a result of an IRS enforcement action? 

Mr. SHULMAN. Collection is one of the most difficult things we do 

because, obviously, Congress expects us to collect the taxes owed. 

If people are in a collection situation where they have not paid 

their taxes on time, or they have said they are not going to pay and 

we need to go find them, it is also where we need to be incredibly 

sensitive and respect taxpayer rights. We need to make sure that 

we are not doing anything that overly burdens someone while we 

are doing collections. 

The history of the IRS is collection efforts is something that is 

expected of us. It is not easy to do. It is one of the toughest jobs 

at the IRS, but we try to do it with balance. 

For low-income taxpayers, I am very focused on going the extra 

mile, especially in this last year where people were trying to make 

decisions such as, ‘‘Am I going to pay for my medical expense? Am 

I going to keep my kid in college? Or am I going to pay my taxes?’’ 

I mean, Americans were making some unprecedented decisions, 

given the economic downturn. 

COLLECTION FLEXIBILITY

We gave our collectors extra flexibilities. We raised the threshold 

number where they could make judgments that someone could not 

pay. We let people skip payments if they previously were compliant 

taxpayers. We allowed people into offers in compromise programs. 

If their home equity was the only thing staying in the way, we let 

people subrogate liens if they were refinancing houses. And so we 

did a lot of extra special things to try to help people through this 

difficult time, while collecting the taxes owed. 

As to the report that came out from the Taxpayer Advocate, because we are the IRS, we touch every American and it is very 

healthy for our agency to have lots of people pushing and prodding 

from different angles. 

With respect to liens, one, I will tell you I am looking at that report and assessing what, exactly, we are doing and if we should 

take any of her recommendations. Two, liens are an authority that 

Congress gave us, and it protects the American taxpayers’ interest. 

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It protects the public, the FISC, the whole government’s interest. 

We try to use those judiciously. 

I am looking at the report. I think lien authority is a tool we are 

given, we are expected to use it, we need to collect the money that 

is owed. But we want to do it in a way that gets us the money that 

the government is owed, but does not hurt taxpayers, if we can 

help it. 

Mr. SERRANO. Do you have a schedule at which time you will 

say, ‘‘We looked at the report, and now we will either take some 

actions, make some changes based on the report, or ignore it?’’ And 

I am not being sarcastic, but, you know—— 

Mr. SHULMAN. Yes. 

Mr. SERRANO [continuing]. A point where this Committee would 

know what happened to that report in terms of your actions? 

COLLECTION PROCESS REVIEW

Mr. SHULMAN. Yes. I am a big fan of continuous improvement, 

and I challenged our leadership to not get complacent and to keep 

looking freshly at things and seeing how the program evolves. I 

have asked our new Deputy Commissioner for Services and Enforcement to do a thorough review of collection, taking input from 

Congress over the last several years, taking input from the GAO, 

taking input from the Taxpayer Advocate’s report. 

And so they have started taking a broad look at collection, and 

this is part of the mix. That review is going to be done in this fiscal 

year, and then we will see how to evolve the program. 

OFFSHORE INITIATIVE

Mr. SERRANO. Okay. One further question here. Last year the 

President requested, and the Congress provided, funding to enhance the work of IRS enforcement aimed at the offshore tax evasion schemes. What can you tell us about the progress the IRS is 

making in hiring the additional personnel to address this issue? 

Mr. SHULMAN. Last year the President gave us 800 new people 

for international enforcement. This year for FY11, he has requested 

funding again. We are well on track to hit those goals. This area 

is a priority of mine, it is a priority of the President, it is a priority 

of the Treasury Secretary, and so we are going to keep focusing on 

that. 

Some of that money is going towards agents who are pursuing 

individuals hiding assets offshore. Some of that money is going to 

make sure that we have specialists who can identify corporations 

when they do things like transfer pricing, transfer of intangibles, 

financial products. We have economists, financial specialists, lawyers, who we can match up with business, which is getting more 

and more global. 

On the international individual noncompliance we have made 

much more progress. I am very pleased with our progress there. 

We have gone much further than I think our team would have 

imagined a year and a half ago when we started down this path. 

We had a ground-breaking deal with UBS, in which the Swiss government made some agreements with us that they had not made 

in the past. 

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We ran a voluntary compliance program or a voluntary disclosure program, in which we told people the U.S. Government is 

beefing up enforcement and getting very serious about offshore tax 

evasion. The risk of being caught has just gone up. We are going 

to give you a chance to come in, pay your back taxes, pay a severe 

penalty, but avoid going to jail. 

We thought maybe a couple thousand people would come in. We 

had 15,000 people come in under that program, which (a) is going 

to bring us a lot of money, but (b) means these 15,000 people are 

going to be tax-paying Americans for the next 10, 15, 20 years. The 

money is brought back. They are paying taxes now. 

Also I have become Chairman of the Federation of Tax Administrators, which is the global forum on tax administrators. And we 

are stepping up our international cooperative efforts, and we are 

making great strides. 

I think the next big thing that needs to happen, and that we 

hope happens, is Chairman Rangel and Chairman Baucus both put 

forward this Foreign Account Tax Compliance Act. It is in a number of things, including a jobs bill that is moving around now in 

the Senate. We are quite hopeful that passes, because it is going 

to give us a bunch more tools to continue on this effort. 

Mr. SERRANO. Okay. Just one quick question. You know, we who 

serve in this House I find at times will use words or phrases, and 

we do not stop to say, ‘‘Do I really know what I am saying?’’ Not 

that we do not know what we are saying, but rather what does a 

term mean? 

So we talk about offshore all the time. Can you very briefly tell 

us, what does that really mean? Is it people putting money in savings accounts? Is it people hiding money somewhere? Where do 

most of these accounts or these hiding places exist? What countries? And how does the scheme or the plan work? 

For instance, if I take what little savings I have and put it somewhere else, I already paid taxes on it. It was taken out every 

month. Downstairs they take the taxes out. So how would I then 

be hiding that? 

OFFSHORE INITIATIVE

Mr. SHULMAN. I think, generally, when people talk about offshore 

tax evasion by individuals they are talking about wealthy individuals who put money in a bank secrecy jurisdiction and keep it over 

there. So as they get dividends, they get interest, they get capital 

gains when they sell it, they are not paying their taxes on it. 

Sometimes it is illegal source activity. So someone got money illegally, did not pay any taxes on it, and parks it offshore, so it is 

the double-compounded issue. 

And regarding where it is and how the schemes work there was 

a well-publicized scheme last year where people from another country were sending bankers over here with encrypted laptops and secret words and hiding their travel records and going to a variety 

of locations around the U.S. selling to people. They were saying, 

‘‘You are going to get a better return on your investment because 

you are not going to have to pay your taxes.’’ And so that happens. 

There are also promoters in foreign jurisdictions who work with 

intermediaries, whether it be disreputable accounting firms or law 

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firms or others who are trafficking in setting up sham trusts. So 

you really control the trust, but you go down to the Cayman Islands or someplace and set up the XYZ Corporation, and all the 

monies flow to that. It is going to appear like a corporation, but it 

is really for your benefit. So there are a variety of schemes that are 

out there. 

Regarding where this happens, our voluntary disclosure program 

had accounts flowing in from every continent, except for Antarctica, 

and over 60 countries. Anecdotally, one of the great things about 

this voluntary compliance program, as we are churning through 

submissions and analyzing and creating databases of these accounts, is we are seeing patterns of intermediaries, patterns of institutions, patterns of countries. There has been a lot of news 

media, and I am not going to confirm it here, but there has been 

news media about a lot of movement out of places like Switzerland, 

and into Asia, Latin America. We have been working with other 

law enforcement agencies and tracking the flow of money. 

And, again, the interesting thing is one of the reasons we are 

doing so well, I think, is because the U.S. Government is very focused on this effort. It is a priority. All of our people know it is a 

priority. We are putting our best people on it. We are investing in 

technology. We are investing in our diplomatic relations around 

this effort. 

But also, the world is changing. Most people in this room have 

a retirement account or a 401(k). Most of those have some investment in a foreign stock. You can trade a stock electronically while 

sitting on the beach in Perth, Australia, on the New York Stock 

Exchange. You used to actually have to, you know, call a broker 

or call someone on the floor who ran over with a ticket. 

Technology is making things move, and countries who want to 

participate in the global capital markets know that they need to 

reach certain global capital norms to do so. And so I think both 

global trends, as well as our efforts, are helping move this in the 

right direction. 

Mr. SERRANO. Great explanation. Thank you. Now we know what 

we are talking about. [Laughter.] 

Mrs. Emerson. 

EQUITY SWAPS

Mrs. EMERSON. Speaking of concealment, I have some questions 

about equity swaps. And perhaps I should define what an equity 

swap is. According to my notes here, it says financial derivatives 

that accomplish a number of goals basically by straddling the U.S. 

border. 

Mr. SERRANO. I knew that. 

Mrs. EMERSON. Have you made one before? 

Mr. SERRANO. No. No. 

Mrs. EMERSON. Anyway, so at least this is what we are told. So, 

number one, they enable a bank to avoid withholding taxes on the 

payment of a dividend by disguising who owns the stock. They enable an offshore hedge fund to collect a stock’s dividend without actually owning the stock. And they enable both parties to somehow 

avoid paying any taxes on the transaction, which is ordinarily subject to a 30 percent tax. 

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So, anyway, I wanted to ask the Commissioner about it, because 

I know that the IRS has been scrutinizing these securities. And so, 

first, I want to know if you all have reached any conclusions. It just 

seems to me that it is pretty unfair that the big banks would be 

allowed to hold assets in offshore accounts with hedge funds for the 

sole purpose of avoiding taxes. 

And I have also read that IRS regulations that govern equity 

swaps may be at the heart of the matter. So if that is the case, 

have you all considered changing the regulatory treatment of those 

equity swaps? 

And my last question, or maybe two more, with regard to that 

is, how successful have you all been at capturing dividend tax revenues at offshore hedge funds that are collected by foreign investors? And what can we do, or are there things that we can do legislatively that would make it easier for you to do your job and close 

that gap? 

Mr. SHULMAN. Let me say a few things about it. A swap is basically a contract where two parties, usually big parties—an institutional investor or a brokerage firm or a bank—enter into a contract 

that says, you will get this economic benefit based on this, and so 

it can be any number of things. 

I think the issue you are referring to is about publicity around 

some ongoing investigations about institutions that own a U.S. 

stock—say IBM, although this is all hypothetical—two weeks before or a week before there is going to be a big dividend, and there 

would have to be 30 percent withholding in it, they actually change 

that ownership into a swap contract. It gives them the same kind 

of economic benefit as if they owned the stock. 

And so they go into a swap contract, and they are basically going 

to get that dividend, but they no longer officially are the owner of 

record of the stock. And then, there is an agreement around not 

paying taxes on that or how you allocate those taxes. 

We continue to be focused on this issue and we look at that action. And some taxpayers have publicized what we cannot, what we 

are doing with individual taxpayers. 

I think the whole issue around the complexity of financial markets and people using financial instruments, whether you in Congress find the current laws tasteful or not, they are legal. Some 

things they do are not legal. When they are not legal, we are willing to push it, and we have been pushing it. That is why some of 

the 800 people who we are hiring are financial specialists and others who can look at these issues. 

I will say one more thing about swap contracts. In the old world 

everybody said, ‘‘Okay. You deal with a big counterparty, and you 

do a swap with them, and it is just like owning the stock.’’ I think 

over the last year where some big counterparties failed, people say, 

‘‘Okay. There is some counterparty risk involved,’’ and that is the 

argument on the other side. 

When you ask what to do, and you and I talked a little bit about 

it at other times, is you could potentially do something around 

swaps, but then you still have equity-linked notes, you still have 

securities lending, you still have other derivatives. I think there is 

disparate tax treatment for different financial instruments. And as 

long as you have an incredibly complex global capital market, and 

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complex tax laws around financial products, you are going to have 

opportunities for arbitrage. 

And our job is to hone in on it, make sure we keep people on the 

right side of the law, make sure that we are as sophisticated as 

folks, so if they are doing things legally and structuring it legally, 

so be it, but, if they are pushing the envelope, we are able to call 

them on it. 

And so this is not an issue that is going away. When people ask 

me, ‘‘what is the focus on large corporate audits?’’ in a world with 

this kind of global capital flows, complex financial markets, complex tax laws, we are going to have to keep investing to be able to 

keep up with people who are looking to make money. 

Mrs. EMERSON. And it is very complex, and it seems to get more 

complex, and the more complex it is the better. 

But, anyway, let me ask another couple of question, because I 

really do not have too many more, Mr. Chairman. 

EFFECT OF ECONOMY ON TAX REVENUES

You know, we are all concerned—so very much concerned with 

the declining economy, and the impact, though, that that has on 

the amount of incoming revenue collected by all of you. Do you all 

estimate, talk about—I mean, internally, do you estimate the impact on your revenues by the declining economy? I mean, is that 

even a measure that you all specifically take other than simply revenues? You know, we have this many—this much less revenue this 

year? And so I want to know that. 

And then, I have to assume that the bad economic state also affects the amount of your enforcement collections. 

Mr. SHULMAN. Yes. 

Mrs. EMERSON. We talked about that a little bit. Can you all provide estimates of how much revenue has declined in the 2009 tax 

year? Do you all know that answer? 

Mr. SHULMAN. Yes, we do. I am happy to get them to you. Let 

me answer off the top of my head, and with a big disclaimer for 

the man typing to my right—and we will get you the exact numbers—tax revenues went down in the 20 percent range. Corporate 

revenues, though, dropped from $300 billion down to $140 billion 

because people were experiencing so many losses. 

Our actual enforcement dollars dropped, but not as dramatically. 

And they dropped because people did not have the money. There 

are lots of ways we measure enforcement, but we have an enforcement revenue number which is literally cash in the door that year, 

resulting from some sort of action we took, and those dropped. People just did not have the cash. 

We also had a lot more people file—a lot of times people file a 

balance due. So, I owe $3,000 taxes, I file my tax return on time, 

April 15. I say I owe $3,000, but here is $1,000. We send out a collection notice, and within six months, these are compliant taxpayers, and they send the other $2,000 in and we are done. A lot 

of those people just did not catch up, and so that decreased the dollars in. 

And then we went and examined you and said, ‘‘No, you owed 

money from two years back or three years back.’’ Usually we get 

checks when we close the exam. This year we had people not able 

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to write checks. And so our enforcement dollars went down less 

than the overall revenues. 

Those revenue projections, though, are in the President’s budget, 

and so we will get you the specific numbers. 

Mrs. EMERSON. But you did say corporate revenue decreased, you thought ballpark, $300 billion to $140-? 

Mr. SHULMAN. That is the number I have in my head, but let us 

have the staff follow up and—— 

Mrs. EMERSON. Okay. Thank you so much. 

Mr. SHULMAN. No, no, that is not corporate revenue. That is 

tax—— 

Mrs. EMERSON. Tax. 

Mr. SHULMAN [continuing]. Revenue coming in. So a difference. 

That is how much the corporations are paying the government in 

taxes, not their revenues. 

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Mrs. EMERSON. So, well, it would be interesting to carry on that 

discussion further to determine whether or not there are different 

tax schemes they are using or whether it was just simply a reduction across the board in—— 

Mr. SHULMAN. There are a lot of people in the loss position last 

year. 

Mrs. EMERSON. Yes. 

Mr. SERRANO. Thank you. 

Ms. Lee. 

AUDITS OF ORGANIZATIONS IN RECEIPT OF BAILOUT FUNDS

Ms. LEE. Thank you very much. Let me just ask you, in terms 

of a list of all of the banks, financial service companies, and other 

corporations who have received TARP or TALF funding, and have 

sold any of the assets of the Treasury programs like commercial 

paper funding facility or mortgage-backed securities to Fannie Mae 

or Freddie Mac, let me ask you if you are actually auditing any of 

those companies. 

Do they have any outstanding tax liabilities? They are benefiting 

from billions of dollars of taxpayer funds, and so how are you all 

kind of looking at what is taking place within those companies? 

Mr. SHULMAN. Without talking about any company specifically, a 

lot of the very biggest companies in the country are under continuous audit by us, and always have a variety of things in the pipeline that we are auditing, pending appeals of our decisions, things 

in the Tax Court. And so they have a variety of different books. 

I think when I was up here last year there was a number out 

there about money that TARP recipients had not paid. I actually 

think that number was a little skewed, because any big company 

in the country always has a variety of disputes going on, five or six 

tax years open with us, some things that are in appeals. So that 

is their right. 

We, obviously, are continuing to be part of the whole recovery effort. I would tell you I think we run a pretty fair, even-handed, 

long-term audit program. And so we are not doing anything special, 

but we are also not giving anyone any breaks—— 

Ms. LEE. Okay. 

Mr. SHULMAN [continuing]. In that regard. 

Ms. LEE. I know you may not be doing anything special, but 

maybe you should. I mean, these are low interest loans that these 

companies have received. This is a special effort, and I would think 

that if these companies—or at least you would want to know if they 

have any outstanding tax liabilities or would consider doing some 

special audits, because it is a special, you know, type of initiative. 

But you are not. 

Mr. SHULMAN. We will definitely take that under consideration. 

Ms. LEE. Yes. I think it would be, Mr. Chairman, very prudent 

to do that. I think taxpayers—— 

Mr. SERRANO. Well taken. 

Ms. LEE [continuing]. Are angry enough about what has taken 

place, and I think any way to ensure transparency, to ensure that 

their tax dollars are being spent appropriately as it relates to 

TARP and TALF, I think that would be very helpful. 

Thank you. 

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Mr. SERRANO. Thank you. 

I have a set of questions that I will submit for the record. Any 

other member also that has—— 

Mrs. EMERSON. I have some for the record, yes. 

TAXES ON FOREIGN NATIONALS

Mr. SERRANO. I just have one more question to ask, Commissioner, but I have a fun question ahead of that, because, you know, 

it is about 39 days before the baseball season starts. 

Mrs. EMERSON. Oh, I was waiting for this. 

Mr. SERRANO. Right? 

Mr. SHULMAN. We are all looking forward to this, Mr. Chairman. 

Mr. SERRANO. So if you are here on a work visa from another 

country playing baseball, as so many are now, I know you pay your 

federal taxes for working here, for any money earned here. My understanding also is that you file state taxes for every state that 

your team visits during the season. So you have your home state, 

and then, you know, California, Georgia, whatever, those states. 

Now, the folks who still have their legal address, if you will, back 

home—Dominican Republic, Venezuela, China, Japan, wherever 

the countries are—Mariano Rivera, Panama—some of those folks 

who maintain those addresses, legal residents, still pay taxes there. 

Now, I know there are deals—there are arrangements made between state taxes and federal taxes where sometimes you get credit 

for that, that does not go on, does it? I mean, we do not give these 

millionaires a break on their federal taxes here because they are 

paying taxes somewhere else? 

Mr. SHULMAN. Before I answer, can I clarify, is this the Red Sox 

or the Yankees you are referring to? [Laughter.] 

Mr. SERRANO. When it comes to the money they make, it is 

any—— 

[Laughter.] 

The fact that the Yankees have had a cost-effective and—— 

[Laughter.] 

Mrs. EMERSON. Excuse me? They have—— 

Mr. SERRANO. And actually do something with the money they 

pay—— 

Mrs. EMERSON. Like build $2 billion stadiums? 

Mr. SHULMAN. You know, I believe the—— 

Mr. SERRANO. By the way, you know that I passed a resolution 

in the House congratulating the Yankees for the World Series. Let 

me tell you what we have. Resolutions like that pass 400 to zero. 

No. There are people who abstained, people who voted no. Mostly 

it is from Massachusetts and Pennsylvania, but—— 

Mrs. EMERSON. The Cardinals fans, we would get in trouble if we 

voted for the Yankees. 

Mr. SERRANO. See what I mean? Go ahead. 

Mr. SHULMAN. I think the law, generally, is in the U.S. you pay 

taxes where you make the money, and it follows folks. I think if 

you fly over New York air space and you live in another state, but 

you are going there for work, you, in theory owe taxes. And so I 

think that is how it works, and we try to just apply the law—— 

Mr. SERRANO. Right. 

Mr. SHULMAN [continuing]. As it stands. 

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Mr. SERRANO. But to your knowledge there are no arrangements 

with other countries. In other words, just because they pay taxes 

there, but they work here, there is no—— 

Mr. SHULMAN. Not to my knowledge. 

Mr. SERRANO [continuing]. Not given a break. 

TAX ON FOREIGN NATIONALS

Mr. SHULMAN. I mean, we have treaties. We have treaties with 

a variety of countries a lot of times in the corporate or individual 

setting where if someone pays taxes—the basic theory of treaties 

is around double taxation, which is you should only pay tax once. 

And so they may actually, when they pay here, not have to pay it 

on their income there, so they are paying on their taxes once. But, 

you know, our general rule is if you make it here, you pay taxes 

here. 

Mr. SERRANO. Yes. I would be concerned if it is the other way, 

that we would not tax them because they are paying taxes somewhere else. 

Mrs. EMERSON. But if, in fact, you have let us just say a German 

guy who worked for a woman who works for a German company, 

and their residence is there but they spent more than 50 percent 

of their time here, and they work here and get paid here, I mean, 

there is the credit. I mean, that is what happened when I used to 

work abroad and live here at the same time. I paid taxes where 

I lived and then got a credit and then paid the difference if it was 

less I think—— 

Mr. SERRANO. Yes, but you were not making $25 million a year. 

Mrs. EMERSON. I was not even making $25,000 a year. [Laughter.] 

Mr. SERRANO. There you go. 

Mrs. EMERSON. But I still was complying with—I mean, the law 

was the law I guess is what I am trying to say. 

Mr. SERRANO. I better end this, because I suspect that after a 

very good hearing this may be the story in tomorrow’s papers about 

baseball players. And I do not want to do that to this hearing, you 

know? 

ELIMINATION OF AUTOMATIC MAILINGS

But I have one last question. It seems—well, the budget request 

assumes a savings of several million dollars by eliminating the 

automatic mailing of Form 1040 booklets. That is that thick, soft 

booklet that we all expect in the mail, and we cheer when we get 

it, or we cry, but there it is. 

So here is the question. Will you really save money? Will people 

now for the first time, in as long as I can remember not seeing that 

booklet, decide something is not happening? You may even get calls 

asking you, ‘‘Does that mean I do not have to pay taxes this year?’’ 

So the cost of those calls, the cost of the time you will be dealing 

with that, does that really offset the savings for not mailing the 

book out? And how much confusion? 

I mean, I know it sounds silly, but there are people who actually 

wait for that booklet to come, and then they open it up the middle, 

they rip out the—— 

Mrs. EMERSON. They are so excited. 

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Mr. SERRANO [continuing]. They rip out the form, right? 

Mr. SHULMAN. Yes. 

Mr. SERRANO. That is the form they fill out. Now some folks 

must be going to go to your offices to look for forms. So was that 

truly a cost-saving move? 

Mr. SHULMAN. That is a great question. The President challenged 

all of us to say, ‘‘Look, we will make prudent investments where 

needed,’’ and I am very pleased that he decided to make an investment in the IRS. But he said, ‘‘I want you to challenge yourselves 

and see where you can have efficiency savings.’’ 

This is one we debated. There is the issue of compliance, and it 

is unknown whether getting that book actually increases compliance. With that said, 60 percent of the people are using preparers; 

they do not need to get a book. Twenty percent are using software; 

they do not need to get a book. We only send the books now to people who filed on paper, and the paper filing decreased. The e-filing 

went up over 10 percent last year. It went up to 66 percent, and 

so we made this prudent choice. 

I will tell you there is a general target to decrease mailings, and 

the 1040 is an example. I have challenged our staff around inserts, 

can we decrease inserts, can we decrease all mailings? And so if 

this budget gets approved, we will make decisions about exactly 

what we do mail and do not. But we are committed to $20 million 

in mailing savings. That is really what the budget means. 

Mr. SERRANO. Do you realize you are helping to kill another one 

of your accounts that we oversee, the Postal Service? 

Mr. SHULMAN. So be it. [Laughter.] 

Mrs. EMERSON. Well, they could send out ‘‘save the date to file 

your tax’’ cards. That is expensive to print. 

Mr. SHULMAN. I know, I know. 

Mr. SERRANO. So you think in the long run the push is to do as 

little mailing as possible. 

Mr. SHULMAN. It is kind of like I talked about with Mr. 

Crenshaw. You have got to move an agency forward. You have got 

to make the best decisions you can with the information you have. 

We think this is a prudent move. If we find out it is a big problem, 

we will deal with that and correct ourselves. But we are going to 

try cutting down some mailings. 

ELIMINATION OF AUTOMATIC MAILINGS

Mr. SERRANO. In closing, you are not going to believe this. This 

falls under the category of ‘‘You Are Not Going to Believe This.’’ 

Someone on the street came up to me—as you know I have a walking district in the Bronx, and I walk around all the time—and this 

person said, ‘‘And I understand, because there are no secrets, that 

the IRS is not going to send that book out anymore.’’ I said, ‘‘That 

is what we hear.’’ He says, ‘‘You have got to get me one, because 

I collect them.’’ 

Mr. SHULMAN. I will get him an autographed copy. [Laughter.] 

Mr. SERRANO. Absolutely. It will be sold on eBay. 

I have no further questions. Do you? 

Mrs. EMERSON. I only have questions to submit for the record, 

Mr. Chairman. 

Mr. SERRANO. All right. So will I. 

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I want to thank you. We want to thank you for your testimony 

today. We repeat our desire to stand ready not only on our budget 

issues, but also to stand ready to assist you in any way during this 

very difficult time. And please, once again, convey to the staff and 

to the folks at IRS this Committee’s concern and heartfelt condolences for your tragedy. And we thank you for your testimony 

today. 

Mr. SHULMAN. Thank you. 

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(65) 

WEDNESDAY, MARCH 10, 2010. 

FY2011 BUDGET FOR DEPARTMENT OF THE TREASURY 

WITNESS 

HON. TIMOTHY F. GEITHNER, SECRETARY 

Mr. SERRANO. The subcommittee will come to order. 

Mr. Secretary, before we go on, I join Mrs. Emerson in having 

you convey to the folks at the IRS our deepest sympathies and our 

condolences. That was a tragic situation and one that can never be 

tolerated regardless of how anybody feels about anyone in government. 

And so, please let them know, as we told Commissioner 

Shulman, that our thoughts are with them, our prayers are with 

them and, personally—and I know Jo Ann feels the same way— 

that we respect and admire the work that they do on a daily basis. 

Secretary GEITHNER. Mr. Chairman, could I say before we start, 

thank you for that. And I wanted to begin my remarks today, actually, by thanking you for what you said at Commissioner 

Shulman’s hearing. 

And I agree with everything you said, that we owe them our support, our gratitude, our respect. They are a remarkably dedicated 

group of public servants. They take great pride in their work. And 

nobody in that position should have to face what they faced. And 

they showed great bravery in evacuating that building quickly. 

They saved tens and tens of lives by how they acquitted themselves 

in that moment of panic and attack. And when I went out there 

with Commissioner Shulman, they were very strong and very brave 

and remarkably dedicated and committed to the work of the Service. 

Mrs. EMERSON. Let me also say, Mr. Secretary, that all of the 

families and employees are in our deepest prayers and our 

thoughts every day. And they showed a remarkable resilience, in 

my opinion, as well. And oftentimes bureaucrats are not treated, 

perhaps, with the respect that they are due. But, in this particular 

case, I think it just points out to how many hardworking people 

there are really working for all of us on a daily basis. 

Mr. SERRANO. Thank you. 

Today the subcommittee meets to consider the budget request 

and conduct oversight over the Department of the Treasury. We 

welcome the Secretary of the Treasury, Timothy Geithner, back for 

his second appearance before the subcommittee. 

For fiscal year 2011, the Treasury Department is requesting au- thority to spend $14.1 billion, an increase of $551 million, or 4 percent, above 2010. 

I welcome the second straight requested increase for IRS enforcement efforts to prevent offshore tax evasion. While most Americans 

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rely on salaries from employment that are taxed before they receive 

their paycheck, many wealthy individuals and businesses continue 

to use offshore accounts to hide billions of dollars in income generated by investments and income from abroad. 

I note that Treasury’s budget request also proposes to reform our 

taxes on international activity and to counter the use of offshore 

tax havens. These proposals would increase revenue by more than 

$120 billion over the next 10 years. These are good initiatives. 

I also welcome your proposed increase in funding for financial 

and technical assistance by the CDFI Fund and look forward to 

learning more about the proposed new CDFI initiatives on healthy 

food and banking the unbanked. I believe that the CDFI has done 

some of the most important work in lifting up disadvantaged communities and look forward to discussing this work with you today. 

The Treasury budget request has other notable increases, including a 13 percent increase for Treasury’s departmental offices after 

a 9 percent boost for this year. 

I am concerned, however, that the Treasury budget proposes to 

reduce grants for low-income taxpayer clinics, tax counseling for 

the elderly, and the Volunteer Income Tax Assistance Grant Program. All three programs assist low- and moderate-income taxpayers. I believe that supporting these taxpayers is of paramount 

importance and have made them a priority in my years as chairman of this subcommittee. 

In addition, I am dismayed that the administration has once again included a $106 million proposal to tax all stores selling alcohol and tobacco the same amount regardless of their size. I am opposed to charging my neighborhood bodega the same flat fee as big 

suburban mall liquor stores, and Congress under both parties has 

repeatedly rejected it. As a practical matter under the current 

budget circumstances, I would probably have no choice but to consider budget cuts elsewhere to make up for this unrealistic proposal. 

Mr. Secretary, you may have come here to defend your budget, 

but, as you know, we never allow you to leave without a discussion 

of economic policy. You are the highest administration official with 

a major role in economic policy who is required to testify before 

Congress. From the outset, you have been at the center of the debate over how to respond to the financial crisis, first as president 

of the New York Fed and then as Treasury Secretary. Much of that 

debate here in Congress has been concerning the Troubled Asset 

Relief Program, TARP, which continues to be a point of great interest among Members on both sides of the aisle. 

Thankfully, it seems that perhaps the worst of the economic crisis is behind us, and yet we still have plenty more to do to get the 

economy back on its feet again. To that end, over the course of the 

last year, you have announced initiatives to respond to the concerns of everyday Americans: small business credit, mortgage relief, and limits on executive compensation at firms rescued by the 

taxpayers. 

Many of the next steps for these issues remain in the hands of 

Congress, but, as a matter of practice, we must trust that you are 

looking out for the American people on a day-to-day basis. I feel 

confident that you are doing so and look forward to discussing the 

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administration’s efforts on behalf of the American people with you 

today. 

And, with that, I turn to my colleague and sister, Mrs. Emerson. 

[The information follows:] 

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Mrs. EMERSON. Thank you, Mr. Chairman. 

Secretary Geithner, thank you so much for being here with us 

this afternoon. And I know, as Treasury Secretary, you are facing 

many daunting challenges, including the attempts to reinvigorate 

bank lending to consumers and small business; trying to stabilize 

housing and commercial real estate markets; and, most important, 

protecting the American taxpayer, their investments, and preserving the long-term financial health of the Federal Government. 

And I know that you and your staff have been working extraordinarily hard on these issues, and we appreciate your dedication. 

Regarding the financial condition of the Federal Government, I 

am very concerned that there does not appear to be a short- or a 

long-term plan to address deficit spending. The administration’s 

budget estimates that the fiscal year 2010 deficit will be $1.6 trillion, with deficit spending continuing to exceed $700 billion per 

year through fiscal year 2020 when it increases back up to $1 trillion. 

This level of spending will increase our debt-to-GDP ratio to almost 80 percent, the highest level since 1950. How is this level of 

debt sustainable, especially as more and more of the baby boomers, 

like Joe and I, reach retirement age? And are we on the same fiscal 

path as Greece? Are we irrevocably damaging the economic opportunities for future generations? 

Regarding the economy and unemployment, I am concerned with 

the administration’s sometimes confusing message with regard to 

job creation. On the one hand, the Federal Government is running 

up enormous debts in an effort to stimulate the economy and create 

jobs; however, on the other, the administration is pushing for massive new regulations on health care, greenhouse gasses, and the financial industry. These new regulatory policies don’t stimulate 

growth or small-business lending. In fact, they are creating a lot 

of uncertainty among lenders, among the many, many small businesses with whom I speak on a daily basis, and consumers. 

While I agree that there are some commonsense reforms needed 

in all of these areas, massive new government intervention in these 

areas will hinder short-term economic growth. So I am concerned 

that, while the administration is trying to spend our way out of the 

recession and high unemployment at the cost of future generations, 

that you all are also advocating policies that will hurt short-term 

job growth, not stimulate it. 

So, as I said to begin, you face a lot of challenges in managing 

the Federal Government’s finances and in attempting to reinvigorate the economy. I hope to be able to work closely and collaboratively with you, the chairman, and the rest of our committee to 

address these matters. So, thank you. 

Thanks, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Well, Mr. Secretary, you know the routine. We hope you stay 

within 5 minutes. Your full text presentation will go in the record, 

and that will give us time to grill you as the time goes on. 

Secretary GEITHNER. Thank you, Chairman Serrano and Ranking 

Member Emerson, members of the committee. It is a pleasure to 

be back up here today. I want to thank you for all the support you 

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mitted to, of course, working with you closely as we go forward 

meeting the many challenges the country faces. 

I want to begin, Mr. Chairman, just with a few remarks on financial reform. Many of you may have read today in the paper that 

we saw another of the Nation’s large banks today decide to sharply 

limit the practice of charging customers outsized fees for overdrafts. And I just want to say we welcome these efforts by banks 

to try to begin the process of restoring trust and confidence of their 

customers. And we welcome the fact we are seeing banks now try 

to get ahead of the President’s financial reform effort that is now 

working its way through the Congress. 

After years in which we saw many financial companies competing to exploit vulnerable borrowers, it is good to see banks once 

again competing to benefit their customers. And I want to urge 

other large banks that have not acted to follow the lead of some 

of their competitors. 

But voluntary action is not enough. Progress today can too easily 

erode, as memories of the crisis fade. And that is why the President has proposed a very strong set of reforms for Wall Street, including an independent consumer agency charged with making 

sure that customers get better access to information, better choices, 

with clear rules enforced across banks and nonbanks. The House 

has acted, and we hope that the Senate will support Chairman 

Dodd’s efforts to move ahead now. We can’t afford to go through 

another period where we see a race to the bottom across our financial system. 

Now, a little over a year ago, when President Obama took office, 

the urgent challenge facing the country was preventing a second 

Great Depression. At that time, as you know, the American economy was shrinking at an annual rate of 6 percent. Now, in the 

fourth quarter of last year, we saw the economy grow again at 

about that rate, about 6 percent. And this was a result, of course, 

of forceful action by the President and Congress under the Recovery Act and the result, also, of the steps we took to prevent the collapse of our financial system. 

But we still face enormous challenges as a country. The recession 

caused enormous damage. Millions of Americans are still out of 

work. Many are still facing foreclosure. Many are still struggling 

to keep businesses open. They are still living with the consequences 

of the worst recession in many decades. 

Now, that is why job creation remains our principal focus. Working with Congress, we propose to expand and extend tax cuts for 

job creation and investment, a $30 billion small-business lending 

fund, and expansion of the SBA’s programs. The President’s budget 

also proposes investments in American innovation and education, 

in exports and infrastructure that will help lay a foundation for 

stronger future economic growth. 

And we are proposing to make these investments and reforms in 

a fiscally responsible way. As part of this commitment, the President proposed to freeze nonsecurity discretionary government funding for 3 years starting next fiscal year. And this, along with other 

steps to restore fairness to the tax system and what we hope will 

be the recommendations of the bipartisan fiscal commission, will 

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help limit the growth of government spending in the future and reduce our deficits over time. 

Now, as you know, the Treasury Department plays a central role 

in this agenda of spurring job creation, encouraging innovation and 

investment, promoting strong economic growth, and restoring responsibility to our Nation’s finances. And I just want to highlight 

briefly some of the key features of the Treasury Department’s 

budget request for fiscal year 2011. 

At the start of this budget process, I asked Treasury senior staff 

to identify efficiency gains, program cuts and reforms. And, as a result of this process, you have before you today program cuts and 

new reforms that would generate nearly a half a billion dollars in 

savings and revenues for the Department. Just to cite two examples, we propose to cut $100 million by not funding the CDFI Capital Magnet Fund and Bank Enterprise Award funds. And we identified savings that would generate for the IRS nearly $43 million 

through more electronic filing and by eliminating the automatic 

mailing of tax booklets to taxpayers. 

Now, we are proposing to use these savings to fund a series of 

targeted, modest investments in the Internal Revenue Service; the 

Community Development Financial Institutions Fund, the CDFI 

Fund; our global economic and national security priorities; and rebuilding the Treasury Department’s professional staff. The resulting budget amounts to a modest but significant 3.5 percent increase over last year. 

Just very briefly, Mr. Chairman, for the IRS, we proposed to 

strengthen IRS enforcement with a $250 million investment to increase voluntary compliance, an effort that would produce as much 

as $2 billion in additional tax revenues; other targeted investments 

to improve IRS customer services; and technology to enable the IRS 

to process tax returns more quickly. 

We have proposed to expand the CDFI Fund, which has a long 

record of leveraging private money to help attract private investment to some of the country’s most hardest-hit, distressed communities. 

On the international side, as you know, Treasury plays a very 

key role in advancing U.S. economic interests abroad and protecting our national security interests. And our budget request 

would provide funding for the Department’s efforts to improve 

international cooperation on economic recovery and financial reform and to make sure that we have adequate resources put into 

our national financial sanctions program, which is designed to deprive terrorists, nuclear proliferators, and other illicit actors of access to financing. 

Now, Treasury entered this economic crisis with its professional 

ranks seriously depleted. We entered the worst economic downturn 

in generations with, just as an example, only 25 economist in the 

Office of Economic Policy, which is a third fewer than in 2000, 

about a decade ago. Just to give you a comparison, similar offices 

at the Departments of Housing and Urban Development, Agriculture have 140 and 330 economists, respectively. The Federal Reserve system has over 500 Ph.D. Economists. Another example, our 

two key offices, Domestic Finance and Tax Policy, had very modest 

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levels of staffing coming into this crisis, significantly below the levels that prevailed in the past. 

We have a long tradition in Treasury of operating with a very 

lean staff, and we are proud of that tradition. We have no intention 

of changing it, especially given the severe financial constraints the 

country faces as a whole. But we are going to have to make some 

targeted investments in rebuilding that institutional capacity at 

Treasury if we are going to have an adequate capacity to respond 

to future economic challenges. So we have proposed a modest additional investment to try to rebuild and strengthen in a very targeted way those three offices in the Treasury: Domestic Finance 

presides over the financial system, Tax Policy, and our Economic 

Policy division. 

Now, I have the honor of leading a team of very smart, dedicated 

individuals who are working every day to make our government 

more effective, make our economy stronger and more fair. Treasury 

officials work every day in critical, important priorities, from helping restart small-business lending to working to contain the nuclear ambitions of Iran, from promoting job creation and investments to supporting debt relief for Haiti, from extending the benefits of growth to the hardest-hit communities in our country to promoting American exports around the world, from cracking down on 

mortgage scams to providing technical assistance to the Governments of Afghanistan and Pakistan, for example. 

We have accomplished a lot over this year, but we have a lot of 

challenges ahead. And the investments we proposed in this budget 

will give us the tools to meet those challenges more effectively in 

the future. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Geithner follows:] 

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Mr. SERRANO. Thank you, Mr. Secretary. 

Let me begin by stating, when they devised TARP, our friends 

on the authorizing committees provided an open-ended funding 

stream for operational expenses. Congress has an obligation to do 

oversight of TARP operational spending. 

In the report language adopted by our committee for the fiscal 

year 2010 financial services bill, the committee required the Department to provide a full accounting of TARP spending and staffing to date in your projections for next year. That report was due 

with your budget request last month, but, unfortunately, the committee has yet to see this information. 

Do you have a time frame in place for providing this information 

to the committee? How much have operational expenses for TARP 

cost to date? And how much do you anticipate operating expenses 

for the TARP program will cost for the rest of this fiscal year and 

next? 

Secretary GEITHNER. Mr. Chairman, we will provide that information as quickly as we can. I assume we can do it quite quickly. 

But I just want to underscore, we are now in the process of winding down TARP. We have been able to achieve this recovery in the 

financial system at dramatically lower costs than we expected. The 

costs of this program have fallen—overall costs to the government 

of this program have fallen by over $400 billion from the initial estimates just a year ago. We have had over, I think, $170 billion 

come back to the American taxpayer by forcing banks to replace 

the government’s investments with private capital. We are seeing 

a very substantial return to the American taxpayer on the investments the government made in banks. 

Now, even though we have seen a lot of healing in the financial 

system, as you both said in your opening remarks, small businesses 

across the country still face a very difficult time getting credit. Our 

housing markets are still in the process of recovery; housing and 

finance still overwhelmingly dependent on the government. And we 

are going to need to continue to make some carefully designed, targeted programs to support additional credit expansion in those 

areas most damaged by the crisis. But I think the administrative 

costs of that are going to be a fraction, going forward, of what they 

were at the peak of the crisis. 

But I just want to underscore that the overall program has 

achieved a dramatic improvement in stability in the system at 

much, much lower costs than anybody anticipated. And if the Congress joins with the President in adopting this fee we have proposed to recoup any losses from the Nation’s largest banks, then 

you can tell your constituents, you can tell the American people 

that they won’t be exposed to a penny of loss in this program. 

Mr. SERRANO. Let me ask you a question on that. Experts in the 

field tell us that consumer confidence and investor confidence are 

what drive our economy. If people are afraid, it doesn’t work; they 

don’t invest, they don’t buy, they don’t purchase. But, at the same 

time, there is another part to that, and it is the part that falls on 

Members of Congress and the administration, and that is to create 

consumer confidence that what we are doing is correct. 

So, on one hand, it might be—and it is, in many cases—that so 

much of what is going on is beginning to take hold. But the public 

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thinks that we just threw money away, in many cases, and that we 

bailed out people we shouldn’t have. 

How can you and how can we work together, how can you help 

us, to get a better message out, if nothing else? You know, why is 

there such a disconnect with what many believe to be what is really going on to what the public thinks is going on? 

Secretary GEITHNER. Well, I think it is very important to recognize that, even though the economy is now growing again and even 

though you are seeing the pace of job losses fall from, you know, 

three-quarters of a million Americans losing their job last January 

every month to—we are just now at the verge of the economy as 

a whole starting to create jobs again. But the crisis caused a huge 

amount of damage to confidence of the average American family, 

of the average business. And we are going to be living with the 

lasting effects of that damage to confidence for a long period. It is 

going to take some time for that to heal. 

But it is very important that we are able to demonstrate to the 

American people that the programs Congress authorized in the Recovery Act and to help rescue the financial system are delivering 

what they were supposed to do. And, again, the best measure of 

that is you had an economy that was shrinking at an annual rate 

of 6 percent a year to an economy now growing at an annual rate 

of 6 percent per year. You are seeing the costs of credit to municipal governments, to someone who wants to borrow to get a mortgage, to buy a car, put their kids through college, come down dramatically. Credit is much more available to an average business 

today than it was when we took office, when this Congress came 

into power about a year ago. 

Those are very, very substantial returns. In highlighting those 

returns—and they are the direct result of the actions Congress authorized in the Recovery Act. You know, remember, the Recovery 

Act was a third in tax cuts that went to 95 percent of working 

Americans and to businesses across the country. It was about, 

roughly, a third in infrastructure investments, targeted investment 

in infrastructure and support to State and local governments. And 

a substantial chunk went to help the unemployed, help those people hardest hit by the recession. But those things are generating 

a very substantial return, and you would not have an economy that 

had moved this quickly from deep contraction on the edge of a 

Great Depression to an economy growing, as I said, at an annual 

rate of 6 percent a year in the fourth quarter of last year. 

So we have a lot of challenges ahead, but I think the best thing 

we can do is, you know, just make sure we can draw people’s attention to the concrete aspects of those programs. 

When you ask people whether they support tax cuts for working 

families, whether they support targeted infrastructure investments 

to help rebuild schools, rebuild bridges, when you ask them if they 

support assistance to State and local governments so they don’t 

have to fire teachers and firemen, the American people support and 

welcome those investments. And it is important to draw their attention to the specifics, because it is sort of hard to understand 

when you limit the debate to these broad programs out there. 

And, again, just one more thing, Mr. Chairman. The efforts we 

took to stabilize the financial system were never going to be popWReier-Aviles on DSKGBLS3C1PROD with HEARING

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ular. But it is very important for people to understand that, when 

we came into office and when this Congress took office in January 

of last year, the government had very substantial investments already in the banking system, and we have brought back more than 

two-thirds of those investments already. We did not write a check 

to a major U.S. bank since we came into office. We wrote some 

modest additional checks to small community banks, regional 

banks, but we did not give another dollar of the taxpayers’ money 

to the Nation’s major banks. 

Now, we had a bunch of problems we had to solve, bombs we had 

to defuse, problems we had to dig out of, but we have been very, 

very careful in managing this very, very unpopular program in 

ways that allowed us to get the American people’s money back from 

the financial system, to save them, as I said, over $400 billion in 

potential losses. And we are in a much stronger position as a country today to come out of this stronger. We have saved dramatic 

amounts of money that we can use to meet the many, many challenges we face as a country today. 

Mr. SERRANO. Well, I want to keep going on this subject, but I 

will defer now to Mrs. Emerson, because I suspect we will have 

many Members today and the chairman should set an example for 

the 5-minute rule, which I just broke. 

Mrs. EMERSON. Darn it, I was hoping that you would go over, 

Mr. Chairman, so I could as well. 

Let me switch gears to the Federal debt for a moment, and I am 

sure we will come back to TARP. I have no doubt about it. 

As I mentioned in my opening remarks, I have great concern 

about where we are going to end up in 2020, where our Federal 

debt held by the public will be about 77.2 percent of GDP, which 

would be the highest percentage of Federal debt to GDP since 

World War II, 1950, when I was born. So I have about three questions I would like to ask with regard to this. Well, actually, it is 

probably four, but I know you will indulge. 

Given the size of the Federal debt, number one, is Treasury 

crowding out investment in the private sector? You know, obviously, to what extent are investors buying Treasury bonds instead 

of investing in businesses? 

Number two, given the trouble in the world economy, how difficult is it to attract buyers of Treasury debt? And are you increasing interest rates in order to attract those investors? 

And, three, who is investing in Treasury debt? And are you concerned about our dependence on foreign investors, foreign governments, sovereign wealth funds, and the like to finance our deficit 

spending? 

Secretary GEITHNER. Excellent questions. 

Let me just start by saying, as we discussed when I was here last 

year, that you are right to point out that our deficits are too high. 

They are unsustainably high. If you just look at over the next 10 

years, they are unsustainably high, and they get dramatically 

worse, if Congress does not act to reform our Medicare and Social 

Security, they get dramatically worse in the succeeding decades. 

So they are too high. They are unsustainable. And if we do not 

act to address them, then we will face much greater challenges as 

a country. Growth will be weaker. America will be poorer as a 

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country. And you are right to highlight these challenges. And, of 

course, we are deeply committed to make sure we start the process 

now of building consensus on the policies to bring those deficits 

down. 

Now, on your specific questions: You asked, is government borrowing today crowding out public investment? No, it is not. In a financial crisis, in a recession like this, the only fiscally responsible 

way to act as a country is to make sure you are providing temporary, targeted support to get the economy back on track, growing 

again. 

And the best measure of what I just said, which answers your 

second question, is that U.S. long-term interest rates today, the 

rate at which Treasury borrows today, is really remarkably low. 

And it reflects the fact that, for the moment, again, given the 

echoes of this crisis, the most responsible thing we can do as a 

country is try to make sure we are providing the support and the 

investments necessary to lay a foundation for strong, sustainable 

private-sector growth. 

Now, these things need to be temporary and targeted. And that 

is why we have proposed in the President’s budget to begin the 

process in fiscal year 2011 of bringing down these deficits over 

time. 

One more thing that goes to your third question. Today, the 

American people are providing most of the financing for our deficits, for these temporary exceptionally high deficits. Over the last 

year or so, in particular, you have seen the savings rate of Americans start to rise again. Private savings rates have risen from a 

modest negative to a rate which is in the positive 4 percent territory. At the same time, our current account deficit, which is the 

amount of money we are borrowing from the rest of the world, has 

fallen very, very sharply. 

So, if you just step back, generally what you are seeing so far is 

a very high level of confidence among foreign investors in our economy and our financial system and a willingness of Americans to 

provide the financing the government needs temporarily to help get 

through this basic crisis. 

But you are absolutely right to underscore the fact that these 

deficits are too high. They are unsustainable. And as soon as we 

are confident that we have a self-sustaining recovery in place led 

by the private sector, then it is very important we shift at that 

point to bring those deficits back down to Earth. 

Mrs. EMERSON. I appreciate your answers, but if we are still at 

a trillion-dollar deficit at 2020, when will the savings actually materialize? 

Secretary GEITHNER. Thank you for raising that. 

For an economy like ours—and this is the critical imperative— 

we need to make sure we are bringing the deficit down to a level 

that stabilizes our overall debt burden as a share of our economy 

to a level that is not going to be acceptable and not threaten future 

growth rates. And for an economy like ours, that requires we bring 

our deficits to below 3 percent of GDP. It sounds like a magic number, but it is just, given the structure of our economy, that is what 

it takes to stabilize the overall debt burden as a share of our economy at an acceptable level. 

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What we have proposed in the President’s budget is a series of 

detailed measures on the expenditure side and the resource side 

that would bring our deficit down over the next 4 years to below 

4 percent of GDP. That is not far enough. We are very explicit in 

the budget saying that is not far enough, we need to go further. 

And that is one reason why the President has proposed to form 

a bipartisan fiscal commission and to ask a set of national statesmen to step back from politics and try to take a fresh look at measures that help get us down further over the next 5 to 10 years but 

also begin to propose measures to deal with the long-term deficits 

in the further decades, which are clearly unsustainable and will be 

very damaging. 

Mrs. EMERSON. You have great faith that that will work. 

Secretary GEITHNER. No, it is a—as you know, Congress has to 

enact policies that restore gravity to the Nation’s fiscal position. 

We have proposed a series of detailed measures that begin that 

process. But we are, you know, following the model of President 

Reagan, who proposed and ran, helped establish I think the best 

example of a successful bipartisan commission on Social Security 

reform, and we are using that, proposing that model to try to build 

a consensus on things that will bring sustainability back to the Nation’s finances. 

Mrs. EMERSON. Okay. One more quick question, and then I will 

be finished. And it is a more philosophical question. How do you 

balance a desire for short-term benefits to the economy versus the 

long-term risk to the future generations of increasing debt? I mean, 

I feel like we are being greedy or something. 

Secretary GEITHNER. No, I think, again, with an economy facing 

the risk of a Great Depression, an economy living with the echos 

of the worst financial crisis in generations, the only possible, the 

only credible response of any government and the only thing that 

is fiscally responsible is to temporarily provide the kind of support 

on the tax side and on the investment side that can help reestablish a foundation for growth. That is what we did in the Recovery 

Act and our financial recovery efforts. And we are still in the period now where, as an economy, the best thing for us to do right 

now is to provide some modest additional targeted support for job 

creation and investment. 

But that will not work, will not be effective, unless we can make 

people confident, in the United States and around the world, that 

we are going to find the will as a country to start to bring those 

deficits down as we shift to growth that is going to be sustainable. 

So the imperative right now is still job creation and reinforcing 

growth. But, once we are confident we have an economy that is 

growing again, led by the private sector, then the right thing for 

the country to do is to bring those deficits down. That is how you 

balance them. 

And if you make sure these investments we make today, like in 

the Recovery Act, are temporary and targeted and they are focused 

on things that will help restart growth and job creation, then you 

are doing the responsible thing and the effective thing to help restore our Nation’s finances over the longer term. 

These deficits are high today, as you know, they are high today 

overwhelmingly because of the policy choices made by the country 

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over the past preceding 8 years and because of the consequences 

of the recession. When we came in office, you know, we had a—before we did one thing, asked Congress to propose one change to policy, we had a deficit of about $1.6 trillion, more than 10 percent 

of GDP, and that was a legacy of the recession and the policy 

choices the country made over the preceding 8 years. Those choices 

left us with very high projected future deficits, unsustainably high 

debt burdens. And we are going to have to work together across the 

aisle, Republicans and Democrats, to dig our way out of that. 

Mrs. EMERSON. Thank you. 

Mr. SERRANO. Just a quick comment, not a question, but it seems 

to me that we never had major wars where we didn’t raise taxes. 

So we are all guilty of the $2 trillion that it will cost us over the 

next generation just to pay for the last two involvements. But there 

is one resolution on the House floor today that we can all be fiscal 

conservatives about and vote to get out of Afghanistan. 

Now, Mr. Fattah, the way I see this is your beloved Phillies will 

play Ms. Emerson’s beloved Cardinals for a chance to get beaten 

by the Yankees in the fall. 

Mr. Fattah. 

Mr. FATTAH. Thank you, Mr. Secretary. I think you have done an 

extraordinary job in a difficult situation. 

If we looked a year ago, the first 2 months of the year, we lost 

more than a million and a half jobs. And these 2 months we have 

seen job losses of 50,000 in totality. But we have seen a major increase in temporary hiring; we have seen an increase in hours 

worked. All of this is a prelude to what all of us, I think, expect 

to see: net plus in job growth next month and going forward. The 

stock market was at 6,000 yesterday a year ago; it is now at 

10,500. Purchasing is up, manufacturing is up. I mean, if you look 

at all of the indicators, they are pointing in the right direction. 

Now, there are still some naysayers, and there are people who 

principally are responsible for the conditions that we find ourselves 

in who are critics of the work of this administration. But I want 

to go through some of the details. 

When the President was sworn into office a year ago January 

20th, the Nation’s national debt was over $10 trillion. And we had 

a $1.2 trillion deficit for that fiscal year. Now, 8 years before that, 

we had Alan Greenspan in here, and we were having a discussion 

about the fact that a $5 trillion surplus could take the country to 

be debt-free at the conclusion of the Bush administration. 

A bunch of decisions were made, so rather than surpluses to 

erase a $5 trillion national debt and an intellectual discussion 

about the economics profile of a nation that was debt-free, we had 

doubled the debt, and as it was the case at the end of World War 

II, in part for national defense. I don’t think anyone would suggest 

that we should have forfeited World War II rather than run up 

some debt or that we should concede to bin Laden and company, 

you know, and sacrifice the lives of Americans because we are 

afraid to spend money. So, in part, we spent it on national security. 

And we also did tax cuts and so on. 

But the point I want to get to now is that there has been a lot 

of discussions, and with the ranking member, about the deficit. I 

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want to talk about the debt. The deficit is just what the gap is year 

to year. I want to talk about the national debt. 

Now, we have seen the President set up the debt commission 

with Erskine Bowles and with Senator Simpson. We have seen the 

Vice President say that this national debt is a national security 

issue. The Secretary of State last week said it is a national security 

issue. You have made comments about the challenges that it presents in the international framework of our dealings. 

What do you—and I know that you are short a few economists 

in the Tax Policy Office. Previous Treasury Departments looked at 

broad-based tax reform. Everyone who is knowledgeable on this 

says we have to raise some revenue, we have to cut our long-term 

costs on entitlements, and we have to engage in broad-based tax 

reform. 

Now, the Reagan Treasury Department and the Bush Treasury 

Department, 20 years apart, looked at the national sales tax, said 

it was fatally deficient, it wouldn’t work. They looked at the flat 

tax, said it wouldn’t work. 

So my question to you is, as we go forward, we need to have a 

deficit commission, which we have in place—and I am happy to see 

that Leader Boehner has said he is going to make appointments, 

and the Republicans in the Senate are going to make appointments. So they can look at long-term entitlements, and that is 

great. 

What I am interested to know is what you think about an idea 

of a dedicated revenue focused entirely on paying down the national debt, going forward, as part of a constellation of things. You 

know, we passed statutory PAYGO and so on. But a revenue source 

dedicated to debt, what do you think about that as a generality? 

And then specifically, I have proposed a transaction fee on nonstock, non-financial markets activity of a penny on a dollar, dedicated entirely to the debt. I would like to know what you think 

about that specifically. 

Secretary GEITHNER. Congressman, you are right to point out 

that we have an unsustainable fiscal position, and we are going to 

have to bring our resources and our commitments more into balance over time. 

Now, what we have asked this commission to do, what the President has charged the commission with doing is to, as I said, step 

back from politics, take a fresh look, everything is on the table, no 

preconditions, and to see if they can come up with recommendations on a bipartisan basis that will help address both problems: 

not just the long-term problem of the next 4 decades, but the more 

immediate problem of how we get the budget down to a more sustainable level over the next 5 to 10 years. Both are necessary. Both 

are part of the commission’s mandate. It is not just the very longterm problems of entitlement reform. 

Now, they are going to take a look at a range of ideas. I am sure 

they will take a look at a range of ideas from both sides of the 

aisle. And, again, what we wanted to do is get a group of people 

together who can step back from politics, take a fresh look, no preconditions. 

And, you know, I think that it is important for us to recognize 

that we are a very strong, resilient country. In the past when we 

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have faced challenges like this, we have acted. The world has confidence in our ability to do that. We need to make sure we are 

going to earn that confidence again. 

And I have no doubt that this is within our capacity to fix over 

time. We need to get some people together working on it now, because, you know, again, as the economy recovers, as growth gets 

established, it is going to be time then to start to move. We can’t 

put this off. 

Mr. FATTAH. Has Treasury looked at any new ideas, revenueraisers? 

Secretary GEITHNER. As you know, Treasury has a great tradition, a great, pragmatic, creative tradition in tax policy and elsewhere, of looking at all ideas. And, you know, we will, along with 

OMB, we will provide some support to the commission as it goes 

through this. But we are going to leave the commission the task 

of trying to evaluate the options and help educate the American 

people about the challenges ahead. 

Mr. FATTAH. Well, I understand. I appreciate that. The commission, obviously, has to have ideas that have been rigorously analyzed, and your department is most capable, so that they can make 

an informed choice. So—— 

Secretary GEITHNER. And we will provide that, as we always 

have attempted to traditionally. 

Mr. FATTAH. So my last question then is, can we get the proposal 

that I have made in H.R. 4646 analyzed by your department, torn 

apart, and looked at to see whether it can be a part of perhaps addressing some of these issues? 

Secretary GEITHNER. Again, we generally try not to ‘‘tear apart’’ 

proposals made by the Appropriations Committee—— 

Mr. FATTAH. Well, I mean—— 

Secretary GEITHNER [continuing]. But we will take a careful look 

at anything that you all have proposed and asked us to take a look 

at. 

Mr. FATTAH. Well, I will ask the chairman to submit it to you 

officially and ask for its review. Thank you. 

Mr. SERRANO. Good idea. We will do that. 

Mr. Kirk. 

Mr. KIRK. Thank you, Mr. Chairman. 

You met yesterday with the Prime Minister of Greece. And I am 

particularly concerned by, as The Washington Post reported, 

Greece’s problems, critics argue, have only partially to do with 

speculators, more to do with false economic data, broken tax system, runaway spending. The Greeks report that only 5,000 people 

make over $136,000 in their whole country. 

I am particularly concerned about the role of U.S. financial institutions, particularly Goldman Sachs, that as Greece got on the heroin of borrowed money, Goldman was the crack dealer and did not 

disclose these increasing liabilities to the EU financial system, to 

the IMF, or to the Fed. 

Now, Papandreou asked you for money and backing. But it would 

seem that not only should we very carefully review any request he 

has, but have you had any frank discussions with Goldman about 

their very questionable role in this? 

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Secretary GEITHNER. Congressman, just to clarify one thing, the 

Prime Minister did not ask me or the President for financial assistance yesterday. What he did do was to outline the reforms they 

have enacted so far and the plans they have in prospect to help dig 

themselves out of a unsustainable fiscal position and restore 

growth and competitiveness to that economy. He has a lot of challenges to face, but he is beginning that process. And he also walked 

us through their discussions with the Europeans to try to make 

sure they are managing through this carefully. 

Now, it is very important that the United States work with Europe to put in place a comprehensive set of reforms to provide oversight over the derivatives markets. It is important to us. It is important to them. It is something you have to do globally if you are 

going to do it effectively. 

And, as you know, we proposed in the House a sweeping set of 

reforms that would bring oversight to all participants in those markets, move the standardized parts of those markets on to clearinghouses, bring transparency to those markets, make sure that our 

enforcement authorities, the SEC and the CFTC in particular, have 

the ability to police, to go after, to deter fraud and manipulation. 

And that is very important to us. We are going to work very 

closely with the Europeans to help support those reforms. Part of 

the imperative here is to bring as much transparency as we can to 

those markets now. 

Mr. KIRK. Let’s go to the question. 

Secretary GEITHNER. I am coming to your question, which is 

that, you know, I can’t comment on any ongoing investigations, but, 

of course, as you have heard the Federal Reserve chairman say, the 

responsible people in the U.S. are taking a careful look at these 

things, as you would expect them to do. 

Mr. KIRK. And so you have called Goldman and said, ‘‘What is 

up?’’ 

Secretary GEITHNER. I am not going to comment on anything we 

have done specifically, but I just will draw your attention to the 

statements made by the chairman of the Federal Reserve Board 

and by the SEC, who are the competent authorities in this case, 

that they are going to take a careful look at this stuff, again, as 

you would expect them to do. 

Mr. KIRK. Okay. Yeah. 

As Treasury Secretary, you oversee much of the enforcement of 

the sanctions regime of the United States. We passed legislation in 

1996, in the Clinton administration, to sanction any entity which 

invests more than $20 million in the energy sector of Iran. The 

Congressional Research Service has identified 25 companies that 

appear to have violated this. We now learn that the U.S. Government has provided $107 billion to companies who are in direct violation, it appears, of the Iran 

Sanctions Act. We also understand that the Ex-Im Bank has extended $4.5 billion to entities which have directly violated the Iran 

Sanctions Act. Of the companies that have violated the act, 49 of 

them have no plans to suspend any activities in Iran. 

Also, just a few blocks from your office, the World Bank is about 

to send $258 million to the finance ministry of the Islamic Republic 

of Iran. Since we own about 20 percent of the IBRD, that is 50 milWReier-Aviles on DSKGBLS3C1PROD with HEARING

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lion U.S. Taxpayer dollars under the Obama administration that 

would be paid to the Ahmadinejad treasury. We understand that Dalian Industrial made a $700 million investment in Iran oil refineries in direct violation of the act; that in 

2009 the U.S. Army contracted $111 million with Dalian. Petrobras 

invested over $100 million in Iran oil. That is five times the trigger 

level of the act. Ex-Im Bank provided recently a $2 billion credit 

to Petrobras. 

Mazda is in business with the Iranian Revolutionary Guard 

Corps and yet still is winning U.S. Government contracts using 

U.S. taxpayer dollars. Any updates on that? 

Secretary GEITHNER. Congressman, let me just start by commending you for the support you provided for a more aggressive approach to implement existing sanctions, to strengthen those sanctions. I think you are right on that issue. And we are committed 

to working with countries around the world to put in place a 

stronger, more effective enforcement regime globally. 

As you know, the activities of the Iranian Government on the nuclear front to support terrorists in the region and around the world 

are a substantial threat to our national security interests, to the 

interests of the countries around the region. And we are working 

very hard, the President is working very hard with the Secretary 

of State to build support for a stronger U.N. Resolution. We are 

working with countries to encourage them to more aggressively enforce the existing sanctions regimes. The United States is running 

a very effective program now to tighten those existing sanctions 

using the authority we have. And we are going to work to build on 

that record. 

And, as you know, the Treasury plays a very important role on 

the financial side. And we have had remarkable success in making 

it much harder for those entities to get access to finance around 

the world because of the successful work with other countries to 

tighten up those sanctions—— 

Mr. KIRK. But no success in stopping U.S. taxpayer money going 

from companies who are directly violating, no success whatsoever. 

And I have raised this with you before: no success, no effort whatsoever to stop World Bank payments—— 

Secretary GEITHNER. No, no. Let me—I want to address—you 

know a lot about this, Congressman. And I know you have written 

to the Secretary of State about the concerns you began with, which 

are enforcement of the—— 

Mr. KIRK. Iran Sanctions Act. 

Secretary GEITHNER [continuing]. Iran Sanctions Act. But let me 

just address the World Bank concerns directly. 

As you know, the World Bank has approved no new loans to Iran 

since, I believe, 1985. There are only—— 

Mr. KIRK. No, that is not the issue. The issue is—— 

Secretary GEITHNER. You are right, you are right. I am coming 

to it. 

There are only two loans outstanding where the World Bank is 

still disbursing. Those are two loans that go to water projects that 

are consistent with the humanitarian exemption that is under the 

U.N. resolution, permitted under the U.N. Resolution. These are 

modest—— 

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Mr. KIRK. I am running out of time, but are you naive enough 

to think that the money paid—— 

Secretary GEITHNER. I don’t have a naive bone in my body, Congressman, not a naive bone. 

Mr. KIRK. Okay. Okay. 

Mr. SERRANO. Can we let the man respond? 

Secretary GEITHNER. I am saying that, as you know—— 

Mr. KIRK. Are you naive enough to think that $258 million paid 

from the World Bank to the Ahmadinejad treasury actually goes to 

those projects? Do you actually think that? 

Secretary GEITHNER. No, what I am saying is that the U.S. has 

worked very effectively across administrations to make sure the 

World Bank was not authorizing any new loans. That has been successful policy of the government for a long period of time. The only 

two loans outstanding are these two loans permitted under the 

U.N. Resolution that go to support humanitarian and development 

projects. 

Now, I just want you to know that we agree with you and share 

your objective of making sure we are working around the world, as 

we have been doing, to tighten the effectiveness of this existing enforcement regime. And you are right to point out that it is an ongoing challenge. You can’t stay still. If you don’t keep intensifying the 

sanctions regime, people will get around these existing regimes. 

They will be able to find new opportunities to exploit it. 

But for us to be effective, we have to work with countries around 

the world to tighten up this net. And we are committed to that, 

and we are going to do it. 

Mr. KIRK. I just would hope that this is—right now, given the 

New York Times article, it is less to do about what is happening 

with other governments and more that the U.S. Government stops 

contracting with companies that do business with Iran. 

Secretary GEITHNER. That I wouldn’t agree with. But I think, 

again, we have more in common on this than we may have on 

many other issues—— 

Mr. KIRK. Okay. 

Secretary GEITHNER [continuing]. Which is, you are right to underscore the importance to our national security. 

Mr. KIRK. Yep. 

Secretary GEITHNER. But the critical thing for us to do is to make 

sure we are not just using our authority that Congress has provided to tighten up these sanctions, to make sure we get other 

countries to move with us, as they are doing on a—I would say we 

are having some impact now, and it is get getting some traction. 

Mr. KIRK. Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 

There is no way—no reflection on you, Mr. Secretary—there is no 

way that Mrs. Emerson and I can pass up this moment just to note 

that, if any of those folks had invested $2 in Cuba, it would be a 

major scandal throughout the country. 

Mr. Schiff. 

Mr. SCHIFF. Thank you, Mr. Chairman. 

Thank you for being here, Mr. Secretary. 

I have questions, really, on two different areas. The first is the 

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courage small banks, community banks to lend to small businesses. 

I would like to know what the status of that is and what conditions 

or measures can be put in place to make sure that the small banks 

don’t simply hold on to the money. 

I have heard—well, we have all gotten unstoppable feedback 

from small businesses in our districts that institutions they have 

had long relationships with, where they have perfect credit history, 

won’t lend to them. They are arguing that the regulators—the 

banks will tell them the regulators won’t let them lend. I don’t 

know whether that is an excuse the banks are using or whether 

regulators really are putting on that kind of pressure. 

I am also hearing feedback, though, that the small banks are 

saying, ‘‘Hey, you know, if we get the money, we will keep it, and 

we are not going to necessarily use it to lend.’’ So in order to avoid 

some of the pitfalls that characterize the support for the big banks 

that didn’t always turn around and lend it, what precautions have 

been put in place? 

And the second question is on the jobs issue. This recovery so far 

looks different than prior recoveries. It has not been as robust, 

even though the GDP growth last quarter was encouraging. Still, 

the job numbers are sluggish. And I am interested to know your 

both sense of why the jobs aren’t bouncing back as quickly as in 

prior recessions and what are the most significant things that we 

can do to stimulate that job growth. 

Secretary GEITHNER. Excellent questions. 

First, on small-business lending, we are proposing, really, four 

separate things to help address this problem. One is we have a series of well-designed, targeted tax measures that go directly to 

small businesses: expensing, depreciation, zero capital gains on 

new investments in small businesses, new jobs tax credit. The second is to expand substantially SBA’s existing guarantee programs. 

A variety of specific proposals in the President’s plan, and we think 

those would be very effective. 

Those are important, but they are not sufficient. We are encouraging the supervisors—they are independent of the Treasury, but 

we are encouraging them to try to make sure they are providing 

a more balanced amount of guidance to examiners across the country so the examiners don’t overcorrect and contribute unnecessarily 

to tightening of credit conditions that would hurt viable businesses. 

In addition to that, we propose, as you said, a $30 billion smallbusiness lending fund that would give capital to small community 

banks that commit to use that capital to expand lending. We designed this in a way that gives pretty powerful incentives to lend 

the money out. So if you increase lending to small businesses above 

a certain baseline, then we have reduced the dividend you pay the 

Treasury over time. 

Now, our view is that is a pretty powerful package, set of proposals. And you can’t be certain that small banks will take a dollar 

of capital and increase lending. But if small banks who could otherwise raise capital in a normal market can’t raise capital, don’t have 

access to capital, then they will cut lending. And that has a pretty 

negative effect on business access to credit. So capital is a very effective way of helping mitigate this problem. 

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Mr. SCHIFF. On that last point, though, what baseline are you 

using to measure whether they increase lending? And, also, do you 

buy what the banks are saying about the kind of regulatory straitjacket they are in, or do you think they are using that as a fall 

guy? 

Secretary GEITHNER. I think you said it right. You know, think 

of it this way: A bank has been doing business with a customer for 

30 years. The bank made a bunch of other decisions with a bunch 

of other clients in the real estate area that cost it a lot of money, 

left it very exposed, not enough capital. It is going to have to cut 

back on assets and lending to survive. What do you say to your customer that has been a good customer for 30 years? It is easier to 

say that the supervisor is making me do it than to explain that I 

made a bunch of judgments that got me too exposed to commercial 

real estate. So I think there is a lot going on. 

But, on the other hand, in every recession what happens is that 

there is a risk that examiners, after a period where in hindsight 

they look like they were too easy, tend to overcorrect. And so I 

think it is good that the leaders of our supervisors, bank supervisors across the country—and this is the FDIC, the Fed, the OCC, 

and the OTS—they need to make sure they are leaning against 

that tendency to overcorrect in a recession, because that can cause 

a lot of damage too. 

Just briefly on the job front—— 

Mr. SCHIFF. Before you go, what is the baseline? 

Secretary GEITHNER. Oh, I am sorry, the baseline. I believe—but 

I have to check and make sure I say this correctly—I think we 

leave it at the level in 2009. We have designed that in a way—we 

think that is a realistic baseline. 

You know, the pipes, the parts of this financial system are still 

clogged. You can’t force money through those pipes. We can’t force 

banks to lend without taking a risk that the government ends up 

with too much loss and risk. But we think we have designed this 

in a way that would substantially increase the odds that we are 

really helping mitigate the small business credit problem, where it 

remains. 

On the jobs front, you know, you won’t have jobs without growth. 

Growth has to come first. There is always a lag. But I think most 

economists across the country would say we are on the verge now 

of seeing a sustained level of positive job growth for the country as 

a whole. 

And I think the best story, looking back, of why unemployment 

increased so much and why job losses were so steep was just that 

you saw just shattering damage to business confidence across the 

country. People were just too scared to do anything, and they cut 

back just dramatically because of the fear that they faced a very 

long period of no demand for their products. And that is going to 

take some time to heal, but it is beginning to heal. As your colleague said, you are seeing the early signs now: hours increasing, 

temp employment increasing. And that should—— 

Mr. SCHIFF. One last short question, Mr. Chairman. 

Does this recovery look different to you? GDP growth was greater 

than expected but still smaller than in prior recoveries, and the 

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commensurate job situation has improved. Why do you think this 

looks different? 

Secretary GEITHNER. I think, in many ways, growth came more 

quickly, stronger, and more broad-based than many people expected. In that sense, it is encouraging. 

But because this is a recession caused by a long period of excessive borrowing, a huge overinvestment in real estate, a huge increase in leverage in the financial sector, there was no way that 

recovery was not going to be dampened by those basic forces. So, 

as households across the country save more, start to deduce their 

debt burdens, as the financial sector digs out of this terrible mess 

it was in, any recovery was going to face significant headwinds in 

that context. 

So we are seeing, I think, the necessary, inevitable consequence 

of a recession that is borne in part of a very damaging financial 

real estate boom that was fed by excessive borrowing and lending. 

Mr. SCHIFF. Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Mr. Culberson. 

Mr. CULBERSON. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary. I heard you talk a lot this afternoon 

about the importance of bringing down the deficit, controlling 

spending, and I appreciate your saying those things. I wondered if 

you would tell for the record, could you explain how the creation 

of the Obama health care entitlement will help bring down deficits? 

Secretary GEITHNER. I will be happy to do that. That is not the 

way I would describe the health reform plan, but I will be happy 

to describe and answer the question. 

The CBO estimates, and they are the independent scorekeeper of 

the Congress, they estimate that the reforms that are in prospect 

now would reduce the long-term deficits, the 10-year deficit, and 

would substantially reduce the rate of growth in health care expenditures over the succeeding decades. 

Mr. CULBERSON. Are you talking about the Senate bill? 

Secretary GEITHNER. Well, I would say that you can take the 

Senate bill as with suggested changes that the administration put 

out a few weeks ago, but they are all in the same basic ballpark. 

You say a meaningful reduction in the 10 years numbers and a 

very substantial reduction in succeeding decades. And that is because, as you know, that the biggest driver of the long-term deficit 

is the rate of growth in health care expenditures. It is more important than, for example, the fact that our population is aging. So 

there is no path of fiscal responsibility that does not go through 

health care reform that reduces the rate of growth in costs. 

Mr. CULBERSON. But the reductions they see in the future are all 

based on assumed reductions in health care expenditures in later 

years. 

Secretary GEITHNER. Well, again, they are doing what they always do is they take proposals Congress is considering, and they 

quantify those estimates on future spending by the Congress. They 

are just doing what they always do. 

Mr. CULBERSON. Right. And you recognize that those proposals 

entail 6 years of spending with 10 years of revenue. 

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Secretary GEITHNER. Again, I am not trying to characterize their 

proposal. What I said is accurate in their estimates of the—— 

Mr. CULBERSON. You are talking about the CBO? 

Secretary GEITHNER. Yes, CBO. But again, the most important 

thing to point out, which I know you understand, is that if you care 

about the fiscal position of the United States, you are worried 

about those long-term deficits, there is no way to deal with that 

without reforming the health care system in a way that reduces the 

rate of grown in costs. 

Mr. CULBERSON. Well, those of us on the fiscal conservative side 

are approaching it from the perspective of focusing on making 

health care affordable and portable so you can buy it across State 

lines and shop. I want to be able to buy coverage from my carrier 

in Arizona or Texas. That law needs to be changed. We need to 

focus on that, on medical malpractice reform to protect doctors 

from frivolous lawsuits has worked so successfully in Texas, on allowing small businesses to pool their ability to negotiate better 

rates together. We could do those things without—and bring down 

the cost of health insurance to make it affordable and portable. 

That is where, from our perspective as fiscal conservatives, the 

focus needs to be. 

But I just have to tell you the credibility of the administration 

is not very high when you or the administration attempts to persuade taxpayers who are—you know, they pay attention, and 

they—it just defies common sense to believe that we can, as your 

proposals do, expand coverage to 20 to 30 million new people that 

will be brought into this new entitlement, which is clearly the 

mother—this is the mother of all entitlement programs. 

Secretary GEITHNER. Congressman. 

Mr. CULBERSON. You are going to bring in 20- to 30-million new 

people, and you are going to reduce deficits, and this is just not 

credible. 

Secretary GEITHNER. All I am citing—— 

Mr. CULBERSON. It is just not credible. 

Secretary GEITHNER. All I am citing is the estimates of CBO. 

Mr. CULBERSON. Of CBO. Do you believe those estimates are accurate? 

Secretary GEITHNER. Well, I think they are the best estimates we 

have. And again, they have the virtue of being a fair and independent arbiter, nonpartisan arbiter, of the proposals now working 

their way through Congress. So you can challenge those things, but 

those are the ones Congress will rely on to score your proposals as 

well as the administration’s. 

Mr. CULBERSON. We are, as you have said, in an unsustainable 

fiscal position, and I am as concerned as I know every one on this 

committee is, no doubt, that we would become Greece. 

Secretary GEITHNER. There is no risk of that. That will not happen in the United States. 

Mr. CULBERSON. We are spending money—as of June 1st we are 

running on the Nation’s credit card. My office has calculated, and 

if you look at the available revenue as of June 1st this year, everything we spend beyond that point is borrowed money. 

And it is a fact, and I have to say also in your opening remarks 

earlier, Mr. Chairman, if I could very quickly, we are kicking the 

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Bush administration. You can’t just blame others for the scale of 

the deficit. The deficits that you inherited were way too high. I 

voted against virtually all of those major Bush spending issues. 

But this, Nancy Pelosi and Barack Obama have managed to spend 

over $2.5 trillion in about 1 year. That is just the big-ticket items. 

You spent more money in less time than any administration in the 

history of the United States. You have created more debt than any 

other administration in your budgets than any other administration in the history of the country, so it just isn’t credible. You damage your own—— 

Secretary GEITHNER. I would be happy to measure our record on 

fiscal responsibility with the record of the previous 8 years. I will 

just give you one example. I was a career civil servant in the 

Treasury Department. I left the Treasury Department in 2001. At 

that point the CBO projected future surpluses of $5 trillion. Eight 

years later those surpluses turned into $8 trillion in projected future deficits. 

I would be happy to compare the basic records of what we 

achieved in that period of time on fiscal responsibility with the 

record of the succeeding 8 years, and I will say, not to make a political point, it is just a fair thing. And I think the important thing 

to recognize is over that period of time, when we demonstrated as 

a country that we were able to produce surpluses, we saw a record 

of trong private investment growth, strong productivity growth—— 

Mr. CULBERSON. Because of tax cuts. 

Secretary GEITHNER [continuing]. Strong growth in incomes. 

No. In the—— 

Mr. CULBERSON. In the Bush administration. 

Secretary GEITHNER. No, no. I was comparing the growth record 

of the previous 8 years. The growth record of the 8 years under the 

Bush administration did not compare favorably to the preceding 8 

years. It was worse on growth, worse on any basic measure of basic 

returns, and, again, worse on the thing you care about a lot, which 

is on basic tests of fiscal responsibility. 

Mr. CULBERSON. I am exceeding my time. The Chairman is being 

very gracious. 

Secretary GEITHNER. We can’t change the past. I know you voted 

against a lot of those proposals, but we can’t change the past. And 

right now we need to stand together and admit that deficits matter, tax cuts aren’t free. We have to pay for stuff we propose to 

enact, and we need to bring our fiscal deficits back down to a point 

where they are sustainable over time, and I look forward to working with you in how to do that. 

Mr. CULBERSON. Thank you. We want to you live up to those 

words, that is all. 

Mr. SERRANO. Mr. Crenshaw. 

Mr. CRENSHAW. Thank you, Mr. Chairman. 

Welcome back. I have two questions. One kind of has to do with 

philosophy of managing these assets, and the other is kind of a 

quick question about the tax collections. 

You mention the TARP funds are being repaid quicker and in a 

greater amount than first thought. I think that is good news. I 

think we ought to do everything we can to maximize those dollars. 

But when you look at AIG, it seems to be, again, we are a majority 

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shareholder, and so I guess we are involved in their decisions. And 

it seems to me I read they sold two life companies last week, $51 

billion, which will go back to American taxpayers. That is good 

news. 

But if the philosophy there is to sell off these assets, it seems to 

me sooner or later you will kind of run out of assets to sell. You 

will have a company that has kind of been downsized, and you 

wonder what kind of capability it will have to make any further 

payments. I think they have over $100 billion, and I think they 

paid back $15 billion maybe. So we are still on the hook. 

On the other hand, when I look at General Motors, as I understand it, if you take General Motors, Chrysler and GMAC, we 

maybe gave them $80 billion, and I think maybe General Motors 

was about $50 billion of that. And then I read where you said we 

are probably going to lose $30 billion on General Motors’ deal. But 

I guess it seems like if the philosophy there is to—GM has kind 

of reinstated some of the dealerships, they are increasing their 

sales, maybe their market share is going to increase. So you would 

think that is one way to deal with the situation. You would think 

if they become an ongoing entity, and grow, and increase sales, and 

increase market share, they will be even in a better position to pay 

back—you know, of the $50 billion, maybe they end up paying it 

all back. 

So just help me understand the two different philosophies, because we must be involved in those decisions. Is it short-sighted on 

AIG? I am not asking whether we should have just broken it up 

early on, but we own it, and we want to get paid back as much as 

we can. And those are two different kind of case studies. Explain 

to me how it is working, how you think that works in the long run. 

Secretary GEITHNER. Excellent question. It is a difficult judgment. The two basic objectives we try to balance are to maximize 

the returns to the taxpayer, minimize the risk of the loss to the 

taxpayer. And we want to, frankly, get out as quick as we can. 

Those two objectives will sometimes be in conflict, as you said. So 

we are going to try to balance them. 

These companies where we are reluctant shareholders in these 

companies are dramatically in different positions, and the precise 

strategy is going to differ because of differing conditions. We are 

going to try to make sure we manage these in a way to minimize 

any risk of loss, maximize the achievable return, but we want to 

get out as quickly as we can, because we don’t want to have the 

American Government involved in these companies a day longer 

than is necessary. So we will do it as quickly as we can, subject 

to that constraint that we don’t want to leave the American taxpayer exposed to the risk of unnecessary loss in that case. 

You are right to point out that we are making really remarkable 

progress. I would say the board of AIG is making remarkable 

progress in reducing the risk and restructuring the company in a 

way that is going to reduce the expected loss to the taxpayer very, 

very dramatically. They have come down dramatically in that period of time. We are still exposed to substantial risk of loss, as we 

are in the other companies. But we are going to be very careful in 

managing those in a way to balance those two basic objectives. 

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Again, I think we are being consistent in applying them, but 

where they differ is just because of inherent differences in the position of those companies and the opportunities we have to get out 

earlier. 

Mr. CRENSHAW. Thank you. And the same question, just a brief 

question, I read in your testimony where there are going to be 

some new initiatives in terms of tax collection. You spend $250 million, which will—according to your testimony, that is going to bring 

in another $2 billion. Every time I read that, I can’t help but kind 

of ask the question, how do know; how do you determine that 

spending $250 million on compliance is going to end up bringing 

you $2 billion? And then based on that, how do you decide, well, 

instead of spending $500 million, we get $400 billion, or up and 

down the scales. 

I am just curious, because my colleagues know that from time to 

time Members of Congress use the so-called tax gap as like a piggy 

bank and say all you have to do, if you spend a billion, you get this. 

And I have always wondered are there any facts and figures to 

kind of verify that? And how do you decide to limit to $250 billion—$250 million to say that will get us $2 billion? And somebody 

says, well, gee, four times that would get you four times the money. 

Secretary GEITHNER. I asked the same questions when we had 

an initial discussion with Commissioner Shulman about what 

makes sense in this area. I think what he will tell you, I think he 

told you when he was up here before, and I will be happy to provide in more detail in writing and answer that question, but what 

he said is that those are pretty conservative estimates based on experience over in the past of putting more enforcement resources in 

targeted areas to generate better compliance. I think they are pretty conservative. I have seen much higher estimates than that. 

On the question which I asked, the same question, why not 

more? If the return is that high, then why not more? Part of it is 

just their judgment about this pace at which they can really bring 

on capable people to do this. There are some constraints on how 

quickly you can scale up those operations. We are trying to be relatively careful, given that we don’t live in a world of unlimited resources, to do it in ways where we are confident you are going to 

see a high return. That is the best answer I can give, but I would 

be happy to follow up. 

Mr. CRENSHAW. I appreciate that. You have stolen the ideas of 

all the Members of Congress, so we can’t go talking about spending 

an extra $250 million to get another $4 billion. You kind of maxed 

out on that. 

Secretary GEITHNER. The virtue of what your colleague just 

pointed out, which is CBO is the arbiter of the extent to which you 

can actually justify investments on some return like that. We don’t 

get to decide; you guys get to decide based on those estimates. 

Mr. CRENSHAW. Thank you. 

Thank you, Mr. Chairman. 

Mr. SERRANO. Ms. Wasserman Schultz. 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. 

Mr. Secretary, the work that you have been doing with the TARP 

funds and the Recovery Act funds is obviously starting to take 

hold. And we have that little pinhole of a light at the end of tunnel 

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that we are going to hopefully, as the recovery funds continue to 

get out there in the next couple of quarters, we will blow a wider 

hole into the tunnel. 

That having been said, I come from the State of Florida where 

the foreclosure crisis definitely puts a brake on the progress that 

we have been able to make, even with those TARP and stimulus 

funds out there. The data that I have seen nationwide is about 25 

percent of all homeowners are upside down. In my State it is 46 

percent, and in south Florida in particular it is 46 percent of all 

homeowners being under water. So the HAMP program, the Home 

Affordable Modification Program, is struggling because you have so 

many upside-down homeowners. 

So can you talk about the hardest hit fund and how that is going 

to start to address the problem in a more effective manner? But 

specifically I mean, just to give you an example of the foreclosure 

crisis in south Florida, we have more than 97,000 foreclosures filed 

just in my 3-county area in the last year. I mean, we have got to 

get that turned around. And one of the most frustrating experiences that people will have is both with the HAMP program—and 

I hope that the hardest hit fund is going to fix this—is the banks 

just refuse to work with homeowners. They won’t modify loans. 

They give them the runaround. I have dealt with constituents who 

spent months and months, willing constituents who can afford to 

make mortgage payments, but who the bank will absolutely not 

work with. So why not walk away? What is the point of continuing 

upside down? 

Secretary GEITHNER. You are exactly right, and I agree with, I 

think, everything you said. 

It is important to step back for a second and look back at what 

has happened over the past year. It is important to emphasize this 

before I respond directly to your question. When I think a year ago 

today, if you looked at expectations of what is happening in house 

prices in the future, people thought house prices might decline another 30 percent across the country. Instead we have seen more 

than 6 months of relative stability in house prices across the country on average for the first time. And that is very, very important 

to confidence, because houses are such an important source of economic security to many Americans. 

The HAMP program, as you know, has provided very, very substantial cash flow relief to now 1 million Americans; 1 million 

Americans are now getting an average of $500 more a month in 

their pockets because of this program. It is not just that they are 

able to stay in their homes, but have very substantial reduction in 

their size of the mortgage obligations. This is a very large, very 

substantial tax cut. We are seeing very substantial increases in 

convergence to permanence, not as much as we would like still. 

But you are right to emphasize that there is just a huge amount 

of pain and damage still across the country, not just in Florida. In 

Florida and the other States targeted by this initiative, it is still 

just devastating damage. Again, it is just fundamentally people 

who did not borrow too much, who are very responsible, just the 

victims of the broader collapse, irresponsibility of everyone else. 

And we have an obligation as a government and a country to do 

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everything we can to help those people who we can legitimately 

help stay in their homes. 

Now, this program targets five States where the problems are 

most acute, the combination of house price declines and high unemployment are most acute. We are providing substantial resources to 

help reinforce State efforts to experiment in assistance for the unemployed, for people who are under water, modifying mortgage programs, who want to support innovations at a State level, and 

maybe there are some lessons for that for other States nationally. 

We are also looking at, and we are looking carefully at, a series 

of other enhancements to the existing program to try to reach more 

people who are unemployed, and to help deal with the substantial 

number of Americans still who are—because they are under water, 

as you put it, they have negative equity, can’t refinance, can’t sell 

their homes. 

So we are looking at ways to try to reach more people, but it is 

very terrible out there still in the housing market, and it is very 

important that we keep working at trying to make sure we are 

reaching more people. 

And I want to end which is to say that it is very important for 

the servicers across the country to do a better job at helping these 

people get help. 

Ms. WASSERMAN SCHULTZ. But they are not. 

Secretary GEITHNER. And again, the one thing we do that is very 

important is you can see now in the public domain every month 

very, very detailed numbers on how servicers are doing reaching 

these people. You can see how one bank is doing with another 

bank. And so they can look and see if their bank and their servicer 

is doing well or poorly. But I will just say my view is none of them 

are doing enough. They need to put substantially more resources 

in this program, and they need to do a better job of making sure 

they are reaching the people that we can legitimately reach with 

these programs. 

Ms. WASSERMAN SCHULTZ. But mechanically how can we ensure 

that that happens, because I tell you, I stand in front of town hall 

meeting after town hall meeting where I have constituents legitimately stand up and say—we all do—legitimately stand up and 

say, we bailed them out; my bank wouldn’t be in business anymore 

if it were not for the United States Government. 

Secretary GEITHNER. Absolutely. That is why people are so angry 

about it. So we have a variety of things. We have a detailed second 

look to make sure people who are eligible are not being denied. We 

make sure that we have got teams of people to go into these 

servicers and take a look at how they are doing. We are trying to 

put enormous pressure on them to do it. And we are going to keep 

at that, because we have a long way to go, and they can do it dramatically better. 

Ms. WASSERMAN SCHULTZ. Just one more question, Mr. Chairman. 

I know you are going to be shocked I am asking a question about 

Cuba, but I feel a sense of obligation. In the last week or so, we 

had the tragic death of Orlando Zapata Tamayo, who was on an 85- 

day hunger strike, and who, along with the other dissidents, continued to protest the abuses of the Castro regime. I am particularly 

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concerned about the prodemocracy efforts on the island and getting 

the funds that we have appropriated for the last 2 fiscal years to 

them. 

What is being done to expedite the licensing process to ensure 

that direct assistance and aid is being sent quickly to those prodemocracy organizations? The money is sort of being sat on right 

now for the last 2 fiscal years, and I realize that we need to be 

careful, and that we need to make sure that they are going to legitimate dissident organizations and ensuring that there is a vibrant prodemocracy movement, but sitting in the Treasury in 

Washington isn’t going to accomplish that. 

Secretary GEITHNER. Congresswoman, I share your concern and 

would be happy to try to respond in more detail as to what we can 

do to be responsive to that concern. I would be happy to come talk 

to you and walk through that with you. 

Ms. WASSERMAN SCHULTZ. That would be great. 

Secretary GEITHNER. I know there are strong feelings on both 

sides of the debate. 

Ms. WASSERMAN SCHULTZ. Especially in this room. 

Secretary GEITHNER. Especially in this room. And we are doing 

our best to make sure we are enforcing the laws as written and we 

are meeting the objectives of the Congress. 

Ms. WASSERMAN SCHULTZ. So you can follow up with me in more 

detail? 

Secretary GEITHNER. Of course. As on the issue raised by any of 

your colleagues I will be happy to listen more carefully and make 

sure that we understand your concerns and see if we can meet 

them. 

Ms. WASSERMAN SCHULTZ. I want to press you a little bit more, 

though, because there are funds that we have appropriated for the 

last 2 fiscal years that aren’t being spent and—— 

Secretary GEITHNER. I am not trying to be unresponsive. I have 

to talk to my colleagues a little more to understand exactly what 

it is. 

Ms. WASSERMAN SCHULTZ. The article that I just read the other 

day talked about how your Department is making sure that there 

are safeguards put in place and that we have the accountability 

measures, but it is an extraordinarily long time to be examining 

that. 

Secretary GEITHNER. We have careful people, and their obligation 

is to make sure they are implementing the law and following the 

intent of Congress. I am sure that is what they are doing, but I 

will take a careful look at it. 

Ms. WASSERMAN SCHULTZ. Thank you very much. 

I yield back, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Mr. Secretary, as I noted in my hearing with IRS Commissioner 

Shulman a couple of weeks ago, I am concerned by several proposed cuts to programs that provide important services for low-income and working families, including the Volunteer Income Tax 

Assistant Grant program and Tax Counseling for the Elderly program. Do you believe that these cuts reflect the appropriate priorities as we struggle to recover from the economic downturn? 

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Let me just say, the IRS, similar to the immigration department, 

it seems that some of those agencies, not that they have bad reputations, but they have a lot of people complaining about this all 

the time. And so when I saw the IRS begin to move in this direction, I said, what a wonderful way not only of helping people, but 

also helping the image of the agency, because now you are going 

to assist those who need help with those forms and everything else. 

So in terms of is it a real savings, in that budget, because of the 

message that it sends out that the people who need help the most 

are going to be cut out. 

Secretary GEITHNER. Mr. Chairman, I understand your concerns, 

and I would be happy to listen to those concerns in more detail. 

The Commissioner and I both believe that these are sensible proposals because they help us to increase resources we are providing 

to improve taxpayer servicers more generally. And we think that 

will help the same people that these programs help. 

But I would be happy to talk to you about it in more about detail. We are making difficult choices trying to make sure how we 

are using scarce resources as effectively against these things, and 

we are proposing very substantial increases in programs to improve 

taxpayer services generally, and we think that will help reach some 

of the same people that these programs you refer to are designed 

to reach. 

Mr. SERRANO. Right. But these programs were created with the 

intent of both helping and showing that there was a desire to help. 

One is not necessarily the same as the other, but they both can 

work towards the same goal. So aren’t you concerned about the 

message you are sending at the very time that the IRS was beginning to gain, I think, more respect from the public? 

Secretary GEITHNER. The IRS is going to continue to work very 

hard to do the right thing and earn the respect and confidence of 

the American people. One way they can do that is to make sure 

they are working very hard, and we are giving them the resources 

they need to improve service, to make it easier for Americans to 

meet their obligations. That is an objective that the Commissioner 

and I both share. And the Commissioner has done a very, very 

good job in helping improve the record of service IRS employees do. 

But again, Mr. Chairman, I respect your concerns and understand your concerns. I appreciate your support for those programs, 

highlighting their benefits, and we will work with you to make sure 

we come up with the right balance. 

Mr. SERRANO. Okay. Because, you know, if this was a course in 

legislative politics 101, the professor would say, you shouldn’t come 

before Serrano cutting these programs; it is not going to do well. 

And I suspect there are other folks on this panel who feel the same 

way, because this is one statement we can make on behalf of a 

community that needs help. 

Let us talk about the tax gap. How big do you think the overall 

tax gap currently is, and how much do international activities account for that? Where are the best opportunities for closing the tax 

gap? 

Secretary GEITHNER. We put out a very detailed report last year 

that went through the latest estimates of the size of the gap and 

the sources of that gap. As you highlight in your opening stateWReier-Aviles on DSKGBLS3C1PROD with HEARING

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ment, the President in his budget has proposed a variety of ways 

to help make some progress reducing that gap. One of those proposals is to reform the tax treatment of overseas earnings of American companies. And the basic premise that underlies that proposal, just to make one specific example, is if you have two companies in your district, one invests overseas, one invests in your district, you don’t want them facing different tax treatment. You don’t 

want the Tax Code to create incentives to shift investment of jobs 

overseas. So we propose some changes to the program that would 

help address that issue. 

There is a range of proposals to the President’s budget that we 

think are making headway. We are making a lot of progress, not 

just with Switzerland, but a range of countries around the world, 

to reduce opportunities for evasion, and we are committed, and we 

are going to keep at it. But the report that we laid out last year 

we have to provide the committee again is a very good, detailed 

analysis of the sources, principal drivers of the gap and the policies 

that we think would have the highest return in starting to close 

that gap. 

Mr. SERRANO. Well, before I turn it over to Mrs. Emerson, let me 

ask my question—she will ask one, too—and make my one comment that you don’t have to respond to. 

So much of what we discussed around Cuba is helping people inside Cuba oppose the government. For all intents and purposes, 

that is what it is. I often wonder how would we react to a foreign 

government funding groups here to oppose our government. Even 

during a government I didn’t like, I would be a little upset, but 

anyway that is another issue. 

Last year the Department followed the lead of this subcommittee 

and allowed travel to Cuba by Cuban Americans visiting their families. The Department is also implementing an appropriations provision that partially relaxes the terms under which payment may 

be received on exports of agricultural and medical goods to Cuba. 

Mr. Secretary, please update us as to how implementation is proceeding with respect to these two areas of U.S. transactions with 

Cuba. 

Secretary GEITHNER. I can’t do that justice in the hearing today, 

but I am happy to do it in writing. My sense is that it is going reasonably well, but, of course, open to other perspectives, and happy 

to try to respond to any specific concerns you have about how we 

are implementing. I would be happy to respond in detail in writing. 

Mr. SERRANO. Then we will hold you to that, and we will ask you 

to write to us and tell us what is going on. 

And with that I turn to Mrs. Emerson. 

Mrs. EMERSON. Thank you, Mr. Chairman. 

Mr. Secretary, looking back at the financial crisis, I, like all my 

colleagues and many Americans, are very upset with the lack of 

regulatory oversight that led to the climate in which our entire financial system was undermined. Our small banks in Missouri survived pretty well, we are tough and have got some good people, but 

life still isn’t getting a lot easier for them. 

The burden of bank foreclosures falls entirely on the banks that 

survive this crisis, and as surviving banks continue to do their best 

to serve their customers, I do hope the Treasury and FDIC will 

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give every consideration to fair descriptions of the risks they face 

and the Deposit Insurance Fund assessments that are based on 

those measurements of risk. 

And I also hope that, looking at the ultimate analysis of the financial crisis, something would be done in the future to perhaps 

allow FDIC to get more involved with or perhaps offer guidance to 

American banks who they identify as actually facing increasing 

risks. Perhaps by putting the bank back on the right track, we 

could limit the number of banks that must close their doors. Obviously the number of customers who have to turn to the Deposit Insurance Fund to be made whole, and a very obvious lack of consumer confidence in financial products. 

My real question focuses on one enforcement aspect of this matter. Do you all look at the financial statements of failed banks to 

see if they misrepresented their financial conditions, if executives 

took unreasonable compensation or bonuses out right before the 

bank failed? Can you all at Treasury claw back excessive compensation from such a bank? Because obviously the alternative is 

the Deposit Insurance Fund ends up making up the difference 

when they try to make depositors whole. And I think there is a 

Senate effort on this, but I am just curious if, in fact, you can claw 

back under those certain circumstances. 

Secretary GEITHNER. Congresswoman, I think I am correct in 

saying that—I will correct this if I get it slightly wrong—which is 

in the Recovery Act I believe that Congress passed a series of provisions to provide greater constraints, encourage reforms in executive compensation in institutions that took financial resources from 

the government. As part of that, if I am not mistaken, the government was given the authority to claw back compensation if there 

was clear misrepresentation of financial data. 

But I will take a more careful look at the way the law is written 

and will be happy to respond in more detail in writing. It is a sensible provision, and I will fully support that basic objective. 

We are trying to make sure we are bringing about fundamental 

reform and compensation practices across the finance industry because we want to make sure in the future that we don’t see a repeat of the set of compensation practices that provided huge returns for taking lots of risks and no exposure to the downside. 

Mrs. EMERSON. I appreciate that, and I will be grateful to get a 

written response from you. 

Let me ask you about too big to fail. Five banks control 80 percent of U.S. deposits, and I guess that wins them the moniker of 

too big to fail. 

Secretary GEITHNER. Well, not—okay, keep going. I am sorry. 

Mrs. EMERSON. No. Am I incorrect that five banks control about 

80 percent of U.S. Deposits? 

Secretary GEITHNER. No, keep going. I will be happy to give the 

details. I think that is a little high, but it may not be. I am going 

to support your concern so—— 

Mrs. EMERSON. So the financial crisis pretty well proved that 

‘‘too big to fail’’ is a misnomer without the guarantee of huge 

amounts of capital from the U.S. Government. If we keep borrowing money at the present rate, we may even test the hypothesis 

of whether the U.S. Treasury is too big to fail. 

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Let me ask you, is it good to have institutions like these dominating the American market for savings? It makes me think about 

the old Ma Bell, if you will, which was disassembled in 1984. Could 

you unwind those big banks that are too big to fail without government taxpayer assistance? 

Secretary GEITHNER. Critical issue, critical test of the financial 

reform plan and whether we fix what is broken, whether we address this problem of too big to fail, you can’t have a financial system where the management of the firm, the boards of directors and 

the equity holders expect the government to come in and save them 

from their mistakes in the event that that they manage themselves 

to the edge of the cliff, as we saw happen for so many institutions 

in this crisis. So that is something that we have to fix and end. 

The only way to do it is to make sure first that you have the ability and the authority to constrain risk taking by those institutions 

ahead of the fall. That means much more conservative capital requirements; constraints on risk taking applied more effectively, 

more evenly across those institutions. That is necessary; it is not 

sufficient. You also want to make sure that if they get themselves 

to the point where, again, they can’t survive without government 

assistance, you want to make sure the government has the ability, 

and the tools, and the authority to take them over temporarily, 

break them up, wind them down, sell the businesses off, and make 

sure the taxpayer is not exposed to risk of loss. 

This is the third thing that is important as we proposed this just 

to make sure that if the government is exposed to any risk of loss 

in doing that, they will recoup that loss in the form of a fee applied 

to the financial system over time, as we have proposed in the President’s proposed fee on banks. 

So you need the ability to limit risk taking ahead of the crash, 

you need to prevent the future crisis, but in the event that companies are able to still mismanage themselves, in addition the ability 

to step in and put them through a kind of quasi bankruptcy regime 

and do that in a way that doesn’t leave the taxpayer exposed to 

any risk of loss. Those are the kind of things. We cannot do that 

today with the existing authority the executive branch has. We 

need financial reform do that. 

Mrs. EMERSON. No, I understand that, and I appreciate that. I 

guess what I am saying is—and perhaps you don’t want to directly 

answer my question, and I won’t be offended if you don’t, which is 

if we had to take apart those banks today, would we have to use 

taxpayer funds to do so? 

Secretary GEITHNER. Well, I don’t—I am not trying to—— 

Mrs. EMERSON. If we had to unwind those big banks. 

Secretary GEITHNER. I may say it differently, but I am being responsive to your question, which is right now—and this is a tragic 

failure of the Government of the United States. We still do not 

have the authority to deal with the potential failure of a major 

firm, a future AIG. We don’t have that today. And we can’t fix that 

without legislation to give us the authority to do that. So if we get 

that legislation, then we can meet your test, and we have the ability to manage its failure safely without leaving the taxpayer exposed to risk of loss or a bunch of innocent victims across the country exposed to the collateral damage caused by their failure. 

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Mrs. EMERSON. The analogy with Ma Bell just to me rings pretty 

true, because back in 1984 the Congress said, hey, this is anticompetitive, and let us just go ahead and break it apart. So, to me, 

five banks having—you know, even if it is close to 80 percent to 

me is a monopoly, and I obviously don’t think it is healthy for this 

country. 

And I say that, too, because I don’t even know if one of these 

banks failed, I don’t know even if the FDIC would be able to handle 

the enormous liabilities of deposit insurance. I don’t think they 

could. 

Secretary GEITHNER. Again, I am agreeing with you, which is 

that a critical imperative of financial reform is to make sure we 

have the tools and authority to do it, just what you said, manage 

failure safely without the taxpayer being exposed or a bunch of innocent businesses, families across the country being exposed to the 

collateral damage of their failure. 

Mrs. EMERSON. Well, instead of even allowing banks to become 

too big to fail, perhaps we should give someone the authority to—— 

Secretary GEITHNER. To limit their risk taking, that is right. You 

read this in January. Right now we have a cap on the share of the 

Nation’s deposits any individual bank can hold. That is a necessary 

constraint, it is a good idea, it is a good thing for just the reasons 

you said. But it has this following effect which is unfortunate, 

which is you can become bigger over time as long as you fund yourselves with other sources, nondeposits, more risky sources of funding. It is a well-designed constraint, but it has the effect of still allowing size and concentration, but in more risky forms. So we propose to complement that cap with an additional cap on total size 

so you don’t have a level of excessive concentration, consolidation 

in the industry over time. 

Again, just for some perspective, we have a system of 9,000 

banks in this country, and a great strength of our system is that 

not only do we have a set of large institutions operate globally, 

much stronger position today than they were 2 years, 3 years, 4 

years ago, but we have 9,000 banks across the country meeting 

needs in their communities, and that provides a great source of 

competition, resilience. We very much want to preserve that. 

Mrs. EMERSON. I appreciate that. 

Mr. Chairman, I have to leave for about 20, 30 minutes, so I will 

be back. Thanks. 

Mr. SERRANO. Mr. Fattah. 

Mr. FATTAH. Thank you, Mr. Chairman. 

Mr. Secretary, I just want to deal with some issues that have 

been raised. First of all, I heard the Greece Finance Minister yesterday on CNBC. He was asked about this question about Goldman 

Sachs, and what he said was that the activities that Goldman 

Sachs was involved in were perfectly legal at the time, and were 

part of the interactions that were taking place on behalf of a number of countries. And I don’t want to have on the record allegations 

without any opportunity for a response, because I am actually appreciative of Goldman’s efforts in another regard which I am moving to now, which is on the small business lending side. They have 

taken some $500 million and created a fund to try to aid in providing credit to small businesses. And I appreciate along with the 

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point that you made earlier about Bank of America’s decision on 

the debit card overdraft charges. 

You know, I think we ought to be careful as we go forward that 

we delineate where appropriate criticism should be levied and 

where it shouldn’t be. 

But I wanted to get to a couple of points. One is we have had 

a number of dialogues over mortgage foreclosure. The program that 

I created in Pennsylvania, the HEMAP program, the Housing 

Emergency Mortgage Foreclosure Program, which is run through 

our housing and finance agency, which provides actual relief in 

terms of payment of mortgage payments for people who are unemployed by no fault of their own, it has helped over a couple of decades tens of thousands of families in our State, and you know as 

well, just putting it on the record, at no loss to the taxpayers because it then tags onto the back end of the mortgage, you know, 

those payments or as a small percentage of ongoing mortgages. So 

there has been no loss, it has worked very well, and we have had 

a moment in time in which many of these mortgage foreclosures 

were because of lending practices. 

The vast majority of foreclosures that we face now are related to 

unemployment, and there is no ability for someone who is unemployed to pay mortgages. And if we want to keep them in their 

home, there has to be some effort. That is why I am so happy that 

the House agreed with me and we passed some $3 billion in the 

reform bill that you complimented us on earlier in your statement, 

and you urged the Senate to act. 

I hope you are also urging the Senate to keep the 3 billion in 

place. I was very pleased to see the billion and a half provided to 

what were determined to be the hardest-hit States. Now, States are 

a geographical place, but they are hardest-hit ZIP codes, and there 

a lot of ways we could delineate where people need the most help. 

But I am for helping taxpayers who have been law abiding, and 

who have been hard working, and who saved enough money to buy 

a home and were making their mortgage payment. They lost a job 

because of a recession that they have had no fault in. For us to 

take, on the other hand, tens of thousands—I think it is close to 

$90,000 it costs the taxpayers—to foreclose on their home when we 

could intercede to help, and we have a record of doing that in 

Pennsylvania to the tune of an average of about $6,000 a family, 

we would have been able to maintain people in their homes, not 

ruin their credit rating, not destabilize neighborhoods. 

So I just wanted to mention again and put it in the record and 

ask you both to comment on that, and to comment on in this new 

lending effort for small businesses, whether or not credit unions 

and CDFIs are quasi public entities in cities like Philadelphia may 

also be involved, because there you will get actual lending. You 

won’t have to worry about the question of how much they keep for 

capital and how much they lend out. They are in the business of 

lending. So I would like to have your comment on that. 

Secretary GEITHNER. I have heard great things about the program you described, and everybody who has talked about it—— 

Mr. FATTAH. It is all true. 

Secretary GEITHNER [continuing]. Says what you say, which is 

that it has a very good record, very good experience. And I comWReier-Aviles on DSKGBLS3C1PROD with HEARING

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pliment you for the design of it, and it is a good example of how 

initiative at the State and local level is a good thing for us to encourage and incent and reinforce. We have supported, will support 

the efforts you described in the House bill to provide a little bit 

more oxygen resources for those programs. 

You were actually right that one of the most effective ways you 

can get small business lending to increase in communities where 

credit was still starved for credit is through the CDFI program. 

And we have, as you know, not just put substantial additional 

budget resources into that program, into the New Market Tax 

Credit program, but we announced recently that we would give 

capital to—we would provide a program for CDFIs to get capital 

from the Treasury at very attractive dividend rates, and I think it 

is going to be a very effective program. And we are putting that 

in place right away. That is under the TARP for them to come. And 

we think that would have a very good return in communities where 

typically what happens is investment dries up quickest, credit flees 

most quickly, it comes back latest. 

It is a very good economic case, I think, for trying to make sure 

that we are getting resources targeted to those community institutions that can do a good job. You and I were in Philadelphia together, I think, just a couple of weeks ago highlighting one example 

of that kind of program. We are very committed to that. 

Mr. FATTAH. Yes. Last question on commercial real estate, which 

is not new, but the challenge of the greatest, I think, concern in 

the horizon now. And I know of instances in Philadelphia, I assume 

they are not isolated, where you have commercial real estate mortgages that have been paid, that are vanilla deals that have, you 

know, no issues versus hardship cases. I am not talking about 

hardship cases—but where you have vanilla deals, and these deals 

are still being yanked. Is there any thought yet about how we 

might go about not having a run of foreclosures where we don’t 

have to have them on the commercial side? 

Secretary GEITHNER. It will still be a big challenge, I think, the 

commercial real estate challenge. It is going to take a while to 

work through this problem. We have put in place a series of programs that I hear you are familiar with to help ease that adjustment process, but it will still be very difficult. 

Again, one of the reasons why we proposed this Small Business 

Lending Fund is to make sure we are getting capital to small community banks that are still the most hardest hit by what is happening in commercial real estate. But we think that mix of programs to get capital to banks who need it and to support efforts 

to get the securities markets more liquid again is the best thing we 

can do to ease that transition. I would be happy to talk to you in 

detail. 

Mr. FATTAH. I have an idea, and I would be interested in dialogue in what we might be able to do in that area. 

Secretary GEITHNER. Mr. Chairman, I want to end where the 

Congressman began, which is that I think it is very important to 

recognize that, of course, banks are different, not all institutions 

were the same, but I would say across the American financial system you saw banks and finance companies doing things that 

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nancial system. And I think that they all need to work much harder to earn back the trust and confidence of their customers, of the 

American investors, and of people around the world in the American financial system. I think they have got a long way to go, and 

I would like to see them all doing more to help restore basic trust 

and confidence in their customers, in the American people. 

You highlighted some examples of things people have done, but 

we can see a lot more of it. They have a lot more to do. One thing 

they can do is try to help make sure that we get financial reform 

passed that puts in place a level playing field of strong protections, 

deals with the too big to fail problem. That is a good thing for the 

country and, I think, a good thing for the future of the American 

economy. And I think it is a fair thing to ask them to support, and 

we are hopeful they will work with us to get a strong package of 

reforms in place as the House has already passed. 

Mr. FATTAH. With my $3 billion emergency mortgage foreclosure 

intact. 

Mr. SERRANO. So far you have proposed seven bills. I like it. 

Mr. FATTAH. This is already passed by the House, the Wall 

Street reform bill. 

Mr. SERRANO. The other one is already on the way. 

Mr. FATTAH. And the Secretary promised a rigorous examination 

of this idea, pros and cons. 

Secretary GEITHNER. You said to tear apart, but we will do a 

careful balance. 

Mr. FATTAH. I think any idea should be able to withstand analysis. 

Mr. SERRANO. Thank you. 

Mr. Culberson. 

Mr. CULBERSON. Thank you, Mr. Chairman. 

Mr. Secretary, the bailout bill which passed in the last months 

of the Bush administration, which I voted against and strenuously 

opposed, did contain language that had a requirement that TARP 

money repaid to the Treasury be used for deficit reduction, which 

I wanted to ask, do you agree that is important? 

Secretary GEITHNER. Oh, absolutely. Again, the important thing 

to recognize is that we have now taken back, replaced with private 

money, more than two-thirds of the investments that my predecessor had to make, and he did the right thing. They were the necessary things to do, but we have now gotten back more than twothirds of that, I think more than $170 billion of the American people’s money, and that, under the law as written, that goes to reduce our deficits and our debt. 

Mr. CULBERSON. And should not be reallocated? 

Secretary GEITHNER. Again, Congress, under the laws of the 

land, can decide what it does with the resource here, but we saved 

substantial resources for the American people and would like to 

work with you and make sure we are devoting those to the right 

priorities for the country. And, of course, we face these two priorities now, which is getting this economy back on track and digging 

out of that fiscal hole we inherited. 

Mr. CULBERSON. Oh, wait, wait, wait, no. You inherited somewhat—you inherited a fiscal hole. 

Secretary GEITHNER. That is right. 

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Mr. CULBERSON. But I want to go back to that, but you dug the 

whole three times deeper. 

Secretary GEITHNER. No, no, no. That is absolutely not true, Congressman. You know the facts in this is that when we came into 

office—— 

Mr. CULBERSON. You dug the hole much deeper. 

Secretary GEITHNER. No, no, no. All we did was try to rescue an 

economy that was in collapse, a financial system at the edge of failure. We did that in the most careful, effective way we could, and 

those actions, as you have seen, have had a very substantial effect 

in restoring growth. 

Mr. CULBERSON. Set aside whatever your intent was in spending 

the money, it is a fact that the annual budget of the United States 

in 2007 with about 1 trillion, in 2008 was 1.1 trillion, in 2009 was 

1.2 trillion. And yet in a little over 12 months, 13 months that the 

Obama administration has been in office, your administration and 

the Pelosi-Reid-led Congress has managed to spend—in the course 

of a single year, you signed $3.3 trillion worth of new spending into 

law. You spent more money. 

Secretary GEITHNER. I would be happy to go through it. 

Mr. CULBERSON. More than any Congress in the history of the 

United States, and it just defies common sense for this administration to pretend that you are paying any attention at all to deficit 

reduction. 

Secretary GEITHNER. No, no. Again—— 

Mr. CULBERSON. In any way it just doesn’t square with reality. 

Secretary GEITHNER. Congressman, faced with the worst economy in generations, the President and Congress acted. If we had 

not acted, the economy would have fallen off the cliff. Growth 

would still be declining. Our deficits would be larger. If you care 

about fiscal responsibility, there is no way you could have argued 

that the response for the government should have been to stand 

back, let this economy collapse, let it collapse. That would have 

been far more costly not just to the fiscal position of the United 

States, but to the fortunes of average Americans and businesses 

across the country. There is no fiscally responsible strategy in a crisis that would have justified standing back and not acting in that 

context. 

Mr. CULBERSON. Let us set aside the bailout, because that happened under the Bush watch, and that is the principal mechanism 

I am sure you are referring to. 

Secretary GEITHNER. No, no. I’m referring—— 

Mr. CULBERSON. The stimulus bill, $787 billion; the omnibus, 

$439 billion; the supplemental, $105 billion; consolidated appropriations bill, $446 billion. The level of spending is unprecedented. 

The level of debt that you have asked our kids to pay off is unprecedented. 

Secretary GEITHNER. No. 

Mr. CULBERSON. The level of deficits is unprecedented. 

Secretary GEITHNER. Again, Congressman—— 

Mr. CULBERSON. And it is really important that we want you to 

live up to what your words are—— 

Secretary GEITHNER. The great thing about this country, Congressman—— 

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Mr. CULBERSON [continuing]. And we have not seen it. 

Secretary GEITHNER. The great thing about this country is we get 

to debate what makes sense for the American people. And you can 

look at the actions that we proposed, Congress enacted, and said 

you would have preferred we do nothing, or preferred that more of 

it come in the form of tax cuts or other things. But we put in place 

a set of well-designed, targeted measures that were absolutely essential to break the back of the worst economic crisis in generations, and we are at the beginning of the process of healing the 

damage it has done. 

But I completely agree with you that we have to recognize, make 

sure the American people understand is we are going to have to dig 

our way out of this hole. 

Mr. CULBERSON. By spending more money. 

Secretary GEITHNER. No. 

Mr. CULBERSON. But that is what your approach has been. 

Secretary GEITHNER. Again, in this budget, the President’s budget proposes specific measures on the tax side and the expenditure 

side to bring our deficits down dramatically as a share of our economy over the next 4 years. 

Mr. CULBERSON. You agree all the Bush tax cuts should be allowed to expire and therefore—— 

Secretary GEITHNER. No, that is not true. We propose to 

allow—— 

Mr. CULBERSON. Your budget proposes. 

Secretary GEITHNER. As Congress legislated, we propose to allow 

that tax cuts on the most fortunate 2 to 3 percent of Americans to 

expire as scheduled in 2011. Now, we have also proposed a freeze 

on nondefense discretionary expenditures for 3 years. We have also 

proposed some other measures to cut spending over that period of 

time. And again, some of those proposals will cut our deficits to 

below 4 percent GDP in 4 years. 

Now, you may propose different ways to do it, you may propose 

more aggressive ways to do it at a period of time, but the basic imperative we all share is to recognize, as I think you do, that deficits 

matter. 

Mr. CULBERSON. Yeah. I appreciate your vigorous defense of the 

administration’s proposals, but this is why the country is so upset, 

because what you say doesn’t square with your actions. 

Secretary GEITHNER. No. You can measure it by exactly what we 

are proposing. 

Mr. CULBERSON. You have spent more money and less time than 

any Congress in any administration in history, you have driven the 

deficits to unprecedented levels, and you are trying to sell a bill of 

goods to the country claiming that you are going to create the 

mother of all entitlements, insure 30 million more Americans, and 

we are going to save you money. No one believes that. 

Secretary GEITHNER. Again, I don’t expect you to agree. Again, 

the great thing about our country is we get to have a national debate on what makes sense for the country. 

Mr. CULBERSON. That is true, and that is why the November 

election is going to be a tidal wave. 

Mr. SERRANO. Thank you. And everything that went wrong started on January 20th of last year. 

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Mr. CULBERSON. Oh, no. I voted against—— 

Mr. SERRANO. You are going to get a chance on the House floor 

to pull us out of Afghanistan, which is going to cost a couple of trillion dollars. Let us see how fiscal conservatives vote on that. 

But I must take issue with something, you threw into the package the omnibus bill. 

Mr. CULBERSON. Yes. 

Mr. SERRANO. Well, if I recall, that was the regular appropriations bills that we have to constitutionally pass every year. 

Mr. CULBERSON. That is right. 

Mr. SERRANO. I guess you were saying that we should have shut 

down government. 

Mr. CULBERSON. I had a problem, Mr. Chairman, with the 85 

percent increase in nondefense discretionary spending over the 

course of the last 2 years. That is what worried me. 

Secretary GEITHNER. Mr. Chairman, could I just say one thing? 

This is fun for both of us. 

Mr. CULBERSON. It is. And we are enjoying this. And my Chairman and I, we get along very well. That is what makes it a great 

country, friendly debate. 

Mr. CULBERSON. I agree. 

Mr. SERRANO. But actually in all honesty, with all due respect 

to both of you, this is quite an accomplishment. He did not blame 

anything on immigrants today. 

Secretary GEITHNER. Congressman, I want to point out one thing 

about this, because I think it is important for you to recognize. In 

the President’s budget we proposed to leave nondefense discretionary expenditures—this is sort of the measure of the discretionary government—4 years out at the same level in real terms 

that we inherited at the last year of the Bush administration. So 

we are proposing enough restraint to make sure these temporary 

things we did to save the economy from collapse go away, and that 

we bring ourselves down to a size of government, taking out defense and security, that is where it was in real terms when we 

came into office. 

Mr. CULBERSON. Four years from now. 

Secretary GEITHNER. Yeah. But we are going to get there. If you 

would like to get there overnight, I would be happy to work with 

you on that. But we are going to try to get there in a—by restraining expenditures in a way that is careful and balanced and allows 

us to come out and heal the damage caused by this crisis. 

But anyway, I respect you, I am glad you are here. You are making the rigorous case for fiscal responsibility. We need to have more 

people do it. It is a good thing for the country. 

Mr. CULBERSON. Mr. Chairman, you will enjoy this. May I ask 

one quick follow-up, with your permission? 

Mr. SERRANO. Yes, in your 11th minute. 

Mr. CULBERSON. Do you still have the Zimbabwe bank note in 

your wallet you showed me? 

Secretary GEITHNER. No, I don’t carry my wallet anymore, but I 

am glad you raised that again, because I remember that exchange 

from last year. But I remember, as you recall, you showed me the 

pink version, but I had a better one. 

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Mr. CULBERSON. I had a $50 billion bank note, Mr. Chairman, 

from Zimbabwe, and I was very impressed the Secretary a trillion, 

I think, dollar. 

Secretary GEITHNER. Ten trillion. 

Mr. CULBERSON. Ten trillion dollar bank note from Zimbabwe. 

And we are ready to help you get those deficits under control and 

balanced. 

Secretary GEITHNER. We welcome that. And again, it is good for 

people like you to try to make the case for the country that deficits 

matter, and I am glad to hear you say it. 

Mr. CULBERSON. Thank you. 

Thank you, Mr. Chairman. 

Mr. SERRANO. What I know about capitalism, what I learned 

about capitalism is that every so often you have to invest to make 

things happen. And banks and other folks were not investing, and 

so government invested some. I think at the end of the day we will 

get a good return. 

Mr. Secretary, on March 4th of last year, you stated that the administration had laid out a clear path forward to helping up to 9 

million families restructure or refinance their mortgages to a payment that is affordable now and into the future. Unfortunately the 

latest Treasury report on this program showed that only 116,000 

homeowners have received permanent mortgage relief. The result 

has been that millions of homeowners have been forced out of their 

homes through foreclosures on short sales. 

Can you take a moment to please explain what happened between your optimistic forecast and the reality of what has instead 

occurred? 

Secretary GEITHNER. The program we announced initially to help 

modify mortgages for a set of Americans facing the risk of losing 

their house, we thought over time it would reach perhaps up to 31⁄2

million Americans. Now, that program in its initial 8-month life 

has now provided very substantial cash flow relief to a million families across the country, as I said, on average $500 less, almost 

$600 in lower monthly payments to reduce their mortgage obligations. 

Now, we are seeing a substantial number of those, less than we 

would like, converted to permanent modifications. But the number 

that matters now is a million. The million is growing. We are going 

to reach as many as we can. 

Mr. SERRANO. So what was the 116,000? 

Secretary GEITHNER. That is the number of permanent today. 

But remember, when you get a temporary modification, your mortgage obligations get reduced substantially right from that point. 

Now, of course, we want to see people eligible for permanent modifications get permanent modifications. And it is now a million families across the country, they are seeing an immediate, substantial, 

sustained reduction in their mortgage obligations so that they have 

a chance of staying in their homes. And, of course, we are going 

to make sure we are reaching as many people as we can. That 

number is still growing, and we are going to make sure that as 

many of those temporary modifications are converted into permanent as possible. We are committed to doing that. We are seeing 

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those numbers start to increase dramatically. They are not getting 

there fast enough, but we are going to keep working on that. 

Mr. SERRANO. Okay. Then can I make a suggestion and ask you 

to issue yet another report that tells us what you just told us so 

people don’t rely on the other one that they know. 

Secretary GEITHNER. Absolutely. 

Mr. SERRANO. Because I am asking my question based on that 

information. 

Secretary GEITHNER. Absolutely. Well, we did not claim, Mr. 

Chairman, that we would reach 9 million Americans through that 

program. We thought as it was originally designed, it would reach 

up to 31⁄2. We may not reach that target, but that was going to be 

over a 3-year period of time. And so the architects of this program 

say we are on track to hit those original objectives, but we are 

going to do as much as we can to make sure we again reach as 

many people as we can. 

Mr. SERRANO. Okay. In the 2011 budget proposal for the CDFI 

fund, you propose zeroing out two existing programs, the Bank Enterprise Award Program, which provides assistance to banks that 

have demonstrated increased lending activity in low-income neighborhoods, and the Capital Magnet Fund, which provides competitive grants for constructing, preserving and rehabilitating or acquiring affordable housing in low-income neighborhoods, as well as 

other economic development projects in communities where the 

housing in question is located. Would you please explain why the 

administration made the decision not to request funding for these 

two programs? 

Secretary GEITHNER. As you know, as appropriators know, governing requires making choices among competing priorities with 

scarce resources. So what we did, which I think you need to expect 

us to do, is to take a careful look at all these programs and make 

sure we are allocating resources where they have the highest return. And we, after careful reflection, with the knowledge that 

many people like these two programs we proposed to cut funding 

on, we decided we thought those resources would be better used in 

supporting the signature CDFI program which has so much support across the country. It has such a good record of success. So the 

simplest way to say it is we took a careful look, and we thought 

those resources would be better used in support of the signature 

CDFI program. 

I think that I am confident that is the right judgment. But again, 

we are making choices and trying to demonstrate to you that we 

are going to use the resources you allocate to us carefully, and we 

are prepared to take a careful look at programs that, even if they 

help, may not provide high enough return for the resources we are 

providing. 

Mr. SERRANO. Okay. But just for the record, it doesn’t sit well 

with me and, I am sure, with other Members of the Congress that 

on the first page of my questions to you, I ask why are there cuts 

in the program serving low-income taxpayers, and on this one I am 

asking you similar questions. So it would seem either that I am 

asking all the questions that are leaning on one side, or we are taking hits again, directing hits, at the low-income homeowners of this 

country. 

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Secretary GEITHNER. But on balance, we have proposed a significant expansion in these two signature programs, which are the CFI 

program and New Market Tax Credit program. For reasons that we 

both agree, these programs have a great record of reaching some 

of the hardest-hit communities in our country, with a very good 

record of success leveraging private money to help make sure that 

our taxpayer dollars are used effectively. They go to institutions 

who have a good record of lending in their communities. 

So my own view is that we are increasing our investments, and 

we are reforming how we use them in ways that make them more 

effective. 

Mr. SERRANO. I have one last question, and then I will submit 

the others. I know Mrs. Emerson wanted to come back, Mr. 

Culberson, but it is getting to that crunch time here. 

In the last year banks have reduced their credit outstanding to commercial and industrial businesses by almost 20 percent, or $300 

billion. When businesses lose access to credit, they cut back jobs 

and prolong our efforts at economic recovery. 

Recently the Financial Press has reported that the financial serv- ices sector has paid out more than $100 billion in bonuses in the 

last couple of months. 

What do you think will be required to resume business lending 

in this country? Do you agree that the obscene amount of money 

handed out for bonuses could have been retained and used to increase credit in our struggling economy by hundreds of billions of 

dollars? 

Secretary GEITHNER. Mr. Chairman, what you have seen happen 

in terms of credit is a mix of two different things. One is you saw 

demand for credit fall very, very sharply as the economy growth 

slowed, the economy contracted; and then you have seen a substantial reduction in credit bank supply banks who are short capital. 

Both those two things were happening, but it is starting to ease. 

The best measure of whether credit is getting easier or tighter 

is the price of a loan, and the cost of credit has come down very, 

very dramatically across the country for a business, for a family, 

for a municipal government, and that is a measure of progress we 

have achieved in trying to heal the damage caused by the financial 

system. 

Now, I completely agree that what you have seen happen in compensation practices across the financial industry is unacceptable. It 

is outrageous. And we are working very hard using the authority 

Congress provided us trying to make sure we are bringing about 

durable reforms in how financial executives are compensated so 

they don’t have the incentives again to take a bunch of risks and 

leave the American people holding the bag. And it is very important. We have seen some progress, but not enough, and we are 

going to keep working, making sure that we encourage reforms 

that will make sure we don’t get in this kind of mess again. 

Mr. SERRANO. I know you do realize that part of the lack of public confidence in what we are doing is when they continue to see 

this happen. 

Secretary GEITHNER. Of course. Absolutely. 

Mr. SERRANO. And then one last point here, and I won’t ask— 

I won’t make all the comments that go before the question, but 

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with the whole issue of TARP and the public feeling that the 

money is not going to the right place, with 20/20 hindsight, what 

more do you think could have been done from the onset of TARP 

to ensure greater transparency and accountability in the way that 

TARP dollars were being used? 

Secretary GEITHNER. Mr. Chairman, it is a little hard for me to 

say that even with the benefit of hindsight now, but let me tell you 

what we did and what we are committed to. 

We made sure that we put the precise financial terms of all the 

investments we made in the public domain on our Web site for everybody to see right from the beginning. We have adopted a whole 

range of proposals by the various overseers Congress put in place 

over this program to try to improve transparency of this basic program. 

We have put in place a dramatic improvement in the basic access 

to information the American public have about these programs, 

where their resources went, what they were for, the terms in which 

they were provided, and we will continue to work on ways to do 

that. 

But the important thing to take, just to reflect on as you look at 

how this program was run, is that we have now again got back 

more than $170 billion from the financial system. We have reduced 

expected losses by more than $400 billion from where they were 

just a year ago. We have saved substantial resources for the American people to devote to our long-term fiscal challenges, not just our 

near-term priorities. We have done this at much lower cost than 

people expected, and we have seen a very dramatic improvement 

in credit conditions across the country. 

So I think the American people can look at that record, and they 

can see the detailed numbers on the return, on the risk of losses 

still where that is concentrated, and they can see the benefits 

where they are. 

Now, but we all recognize that there are a lot of challenges 

ahead of us still, in small business credit, in housing markets, in 

commercial real estate. And this is not over yet, and we are not 

going to make the mistake many countries have made across history over time, which is to pull back too quickly, to stop before we 

have actually healed the damage caused by—and this crisis caused 

a huge amount of damage. We have made a lot of progress. We 

have a lot of challenges left, though. 

Mr. CULBERSON. I would like to ask about Freddie and Fannie. 

Mr. SERRANO. One more, and then we will wrap it up. He has 

to leave. I have to speak against the war, save some money. 

Mr. CULBERSON. That is always good to save money. 

Thank you, Mr. Secretary. I wanted to ask about Fannie and 

Freddie in particular. I know that the Congress had put limits on 

the liability of the taxpayers, and that Treasury had the authority 

to do so and lifted, I think, those caps on the amount of the exposure. But we have not yet seen a reform proposal out of the administration, and the scale of the losses, of course, at Freddie and 

Fannie are both immense. This is a very scary situation, and as a 

fiscal conservative, I certainly don’t like to see the taxpayers put 

on the hook for this, particularly in an unlimited way. 

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Would you, if you could, tell us what the administration’s time 

frame is? Why are we still waiting to see reform of Freddie and 

Fannie, and what will it entail to help provide protection for your 

kids and my kids? 

Secretary GEITHNER. What we have suggested, Congressman, is 

that we are going to put out on the public domain—I am going to 

testify in a few weeks on this—some broad objectives and principles to guide reform. We are going to put out a set of broad questions on the strategy for public comment. 

This is a very complicated issue, as you know. It doesn’t just involve Fannie and Freddie. We want to take a careful look at the 

entire set of government agencies that act in the housing market 

now and the set of policies that helped contribute to this terrible 

crisis. And our expectation now is that as we go through that process of public hearing and comment, we will put together some proposals for reform that we present to the Congress next year. 

Now, you have asked a legitimate question, which is why not 

now? And I will just be honest with you. We are doing a lot of 

things. We just have got a lot going on, and we thought to do it 

well, do it carefully, do it right, we wanted to go through a process 

of more careful reflection. If we rushed it, the risk is we would not 

achieve enough and not get consensus, something sweeping 

enough. 

But my personal commitment is we are going to need fundamental reform of the government’s role in the housing market, not 

just in Fannie and Freddie in their future, but looking across a 

whole range of other policies and instruments. And what we allowed happen was, again, a national tragedy, it was avoidable, and 

we should never have let those institutions get themselves in a position where they took on that much risk without capital to back 

them, without credible oversight. With that degree of moral hazard, 

it is a terrible thing, and it is going to require comprehensive reform to change it. 

Mr. CULBERSON. The sooner the better. The unlimited liabilities 

are a real concern. 

And also, Mr. Chairman, it is important to ask about—we 

haven’t touched on this yet—the commercial market. We are about 

to see a tremendous number of resets of commercial mortgages, 

and a lot of those properties have been dramatically devalued. The 

valuations have plummeted for a lot of those properties, you get a 

lot of vacancies, businesses that have left, and the banks are 

being—are so spooky, of course, about real estate loans. And we 

have got potentially another tidal wave coming. 

What is the administration doing? And forgive me for throwing 

this in at the end, Mr. Chairman, it is an important question. What 

is the administration doing to attempt to mitigate the size of the 

commercial reset tsunami which we see coming, which is conceivably as big, if not bigger than the residential mortgage problem? 

Secretary GEITHNER. You are right to say it is still a challenge. 

A big part is still ahead of us. It is going be to a challenge for the 

country to work through. 

Again, as I said to your colleague earlier, the two things we 

think are most effective are to make sure we are getting capital to 

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tial exposure to commercial real estate losses. That will help at the 

margin, but we want to make sure that we are helping to provide 

more liquidity to the securitization markets that are helpful in this 

context. The programs we have put in place in that area have been 

quite helpful so far, they have made some impact so far, but there 

is a lot of challenge still ahead. I would be happy to hear suggestions from you on what would be helpful. 

Mr. CULBERSON. One I would like, a suggestion that I will pass, 

the Chairman has been very gracious in indulging me and giving 

me extra time, is that the regulators—I am hearing this consistently from the smaller banks—the regulators are being unnecessarily aggressive in attempting to force banks to get real estate off 

their portfolios, and it is not a good idea. The regulators, I think, 

are a part of the problem. Obviously, you want to make sure that 

the loans are prudent, that they are going to be repaid. In Houston, 

for example, I know of a tremendous number of these are blue-chip 

borrowers with very long, stable credit histories that have never 

missed a payment, and banks are turning down loans just because 

the banks are being hammered by the regulators to get real estate 

off of their—do you know what I am talking about? 

Secretary GEITHNER. I have heard this concern, too. 

Mr. CULBERSON. What can you do about that, that right there, 

just giving a little breathing room to the banks on the regulation 

side? If it is a safe investment in real estate, the guy has always 

paid his bills, you have seen some reduction in the valuation, but 

come on, you know, keep loaning money. What can you do there? 

Secretary GEITHNER. It is a serious concern. I hear it across the 

country, as do you. But this is a matter for the FDIC, for the OCC, 

the OTS, and the Fed, and what we are doing is encouraging them 

to continue to provide a little bit more care and balance in the 

guidance they give examiners across the country so they are not 

overdoing it, overdoing the tightening, not contributing to it. They 

put out some guidance in November that would help clarify how examiners should treat loans backed by commercial real estate to 

avoid some of the risk you said, but I will certainly carry that message to them. 

Mr. CULBERSON. Thank you, Mr. Chairman. 

Mr. SERRANO. Mrs. Emerson and I and other Members will be 

submitting questions for the record. 

We thank you, Mr. Secretary, for your time. We thank you for 

your direct answers. We want to work closely with you to make 

sure that the recovery is strong, and that the things you inherited 

January of last year are dealt with properly. But we thank you for 

your time. Thank you. 

Secretary GEITHNER. Thank you very much. 

Mr. SERRANO. Meeting is adjourned. 

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(147) 

THURSDAY, APRIL 22, 2010.

FINANCIAL CRISIS AND TARP 

WITNESSES 

HERBERT M. ALLISON, JR., ASSISTANT SECRETARY OF THE TREASURY 

FOR FINANCIAL STABILITY 

NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL FOR THE TROUBLED 

ASSET RELIEF PROGRAM 

Mr. SERRANO. The subcommittee will come to order. Good morning. 

Today this subcommittee will examine the Treasury’s responses 

to the financial crisis and the implementation of TARP. We are 

pleased to have two key witnesses on this topic. Leading off will 

be Herbert Allison, Assistant Secretary of Treasury for financial 

stability, who oversees the TARP program. He will be followed by 

Neil Barofsky, the special inspector general for TARP. 

The financial crisis caused the deepest economic decline since the 

Great Depression in the early 1930s. Although the economy has 

stabilized since the freefall of late 2008 and early 2009, credit continues to shrink and unemployment remains near 10 percent. We 

have a long way to go before most Americans will feel that the 

economy is back on its feet again. We need to understand the role 

TARP has played or could play in responding to our economic problems. 

TARP funds have been used for a variety of purposes. Roughly 700 banks have received capital infusions, totaling more than $200 

billion. With several major modifications along the way, TARP 

funds have been used to provide mortgage modifications to homeowners. Support for the auto industry has totaled more than $80 

billion. Funds were set aside to back up efforts to revive flows for 

credit, for small businesses, students, and consumer credit cards. 

TARP funds have also provided a backstop for Federal Reserve actions with AIG. 

There is also a budget angle to today’s hearing. The TARP legislation allows Treasury to spend on administration whatever it decides without further congressional check. To decide how much to 

appropriate for Treasury, however, this subcommittee needs to understand how much Treasury is spending because of TARP and 

where it draws the line between appropriator funds and TARP-related money. 

In addition, the TARP legislation created the SIGTARP and provided it with $50 million that authorizers tell us they expected to 

last the life of the TARP. They were granted another $50 million 

last spring. Last October, SIGTARP came to our subcommittee 

with an urgent request for $23 million to avoid having to shut 

down this spring. In other words, SIGTARP had made hiring and 

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izers thought sufficient to last through the life of TARP. We provided those funds for fiscal year 2010, and SIGTARP has requested 

another $49 million for fiscal year 2011, far more than the $30 million annual budget for the Treasury Department’s IG. 

We look forward to hearing from our witnesses how effective 

each of the various TARP initiatives have been in restoring a 

healthy flow of credit, a growing economy, and relief for worthy 

borrowers. And we welcome you to our hearing today. 

With those opening remarks, I would like to recognize Ms. Emerson for any comments she may want to make. 

Mrs. EMERSON. Thank you, Mr. Chairman. 

Secretary Allison, thank you so much for being here today. We 

are grateful to you. 

The Emergency Economic Stabilization Act was passed by Congress to buy troubled assets. I am very disappointed that both the 

current and the former administrations have instead used this authority to bail out banks and to become majority or nearly majority 

owners of AIG, Citigroup, and auto manufacturers. 

Acquiring stock shares and lending hundreds of billions of borrowed dollars across the financial sector with little accountability 

or transparency in return is not what we in Congress intended. It 

is impossible to justify to taxpayers why banks received billions of 

dollars without being required to increase lending, account for the 

funds they received, or take meaningful steps to limit executive 

compensation. 

Most of the experts I talk to in Missouri see little sign of how 

TARP improved the financial environment they work in every day. 

And I am concerned that many of the troubled assets TARP was 

meant to purchase still exist. They may still be out there, hindering our economic recovery. No way do the expenditures of TARP 

to rescue troubled assets even begin to approach the estimates still 

being made today of how many troubled assets continue to exist in 

our country’s financial sector. 

Despite the taxpayers’ investment in banks in 2008 and 2009, 

the FDIC reported that bank lending declined in 2009. The Missouri small-business folks I talk to all tell me that credit is still 

very, very hard to get, even for businesses with perfect—and I 

mean perfect—credit histories. In addition, meaningful steps to reform executive compensation have not been taken, home foreclosures and unemployment are still unacceptably high, and some 

experts project a crisis in the commercial real estate market. 

I understand that $186 billion of TARP funds have been returned, and I am very pleased that Secretary Geithner previously 

testified before our full committee saying that the funds repaid to 

TARP should be used for deficit reduction and not new government 

spending. 

Regarding the costs of the Office of Financial Stability—regarding the costs that you all’s office incurs to administer the TARP 

programs, I am concerned that you estimate spending at $298 million in mandatory funding for fiscal year 2011. And I hope that you 

will explain this to us because I need to understand why this level 

the administrative spending is necessary, given that most of the 

TARP funds banks received have been returned and all of the 

TARP programs should be winding down during fiscal 2011. 

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Despite my concerns, I know that you and all of the staff at the 

Office of Financial Stability are working hard to improve our Nation’s economy, and I am grateful and appreciative of your efforts. 

Thanks, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Mr. Allison, you know the drill. Five-minute presentation, your 

full statement will go in the record, and then we can ask you some 

questions. Please proceed. 

Mr. ALLISON. Thank you very much, Chairman Serrano and 

members of the subcommittee. Thank you for the opportunity to 

testify today regarding the Troubled Asset Relief Program, or 

TARP. 

Many Americans believe that the Federal Government bailed out 

Wall Street and forgot about Main Street. But what many Americans at first viewed as a distant financial crisis on Wall Street 

posed the risk of devastating consequences for Main Street. 

In the fall of 2008, we faced the possibility of a second Great Depression. Credit markets froze, and people lost confidence in the 

banking system. Without credit and confidence, our financial system was facing collapse. Had that happened, people would have not 

been able to use their credit cards to buy gas or groceries, families 

would not have been able to get a loan to buy a car or send their 

kids to college, businesses large and small would not have had the 

credit to buy inventory or pay their workers. People were seeing 

the values of their homes plummet and their retirement savings 

shrink. Without bold action, job losses that were already growing 

could have skyrocketed and our economy could have collapsed. So 

our government took unpopular but necessary steps, like creating 

the TARP program, to avert complete failure of the financial system. 

Before we could start economic recovery, we first had to achieve 

financial stability. The American Recovery and Reinvestment Act 

and the Financial Stability Plan launched by the Obama administration provided economic stimulus and restored liquidity that have 

enabled businesses to resume hiring, provided much-needed financing to States, and improved consumer confidence. 

With the new administration, the focus of TARP changed from 

primarily investing in larger financial institutions to helping homeowners avoid foreclosures and improving small-business lending. 

For the past year, TARP has been assisting distressed homeowners through the Home Affordable Modification Program, or 

HAMP, and other innovative methods. HAMP is now providing 

substantial relief to more than 1 million homeowners. Their mortgage payments have been reduced by about a third, or about $500 

per month on average, for an estimated total savings of more than 

$3 billion to date. 

We have recently enhanced HAMP to help more homeowners 

whose mortgages are under water and those who are temporarily 

unemployed to assure homeowners that they won’t face foreclosure 

while being considered for a mortgage modification. 

We have also launched an innovative program to provide additional relief to the 10 States hardest hit by the mortgage crisis and 

high unemployment. 

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The administration is also focusing its financial recovery efforts 

on small business. We are now seeking legislation to create a new 

$30 billion small-business lending fund outside of TARP that would 

provide small and mid-sized banks with capital on terms with 

strong incentives to increase small-business lending. 

Additionally, Treasury will provide TARP funds to community 

development financial institutions, or CDFIs, to lend to small business. CDFIs play a vital role in providing financial services to some 

of the hardest-hit and poorest communities. 

Together, TARP and the Recovery Act are already producing 

positive results. Jobs are being created. Borrowing costs for State 

and local governments have been reduced. Securities markets essentially frozen 15 months ago have reopened. And housing markets are showing signs of stabilizing. 

With improving economic conditions and careful stewardship of 

taxpayers’ money, TARP investments are delivering better returns 

than originally expected. We estimate that TARP will ultimately 

cost about $120 billion—far less than the maximum $700 billion 

appropriated by Congress. 

200 billion dollars in repayments and income from TARP investments have already been reused to reduce the national debt. If 

Congress joins the President in enacting a financial recovery fee, 

TARP will not cost the American taxpayers a dime. 

Because of the bold actions taken by Congress and the administration, our financial markets are more stable and signs of recovery 

are increasingly visible on Main Street. 

Thank you very much, and I am happy to answer your questions. 

[The prepared statement of Mr. Allison follows:] 

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Mr. SERRANO. Thank you so much for your testimony. 

Let me, just on your last comment, what you are saying, I think, is that we may allocate as much as the $700 billion, but at the end 

of the day it may cost $120 billion because the rest would have 

been paid back? 

Mr. ALLISON. Yes, that is correct. In fact, we have not invested 

the entire $700 billion. 

Mr. SERRANO. Okay. 

Mr. ALLISON. We plan to invest about $535 billion. And already 

we have seen that the investments in the banks, which have 

amounted to about $245 billion, have produced returns of about 

$20 billion. And we have been paid back about 70 percent of that 

money. 

Mr. SERRANO. So did we, the Congress or the administration, 

overestimate the need? 

Mr. ALLISON. I think—— 

Mr. SERRANO. Because there was, what, 787, right? Oh, I am 

sorry. 

Mr. ALLISON. Well, that was the stimulus act. 

Mr. SERRANO. Numbers here, numbers there. Okay. 

Mr. ALLISON. Actually, many people—— 

Mr. SERRANO. Well, that is an area code in Puerto Rico. Either 

way. 

Mr. ALLISON. Right. 

A lot of people conflate the Recovery Act with TARP. And TARP’s 

purpose was to achieve financial stability, and, of course, ARRA 

was to recover the economy. 

Mr. SERRANO. Right. But you are saying that, at the end of the day, it may cost $120 million? 

Mr. ALLISON. It could. Now—— 

Mr. SERRANO. But then you also said it may not cost a dime. 

Mr. ALLISON. Exactly. Let me explain that. 

A year ago, the estimated cost was $341 billion. By last fall, the estimate was down to $117 billion. That is the number I am using 

here today. 

We will be updating this number again. We expect that the cost 

could come down further. We have been encouraged by developments at AIG and General Motors, the car companies. We are 

starting the sale of Citigroup shares very soon. And we are doing 

our best to move out of these investments as rapidly as we can, 

consistent with protecting the interests of taxpayers. 

Mr. SERRANO. Okay. I would just give you a little bit of advice, 

which usually we give at the end of the hearing, not at the beginning. But whatever office it is you have that puts out that information—I think Ms. Emerson would agree with us—should be putting 

it out a little better. Because the public’s perception is that it may 

be going down a hole. And you are telling us that, at the end of 

the day, it may not cost a penny. So I think people need to know 

that. 

Mr. ALLISON. Thank you. 

Mr. SERRANO. Mr. Allison, as we consider the Treasury and 

SIGTARP budgets for next year, it is helpful to understand your 

plans for TARP activity and the relationship between your budget 

and the rest of the Treasury budget. 

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You run the Office of Financial Stability, where most of the 

TARP administrative expenses seem to be incurred. Our regular 

appropriations has always funded Treasury efforts on financial stability. How does the Department decide what TARP pays for and 

what the regular Treasury appropriation pays for? 

Mr. ALLISON. We keep very careful track of our expenditures. We 

have our own finance department within TARP, which is unusual 

for a government program. 

We have also established an internal review department within 

TARP that monitors all of our expenditures. They are currently auditing these expenditures to make sure that all of the money allocated to TARP is spent only on TARP activities and not on Treasury activities. 

Mr. SERRANO. And that is pretty much established? 

Mr. ALLISON. Yes, sir. 

Mr. SERRANO. I mean, if people were to look at it or the press 

were to ask, you could see that clearly? 

Mr. ALLISON. Yes, sir. And we also work closely—our own financial people work closely with the GAO and the special inspector 

general and other oversight bodies who are also concerned with 

making sure that we only spend TARP funds on TARP matters. 

Mr. SERRANO. Also, last June, the report language for our bill 

asked the Treasury for detailed information on the staffing and 

budget for specific TARP-related activities. On March 10th, when 

I expressed my disappointment in the information that had been 

provided, Secretary Geithner replied, and I quote, ‘‘We will provide 

that information as quickly as we can. I assume we can do it quite 

quickly, but I just want to underscore we are now in the process 

of winding down TARP.’’ That is the end of his quote. Six weeks 

later, we have yet to receive any additional information as for 

winding down TARP. 

The budget documents show the FTEs in your Office of Financial 

Stability are expected to increase from 260 this year to 271 next 

year. So the question is, when will the Department finally provide 

us with how the TARP-funded staff is being assigned by subject 

area, as specified in our report language, and the same for your 

contract employees? 

And the February budget documents for your office show an estimate for contractor services this year at $314 million, up from an 

initial estimated $213 million. What are the services that you are 

buying, and why did the estimate go up almost 50 percent? 

Mr. ALLISON. Yes, sir. First of all, we are still increasing our 

staff. We expect that our staff could be in the high 260s or in the 

270s by the end of this fiscal year. After that, it will begin coming 

down somewhat. We project 271, as you mentioned, for the end of 

the next fiscal year. 

The reason why the staff is still increasing is that we are still 

improving our control systems, and we are building systems that 

can last us the years that TARP continues to operate. Even though 

we will stop making new investments on October 3rd, we will still 

have to monitor these investments. We are very concerned about 

protecting the taxpayers’ interest. That means having very strong 

controls and oversight and reporting capabilities. So our increases 

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are devoted to those functions. And we will be winding down other 

parts of our program over time as we are repaid. 

Now, while we have received about 70 percent of the funds back 

from the banks, relatively few banks accounted for those funds. 

And so we still have well over 600 banks whose moneys we have 

to oversee. So the burden on the staff has not been reduced materially by being paid back all those funds. 

Mr. SERRANO. You say there are 600 banks that have—— 

Mr. ALLISON. Over 600 banks, yes. And this is primarily today. 

It is no longer a large-bank program. The large banks have repaid. 

Today, we have over 600 banks that are mid-sized and small 

banks. So our program today is a small-, mid-sized-bank program, 

not a large-bank program. But it requires that we monitor the 

funds of 600 different institutions. 

Mr. SERRANO. And what is it that these small and mid-sized 

banks are not doing? They are not reporting back on time? 

Mr. ALLISON. Actually, sir, the banks are reporting. 

Mr. SERRANO. Right. 

Mr. ALLISON. We require reports from them monthly and quarterly. 

Mr. SERRANO. Right. 

Mr. ALLISON. By the way, those are all disclosed on our Web site. 

We also disclose all of our transactions, and have, within 48 hours 

after the transactions are consummated. We provide fulsome reporting, and we continue to improve our reporting for the public. 

And that is available on financialstability.gov. 

Mr. SERRANO. All right. Thank you. 

Mrs. Emerson. 

Mrs. EMERSON. Thanks, Mr. Chairman. 

Secretary Allison, one of the things that really is still troubling 

me, and maybe you can make me feel better about this, really is 

the question of the viability of our financial institutions. 

I watch and hear from different economists, from one spectrum 

to the other philosophically, talking about the current tactics of financial institutions is to kind of extend and pretend with the 

mountain of debt caused by assets still on their books from the collapse of the mortgage-backed derivatives market in 2008. And so, 

I am really worried, still, that we haven’t gotten to the crux of the 

problem yet. 

And back in November of 2009, Dominique Strauss-Kahn of the 

IMF said that only 50 percent of all the bad assets held by banks 

had been declared to that date. And on October the 26th, IMF is 

actually scheduled to release the next Global Financial Stability 

Report, and we have been told that the percentage of unreported 

bad assets may go up as high as 66 percent in that document. 

So I guess I have four short questions to ask you: one, if you 

agree with Mr. Strauss-Kahn’s numbers. How would you define a 

bad asset? As banks leave the TARP, what provisions are being 

made for ensuring a more complete disclosure on remaining bad assets? And, four, have you all looked at why the audits for the banks 

have not been used to disclose these bad assets? 

Mr. ALLISON. Well, first of all, we have been watching the situation of the mid-sized and smaller banks. You referred to the commercial real estate and bank portfolios. Those are concentrated priWReier-Aviles on DSKGBLS3C1PROD with HEARING

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marily in mid-sized and smaller banks. These are banks to which 

we still have advanced funds, as I mentioned earlier. 

By the way, we do not get repaid until the regulators of the 

banks approve repayments. And the regulators are the ones who 

are most responsible for overseeing the financial condition of the 

banks. That is not a function of the Treasury Department. So, 

again, we rely on the regulators. 

However, as we have looked at the commercial real estate issue, 

while we do think it is a serious challenge for these institutions, 

we do see that actions are being taken to moderate that problem. 

There have been, first of all, write-downs of those assets, and, 

therefore, their values today have been written down, in many 

cases substantially, closer to the present value of those investments. 

And so we are pleased to see that the accounting is coming to 

terms with the actual condition of those assets. 

Mrs. EMERSON. Do you believe that all the bad assets—I mean, 

they have been written down, but, I mean, what do you all estimate still exists in the financial community? And I need you to define what you believe a bad asset is. 

Mr. ALLISON. Well, I think what we have found—‘‘bad asset’’ is 

a vague term, of course, and I don’t think we have a precise definition for what a bad asset is. However, there were assets that were 

seriously troubled because they could not be traded. They couldn’t 

easily be valued because there were no markets that were highly 

liquid at that time during the height of the crisis. So banks didn’t 

know, in some cases, what the assets were worth or what the other 

bank’s assets were worth. And so trading between banks, which is 

necessary for a fully functioning money market, for example, was 

breaking down. That is why TARP was so necessary: to provide additional confidence. 

I think now some markets have reopened. Spreads on assets are 

down substantially, meaning that those assets are viewed as less 

troubled today than they were a year and a half ago. And there has 

been a tremendous improvement in credit spreads, which are indicative of the risk seen in those assets by the markets. 

So I think what you see is the situation of the banks is much 

healthier than it was before. Many banks of all sizes have improved their capital ratios. They hold more equity in other capital 

as a percentage of their total assets today, so they are better able 

to support those assets. At the same time, the assets have been 

written down in value. So the overall condition of these banks, by 

and large, is far stronger than it was before. 

Mrs. EMERSON. But, yet, they are doing nothing about lending to 

small businesses. You know, they are not taking—I mean, when 

they have customers who seriously—and I have had several meetings over the past few weeks with small-business people who have 

tremendously perfect credit scores, who actually have been growing 

their businesses in spite of the bad economy, and yet either they 

can get loans at 8 percent, which is ridiculous given the fact that 

the banks are borrowing at 0 or maybe 0.2 percent or something 

like that, and yet they are not lended out any money. 

And then, you know, the examiners are saying, well—they are 

being very difficult on the one hand, but then you are saying that 

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the regulators are really the people who are in charge. But, yet, the 

regulators are also the people who let us down in the first place. 

So I am not as optimistic as perhaps you are, and I need you to 

just convince me that I should be. 

Mr. ALLISON. All right. Well, Congresswoman Emerson, you 

point out an issue of real concern. And we agree that lending did 

decline. Small businesses especially have been hard-hit by this because they don’t have the same access to the capital markets that 

larger corporations do. And small businesses are the creator of 

many jobs in this country, so it is vitally important that they have 

access to borrowings and capital. 

So we have been meeting with small businesses and with banks 

of all sizes, including just last week, to ascertain from them what 

is the state of lending. Now, it is normal that in a deep recession, 

like we have just had, lending contracts for a number of reasons. 

First of all, the banks are suffering losses, they pull back, they are 

trying to conserve capital, they are very cautious, they raise their 

landing standards, typically. Small businesses and large businesses 

pull back initially, as well, because they were concerned about 

dropping revenues, and they weren’t sure they wanted to take on 

the risk of additional borrowings. 

Now the economy has improved significantly, and the financial 

markets have, as well. We have been told by banks as recently as 

last week that they anticipate increasing loans to small business, 

for example, this year. They were uniform in saying this to us. 

Now, we are going to be meeting with them every quarter because 

we want to make sure that they are following through with this. We also have proposed to Congress the establishment of a $30 

billion small-business loan fund. And it has terms in it, if it is 

passed, that would provide very strong encouragement to banks to 

lend. Because the more they lend, the lower the dividend rate that 

they will be paying on this capital. But they are going to have to 

perform before the rate comes down. 

Mrs. EMERSON. I appreciate that. And we will follow up when it 

is my next turn to ask questions on the small-business lending. 

Thanks. 

Mr. ALLISON. Sure. Thanks. 

Mr. SERRANO. Commenting on when your next turn comes up, we 

will have better attendance than usual today, so we will—and we 

have some votes lurking in the near future, so we will adhere to 

the 5-minute rule. 

With that in mind, Mr. Edwards. 

Mr. EDWARDS. Thank you, Mr. Chairman. 

Mr. Allison, as I recall, according to former President Bush, his 

Chairman of the Federal Reserve, Mr. Bernanke, and his Secretary 

of the Treasury, Mr. Paulson, all said in the fall of 2008 that we 

were potentially on the edge of facing a second Great Depression. 

I realize there are some today in Washington that, for whatever 

reasons, would elevate the Herbert Hoover approach to preventing 

depressions to some exalted level. I am one who, along with President Bush, agreed we needed to take aggressive action. 

There are some who would suggest that TARP was a terrible 

mistake. I would suggest to them that they should go back and see 

what happened to the stock market in the last 3 minutes of the 

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first vote of TARP when literally hundreds of billions of dollars of 

families’ life savings and businesses’ savings were lost when the 

stock market went down 3 percent in the last 3 minutes of that 

vote when the market realized it was actually going down. I would 

have to believe if the market believed there wasn’t a chance to 

come back and have a second vote, it might have even dropped 

more precipitously than that. 

I think some who suggest the Herbert Hoover approach to getting us out of the terrible economic disaster we were facing forget 

that, in the year prior to the Great Depression, household wealth 

dropped by 3 percent, on average. I believe, in the year prior to this 

recession, or in the first year of the recession, household wealth 

dropped by 17 percent. You know, I think it was Sam Rayburn of 

Texas, maybe among others, who said, ‘‘It is awfully easy to kick 

down a barn. It is a lot harder to build one.’’ 

I want to talk about TARP. My first question would be to ask 

you, if you could send to this subcommittee a list of leading economic indicators going back to the fall of 2008 and then send us 

what those economic indicators are today. And I would like to just 

touch on those very briefly with a couple of very specific questions 

that might allow a short answer. 

One, do you recall whether we had positive or negative economic 

growth in the last quarter of 2008? 

Mr. ALLISON. I am not sure what the growth rate was. I will be 

happy to check for you. 

Mr. EDWARDS. On an annualized basis, I think it went down 

about 6 percent. And then, after TARP and after the economic recovery efforts in the last quarter of 2009, if you had checked, I believe that economic growth, on an annualized basis, went up 5.7 

percent. A lot better going up 5.7 percent than down 6 percent. 

As I recall, and if I could check these numbers for our committee, 

the last quarter of 2008, the monthly job loss in America was about 

700,000 jobs per month being lost. And I believe the last economic 

report said that America gained 162,000 jobs, last month I believe. 

So, instead of losing 700,000 jobs a month, we are gaining 162,000. 

If you would check, I believe these numbers are close to correct, 

but in the year of 2008, the last year of the Bush administration, 

the S&P 500 that a lot of businesses and families have their investments in and children’s college funds and their families’ retirement 

funds, the S&P went down 38 percent. And I believe, since March 

of 2009, it has gone up over 70 percent. If you could verify those 

numbers, along with other economic indicators, and send that to 

the committee, I would appreciate it. 

But I would like to, finally, ask you specifically—and you touched 

on this. But, had we not passed TARP, an effort to stabilize the financial system of the United States and even the world, do you 

think there could have been a high probability that we could have 

seen either a much deeper recession than we already have suffered 

through or even the odds were that we could have faced an actual 

depression? 

And I remember what my father told me it was like to go 

through the first Great Depression. I certainly didn’t want to go 

through a second one. 

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How serious of a problem were we facing in the fall of 2008 when 

President Bush asked Democrats and Republicans to support the 

financial stabilization bill? 

Mr. ALLISON. Congressman Edwards, first of all, your comparisons are absolutely right. I think no one expected—— 

Mr. EDWARDS. Is your microphone on, Mr. Allison. I guess it was 

on. I am sorry. Please go ahead. 

Mr. ALLISON. No one expected that we would see the recovery 

this quickly, a year ago. And I don’t think it is possible to exaggerate how serious the financial and economic problem was in the 

fall of 2008. We were facing a potential catastrophe if action hadn’t 

been taken quickly. 

And I think that the people who were in the government at the 

time and especially the people in Congress who had to take a very 

difficult vote for TARP were courageous and bold to do so. And I 

think that those actions saved the financial system and saved the 

economy. 

Mr. EDWARDS. Thank you. 

Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Mr. Crenshaw. 

Mr. CRENSHAW. Thank you, Mr. Chairman. 

Another way to answer that question that Congressman Edwards 

was talking about—and I think it is kind of clear and straightforward. Can you tell us, in your opinion, if we had done nothing, 

would that have been more expensive or less expensive than passing a TARP program? 

Mr. ALLISON. Well, first of all, the TARP program is going to 

turn out to be far less expensive than anyone expected. It already 

has been. 

And, secondly, the cost to the country of a financial collapse 

would have been immeasurable. We would have seen the financial 

system essentially destroyed in this country. It literally wouldn’t 

have been possible for people to cash checks. There was almost a 

run—there started to be a run on money market funds, which 

many people depend upon for their cash. And so the government 

had to step in and guarantee $3 trillion of money market funds, 

overnight almost, to prevent a classic run of the bank, if you will, 

like we saw back in the 1930s. 

This country depends on a strong financial system. Every day, 

people are using their credit cards. They are borrowing money for 

a car or for their house or for college education. Without this system, this economy can’t function. It is part of the lifeblood of people’s everyday lives. And so, it was essential at the time to take unprecedented action. 

And because those actions were taken, we are recovering at a 

very rapid pace, far quicker than most people imagined a year ago. 

Now, we are not totally out of the woods. We—— 

Mr. CRENSHAW. No, but, just, I mean, I think whatever you are 

saying is that, you know, regardless of how much money TARP 

ends up costing—and it is going to cost less than we thought to 

start with—that is going to be less expensive than it would have 

been to do nothing. And that is your opinion. And I appreciate that, 

sir, because I happen to believe that. 

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Mr. ALLISON. Yeah. 

Mr. CRENSHAW. Now, let me ask you—you know, everybody that 

comes before our subcommittee talks about, ‘‘We can’t sustain the 

kind of debt that we have, both on an annual basis or our total national debt. It is just unsustainable.’’ And so, people talk about how 

to get out of that mess. They talk about raising taxes. You hear 

about the value-added tax. You hear about the bank tax. 

And let me ask you—it is interesting, because I would like to, 

kind of, go through those numbers again to see how much TARP 

is going to cost. But one of the things—when you say, maybe TARP 

doesn’t cost us anything, and that would be wonderful, but one of 

the proposals the President has made is a bank tax, I think he 

calls it a fee, that will raise $90 billion by taxing banks that have 

over $50 million, in terms of their deposits. 

And one of the justifications for that tax or that fee is that that 

money would be used to pay back the TARP money. But you can 

see, if TARP didn’t cost us anything, then I guess you would agree 

that we wouldn’t need that $90 billion of new taxes to pay for the 

TARP that didn’t cost anything. Would that be correct? 

Mr. ALLISON. What I said in my testimony, Congressman, was 

that we estimate—the latest estimate is that TARP would cost 

about $120 billion. And—— 

Mr. CRENSHAW. But if it didn’t cost anything—I mean, let’s assume—I hope you are right that it doesn’t cost anything. Then 

would you say, well, we don’t need to talk about this fee on banks 

to raise $90 billion. Because if you raised it, you might use it for 

something other than paying back TARP money, because it would 

have been paid back. 

Mr. ALLISON. What I said, Congressman, was that if a financial 

recovery fee is enacted by Congress, TARP won’t cost the taxpayers 

a dime, because those moneys could offset—— 

Mr. CRENSHAW. So, best case maybe you would be $90 billion 

short, so you would assess a fee and have that $90 billion paid off. 

And I can appreciate that. 

Let me go through those numbers because, as I understand it, there is $700 billion, but some of the money hasn’t really been 

spent. Isn’t there about $300 million just sitting in the bank? 

Mr. ALLISON. Well, we were authorized to spend $700 billion. We estimate that we are going to utilize about $545 billion or $550 billion of that money. 

Mr. CRENSHAW. So that is about $250 billion that you are not 

going to utilize? 

Mr. ALLISON. It is about $150 billion, yes—— 

Mr. CRENSHAW. Okay. 

Mr. ALLISON [continuing]. That we don’t expect to utilize. 

Mr. CRENSHAW. Now, what are you going to do that? If you don’t 

utilize it, would you ever consider paying down the national debt 

or giving it back? Or would you, kind of, hang on to it just in case 

you need it somewhere along the way? 

Mr. ALLISON. Well, our ability to invest these funds expires on 

October 3rd of this year. And any money—— 

Mr. CRENSHAW. Well, what are you going to do if you have $150 

billion on October 3rd of this year? 

Mr. ALLISON. All of that goes back—— 

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Mr. CRENSHAW. Where does it go? 

Mr. ALLISON [continuing]. To the Congress. Well, we have not 

spent it. That would be used to reduce, along with the moneys we 

receive back, the national debt—or the perceived planning of the 

national debt. 

Mr. CRENSHAW. You wouldn’t spend it on something else? 

Mr. ALLISON. No, sir. 

Mr. CRENSHAW. Okay. 

Thank you, Mr. Chairman. 

Mr. ALLISON. All the money we receive back goes into the Treasury to reduce the national debt. 

Mr. CRENSHAW. Thank you. 

Mr. SERRANO. You said exactly what he wanted to hear. 

Mr. Boyd? 

Mr. BOYD. Thank you, Mr. Chairman. 

And thank you, Mr. Allison, for your years of service to the country. 

I want to focus on CDCI. 

Mr. ALLISON. Yes, sir. 

Mr. BOYD. You alluded to it briefly in your opening remarks. And 

I think most of us understand what it is designed to be. 

And one of the things that we find out in our communities is that 

our CDCI applications have—they are dragging out, and they have 

very long waiting periods before approval or denial. 

Can you bring the committee up to speed on how CDCI is working in our communities to provide TARP funds in a timely manner? 

You know, obviously, the objective there is to infuse capital into 

our small businesses and those troubled, mostly rural areas. 

Mr. ALLISON. Yes, sir. And, Congressman Boyd, thank you for 

asking about the CDFIs. We believe and we know that they provide 

an essential service, especially in disadvantaged areas of this country that are not banked. Many banks don’t even have branches in 

some of these areas where the CDFIs operate. So they are providing a vital and a unique role in the communities where they operate. 

So we believe it is very important to assure their continued operation during this very difficult time. And so we have already instituted a program for CDFIs. These are regulated CDFIs that provide the bulk of the lending and assets to those communities. 

And we are seeing very strong interest in this program. The application period to participate in our capital program, where we can 

make capital available to the CDFIs, up to 5 percent of their riskweighted assets, on very good terms, that program, the application 

period expires on April 30th. So we have been urging them and the 

Secretary has written a letter to the CDFIs urging them to participate in this program. 

And we are very encouraged by the high percentage that are 

showing interest. And we expect a substantial number of the regulated CDFIs to participate, which means that more capital would 

be available to them so they can continue and grow their activities, 

where possible. 

Mr. BOYD. So you have a cutoff date for applications of April 30? 

Mr. ALLISON. Yes, sir. 

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Mr. BOYD. The approval or denial of those applications, has that 

already started? 

Mr. ALLISON. Yes, sir. Yes. 

Mr. BOYD. Is there anything that we can, as individual Members, 

be doing about the expedition of the decision of approval or denial? 

Mr. ALLISON. Well, first of all, thank you for your interest in this 

program. 

We are encouraged, as I mentioned, by the application rate, 

which is quite high. And the applications have to be processed 

through the regulators of these CDFIs. And I know the regulators 

are working hard to process those as rapidly as possible. So we do 

expect a large participation. And, of course, we will be reporting on 

all of this to the public. 

Mr. BOYD. Okay. Have some of those applications already been 

approved or denied, or they will all be coming at once? 

Mr. ALLISON. Some applications—a large number have already 

been forwarded to us by the regulators. So they have been approved by the regulators. 

Mr. BOYD. Okay. Thank you very much. 

Mr. ALLISON. Thank you. 

Mr. BOYD. Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you, Mr. Boyd. 

Ms. Lee? 

Ms. LEE. Thank you very much. 

Good to see you. 

Mr. ALLISON. Thank you. 

Ms. LEE. And I am one who was very skeptical about voting for 

TARP. You know, I am glad to see that the financial markets were 

stabilized and we saved the economy from going into a depression. 

And I am delighted that many of the goals of TARP have been or 

are being achieved. 

But many of my constituents don’t know that. And I will tell you 

why: Many don’t have credit cards. Many don’t have access to capital. Because they are minority-, women-owned small businesses, 

they can’t get credit. Many have lost their homes due to the scams 

of the loan sharks. And I hope that there will be some criminal 

prosecutions of these individuals. And so it is very difficult to explain in terms of Main Street benefiting from this. 

So I am curious in terms of how this administration, how you see 

us moving forward for those millions of people who really don’t 

quite understand why we did this for the financial system and why 

in the world we can’t require these banks and lending institutions 

to step up to the plate and lend to minority-owned businesses and 

small businesses. Because they are just not doing it. We had an opportune time to do that when we bailed them out. We didn’t require them to do it. And now we are looking at many of our communities that are devastated as a result of the last 8 years, quite 

frankly. 

And so, how do we begin to turn this around and make sure that 

these financial institutions that did receive TARP money know that 

they have a responsibility to be fair and to provide equal opportunities to small businesses and to minority-owned businesses? Because 

they just haven’t done that. 

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Mr. ALLISON. Congresswoman Lee, we fully understand and appreciate your concerns. And you have been eloquent and very 

strong in speaking out about these things for a long time. 

We have undertaken a number of programs addressed specifically at that point. The first is the CDFI program, because, as you 

know, in many of these communities the CDFIs are the only financial institutions that people can turn to. 

Secondly, the Obama administration has set up a facility of about $23 billion for housing finance agencies to innovate approaches to deal with housing issues in these communities. 

Thirdly, we have launched what we call the Help for the Hardest-Hit Housing Markets, which is a program designed to encourage HFAs in the 10 States whose people have been hardest hit by 

unemployment and house price declines to innovate solutions for 

those people; for instance, by helping to make more people eligible 

for HAMP modifications, for example, providing additional assistance to unemployed people. 

We also, in Treasury, have been encouraging in our programs 

participation by minority groups. In fact, now we are launching, 

soon, our sale of Citigroup’s stock, and Morgan Stanley has pledged 

to us that it will devote 25 percent of the economics they receive 

to minority- and women-owned firms. So we are committed to encouraging diversity in our own programs. 

Much more still has to be done. And I think by shining a light 

on this issue and making it a high priority of the Obama administration, which, in addition to TARP and the other programs I mentioned, has comprehensive stimulus efforts, recovery efforts aimed 

at disadvantaged communities. We have to do more; I think this 

administration realizes that. And they have made all-out efforts to 

try to help in these areas. 

Ms. LEE. Great. And I appreciate what you are doing futuristically and what we are beginning to do. 

What I want to see, Mr. Secretary, is how—and I don’t know if 

you have the numbers, the statistics, the reports on what lending 

these financial institutions—how they lend it, who they lended 

their money to. Did they lend to minority- and women-owned businesses? If so, what is the percentage? If not, we need to shine some 

light on it. 

Mr. ALLISON. Yes. 

Ms. LEE. I think we have anecdotal information, but I am not 

sure if we have the facts. And so I am wondering if we could ask 

you to report back to this committee the types of loans and to 

whom those loans went to these institutions that we bailed out. 

Mr. ALLISON. Yes. 

Ms. LEE. Because I think it is important that that never happen 

again. Because, you know, we raised a lot of expectations in many 

of these communities, and businesses have gone out of business because they could not get access to credit, regardless of whether 

TARP was there or not. They just froze it. 

Mr. ALLISON. Yeah. We will be happy to follow up on that. Thank 

you for the question. We will come back to you. 

Let me also mention, though, that in our housing program we 

have extensive reporting on the performance of the servicers in 

making modifications available. And we have been collecting data 

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by race, for example, and gender since the beginning of this year. 

And as soon as we have statistically valid information on that, we 

are going to start reporting that, as well. 

Ms. LEE. Thank you. It is very important, because these scam 

loan sharks—that is what I call them—they targeted minority communities. I mean, they didn’t just do this de facto. They went in 

there and decided they were going after African Americans and 

Latinos. So it is very important that this report come out to show 

what has taken place. 

And, also, I hope you will get back to us on the lending to 

minority- and women-owned businesses. 

Mr. ALLISON. Thank you very much. We will do that. 

Ms. LEE. Thank you very much. 

Mr. SERRANO. Thank you. 

Ms. Wasserman Schultz? 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. 

Thank you so much for your public service and for being with us 

this morning. 

And I know that all of us feel that the whole notion of stabilizing 

our economy and creating jobs and getting the housing markets 

back on track—being a Floridian, that is particularly important, to 

make sure that we can continue to move forward. 

And I read Mr. Barofsky’s testimony, in which he discusses some 

of the missed TARP payments. And we have heard a lot of good 

news lately about Goldman Sachs and GM’s payment of their debts 

in full. But I want to hear a little bit more about what you don’t 

think is working very well and where there has been room for improvement. Which payments have you not yet received? And which 

have been late? And are there any that you anticipate not getting 

back at all? 

Mr. ALLISON. We have had some banks not paying the quarterly 

dividends to us. If they don’t pay us for six quarters, we have a 

right to appoint two directors to their boards. 

Ms. WASSERMAN SCHULTZ. Okay. 

Mr. ALLISON. We have had, though, I would say, given the magnitude of the crisis, a relatively low rate of outright losses. Today, 

the losses are a little over 1 percent of the total amount that was 

invested in the banks. But even with those losses, the total net return has been about 9 percent on the investments. And we have 

received over $20 billion of dividends and warrant proceeds and interest on those investments. 

So, overall, this plan, this program, has benefited taxpayers. 

They have profited from this program, so far, substantially. 

Ms. WASSERMAN SCHULTZ. In other words, we have actually 

made more back than we initially invested. 

Mr. ALLISON. Yes. We have made about $20 billion on those investments. 

Ms. WASSERMAN SCHULTZ. Wow. That is certainly something that 

I would love to see get out there more. Because the hatred of the 

TARP and the whole notion of TARP has been understandable because we certainly wish we were never in this situation in the first 

place. But the fact that we have made the investment back with 

interest, to the tune of $20 billion, that is an important point that 

Americans should know. 

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I want to ask you a little bit about the AIG subsidiaries, selling 

off AIG subsidiaries. There is a concern that AIG is selling off some 

of the better parts of its business just to repay the government. Is 

it AIG that is directing those sales, or is it the government looking 

to recover some of the money more quickly? And do you believe 

that AIG is cannibalizing its future earnings so that they can get 

short-term results? 

Mr. ALLISON. First of all, let me emphasize that we are a reluctant shareholder in any of these companies. 

Ms. WASSERMAN SCHULTZ. Yes. 

Mr. ALLISON. And we would like to dispose of our investments in 

the stocks of AIG, General Motors, Citigroup as rapidly as possible, 

consistent with protecting the interests of taxpayers. We do not get 

involved in day-to-day decisions of these institutions, or strategic 

decisions. 

We do expect that the asset sales that AIG is making today will 

enable the company to repay, first of all, the Federal Reserve for 

a large part or all of its investment. We do have continual communications with AIG about its condition and about its plans. 

We are encouraged by the progress that the company has made, 

and especially the last 6 or 8 months. And we have seen the risk 

in the company come down dramatically. Financial Products, their 

financial products subsidiary, which was the cause of a lot of the 

problems in AIG, has dramatically reduced its exposures to the 

market. And so, we see a very positive trend so far in the improvement in AIG’s condition. 

Ms. WASSERMAN SCHULTZ. And, Mr. Chairman, forgive me, I was 

not here when you made your opening remarks. But, in my home 

State of Florida, restoring the housing market and helping ensure 

that we can keep people in their homes and prevent them from 

being foreclosed on is incredibly important. Our recovery is lagging 

behind the rest of the country. 

Can you talk a little bit about the Hardest-Hit Fund, how that 

and other innovative ideas using TARP funds that are designed to 

help make sure that we can bring that part of the economy up? 

Mr. ALLISON. Yes. Well, we think that the Hardest-Hit Fund is 

extremely important, especially in these 10 States. And Florida, of 

course, is one of those. And I believe Florida is receiving more than 

$400 million. 

Ms. WASSERMAN SCHULTZ. Yes. 

Mr. ALLISON. And this will enable the State, the housing finance 

agency and others, to look at the particular conditions within Florida and certain areas of Florida to see what methods might be used 

to assist in stabilizing the housing markets and relieving the pressure on homeowners in those areas. 

And, as you well know, this housing crisis is highly concentrated 

in certain parts of the country. Southern Florida is one that has 

been particularly hard-hit, as you well know. 

Ms. WASSERMAN SCHULTZ. Yes. 

Mr. ALLISON. And, fortunately, what we do see are signs of stabilizing of prices. And that is going to be essential, so that we attract 

more demand for houses and we begin to stabilize and balance supply and demand in those areas. 

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So we are encouraged by some of these developments. Even 

though it has been extremely painful, maybe we are nearing the 

point where that market—— 

Ms. WASSERMAN SCHULTZ. Do you have that sense, that we are? 

Mr. ALLISON. Our sense is that, increasingly we are seeing— 

some of the hardest-hit places are the ones where the prices rose 

the quickest. 

Ms. WASSERMAN SCHULTZ. Right. 

Mr. ALLISON. They came down the furthest. But they are actually 

maybe reaching a point quicker than some other parts of the country where they have an equilibrium of supply and demand. And 

so—— 

Ms. WASSERMAN SCHULTZ. From your mouth to God’s ears. 

Mr. ALLISON. Yes, well, we hope so. 

Now, we are not complacent about this. That is why we just implemented this new program. We still think we have to do more. 

And, frankly, in the eyes—— 

Ms. WASSERMAN SCHULTZ. Pushing the banks to work mortgages 

out is incredibly important, as well. 

Mr. ALLISON. Exactly. And we are also publicizing their performance. And, frankly, they still have more to do. 

Ms. WASSERMAN SCHULTZ. A lot more. 

Mr. ALLISON. All of them. And we meet with them continually. 

And we are seeing progress, but it is not fast enough. And I think, 

frankly, they need to invest more in their mortgage activities in 

order to reach the type of scale that we need. 

However, let me mention that last month is the first month when 

we actually saw the servicers convert more mortgages to final 

modifications than they had new trial modifications. So it does 

show capacity is increasing, and we are starting to get on top of 

this problem. And we expect that we will have seen decisions made 

on trial modifications awaiting decisions. Most of those should be 

completed by the end of June. 

But we are still working with the banks to increase their capacity. This is still a very serious problem. We still see the possibility 

of a million foreclosures in this country this year; maybe 3 million 

foreclosure starts, but usually about a quarter to a third of those 

turn into actual foreclosures. We are trying to prevent as many of 

those as we can. 

And that is why we have the HAMP program. And we are encouraged that we have over a million people who have already benefited from that. But we want to make sure that people know the 

program is available. We want to make sure that the servicers— 

and we have already reached an understanding with the servicers. 

From now on, starting in June, they must look at every 60-day-plus 

delinquent mortgage to see whether the homeowner could be eligible for HAMP. 

Ms. WASSERMAN SCHULTZ. That is good. 

Mr. ALLISON. And so, that should also bring more people into 

this program. But we have to publicize it more. 

Ms. WASSERMAN SCHULTZ. Yes. 

Mr. ALLISON. We are holding events throughout the country, including in Florida, to—— 

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Ms. WASSERMAN SCHULTZ. Let Members of Congress know how 

we can help you publicize it. 

Mr. ALLISON. We will. Thank you very much. 

Ms. WASSERMAN SCHULTZ. Thank you very much. 

Mr. ALLISON. Thanks for your questions. 

Ms. WASSERMAN SCHULTZ. Thank you for your indulgence, Mr. 

Chairman. 

Mr. SERRANO. Thank you. 

Mr. Culberson. 

Mr. CULBERSON. Thank you, Mr. Chairman. 

Secretary Allison, as a general rule, when a company accepts 

Federal dollars, they are subject to all the Federal rules and regulations. And, in this case, a company that has paid back the TARP 

money is still subject to all the Federal guidelines that they accepted the money under? Or are they completely free of Federal strings 

once they repay the money? 

Mr. ALLISON. Once they have repaid the money entirely, they are 

free from the TARP restrictions. Of course, they are subject to all 

other laws—— 

Mr. CULBERSON. Certainly. But, I mean, in terms of the TARP 

restriction. 

Mr. ALLISON. Yes, sir. 

Mr. CULBERSON. And it is my recollection, didn’t the original language of the October 2008 TARP legislation leave it—I don’t know 

that it was mandatory, but is it the Secretary’s discretion to use 

the money that is repaid to pay down the deficit? 

Mr. ALLISON. The money that comes back to the Treasury that 

is repaid under the TARP program is put back into the general account of the U.S. Treasury for debt reduction. 

Mr. CULBERSON. For debt reduction. 

Mr. ALLISON. Yes, sir. 

Mr. CULBERSON. But the Congress and this new Congress and 

the President have just routinely rechurned that money, so it is 

not—well, let me ask you this: Has any of that money been applied 

to debt or deficit reduction? Because if it has, I am not aware of 

it. I am not aware of any of that money being used to pay down 

the debt or the deficit. 

Mr. ALLISON. Well, actually, I would be glad to send you informa- tion on this. But, so far, we received about $170 billion, roughly, 

in repayments—no, I am sorry, $186 billion. And we have received 

another $20 billion in proceeds from dividends and interest and 

sales of warrants. 

Mr. CULBERSON. About $180 billion, and has that $180 billion all 

been used to pay off, pay down the debt or deficit? 

Mr. ALLISON. Absolutely. It has been used to pay down the debt 

and the deficit. 

Mr. CULBERSON. Then that is terrific. Is it going to continue to 

be any money that is paid back used to pay down either the debt 

or the deficit? 

Mr. ALLISON. Absolutely and that is under EESA law. 

Mr. CULBERSON. So that is required. It is mandatory. And it is 

not just, of course, the Treasury Department, but the Federal Reserve, FDIC have all been in the business of guaranteeing loans 

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riety of industries. How much money and to whom has the Federal 

Reserve been loaning money? 

Mr. ALLISON. I don’t have the answer off the top of my head. We 

will be glad to contact the Federal Reserve and provide that information to you. 

Mr. CULBERSON. You could provide that to the committee? 

Mr. ALLISON. I will. We will request the Federal Reserve to provide it to you. 

Mr. CULBERSON. Have they provided it to you? Has the Department of Treasury seen in detail how much money the Federal Reserve has loaned and to whom and under what terms? 

Mr. ALLISON. I will find the answer to that for you, but my own 

department doesn’t look at that, but I will see whether others in 

Treasury have done so. 

Mr. CULBERSON. To your knowledge, has Treasury received that 

information from Federal Reserve? 

Mr. ALLISON. I don’t know. 

Mr. CULBERSON. How much money, do you know a ballpark figure, as to how much money the Federal Reserve has either loaned 

out or guaranteed? 

Mr. ALLISON. I don’t have that information right in front of me, 

but if you would like, I will certainly try to get the information for 

you. 

Mr. CULBERSON. Thank you. What about the FDIC, I understand 

they are also a part of this as well? 

Mr. ALLISON. Well, the FDIC oversees—— 

Mr. CULBERSON. Sure. 

Mr. ALLISON. It has had its own facilities where it has guaranteed borrowing for a period of time. That program has been terminated however. 

Mr. CULBERSON. Has the United States Government, or excuse 

me, U.S. taxpayers, more accurately, ever guaranteed this much 

money in the private sector, this many loans, this much money on 

this broad of a scale ever in U.S. history? 

Mr. ALLISON. I don’t know. I would doubt it, but there hasn’t 

been a crisis—this is, I think, a unique financial crisis that this 

country faced. And as I mentioned before in my testimony, it would 

have been catastrophic if actions hadn’t been taken. 

The cost to this economy would have been incalculable if these 

actions hadn’t been taken. And what we have seen is, thanks to 

these actions, the economy has recovered far faster than most people would have dared to predict. 

Mr. CULBERSON. What is the amount of money that the Secretary 

of Treasury has available to him to use under the TARP fund to 

continue to make loans or guarantees? You have got money coming 

back in that is repaid, but isn’t there a continuing amount of 

money that the Secretary of Treasury has available to continue to 

use at his discretion? 

Mr. ALLISON. The amount of TARP funding available that allocated at TARP was $700 billion. 

Mr. CULBERSON. Right. You say $180 billion of that has been repaid, applied to deficit reduction. And that is gone; that has gone 

to pay off debt, right? 

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Mr. ALLISON. Yes. But the entire $700 billion has not been used. 

And as the Secretary announced when he extended TARP to October 3 of this year, we don’t expect to use more than about $550 billion. We actually have made investments of about $390 billion, as 

I recall, but we plan to make, we have made commitments of about 

$491 billion, and we plan to utilize about $545 billion to $550 billion. 

Mr. CULBERSON. And as that money comes back in and is repaid, 

you will apply that specifically to debt? 

Mr. ALLISON. That is correct. 

Mr. CULBERSON. Buying back U.S. Treasury debt? 

Mr. ALLISON. It is done. It reduces the national deficit, yes, sir. 

Mr. CULBERSON. And then the money is not reused? We will 

make sure—— 

Mr. ALLISON. The money is not reused. 

Mr. CULBERSON. Thank you, Mr. Chairman. 

Mr. ALLISON. However, let me be totally clear with you, as the 

money is repaid, that increases the head room, because the actual 

authorization remains constant at $700 billion. However, we are totally transparent that the money that has been repaid goes back 

to reduce the National Debt. We disclose all of the utilization of the 

money on our Web site, and the amounts that I have given you will 

indicate that we have not used the entire $700 billion. 

Mr. CULBERSON. Maybe someone could follow up on that, Mr. 

Chairman, because it is still a little bit of source of confusion. The 

authorization level stays the same. You say you are paying down 

debt with it. 

Mr. ALLISON. That is right. 

Mr. CULBERSON. But you continue to churn within that $700 billion. 

Mr. ALLISON. No, sir, because any new investment— under the 

law, we strict reply follow the EESA law. Any money returned to 

us is used to pay down the National Debt. Within the $700 billion, 

we may make additional investments, but we have not come close 

to utilizing the entire $700 billion, so it is really a moot point. So 

any money we return back goes to reduce the National Debt. We 

will be glad to give you a table showing you exactly what has been 

utilized so far and how much has been paid back. 

Mr. CULBERSON. You are always gracious with the time. I have 

some follow up. Thank you, sir. 

Mr. SERRANO. That is all right. The gentleman answered about 

nine times it was going back to pay the National Debt. Just for the 

record. 

But I understand your concern. It is the concern of many folks. 

Last year the TARP was used to create new public-private investments to increase credit for small businesses, students, car 

buyers and other consumers. How would you evaluate the effectiveness of these programs in making more credit available for creditworthy small business, students and consumers? 

Mr. ALLISON. The impact has been both direct and indirect. 

When the Public-Private Investment Program was announced 

about a year ago, it had an almost immediate effect on the credit 

spreads for Commercial Mortgage-Backed Securities and Residential Mortgage-Backed Securities. Those rates, you can trace it to 

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the day of the announcement. The rates came in dramatically, 

which helped to improve the cost of credit throughout that sector 

of the financial markets. 

And, since then, we have been working with nine investment 

managers to invest in this these types of instruments, which help 

to provide additional liquidity to the market and also price discovery, which stabilizes and creates more confidence in those markets. 

And, again, that program will be also fully invested soon, and we 

plan no others because the markets have improved so much in 

terms of spreads returning to near normal, in many cases, that 

there is not a need for adding to that program. 

Mr. SERRANO. My only concern would be that that is the program 

that speaks, those programs speak to areas where the people with 

the least power, if you will, in the society were benefited. So when 

you say we don’t intend to add more to it or whatever, that is fine 

if everything is okay. But I would hope we know everything is okay 

before we decide to cut back on that. 

Mr. ALLISON. Well, what we are seeing is that, even as that program nears being fully invested, we are seeing that the spreads in 

those markets remain quite low, especially compared to where they 

were at the height of the crisis. And they have returned to near 

normal in many cases. We would like to see more activity in those 

markets. That is going to take some time, but they have been improving and healing, thanks to these programs. 

Mr. SERRANO. Right. 

In the last year, banks have reduced their credit outstanding to commercial and industrial businesses by almost 20 percent or $300 

billion. When businesses lose credit like that, they cut back jobs. 

Recently the financial press has reported that the financial services 

sector has paid out more than $100 billion in bonuses this year. Do 

you agree that the money, if retained instead of paid out in bonuses, could have been conservatively leveraged to increase credit 

in our struggling economy by hundreds of billions of dollars? 

And what do you think will be required to get a satisfactory resumption of credit growth in the country? Treasury is required to 

review the executive compensation at hundreds of banks. How is 

that process going, and do you see any significant change in that 

compensation? 

Mr. ALLISON. Well, first of all, I think many Americans have 

been outraged by the level of bonuses in the financial industry, especially among the largest financial institutions that received the 

largest amount of TARP funds. These institutions have repaid 

TARP. I think what is important, our administration believes what 

is important is to enact financial reform legislation that would, for 

example, provide for shareholders to have a say in pay for the top 

executives of these financial companies. I think we are going to see 

over time, if this is enacted, much more discussion and much more 

information about how pay is determined in these companies, and 

that in, in turn, should help to lead to better control over that type 

of activity. 

We are, like you, we have been troubled by the shrinkage in 

lending. We do see signs, as I mentioned before, that lending is increasing. A number of the largest banks have pledged that they 

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will increase lending here in 2010. We hope that happens as soon 

as possible. 

Mr. SERRANO. You know, as you speak, I think of something, and 

my last statement here, for anyone who will care to listen, if they 

could help us with this, but the statement I just made, the question 

I just asked you raises some eyebrows at City Hall back in my 

hometown in New York, because, as you know, Mayor Bloomberg 

and others have said, sure, go after Wall Street, and in the process, 

you will destroy New York’s economy. 

You know, New York gets caught up in a little situation there 

where we know that these bonuses are totally improper and outrageous, but then taxes are collected on people who work in New 

York and collect those bonuses. I wish there was a way that we 

could come up with some sort of a presentation that would say 

these restrictions do put this kind of slight pain on New York, but 

look at what the rest, in dealing with this issue in general, will do 

for the State and for the city, and no one has been able to do that. 

And I wish someone could direct me in the direction as to where 

we could get those numbers to indicate that, while we may put restrictions on folks who work on Wall Street in New York, in the 

long run, it is better for New York City and New York State to 

have this in place rather than what we had before, because it is 

not enough to say we are trying to put restrictions on the folks who 

caused the problem to begin with. 

People tend to forget, you know, they tend to forget that we 

shouldn’t have invaded Iraq or we should have been out of Afghanistan. They forget, so they somehow forget who caused the problem. 

Now it is, who is going to cause the current problem or the next 

problem, or why hasn’t this been taken care of? 

So if you know anyone that you could direct us to, to begin to 

put together a presentation that would say, yes, we will restrict, 

but here is the final outcome for places like New York or Chicago 

or financial centers throughout the Nation. 

Mr. ALLISON. I think you ask a very interesting question and 

make a terrific observation. Let me also mention that for the seven 

companies that receive special assistance, what we call exceptional 

assistance, from TARP, the special master that was appointed by 

the Secretary of the Treasury directly oversaw the compensation of 

the top 25 executives in each of these companies. We saw that their 

compensation declined dramatically under the special master’s 

oversight. Those companies are all doing better than they were before, and they are still very competitive. 

And so certainly the administration is well aware of the need for 

responsibility and farsightedness in compensation awards by these 

companies. And the President, of course, is speaking today up in 

New York about the financial industry and the need for financial 

reform, which includes greater disclosure and a say on pay. 

And it is vital that shareholders have the ability to voice their 

views about the compensation in financial companies. 

Mr. SERRANO. Because, as you know, the argument we get, if you 

keep doing this, they will leave. Where are they going to go? I 

mean, are they going to quit their job on Wall Street and go elsewhere? When you have people in my congressional district in the 

South Bronx who might have gotten, and I am not being funny 

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here, might have gotten a $100 Christmas bonus at their job and 

somebody is fighting over whether they are getting $5 million or 

$10 million in a bonus, I don’t think it is much of an argument. 

Thank you. 

Mrs. Emerson. 

Mrs. EMERSON. Thank you, Mr. Chairman. 

All right. Let’s go back to small business lending, if we could. 

You know, I am a little bit confused here. I have got a letter from 

the Special Inspector General, dated February 19th, that says, in 

essence, that Treasury perhaps was going to include the SIGTARP 

in overseeing the new Small Business Lending Program and then— 

or at least that is what your legislation would reflect—and then 

you all decided not to. 

But yet the way that I understand that the program has actually 

been designed really sounds pretty much like an extension of the 

Capital Purchase Program, so I am just a little bit confused. And 

perhaps you can explain to me or perhaps assure me that there is 

no reason at all why you all would want to involve SIGTARP’s 

oversight in this newly proposed program. And just because it was 

kind of back and forth, back and forth, so I am not quite sure 

where we are in the process right now. 

So please explain. 

Mr. ALLISON. Yes. Well, first of all, it is important to point out 

that the new program would be subject to special legislation. The 

program would be outside of the TARP Program. It is not identical 

to the Capital Purchase Program. It is qualitatively different because it will be providing direct incentives for lending. It will be 

geared to stimulating lending. It is not primarily, as the Capital 

Purchase Program was, to bolster the capital of banks. This was to 

give them capital that they may need in order to expand lending, 

and they will only get a reduced dividend if their lending grows. 

We didn’t think it was appropriate in legislation for us to tell 

Congress how we ought to be overseen. 

Mrs. EMERSON. But you are using TARP money to do it, right? 

Mr. ALLISON. No, we would not be using TARP money. This 

would be done entirely outside of TARP, under separate legislation, 

without using TARP funds. 

Mrs. EMERSON. Okay, but, if, in fact, Congress determined that 

it was, you know, because of the whole SIGTARP office has really 

ramped up and actually has the ability to oversee this, it would not 

be something that you all would push back on, would it? In other 

words, if, in fact, we decided in our legislation to have SIGTARP 

oversee, that is not a problem, is it? 

Mr. ALLISON. We welcome strong oversight over all of our programs. We have oversight not only by the Special Inspector General but by the Congressional Oversight Panel, the Financial Stability Oversight Board and the GAO. 

We think that they all add value to what we do. And the only 

advice we would give is that there should be continued strong oversight of all of these programs. 

Mrs. EMERSON. Well, certainly we need to protect the taxpayer, 

but it seems to me if we have got an entity that is really doing its 

job well, we might as well just keep using them. 

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The small, as I said earlier, my small businesses are just troubled by the lack of their ability to access credit. And so I am hopeful that whatever program comes about actually is going to work. 

Can you tell me what specific actions your office took to encourage lending, particularly from the banks receiving TARP funds, 

and then anything in excess of that? 

Mr. ALLISON. We think one of the best ways, Congresswoman 

Emerson, to encourage lending by the banks is to shine a light on 

their lending practices, and so we disclose their lending and have 

since the beginning on our Web site. 

We have also asked them to report to us periodically on how they 

are using TARP capital. And, by the way, some of those are recommendations of SIGTARP, which we thought were very constructive. 

We are working with banks. We have been talking to many 

banks about their lending practices to encourage them to try to 

lend responsibly. In fairness, we have seen collateral values, especially this affects small business, the value of their collateral, such 

as their commercial real estate that they may pledge or their personal real estate that they may pledge in order to get a loan, has 

dropped substantially. And that is one reason why some banks 

have cut back on their credit. 

Nonetheless, with the stimulus activities by the government, by 

the funding of many programs, by the improvement in the economy, we think and we are hearing from banks that they are reaching an inflection point where you are likely to see a pick up in lending in 2010, and that is very encouraging for small business and 

for the economy. 

Mrs. EMERSON. Well, it certainly, in almost every single newspaper article that I can read, including another article in USA 

Today, ‘‘Banks Who Took Aid Decreased Lending,’’ every single 

headline. And that is very troubling, given the fact that part of the 

whole reason that we—those of us who supported TARP—it was to 

get Main Street back in business. 

Mr. ALLISON. Let me just also mention on that point, one can’t 

just look at the loan balances on the bank’s books to see what their 

current activity is, because banks have had to write down a lot of 

bad loans. And so even their lending activity may be stronger 

today, but the overall balance comes down because other loans 

have either matured or been written down. 

So one has to look at the actual lending activity of the bank, not 

at the balances on the bank’s balance sheet, to get the real picture 

as to what is going on. 

Mrs. EMERSON. All I have to do is talk to small businesses in my 

district, and I can get the real answer to this question. And we are 

not talking about Bank of America banks; we are talking Missouri, 

big Missouri banks, just for example. 

But, I know that for much of the last year, the secondary market 

for many types of loans was frozen, and so whether it is mortgages, 

SBA loans, other asset-backed securities currently functioning, I 

mean, tell me what steps you all are taking to ensure those markets do continue to function effectively so we can move this along 

faster. 

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Mr. ALLISON. You have just given the rationale, Congresswoman 

Emerson, for this Small Business Lending Fund that we would like 

Congress to enact. This program is designed specifically to encourage lending. We totally agree with your points. We hear the same 

anecdotes from many businesses across the country. I get letters 

from many of these businesses. 

You are pointing to a real problem, and we understand that. 

That is why we have designed this program. That is why we are 

hopeful that the Congress will enact it as soon as possible so we 

could be providing capital to these banks and enabling, giving them 

the confidence and the capital so they can increase their lending. 

Mrs. EMERSON. So what is going to happen if we don’t pass legislation? 

Mr. ALLISON. I think it will simply take longer for the lending 

to recover. Eventually it will increase again, but we would like to 

see it happening sooner rather than later. We want to help create 

jobs, and jobs depend upon small business being able to get funding 

to purchase inventories, to make new investments in plant and 

equipment to hire more people. And so to get the economy moving 

more rapidly, we think providing capital to the smaller banks who 

do an outsized portion of small business lending across the country 

is extremely important. 

I and my colleagues have been talking with many of these banks 

across the country in all districts. And what they tell us is that 

they see good quality companies that they want to be lending to. 

I think that we are seeing some parts of the country where lending 

is going to pick up a little more rapidly than other parts. But by 

providing the capital, we enable banks to take another look at their 

lending practices to review loans that they may have turned down 

but they might want to review again with the prospect of perhaps 

increasing lending to those companies. 

Mrs. EMERSON. Well, it is a problem, and hopefully we will get 

to this issue. I would certainly encourage you all just to make it 

a lot easier on yourselves by saying SIGTARP can handle the oversight here. 

But I also want to just, before I close, I also want to mention, 

there is another issue—and this isn’t specific to our subcommittee 

at all—but the fact is that the credit unions are actually trying to 

increase the cap on their member business lending so they, in fact, 

could make some of these small business loans the banks are so reluctant to do because they have the capital to do it. 

And it seems to me ridiculous that the Treasury Department 

would be pushing back on this and saying—and this isn’t in your 

field—but it is just a frustrating thing. You have got these very 

stable financial institutions wanting to do something to help keep 

the economy going, and, you know, Treasury is pushing back on 

them. And it seems to me that it would be a win/win if we were 

able to do something in that regard simply to increase the inventory of financial institutions that have money to offer. Thanks. 

Mr. ALLISON. Thank you. 

Mr. SERRANO. Thank you. Thank you, Mrs. Emerson. 

We are going to recognize remaining members, and then we are 

going to try to wind down this first panel so that we can get going 

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with the second panel. We hope to unwind this before we face the 

impending votes on the House floor. 

Mr. Edwards. 

Mr. EDWARDS. Mr. Chairman, in the remaining time, I have no 

additional questions other than I did want to ditto the line of questioning of Mrs. Emerson; while I believe we needed financial stabilization measures in 2008 and 2009 to keep us from going into 

the second Great Depression, clearly small businesses all across 

the country, and it certainly reflects that and I see that in Texas, 

they are having challenges. Anything we can do together to free up 

that liquidity in a responsible way would be very, very important. 

Mr. SERRANO. Thank you. 

Mr. Culberson. 

Mr. CULBERSON. Thank you. A follow-up on that same line of 

questioning, I can back up what Mr. Edwards and Mrs. Emerson 

are saying, but pointing directly to information that I have gotten 

and I know they probably have heard, too, from the Associated 

General Contractors in Texas, the Greater Houston Builders Association, the Associated Builders and Contractors in Houston, the 

Houston Association of Realtors, the Texas Association of Realtors, 

I am sure this is true across the country, that the banks are flush 

with money. And the regulators have instructed the banks to unload real estate loans, stop loaning money for real estate loans or 

commercial real estate, even if it is a blue chip borrower who has 

always paid back their loans. So it is a regulatory problem as well, 

but these banks who have received this money are absolutely flush 

with money. 

This is within Treasury’s jurisdiction. I know FDIC is a key part 

of this, but I know all of us, and I suspect Mr. Edwards would join 

me in this, he is nodding back there, we would all encourage it. We 

want the banks to loan money to people who can pay it back, but 

they are not loaning money to people who can pay it back. 

To what extent can you help, can Treasury help put pressure on 

regulators to quit forcing banks to unload or stop making real estate loans to good borrowers? I mean, these are good credit risks. 

In fact, most of the home building, Chet, in Houston, I just had 

home builders come see me yesterday, and several of them have 

gone out of business because the banks will not lend them money. 

And these are solid credit risks. They have always—you could have 

a nuclear attack from the Russians, and these guys would pay their 

loan back. 

What can you do to help get the regulators to quit pressuring the 

banks to stop making these loans to good credit risks? 

Mr. ALLISON. Well, first of all, we fully understand the importance of increasing lending to small business. 

Mr. CULBERSON. But good credit risk. 

Mr. ALLISON. Yes, sir, I understand. We do not control the regulators. The regulators are totally independent from the Treasury 

Department. We know that they have provided additional guidance 

to their examiners throughout the country about lending to small 

business. 

Mr. CULBERSON. They have, indeed. They are putting this—— 

Mr. ALLISON. Well, I would think that perhaps the regulators 

should speak for themselves on that issue. 

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Mr. CULBERSON. You have got a role in that, though; it is atmospherics. And to the extent you can, I hope you will, as the Department of Treasury, do whatever you can. What can you do? They are 

not complete. I mean, obviously, they are independent. You want 

them to be. 

Mr. ALLISON. Well, the regulators are well aware of that issue, 

and that is one reason why they have communicated additional 

guidance to their supervisors and their examiners. But I would invite you to speak with the regulators directly because they are 

independent of the U.S. Treasury Department. We obviously have 

dialogue with them, but they make their own decisions. 

Mr. CULBERSON. Mr. Chairman, I know it would be very helpful 

for this committee to do whatever we can, obviously, making sure 

that we want loans to be made to people who can pay them back. 

I am sure it has happened in New York, too, and in Pennsylvania. 

They are absolutely not making loans to creditworthy borrowers 

who will pay them back. And we need to do whatever we can, Mr. 

Chairman, to help get the regulators to quit putting the screws to 

the banks. 

Mr. SERRANO. The point is well taken. It is a problem in every 

community in this country. 

Mr. Fattah. 

Mr. FATTAH. Thank you, Mr. Chairman. 

Well, we don’t live in a socialist country. We can’t dictate to the 

banks what they do in a free market economy, but I do empathize 

with much of what has been said that there is a concern about getting credit flowing. 

Let me start here, first, to really congratulate the Department in 

its work on the TARP Program. I mean, it is an amazing feat, an 

extraordinary one, and unexpected by many of the critics of the 

TARP Program that the Department would have made money and 

expect to make money in totality when the funds were made available to banks to stem the financial crisis. The economy has 

bounced back significantly, and the stability in the financial markets, I think, is obvious to everyone. 

So you have done a very good job, and you have maintained 

stewardship over the taxpayers’ money in a way that I think deserves to be noted for you and the work of Secretary Geithner. 

I do think that where we see a need that is not being filled in 

the market, it isn’t inappropriate at all for the government to step 

in. That is what SBA exists for, and I think the administration’s 

program of moving some $30 billion through CDFIs, through community banks, so that it can be available to small businesses who 

are good credit risks, I think, is an appropriate role. 

And this is what we have done where the market has not worked 

in the past, and the government has stepped in. And I think that 

that is something we should move expeditiously on. I know that the 

Department is working on it. The administration is working on it. 

And I just want to voice my support for it, because I know many 

small businesses in the Philadelphia community who have still had 

some challenges, notwithstanding being very good credit risks and 

having, you know, in essence, the narrow deals have had difficulty 

getting loans. 

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But I think that we don’t on the one hand want to criticize banks 

for the risks that they took that took the country to the edge of a 

financial disaster, as regulators are saying that they need to be 

more conscious of the risk they are assuming, and at the same time 

say, well, we want Treasury to put pressure on regulators to back 

off. I mean, you know, we can’t have our cake and eat it, too, in 

that sense. But I do think that we can step in through the Treasury, through SBA, and provide assistance. 

I am more interested in what we are doing about mortgage foreclosures, and I know a billion and a half was made available to the 

housing and finance agencies to develop programs related to the 

unemployed, in terms of foreclosure prevention, different from the 

foreclosures we saw in the front end of this problem, which were 

largely driven by the subprime and other issues. 

The foreclosures that are moving through the market now are 

driven in large part because people have lost their job and then followed their home. And it makes no sense for us to create deadbeats 

out of persons who are taxpaying, law-abiding citizens, paying their 

bills. It created a situation where we now have a vacant home in 

the neighborhood and driving prices down, but also have them out 

on the street and their credit rating ruined for a decade or so. 

And the cost for the taxpayer for a foreclosure, which doesn’t get 

discussed a lot, is, you know, quite substantial, somewhere above 

$80,000 per foreclosure. 

We have a program in Pennsylvania through our housing and finance agency that I helped create a few decades ago that has 

worked very well to step in and help unemployed homeowners who 

have lost their job through no fault of their own and through no 

risk to the taxpayers. We have gotten every dollar paid back, and 

the average amount of help was 4 or 5 months of assistance to that 

homeowner with those dollars being paid to the long-term payment 

of the mortgage. 

So I was very happy to see the Treasury’s initiative focused on 

the hardest-hit States. We have, in the Wall Street reform bill, the 

House version, a $3 billion allotment to mirror those efforts 

throughout the country to step in to help homeowners. 

So I would just like to get from you what has happened with the 

initial $1.5 billion and what these hardest-hit States are doing, if 

you can comment. 

Mr. ALLISON. Congressman Fattah, thank you very much for 

your comments and your question for help for the hardest-hit 

States. As you know, the first billion and a half, as you said, was 

devoted to five States. We then allocated another $600 million to 

five other States. And we have received the proposals from the first 

five States as of last Friday. We are looking at those right now. 

I think you would be pleased that the HEMAP Program in Pennsylvania has been looked at very closely by a number of those 

States as maybe they could model something after HEMAP to tide 

people over, as you said, who are unemployed. This programs is 

aimed at areas most affected by high unemployment and by falling 

housing prices. And this is a localized problem in that it is acute 

in some particular parts of the country, and that is why we allocated the money to those particular 10 States. 

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So we are looking forward to seeing what their proposals are, to 

working with them on implementing those proposals. 

We will have final decisions next month on those proposals, and 

then they can get moving. 

But we totally agree with your analysis of this problem. That is 

why we innovated this program. And we have high hopes that it 

will be truly creative and develop solutions that best suit these particular areas of the country, because they are developed by people 

who know those communities. 

And we found that, because this is a highly concentrated problem, we need local expertise to work alongside the Treasury Department and the Department of Housing and Urban Development 

to provide and develop the most effective solutions possible. 

Mr. FATTAH. Let me thank you for your testimony. Thank you for 

your testimony. 

I am going to thank the chairman. 

Mr. SERRANO. Thank you. 

Mr. Allison, we thank you. I have one more question to submit 

to the record. 

Mrs. EMERSON. Mr. Chairman, I have several to submit to the 

record. If you would like to wind this down, I can wait. 

Mr. SERRANO. We will wind it down. The one I do have for the 

record is one that probably should have been the first one, and that 

is, tell us how you are going to wind down TARP and, as that 

winds down, all of the information. 

So we thank you for your testimony. We thank you for your service, and we thank you for what I know is your desire to keep us 

informed on all the different issues that we presented. 

As you well understand, both programs that were put forth, in 

our opinion, were very necessary, but they have created a lot of 

controversy and created a lot of questions, and that is why we ask 

so many questions and ask you to keep us informed. 

Mr. CULBERSON. Mr. Chairman, could I ask, if I could, for the 

witness to provide the chairman as well the information about how 

much money the Federal Reserve has loaned out and to whom and 

under what conditions? I know the chairman would be very interested in that as well. 

Mr. SERRANO. The chairman would be very interested in that. 

Mr. CULBERSON. Thank you. 

Mr. SERRANO. Thank you. 

Thank you, Mr. Allison. 

Mr. ALLISON. Thank you, sir. 

Mr. SERRANO. In my opening statement an hour and a half ago, 

I told you that our next witness would be Mr. Barofsky, and we ask 

you now to come forward and give us your testimony. We will try 

to do this as painless as possible because we are running against 

a time constraint. 

I am always amazed at how Members of Congress get in so many 

hearings, considering what we are always up against. And you 

know the drill; 5-minute presentation, and we will put anything 

else in the record. 

Mr. BAROFSKY. Thank you, Mr. Chairman. 

Thank you, Mr. Chairman, Ranking Member Emerson, members 

of the committee. 

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It is a privilege to appear before you today to testify about 

SIGTARP’s proposed budget for 2011. As you know, in the President’s budget request for 2011, he includes a request for approximately $49.6 million for the operations of SIGTARP. That proposed 

budget will allow us to continue to operate as the agency that 

stands between hundreds of billions of taxpayer dollars and those 

who would seek to steal, waste or abuse them. We carry out this 

role in three different areas: Transparency, oversight and enforcement. 

Let me start with enforcement. As the only oversight body in the 

TARP legislation with law enforcement authority, we literally have 

the role as the TARP cop on the beat. And to meet those challenges, we built a sophisticated law enforcement agency. We have 

84 ongoing investigations. We have recently opened up offices in 

New York and are about to do the same in L.A. and San Francisco, 

and we are trying to establish a nationwide presence to deter and 

detect TARP fraud. 

Our cases are as diverse as the 13 sub-TARP programs that have 

developed. For example, we recently arrested and got criminal 

charges against the president and CEO of Park Avenue Bank for 

his attempt to try to steal $11 million from the TARP Program. We 

have brought criminal charges against two individuals out in California who are running a mortgage modification fraud scheme that 

brought in a million dollars from struggling homeowners. 

In Tennessee, Gordon Grigg, a hedge fund executive, is serving 

10 years in prison for a fraud that he was doing by trying to sell 

fictional investments that he called TARP-backed securities. In Atlanta, we have a number of convictions and charges related to our 

investigation of Omni Bank, another TARP applicant. We have executed search warrants in California against a law group that is alleged to have participated in other mortgage modification scams. 

And in Florida, two banks, one of which had received conditional 

approval, was about to receive $553 million in TARP funds that 

never went out the door. 

On the civil side, we work with the SEC and the New York State 

Attorney General in their investigations into Bank of America. And 

all told, our investigations division has helped in the recoupment 

or the prevention of loss through fraud of more than $700 million. 

We also leverage our resources with other law enforcement agencies. We formed the TALF PPIP Task Force in New York consisting 

of eight different law enforcement agencies. We have the TARP Inspector General counsel that we founded here in Washington, and 

we have a leading role in the President’s Fraud Enforcement Task 

Force. 

With respect to transparency and oversight, we do that through 

our auditing and reporting function. This week we issued our sixth 

comprehensive quarterly report reviewing operations of TARP and 

of SIGTARP for the preceding quarter, and these reports are intended to be desk books, reference guides that try to translate all 

the Wall Street terminology into Main Street language. 

The American people have a thirst for information about this 

program in which they are investors. In SIGTARP, we have tried 

to meet that thirst with more than 42 million hits to our Web site 

since our inception. 

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As far as audits, we have issued eight audits to date. Just as a 

way of example, they have covered issues such as TARP recipient 

use of funds, the impact of outside influences on the TARP application process, the decision by government officials to pay the equivalent of 100 cents on the dollar to AIG’s counterparties for securities 

that were worth less than half of that amount, and most recently, 

on the HAMP, the mortgage modification program, the administration’s response to the foreclosure crisis. 

We have made about 50 recommendations to date. And while 

many have been adopted, some have not. But those that have, I believe, have significantly contributed to the TARP being better run, 

better executed and, most importantly, better protected against the 

risk of loss through fraud as a result. 

Finally, one of our roles is, of course, to keep the Congress informed of what is going on in TARP and what is going on at 

SIGTARP. And we have conducted dozens and dozens of individual 

Member briefings, staff briefings. And today marks my 14th time 

testifying before Congress as the Special Inspector General to discuss what is going on in the TARP and the TARP programs. 

Mr. Chairman, Ranking Member Emerson, again, thank you for 

this opportunity today. I look forward to answering any questions 

you may have. 

[The prepared statement of Mr. Barofsky follows:] 

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Mr. SERRANO. Did you say 14, 14 times? 

Mr. BAROFSKY. This is number 14. We counted up for the testimony today. I was surprised at the number. 

Mr. SERRANO. I think you were here for most of the prior, previous testimony, so I am going to give you an opportunity to comment on the answers Mr. Allison gave, particularly on mortgage relief and the general effects of TARP on credit conditions, if you 

have anything you would like to add to that. 

Mr. BAROFSKY. I think that, with respect to the mortgage program, the TARP mortgage program, HAMP, as I said, we recently 

released an audit, and we had new recommendations in our most 

recent quarterly report. It is a program that has a lot of promise. 

But it has had a lot of problems in execution. With only 230,000 

permanent modifications more than a year into the program, it is 

making a very small dent into a much larger problem. 

We addressed that in our audit through our recommendations. 

There has been problems with execution; a lot of the decisions and 

the practices in some ways have been rushed, which has resulted 

in some inefficiencies; a lot of borrower confusion, which has led to 

avenues for fraud. And there has been problems in some of the program design, which leaves it vulnerable to redefault. That is when 

someone gets a mortgage modification but is still unable or unwilling to continue to make the payments, either because the payments 

are still too unaffordable or because they are too hopelessly underwater. 

To Mr. Allison and to Treasury’s credit, after receiving that audit 

report, they announced some significant revisions to the program 

that do address things like underwater mortgages, carving out $14 

billion of the program just for one program alone with FHA. 

Those announcements also raised some significant concerns, 

which are addressed in our quarterly report. But we are hopeful 

and confident, and we will continue to work with Treasury to assist 

them in making this a program that will have the impact that the 

dollar amount that is committed to it should deserve. 

Mr. SERRANO. When you speak about you hope to continue to 

work, has the past or recent past been rocky in that relationship? 

Are things getting better if they have been rocky? How do you see 

it? Because we in this panel want you all to get along. 

Mr. BAROFSKY. I think we do get along. I think the nature—— 

Mr. SERRANO. Just in case, just for the record. 

Mr. BAROFSKY. I think we get along. I think the nature of our 

oversight, we are very vigorous in our oversight. 

Mr. SERRANO. Well, that is the key. We want you to work together. We don’t want you to get along too much. 

Mr. BAROFSKY. No. I think that, while there have been areas 

where certainly we have had some disagreement, certainly sometimes very passionate disagreement, I credit Treasury; I credit Mr. 

Allison. We are all working towards the same goal, which is helping to make sure this program protects the American people, it 

maximizes its efficiency, and it best protects against risk of loss 

from fraud. I think we have a great working relationship. 

Mr. Allison and I spend, at least once a week where we sit down 

and discuss the TARP issues. And as I said before, I think that 

sometimes we have to work a bit longer and a little bit harder to 

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get them to see our way. But overall, this program is in much, 

much better shape because of the willingness of Treasury to work 

with us and to try to meet us at least halfway, sometimes all the 

way on our side, with some of our most important recommendations. 

Mr. SERRANO. SIGTARP’s budget request of $49.6 million is higher than the budget request in the Treasury’s Office of Inspector 

General, which is $30.3 million. So why is your organization so 

much more costly to operate? How much do you pay for contracted 

services, and what types of the services do you contract out? 

Mr. BAROFSKY. Sure. The scope of our operations has changed 

dramatically since EESA was first passed, and originally it was 

contemplated to be one program basically to buy $700 billion of assets, direct purchases, a relatively straightforward program. It has 

changed a lot since then. As I said before, 13 subprograms that put 

a lot of demands on our agency, which I think are a lot different 

not just from the Treasury Inspector General but for most non-Special Inspector Generals. 

We don’t just address what is going on in Treasury. In other 

words, our oversight just isn’t over Mr. Allison’s office, the Office 

of Financial Stability. Because of the way that these programs 

have evolved, for example, the Capital Purchase Program, we also 

are providing oversight to more of the Treasury entities but also 

the FDIC and also the Federal Reserve. We also take a very aggressive role because we really are the sole law enforcement authority over all TARP-related programs. That really makes an expansive jurisdiction. 

The Treasury Inspector General doesn’t necessarily get out to 

those who come into the government for a program, so let me just 

give you an example. AIG, Bank of America, and Citi have devoted 

a lot of our audit and investigative resources, more than 700 banks, 

probably closer to 800 banks just through one program, the Capital 

Purchase Program, and we are responsible for safeguarding those 

investments. 

The HAMP program is 110 different servicers, a lot of the large 

banks, and potentially millions of applicants coming in through the 

door. 

The TALF program is a very complex program run by the Federal Reserve and Treasury. It involves 15 or 16 primary dealers 

and their customers. 

The PPIP program is nine, now eight, sophisticated hedge fund 

asset management, which has a tremendous amount of challenges. 

So I think one of the reasons why—our budget is larger is that 

our scope is very broad and our responsibility is very broad. And 

I would compare us to other Special Inspector Generals. For example, we based a lot of our growth on the Special Inspector General 

for Iraq reconstruction, which oversees about $50 billion, compared 

to our much larger scope of—and our budget, when they were 

reaching their peak, is right around the same area. 

The other Inspectors General—just by way of example, when 

ours was passed, one Inspector General commented for us that it 

would only leave him resources with one auditor per billion dollars, 

which that Inspector General thought was an unmeetable goal. If 

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we had one auditor for every billion dollars, our audit division 

alone would be 700, not even counting our investigations. 

We have taken costs very seriously from day one. We try to be 

frugal, we try to be prudent, and, above all, we try to get the most 

bang for our buck to get the most coverage possible for this breathtakingly complex program. 

Mr. SERRANO. Thank you. 

Mrs. Emerson. 

Mrs. EMERSON. Thank you. 

Thank you so much for being here and thanks for the great job 

that your office is doing under your leadership. It really makes 

those of us who have to live and breathe this every day feel a lot 

better because you all are watching over our very precious tax dollars. 

Let me ask you, you mentioned some of the audits and that sort 

of thing that you had done, and I read it in the part of the quarterly report I got through last night—I must say I didn’t finish the 

whole thing—but, last year, you stated in written testimony—and 

I am going to quote: We stand on the precipice of the largest infusion of government funds over the shortest period of time in our 

Nation’s history. History teaches us that an outlay of so much 

money in such a short period of time will inevitably attract those 

seeking to profit criminally. If by percentage terms some of the estimates of fraud in recent government programs apply to the TARP 

programs, we are looking at the potential exposure of hundreds of 

billions of dollars in taxpayer money lost to fraud, end quote. 

So, number one, have your fears materialized and have you been 

able to find any large-scale fraud in the TARP programs? If so, 

what types of fraud have you uncovered? And then, third, how 

closely are other agencies such as HUD, the FBI, SEC, FTC, and 

U.S. Attorneys working with you all to investigate and prosecute 

cases of fraud? 

Mr. BAROFSKY. I believe that ultimately the success of my organization of SIGTARP historically will be judged by how we do against 

those typical numbers of the 10 percent burn rate for the FBI. 

Sometimes it is 7 percent, sometimes it is 12 percent. I think we 

are really well on our way because, even more important from our 

investigative functions, I believe, in detecting and bringing people 

to justice, is how much we do as a job of deterrence through building and making our recommendations to make these programs as 

safe as possible and then for getting the word out and making sure 

that those who are contemplating committing fraud know we are 

out there. 

We certainly are seeing fraud, probably inevitable of a program 

of this size. We are not so far seeing anything close to what the 

typical government burn rate is for fraud. Now we still have a 

ways to go to be sure, but I am very—we really try to get out in 

front. 

I mentioned in my opening testimony the TALF PPIP Task 

Force. That is not just a law enforcement group where we sit 

around and figure out ways to arrest people. A lot of our recommendations came from those discussions. We try to get experts 

from the SEC, from the FBI together so we can make these programs well designed. 

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I think the TALF program, when we originally started, it was 

originally pitched to us by the Federal Reserve. It had virtually no 

fraud protection whatsoever. It was going to rely on rating agencies 

and investor due diligence, the two things that led to this financial 

crisis in many ways. I think now this program is remarkably well 

designed. 

They took our recommendations to heart. I remember they came 

down the day after our first initial report, came down to Washington and sat with us and worked with us and put in some really, 

really good protections. Sometimes they went beyond what we said, 

which we thought was terrific. 

They kept residential-mortgage-backed securities out of that program, which was a pretty courageous move. I mean, this is something that was announced by the Secretary and the Chairman of 

the Board of the Federal Reserve that they were going to put those 

securities through that program. We had real problems with it, because we didn’t think the program was well designed, and they listened to it. 

So, real quick—I hear the buzzing—we have had wonderful cooperation with the Department of Justice, the U.S. Attorney’s office, our law enforcement partners. We work with HUD OIG, we 

work with FDIC CIG, really, every law enforcement agency that 

has a hand in white-collar law enforcement works with us on our 

cases, Postal, ICE, and we also work with State and local authorities as well, like the New York State Attorney General. The New 

York State Banking Superintendent is very supportive in our recent case in New York. 

Mrs. EMERSON. I appreciate that. Thanks. 

I think, just to let the other colleagues get a question in, I will 

wait and do another round if we do. 

Mr. SERRANO. I agree. I thank you. 

Mr. Fattah. 

Mr. FATTAH. Let me go back to the chairman’s question about 

contracted services, services you contract out for. You didn’t describe any or make any response to that question. 

Mr. BAROFSKY. Oh, I will be happy to. 

Basically, for contracting, obviously, EESA gives us the authority 

to do so. And when we do our contracting, we always try to do it 

when it is most cost-effective. As a temporary agency, we have to 

be sort of selective in what we bring in-house and what we contract 

out, because we are not a permanent organization, to build and 

hire up. 

Mr. FATTAH. Tell us what you do. What kinds of services have 

you the contracted out for? 

Mr. BAROFSKY. Perhaps our most significant contract is a program manager to help us with the production and design of our 

quarterly reports. The quarterly report has a tremendous amount 

of data that we collect in it, that we crunch and turn into charts 

and numbers. We do extensive vetting; and we have a contractor, 

Deloitte, actually, financial advising services, which assists us in 

that. 

We then have a bunch of smaller contracting services, everything 

from cars for our investigators, our special agents, to buy supplies 

for them, rent, obviously, as well as parking spots. We have other 

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advisory services that help us with, you know, some of our human 

resource functions. We don’t do all of our human resource functions 

in-house because, as I said, as a temporary agency it would just be 

too expensive. 

Mr. FATTAH. Your total personnel complement is? 

Mr. BAROFSKY. Right now, we are at 116 FTE. 

Mr. FATTAH. Can you guesstimate for the committee the number, 

the percentage, of women, African Americans, Hispanics, what 

level of diversity? Since you are the cop for TARP, I was interested 

in the question of how diverse the picture might be. So can you 

give us a general notion? 

Mr. BAROFSKY. I don’t want to hazard numbers, because I don’t 

have them, but I am happy to get those numbers to you, assuming 

our H.R. Department keeps track of them. 

I know that I have emphasized from day one from to all of my 

senior managers who do the hiring on down the importance of diversity, and we certainly do strive for it. 

Mr. FATTAH. Your senior managers, is it a diverse group of people? 

Mr. BAROFSKY. I believe our senior staff is remarkably diverse. 

Mr. FATTAH. In your contracting out, have you utilized women 

and minority-owned, veteran-owned firms? 

Mr. BAROFSKY. Yes. We actually required for our largest subcontract with Deloitte that they subcontract to minority, small 

business, minority-owned, women-owned small business. 

Also, with our other, smaller contracts, advisory contracts, I 

know that has been an emphasis. 

As I said, I don’t have the numbers and statistics at my fingertips, but I will get them for you. 

Mr. FATTAH. Mr. Chairman, if we could have that request made 

for the record. Thank you very much. 

Mr. BAROFSKY. My deputy reminded me that when we went out 

and contracted for our use of funds survey we did hire a minority, 

woman-owned small business as well. So it is something that is always on the forefront of what we are thinking, but I just don’t have 

the data. 

Mr. FATTAH. Thank you very much. 

Mr. SERRANO. We will make that request on the record, Mr. 

Fattah. 

Mr. Culberson. 

Mr. CULBERSON. Thank you, Mr. Chairman. I will be as brief as 

I can. 

Do you know how much money the Federal Reserve has loaned 

out and to who and under what terms and conditions and can you 

provide that to the committee, please? 

Mr. BAROFSKY. We did a comprehensive review last July, not just 

the Federal Reserve but all the different Federal government support of the financial industry during the crisis. So we will get you 

a copy of our July 2009, report. I fully plan to update that in our 

next quarterly report this July; and, obviously, we will get that 

back to you as well. 

Mr. CULBERSON. Thank you. I am sorry I didn’t see it. 

Does it give detail as to who, what entities the Federal Reserve 

loaned money to? Because that has always been a concern to MemWReier-Aviles on DSKGBLS3C1PROD with HEARING

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bers of Congress. Who are they loaning my daughter and our kids’ 

money to and under what terms and conditions? 

Mr. BAROFSKY. Hopefully, that decision will be made by the Supreme Court. 

Mr. CULBERSON. They are not releasing the information. 

Mr. BAROFSKY. The Federal Reserve doesn’t disclose it. There 

was recently a decision in the Second Circuit Court of Appeals that 

is going to order them to make available that type of information. 

My understanding is they are appealing that decision. 

Mr. CULBERSON. I bet. Could you send that to me? I would love 

to see the court case, too. 

We are running short of time. 

The HOPE for Homeowners Program that the chairman asked 

you about, that is in section 110 of the TARP bill, I recall. It is now 

title 12 of the United States Code, section 5220. Was that the same 

program you were talking with the chairman about? 

Mr. BAROFSKY. No, actually, HOPE for Homeowners is something 

a little bit different. That is a HUD program. 

Mr. CULBERSON. It is a separate program, but, I mean, the statute, TARP, references that. The purpose of the subsection of TARP 

is to implement the provisions of HOPE for Homeowners is my 

point, right? 

Mr. BAROFSKY. In certain aspects. 

Mr. CULBERSON. Do I remember it correctly? That is the section 

we are talking about of TARP? 

Mr. BAROFSKY. I don’t remember the exact section either. 

Mr. CULBERSON. That language of that section says that the Federal property managers can, as I recall—in order to encourage people to stay in their homes, to encourage homeownership consistent 

with HOPE for Homeowners Program, the Federal property manager can, to the extent that the Federal property manager or the 

Treasury owns a mortgage-backed security or mortgages, reduce 

the amount of principal, reduce the amount of the interest, will 

make any other modification they wish. Is that accurate? Essentially that is what it is, isn’t it? 

Mr. BAROFSKY. I mean, essentially, I think that was sort of a carryover of what TARP was originally intended to be, which was that 

the Federal Government was going to go out and buy toxic assets, 

including home mortgage loans, mortgage-backed securities. Because that really has never come to pass, I don’t think those provisions have really—— 

Mr. CULBERSON. But is that the section you are talking about? 

You said to the chairman, there is 230,000 permanent modifications that have been made to mortgages. I think that is the same 

program, isn’t it, Mr. Chairman? 

Mr. BAROFSKY. No, Congressman, it is a separate program that 

has been initiated under TARP called the Home Affordable Modification Program. 

Mr. CULBERSON. Okay, completely separate. 

Mr. BAROFSKY. Completely separate. There the government 

doesn’t actually own the mortgages. They are actually owned by 

private investors through private label mortgage-backed securities, 

or Fannie and Freddie, which technically is not the government 

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owning those mortgages. But that program addresses privatelyheld mortgages. 

We don’t really have through TARP an inventory of mortgages. 

Although that was what perhaps was originally intended with legislation, it is not what came to pass. 

Mr. CULBERSON. Well, I wish you would run this down for me, 

because it is in statute. And I spotted it, and I voted against the 

TARP, but this is one of the many reasons I voted against it. But 

it was a real source of concern to me. 

This other program you were mentioning to me, does the Federal 

Government then have the ability to insist that the bank modify 

the principal, reduce the interest, or make any modifications they 

can to keep the person in the home or keep somebody in the home? 

Mr. BAROFSKY. Once a mortgage servicer signs into the agreement—and so far more than 110 have, which covers about 90 percent of the market—they are required to run a net present value 

test, a computer model that determines whether or not the mortgage modification, which there will be certain incentives provided 

by the government, if that will make more money for the investor 

than rather just doing nothing. And when that NVP test is positive 

under the program, the servicer is required to—it is mandatory— 

to do certain modifications of the mortgage. Under the current program, it starts with the reduction of the interest rate, and then it 

is followed by other factors like extending the term of the loan or 

forebearing. 

Mr. CULBERSON. Can we get the name of the program? 

Mr. BAROFSKY. That is the HAMP Program, the Home Affordable 

Modification Program. 

Mr. CULBERSON. Thank you, Mr. Chairman. I know we need to 

go vote, but it was a concern just because of obvious potential for 

fraud and abuse. 

Mr. BAROFSKY. We are literally all over this program. We have 

more than two dozen criminal investigations pending relating to 

the HAMP Program. 

Mr. CULBERSON. Two other quick questions. 

If you could ballpark the total amount of the exposure of taxpayers, in your opinion, the potential liability of taxpayers. How 

much have taxpayers been exposed to both through the Federal Reserve and through the Treasury through this TARP Program and 

other guaranteed programs like it? 

Mr. BAROFSKY. In July of 2009, when we did this analysis, it was 

about $3 trillion. What we are going to see, as I said, we are going 

to update it this July, and we will give you an updated number at 

this point. 

Mr. SERRANO. There is no way we can leave to vote and come 

back. That will take quite a while. I don’t want to have you wait 

here, but you have answered most of the questions. 

I was going to ask one more. So I am going to ask one more, and 

Mrs. Emerson, and then we will let you go. And this is one of those 

great, loaded questions. 

So if your staffing number is lower than expected in 2010, we assume that you will have money left over to carry into 2011, which 

means you won’t need the over $49.6 million that you are asking 

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208 

for in 2011. Is that a fair assumption or are you going to tell me 

now how you need every bit of the $49.6 million? 

Mr. BAROFSKY. I am told by my budget folks that we do. And the 

reason is that we have a lot of expenses that I think we anticipated 

that are going to be incurred in this year in 2010 that are not going 

to be—specifically with respect to our information technology, you 

know, we still—right now, we are sort of doing it with band-aids 

and duct tape. 

We have to build our own IT structure, not completely from 

scratch, but decide on what off-the-shelf products we are going to 

use. We have been relying on Treasury to sort of get us through. 

And what I have been told is that those funds are not going to be 

spent in 2010 and are not reflected in the 2011 budget. 

So to the extent that this carryover of that money is going to be 

still spent in 2011 and that carryover will apply to that, we do anticipate spending all of our—I get the terminology wrong, and I 

apologize—our annual money, the money that we are being provided for 2010, that will be spent. There will probably be something 

left over of our no-year money, which is part of the initial allocation, and I apologize if I am getting the terminology wrong. 

But, again, as my staff tells me, because we haven’t realized 

some of the expenses that we thought we would in 2010, that they 

are going to be realized in 2011. 

Mr. SERRANO. Okay. We would like you to keep us informed of 

that. In other words, speak to staff as we go along to make sure 

that we feel comfortable that even if you don’t meet the goals you 

expected that we are still not giving you more money than you 

should be getting only because, across the board, everybody is very 

tight, and we don’t want to run into any problems. 

Mrs. Emerson. 

Mrs. EMERSON. Okay, 222 people haven’t voted; and we have 

zero minutes remaining. 

Very, very quickly, because I am still bothered by this, with regard to the Treasury Department, back in December, approving a 

tax rule that allowed Citigroup to avoid paying billions of dollars 

in taxes. And I understand that this ruling will help make 

Citigroup shares more valuable, allowing the Treasury to make 

more money when you sell the shares that the government owns. 

But I guess it is just difficult for me to understand why a company 

that receives tens of billions of dollars in government bailouts 

should receive special treatment in the Tax Code. So I want to 

know if you have looked into this matter and whether or not you 

believe that the government will receive more revenue once 

Citigroup shares are auctioned than it would have if the tax rule 

hadn’t been changed. 

Mr. BAROFSKY. This is the initiative that we have spent a lot of 

time thinking about. And, actually, Representative Kucinich has 

sent a letter to myself as well as to Senator Baucus, the chairman 

of the tax committee in the Senate, asking us to do two parts of 

a project that will review that: our side to review the decision-making process that led up to that decision, and on the Senate side to 

do a review of what the actual costs were, what is the dollars and 

cents. 

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It is a very complicated and complex formula. Originally, I was 

hopeful that we would be able—you know, we were thinking about 

doing it ourselves. We can’t. We don’t have the expertise. We would 

have to contract it out. It would cost a fortune. 

So we are intending, we are going to work with the Senate and 

work with the tax committee and get to the point where we can, 

you know, make sure that that part of the project is being addressed. And, if so, we are certainly committed to addressing our 

part of getting and auditing what the decision-making process is. 

Mrs. EMERSON. Thank you. I appreciate it. 

Mr. BAROFSKY. Because we agree that it is a very significant concern. It is a concern where, basically, the stock prices of Citi is 

being potentially buoyed, which benefits the government, as a 28 

percent shareholder of the common stock of Citi, but it also benefits 

those other 82 percent, or 72 percent. So it is something that is on 

our radar screen. 

Mrs. EMERSON. I appreciate it. There is something that just 

smells funny about it to me. So I appreciate the fact that you all 

are going to look into it and will appreciate hearing back from you 

about what you may have found. 

Mr. BAROFSKY. Absolutely. 

Mr. SERRANO. We will all be interested in that. 

Mr. Barofsky, we thank you, first of all, for your service. We 

thank you for the work you do. We thank you for testifying before 

us. 

We are sorry that we are kind of rushing here, but we are at 

zero. And there are at least four votes, which means this will go 

on for a while down there, and we don’t want to keep you waiting 

here for us. 

So we thank you. We will continue to be in touch, and our staffs 

will continue to be in touch. And what you do is very important, 

very important to our mission here, to keep us informed and to do 

the right thing. And we thank you so much. 

Mrs. EMERSON. Thank you. 

Mr. BAROFSKY. Thank you very much. 

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W I T N E S S E S 

Page 

Allison, H. M., Jr ..................................................................................................... 147 

Barofsky, Neil .......................................................................................................... 147 

Geithner, Hon. T. F ................................................................................................. 65 

Shulman, D. H ......................................................................................................... 1 

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