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S. HRG. 111–870 

TARP OVERSIGHT: A 6-MONTH UPDATE 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 31, 2009 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

BLANCHE L. LINCOLN, Arkansas 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

RUSSELL SULLIVAN, Staff Director 

KOLAN DAVIS, Republican Staff Director and Chief Counsel 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3 

WITNESSES 

Barofsky, Neil, Special Inspector General, Troubled Asset Relief Program, 

Washington, DC ................................................................................................... 5 

Warren, Elizabeth, Chair, Congressional Oversight Panel, Boston, MA ............ 7 

Dodaro, Gene, Acting Comptroller General, Government Accountability Office, 

Washington, DC ................................................................................................... 9 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Barofsky, Neil: 

Testimony .......................................................................................................... 5 

Prepared statement with attachment ............................................................. 33 

Responses to questions from committee members, with attachment ........... 48 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 77 

Dodaro, Gene: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 80 

Responses to questions from committee members ......................................... 94 

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 105 

Letter from Senator Grassley to Treasury Secretary Paulson and Federal 

Reserve Chairman Bernanke, dated November 12, 2008 .......................... 107 

Warren, Elizabeth: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 112 

(III) 

(1) 

TARP OVERSIGHT: A 6-MONTH UPDATE 

TUESDAY, MARCH 31, 2009 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:42 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Rockefeller, Conrad, Kerry, Lincoln, Wyden, 

Schumer, Stabenow, Nelson, Menendez, Carper, Grassley, Hatch, 

Snowe, and Crapo. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; John Angell, Senior Advisor; Vincent 

Mascia, Fellow; and Miki Hanada, Fellow. Republican Staff: Emilia 

DiSanto, Special Counsel and Chief Investigator; Jason Foster, Investigative Counsel; and Jim Lyons, Tax Counsel. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The hearing will come to order. 

In 1989, in an interview, our former colleague Congressman Jim 

Leach said, ‘‘The banks use rather surreal accounting practices.’’ 

Since then, the world of banking and financial oversight has become, if anything, yet more surreal. One of our witnesses today, the 

Special Inspector General for the Troubled Asset Relief Program, 

has calculated that in the TARP and associated programs, taxpayers are potentially at risk for as much as $2.9 trillion. Twopoint-nine trillion dollars is just short of what the entire Federal 

Government spent in fiscal year 2008. It is like having a second 

U.S. Government budget dedicated solely to saving the financial 

system, and that is truly surreal. The chart behind me outlines what makes up the $2.9 trillion. That $2.9 trillion does not include the $400 billion that the Treasury Department has pledged in support of Fannie Mae and Freddie 

Mac. That $2.9 trillion does not include the resources that the Federal Reserve is dedicating to shoring up the financial system in addition to the programs with the TARP. Those additional accounts 

will come up to about $3 trillion, and that $2.9 trillion does not include the second TARP, that request for $750 billion in the President’s budget. 

If all of these additional amounts materialize, taxpayers could be 

on the hook for a total of more than $7 trillion. This is a huge, unprecedented financial commitment. It strains the comprehension of 

taxpayers and policymakers alike. It has been nearly 6 months 

2 

since Congress created the TARP program. Almost all of that $700 

billion has been committed, so it is time for the Finance Committee 

to survey the many oversight issues related to this new Treasury 

Department program. 

I worked hard to create the Office of Special Inspector General 

for the TARP. It is something I wanted. I pushed for it strongly. 

There was some resistance in the former administration, but we finally got the provision in there. I am very proud we do have the 

Office of Special Inspector General for the TARP. 

I am very pleased to welcome Mr. Barofsky to the committee 

today, and so far as the Special IG, in my judgment, he has done 

a good job. 

The latest controversy involving the TARP program centers on 

the AIG bonuses paid from taxpayer money. Senator Grassley and 

I introduced legislation to reclaim those bonuses for the taxpayers, 

and we are looking forward to bringing that legislation to the Senate floor. I am pleased that the Special IG is conducting his own 

full investigation of how those bonuses got out the door. 

But the AIG fiasco is just the tip of the iceberg. There are many, 

many tough oversight issues connected with this new program. 

Today we will look at 12 major areas of TARP involvement, and we 

hope to get an update on each area from our oversight teams. 

The 12 areas are: (1) the capital investment program for large 

banks; (2) the capital investment program for small banks; (3) 

Citigroup; (4) Bank of America; (5) AIG; (6) the Term Asset-Backed 

Securities Loan Facility, otherwise known as TALF; (7) General 

Motors; (8) GMAC; (9) Chrysler; (10) the mortgage relief program; 

(11) the small business program; and (12) the bad assets program 

announced just last week. I hope that at least one of our witnesses 

can comment on each of these 12 program areas. 

We will also survey some other key issues on which our oversight 

experts have been focusing during the past 6 months. For one, I am 

pleased that improving transparency has been a priority for the 

Special IG. It is very important. 

Mr. Barofsky recommended that the TARP post all TARP agreements, whether they are with recipients or with its vendors, on the 

Treasury website, and the Treasury Department has agreed. 

The Special IG also successfully pushed for oversight language in 

the Citigroup and the Bank of America agreements that requires 

those banks to account for and report on their use of TARP funds. 

In late January, Mr. Barofsky sent each bank participating in 

the capital investment program a letter asking how they have used 

TARP dollars. This was a much-needed exercise. It had not been 

done before. I am so glad that Mr. Barofsky sent that request. 

Americans want to know how their tax dollars are being spent. 

That is very much on the minds of American taxpayers. 

I understand that all of the 360 banks involved have responded. 

That is commendable. I look forward to hearing the Special IG’s 

preliminary analysis of the banks reports. What did they say in 

their responses? 

I am also pleased that the Special IG has made progress on civil 

and criminal law enforcement. I am heartened that he has reached 

out to the FBI and to U.S. Attorneys around the country to coordinate fraud investigations related to TARP funds. My concern here 

3 

is, with such massive amounts of dollars dedicated so quickly, there 

is bound to be considerable fraud and misuse of funds. There are 

just so many dollars allocated in such a short period of time. 

As Mr. Barofsky has said, of the primary oversight bodies referenced in the TARP, the Special IG stands as the sole TARP oversight body charged with criminal law enforcement authority. The 

Special IG is literally the cop on the beat. 

Finally, the new program announced last week by the administration and Fed Chairman Bernanke represents another huge challenge to our oversight teams. The plan to purchase so-called bad 

assets will involve up to $100 billion of TARP funds. It will involve 

backing from the FDIC and the Federal Reserve. The total commitment for this new program could reach $1 trillion. The new program presents another very tough task for our three oversight 

teams. They will have to oversee pricing the assets, what entities 

are managing the assets, and taxpayers’ exposure for each group 

of bad assets. 

I want to thank our witnesses and their teams for their hard 

work. This is an enormously complicated program. The money involved is mind-boggling, totally mind-boggling. Indeed, the money 

involved is surreal. I look forward to our witnesses’ efforts to help 

explain their tasks in ways that will make it just a little more real. 

I have many questions to ask, Americans have many questions 

to ask, but I will now turn to Senator Grassley. 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Thank you, Mr. Chairman, for calling this 

critically important committee meeting and the hearing that is involved on this very important subject. 

First of all, so I do not forget it, to each of the three of you, I 

want to thank you very much for bringing transparency to this 

issue, bringing out all the facts that need to be brought out to 

make sure laws are abided by, laws are faithfully executed, and 

money spent according to the intent of Congress. 

I mean that for all three of you, but I want to especially mention 

Professor Warren because, so many times over the last decade and 

a half, you and I have been on opposite sides of a very important 

issue—and we are probably still on the opposite sides of that issue. 

But you are really boring in on this, and I want you to know that 

I really appreciate your work. I will probably appreciate your opposition on that other issue more because of the hard work you are 

doing on this. 

It has been a year since the collapse of Bear Sterns and about 

6 months since the $700-billion Troubled Asset Relief Program was 

created. According to its purpose clause, the act was supposed to 

help Treasury restore liquidity and stability in the financial system, and to do it in a manner that protects home values, college 

funds, retirement accounts and life savings, preserves home ownership, promotes jobs and economic growth, maximizes returns to 

taxpayers, and provides public accountability for the exercise of 

this authority. We are concentrating on that public accountability. 

I had my doubts about the creation of TARP and the way it was 

raced through Congress. Congressional leaders paired the bill with 

4 

hard-fought tax legislation for Midwest flood relief and equity for 

Midwest flood victims compared to what Washington did for 

Katrina victims. 

I voted against the second round, even though I voted for that 

first one because of interest in my home State being connected with 

it. But I voted against the second round because my initial concerns about the rest of the bill were justified, including my concerns that limits on executive compensation were too weak. 

As soon as Treasury received the funds, it decided to bail out big 

banks instead of buying up toxic assets, as they told us. Millions 

continued to lose jobs and homes, which makes me wonder about 

the program’s effectiveness. 

But you cannot measure effectiveness when you do not know 

what the goals and objectives of the program are or how the program is being run. I am disappointed and frustrated that the administration refused the committee’s request for Mr. Kashkari to 

testify today. It would have been nice to hear how he is gauging 

the success of the program. 

So I ask unanimous consent to enter into the record my letter to 

Secretary Paulson, dated November 12, 2008. During his confirmation process, I asked Secretary Geithner for his commitment to respond to all my inquiries, including that letter. There are certain 

answers that only the administration can provide, and I am going 

to continue to push until we get those answers. 

The CHAIRMAN. Without objection, it will be entered. 

[The letter appears in the appendix on p. 107.] 

Senator GRASSLEY. While the operation of TARP is troubling, it 

is a small relief to know that the program’s watchdogs—you folks— 

are doing your job. I am proud to have worked with you, Mr. Chairman, to create the Special Inspector General, who will be testifying 

today, along with the heads of these other agencies and the Congressional Oversight Panel. 

These watchdog agencies are vital in helping Congress and the 

American people keep track of multiple TARP and TARP-related 

programs that the Treasury Department is initiating. Treasury has 

announced several new programs just in the last 2 weeks, some of 

its own and some in partnership with the Federal Reserve. With 

so much happening so fast and so much taxpayers’ money at stake, 

the need for quality, oversight, and transparency has never been 

greater. 

Unfortunately, despite saying all the right things about open government, the new administration has not made any major changes 

aimed at making TARP more transparent. Moreover, I have heard 

about potential problems with access to information from all three 

of the oversight bodies testifying. The Treasury Department told 

the Inspector General that it did not want to ask big banks what 

they did with the taxpayers’ money provided through the Capital 

Purchase Program, so the Inspector General said that he would ask 

the banks himself. 

At first, he faced a few bureaucratic hurdles, but he has now received responses, as the chairman has indicated. Contrary to the 

claims by some that it was impossible to know how the money was 

used, I understand that many of the responses provide a very clear 

understanding of where the money went. I guess the money was 

5 

not as fungible as we thought. In fact, if we want to know where 

the money went, with a little ingenuity you can get a pretty good 

idea. 

The Treasury’s recently announced initiatives demonstrate an increasing reliance and partnership with the Federal Reserve. However, these moves threaten the ability of the Government Accountability Office to monitor the program effectively. That is because 

the GAO is limited by statute from examining Federal Reserve activities. That limitation is aimed at ensuring the Fed’s independence in monetary policy. However, its unprecedented actions in the 

last year have taken it far beyond traditional monetary policy. 

From the standpoint of the efforts to ease the credit freeze, the 

Fed is no longer acting independently. It is an accessory of the 

Treasury Department and therefore political. Chairman Baucus 

and I have already introduced legislation to expand GAO’s ability 

to obtain records from TARP recipients, because the bill that created the program failed to grant GAO the authority that it needs. 

The Congressional Oversight Panel has also had problems getting answers from Treasury. According to the panel’s most recent 

monthly report, Secretary Geithner has failed to respond to key 

questions that have been pending since even before his time at 

Treasury. I have already complimented Professor Warren. If these 

oversight efforts are to be successful, Congress must be willing to 

provide the necessary attention and support. Today’s hearing is an 

attempt to do just that. We want to know whether the Treasury 

is taking these recommendations seriously and making meaningful 

changes. 

If not, then we need to help follow up and make sure that the 

problems identified through the process are fixed. It is not about 

assigning blame, it is about making sure that government works. 

It is about making sure that the government is accountable to the 

taxpayers who are footing the bill. With everything that is at stake, 

we cannot afford to have it any other way. 

The CHAIRMAN. Thank you very much, Senator. 

I would now like to introduce the panel. Our first witness is Neil 

Barofsky, Special Inspector General for the TARP; second, Ms. 

Elizabeth Warren, chair of the Congressional Oversight Panel. Welcome, Ms. Warren. The third witness is Gene Dodaro, Acting 

Comptroller General. 

Our regular practice, as you know, is to have all of your statements introduced into the record, which we will do, and ask each 

of you to speak for about 5 minutes on your opening statements, 

and then we will get to questions. 

We will begin with you, Mr. Barofsky. 

STATEMENT OF NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL, TROUBLED ASSET RELIEF PROGRAM, WASHINGTON, 

DC 

Mr. BAROFSKY. Thank you, Mr. Chairman. Chairman Baucus, 

Ranking Member Grassley, members of the committee, I am honored to appear before you today. I am particularly honored to appear on the celebration of the chairman’s 30th anniversary on the 

committee. 

6 

More than $300 billion has already gone out the door and, including the recently announced programs, as you noted, Mr. Chairman, we will soon be responsible for overseeing up to $3 trillion in 

12 different TARP programs. Today I would like to talk a little bit 

about two of the areas that we have been focused on, the TARP recipient’s use of funds and our proactive law enforcement efforts. 

Back in December, as part of our drive to bring increased transparency to the TARP, we began asking Treasury to require TARP 

recipients to report on how they are using TARP funds. Other than 

for Citigroup and Bank of America, Treasury rebuffed our efforts. 

In late January, we therefore decided to do it ourselves by conducting a survey of each of the 364 TARP recipients who had received funds by the end of January 2009. As you noted, we have 

received responses from all of them. 

Although it will take us a couple of months to conduct a thorough analysis of that information, one thing is clear: complaints 

that it was impractical, impossible, or a waste of time to require 

banks to detail how they use TARP funds were unfounded. While 

certainly not uniform, a number of banks were able to give us detailed—at times even granular—descriptions of how they used taxpayer money. 

For example, some banks described specific loans or lending programs that they could not have done without TARP money. A frequent response was that TARP funds allowed the bank to become, 

or remain, adequately capitalized so that it could maintain, and not 

reduce, the level of lending in a down economy. 

Others reported using TARP money to pay off existing debt, 

while one had to change its original plans when another bank 

called in a loan, requiring the first bank to take substantially all 

of its TARP funds to meet that obligation. Still others detailed investments that they made with TARP funds; some talked about acquisitions and others kept the money as a cushion against future 

losses. 

There was also a diversity of how banks monitored their use of 

TARP funds. Some reported commingling the TARP funds with 

other capital and making no efforts to keep track; others attempted 

to segregate the funds and took steps such as one bank reported, 

that it assigned a special TARP manager to keep track of the 

money. 

I believe ultimately the survey strongly supports my earlier recommendation to Treasury. Banks can, and should, be required to 

report on their use of taxpayer money to provide maximum transparency and not simply be asked to report on the possible impact 

of the funds, such as giving only lending activity. 

The second area I would like to cover is what has been our most 

recent effort to fulfill our role, as was mentioned, as the only of the 

four primary oversight bodies with law enforcement authority. I 

have recently been described as the ‘‘TARP cop.’’ To that end, we 

recently announced our TALF task force. 

The TALF has been described as a $1-trillion Federal Reserve 

program that will be seeded with about $80 billion in TARP money. 

It is intended to lend government money on a non-recourse basis— 

meaning that the borrower does not have to pay the money back— 

7 

to investors to buy both newly issued asset-backed securities, as 

well as, now, toxic assets, off of banks’ balance sheets. 

We have been warning of the vulnerability of this program to 

fraud for several months, and we converted those warnings into action by putting together a team of eight different Federal law enforcement and regulatory investigative agencies, including the FBI, 

the IRS, the SEC, FinCEN, ICE, the Postal Service, and the Fed’s 

IG, all to address potential fraud. 

Our task force had its first formal meeting last week, and our 

goal for it is not modest. We intend for it to redefine the policing 

of Federal Government programs by proactively setting up a law 

enforcement response before fraud occurs. We recognize the inevitability of fraud in large government programs, especially those as 

complex as the TALF. 

The task force will give us an ability to capitalize on the best experience of its members to make better recommendations to prevent fraud before it occurs and to establish a framework of trained 

experts who will be able to rapidly investigate fraud when it does 

occur. We are currently discussing expanding the task force to the 

newly announced programs also dealing with toxic assets. 

Finally, I would like to note that there have been some complaints in the media recently that my office’s oversight efforts may 

dissuade participation in TARP programs. Some might take this as 

a criticism; I do not. If a bank or financial institution does not want 

to participate in a TARP program because it is unwilling to disclose 

how it is using taxpayer money or because it is afraid of the vigorous detection programs that we are establishing for fraud, it 

means we are doing our job. Keeping such participants out of the 

TARP will only benefit the American taxpayer. 

Chairman Baucus, Ranking Member Grassley, members of the 

committee, that concludes my testimony, and I will be happy to answer any questions that you may have. 

The CHAIRMAN. Thank you, Mr. Barofsky. 

[The prepared statement of Mr. Barofsky appears in the appendix.] 

The CHAIRMAN. Ms. Warren, you are next. 

STATEMENT OF ELIZABETH WARREN, CHAIR, 

CONGRESSIONAL OVERSIGHT PANEL, BOSTON, MA 

Ms. WARREN. Thank you. Thank you, Chairman Baucus. It is a 

delight to be here on this celebratory day. Thank you, Senator 

Grassley, particularly, for the very gracious remarks. We have certainly differed in our approach to some issues, but I assure you, on 

the issues before us now with the oversight of the $700 billion and 

what is happening with the Fed and the FDIC, there are no differences between us. I appreciate your support, and I look forward 

to working with you. Thank you, committee, for having us here 

today. 

I should start by saying I am not reading from a tight script, and 

therefore my views are my own and do not necessarily reflect those 

of my panel members. 

I just want to remind you which one of the three we are with 

respect to congressional oversight. Our duty, according to the statVerDate Nov 24 2008 20:03 Feb 25, 2011 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 R:\DOCS\64387.000 TIMD
8 

ute, is to review the current state of the financial markets and regulatory system and to report to Congress every 30 days. 

We are the policy and strategic folks for you. We are the smallest. I like to think, though, that does not make us the weakest. We 

are a fairly tough group. We have done four hearings so far. We 

have done four monthly reports, and we have done a report on regulatory reform. Our fifth report will be out next week. We work 

closely with the GAO and with SIGTARP. We coordinate frequently. We try to be very careful to support each other’s work and 

advance each other’s work, not to overlap or to duplicate in any 

way. 

I want to start this by raising the central issue that we keep 

raising, and that is the one of, what is the strategy that Treasury 

is pursuing? Since our very first report—indeed, the first sentences 

of our first report—we have asked this question over and over: 

what is the essential plan here? What is the idea that Treasury is 

trying to pursue? 

With the notion that, if we cannot have a clearly articulated plan 

and some clearly articulated metrics to see if we are accomplishing 

those goals, we cannot really engage in serious oversight. So we 

start at the front end of this process, how it is conceived, what it 

is that we are trying to accomplish. We have asked, first Secretary 

Paulson, and then Secretary Geithner, for information, particularly 

including these strategic questions, and so far we have come up 

short. 

In our April report which will be released next month, we focus 

on the strategic question. We look particularly at what we can 

learn from the financial crisis in Japan, in Sweden, from the Great 

Depression, and from our own experiences with the Resolution 

Trust Corporation in the late 1980s, all of which we think can help 

inform us as we face the crisis in front of us. 

Now, I just want to briefly mention our earlier report so you 

have some idea of the content that we have covered. We had a 

valuation report that we issued in early February. This is a report 

that started when we did the capital infusion into the financial institutions, effectively the first $350 billion of TARP assets. At that 

time, at the very first report from Congressional Oversight, we 

asked the Secretary of Treasury, what were the terms? Were the 

taxpayers being fully protected in these investments into the financial institutions? 

I received a letter from then-Secretary Paulson who said these 

transactions occur at or near par, which means, in effect, for every 

$100 put in there is $100 in stock and warrants that were given 

back to the U.S. Treasury. We decided to do our own independent 

evaluation of that, lots of number crunching, brought in some academic specialists on valuation, and we found, in effect, that for 

every $100 of taxpayer dollars put in we got back about $66 on 

that day of stocks and warrants. This does not account for the decline since that time. 

Overall, if you do that enough times and with $350 billion, we 

believe that we overpaid or subsidized to the tune of an estimated 

$78 billion in the first go-round. That was our February report. 

I just mention a couple of our other reports. I am glad to go 

through many of these in detail. We did a foreclosure last month— 

9 

our most recent report, our March report—in which we developed 

a series of ways to evaluate whether or not any foreclosure mitigation efforts are likely to be effective, trying to highlight what the 

elements are that they need to cover. 

We discussed the administration’s plan, which we believe covers 

some of those metrics, but not all of those metrics, and how this 

may be deeply problematic. We also point out the need for better 

data, that we cannot evaluate these programs simply by making 

big announcements. We really have to have data to track to see if 

they are effective in the ways we hoped and, if they are not, to 

make appropriate mid-course adjustments. 

We currently have under way an inquiry about TALF. We are 

very concerned about the big down-side risks to the taxpayer and, 

frankly, the substantial up-side values to a small group of financial 

insiders. We are also concerned that this continues to subsidize the 

very kind of financial instruments and arrangements that helped 

create this mess to begin with, and we are concerned about oversight of that process. 

We are concerned about contradictory information on implementation, and we have requested information from Treasury. We are 

told we will get more information tomorrow on this. We also have 

inquiries under way about AIG. We have a number of questions 

about the justification, the costs, the terms, the ultimate beneficiaries. We are particularly concerned about the opaque nature of 

counter-parties that has, thus far, hampered oversight efforts. We 

have requested information on many points, including the decisionmaking process and the risks involved here. We are awaiting a response. 

Our bottom line is that, in crisis, the country needs a coherent 

plan with clearly delineated goals necessary to maintain public confidence and the confidence of capital markets. We believe it is critical to have sophisticated metrics to measure the success or failure 

of program initiatives. We also believe that transparency and accountability, which we have called for repeatedly from our first report and every subsequent report, are absolutely critical to having 

a system that is going to work, that is going to help us pull this 

economy out the ditch. 

We are doing our best to press Treasury to provide a clearer 

strategy, more transparency, and more accountability. We are here 

as your Oversight Committee to learn from you more about what 

we should be doing and to try to explain the work that we have 

done thus far, and the work in progress. I am here to answer any 

questions. Thank you. 

The CHAIRMAN. Thank you, Ms. Warren, very much. That was 

very helpful. 

[The prepared statement of Ms. Warren appears in the appendix.] 

The CHAIRMAN. Mr. Dodaro? 

STATEMENT OF GENE DODARO, ACTING COMPTROLLER 

GENERAL, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Mr. DODARO. Good morning, Mr. Chairman. Let me add my congratulations to you on your 30 years of service with this committee. 

10 

* For more information, see ‘‘Troubled Asset Relief Program: March 2009 Status of Efforts to 

Address Transparency and Accountability Issues,’’ Government Accountability Office report, 

March 31, 2009 (GAO–09–504), http://www.gao.gov/new.items/d09504.pdf. 

The CHAIRMAN. Thank you. Thank you. 

Mr. DODARO. Senator Grassley, good morning. Members of the 

committee, good morning to you. 

GAO’s role under the Troubled Asset Relief Program is really 2- 

fold. We have responsibilities under the law to review Treasury’s 

implementation of the program and report to the Congress every 

60 days, and we also have the role of the financial auditor of the 

TARP in terms of tracking the money to make sure it is properly 

accounted for. We have, thus, reported 3 times during the 6 

months: once in December, once in January, and our third report 

is being issued today.* 

Now, in those three reports we made a series of recommendations that are designed to improve the transparency and accountability of the Troubled Asset Relief Program. Among the series of 

recommendations, there are three main themes that I want to 

touch on this morning. 

First is the need for better monitoring and reporting on the uses 

of the funds under the Capital Purchase Program. Now, we focused 

on the Capital Purchase Program because so far, as of March 27, 

$199 billion of the $303 billion that has been distributed under the 

TARP has been through the Capital Purchase Program, so that has 

been about two-thirds of the money distributed so far. 

Our recommendation back in December was that Treasury needed a process to collect information from the financial institutions 

on how those funds were being used and how it has changed their 

total lending activities. After initially balking at implementing the 

recommendation, Treasury then began collecting monthly lending 

activity information from the 20 largest organizations, financial institutions, receiving the money. We said that was not enough. 

In our January report, we said every institution receiving money 

should be required to report back. Recently, Treasury has agreed 

with that, and now every institution receiving the funds will be required to provide monthly reports on their lending activities. We 

also think that this recommendation had an additional benefit in 

that the announcement for the new capital assistance program, 

which will emanate after the stress tests are done on the banks 

going forward, Treasury will require more information up front 

about planned uses of the TARP funds and require better reporting 

going forward. So we are pleased that our recommendations have 

had good effect in this area, and it is very important to have this 

type of information on a regular basis to adequately assess whether 

the program is achieving its objectives. 

Second, the theme of our recommendations has touched on communications strategy. This program, from the outset, has been 

plagued by poor communications. I am pleased that it is getting 

better, but there is still a ways to go. As you pointed out, Mr. 

Chairman, there are 12 different components to this program. They 

have evolved, they have changed. The initial intent to purchase 

toxic assets was changed to the capital injections. The program has 

continued to evolve. 

11 

I think that the financial stability plan that was announced in 

February was a good step forward to try to provide some clarity. 

More details are coming forward on the public/private partnership 

effort and have been encouraging as well. 

Some of the details of these programs still need to be worked out, 

but the mere fact that there are 12 different programs that they 

are leveraging in their activities with the Federal Reserve, the 

FDIC, and other organizations really places a premium on effective 

communications with the Congress, with the public, and other 

stakeholders about the details of these programs. So, in our report 

being released today, we recommend that a more effective communication strategy on the part of the Treasury Department is appropriate and needed in the coming months. 

The third main theme has to do with the management structure 

of Treasury. Now, Treasury’s Office of Financial Stability is responsible for managing all these programs, and from the beginning we 

have been concerned that they needed to hire up with appropriate 

numbers of staff and people. They have made some progress in that 

area, but they still need to continue to bring on the proper numbers of people with the right skills. We have made recommendations in the contracting area to strengthen their controls in contracting and internal control mechanisms that are needed to properly track and account for the money and manage conflicts of interest as well. 

Now in closing, I would like to thank Senator Grassley, you, Senator Baucus, and Senator Snowe for co-sponsoring the S. 340 bill, 

which would give GAO additional authority to examine the books 

and records and talk to recipients of TARP funds. While we have 

not had a problem to date, given the evolutionary nature of this 

program, we think this legislation is an important safeguard and 

needed, and we would encourage the Congress to adopt it. 

There are also, as Senator Grassley mentioned, some important 

limitations on our ability at the GAO to look at activities that are 

managed under the Federal Reserve’s monetary policy and discount 

window operations that are very important. I am very concerned 

that, as the TARP has been leveraged to work with the Federal Reserve in these activities, that this is going to limit our ability to 

provide the Congress with much-needed oversight. 

That concludes my opening statement. I would be happy to answer questions. 

The CHAIRMAN. Thank you very much, Mr. Dodaro. 

[The prepared statement of Mr. Dodaro appears in the appendix.] 

The CHAIRMAN. I guess the basic question that the American taxpayers have, and I think everybody on this committee has, is basically, what are the banks doing with the money? We want to make 

sure the money is spent wisely, fairly, appropriately, and efficiently. As I understand from listening to you, we have some sense 

of how the dollars are spent, but to you, Ms. Warren, you basically 

felt that the subsidy had the effect—I think it was $70-some billion, 66 cents on the dollar, basically, was paid back. The balance, 

I guess, of the subsidy—— 

So my basic question is also, how are they spending the money? 

Basically you have given us some indication about that. Listening 

to you, Mr. Barofsky, banks did respond to your inquiries, but the 

12 

responses are all over the lot. I mean, they spent the money lots 

of different ways; some responses were very generalized, some were 

very detailed. So I guess, first, I will ask you then just your general 

sense thus far as to how they are spending the money. 

My second question is going to be, of each of you, what additional 

powers do you think you need? You talked about more data, you 

talked about more access, you talked about transparency, all of 

you. What additional authority do you need? I believe the American 

public wants to know how these dollars are spent, and they want 

you, the three of you, to help answer that question. 

At the outset, though, I am very pleased, frankly, with what you 

are doing thus far. I am also very pleased that we did create the 

Office of the Special Inspector General. I thought of this office because we have a Special IG to look at all the waste in Iraq with 

all the defense contracting, where tens of billions of dollars were 

discovered as wasteful. So my thought was, let us get this office set 

up on the front end rather than the back end, at the beginning of 

these programs rather than the end of the programs. 

So, I think it is having a bit of a salutary effect in that regard, 

but clearly there are a lot of questions to be answered. My sense 

is a lot of dollars are not being appropriately spent. But if you 

could just briefly, Mr. Barofsky, give your general impression on 

how they are being spent. I will ask each of the three of you, what 

additional powers do you think are appropriate so you can even 

more appropriately get the answers to those questions? 

Mr. Barofsky? 

Mr. BAROFSKY. Thank you, Mr. Chairman. We are going to give 

you a much better answer once we have had the opportunity to 

stratify and analyze all the data, but anecdotally I have reviewed 

a good chunk of the responses. I think what we are seeing is that 

it really depends on the financial institution as to how they use the 

money. A good deal of the numbers that I reviewed would not have 

been adequately capitalized but for the receipt of TARP funds. 

Some of them were not necessarily where they needed to be at the 

time they received the funds; others because of losses and the 

downturn in the economy would not have maintained their levels 

of capital. As a result, what they have told us is they are able to 

maintain the same level of lending. 

The CHAIRMAN. I guess, a little bit the question that Ms. Warren 

posed. What is the purpose of all this? I think one has to know the 

answer to that question to some degree before we can answer the 

question, was it properly spent? What guidelines were banks given 

as to how to spend their money, what conditions? 

Mr. BAROFSKY. Banks were given almost no guidelines. There 

were some restrictions on dividend payments. There were some restrictions on stock repurchase and some restrictions on executive 

compensation. But for the most part it was left up to the banks 

what to do with the money. I think the responses indicate that lack 

of freedom of what they had to do with the money was not an 

issue. 

It really covers almost anything that you would expect a financial institution to do. Some did use the money to increase lending 

according to the responses. Some went into such detail as to actually listing the specific loans that they would not have been able 

13 

to make but for the TARP money. Others invested the money and 

are keeping it either in liquid assets, like mortgage-backed securities, guaranteed assets from the government, waiting to see what 

happens with the economy, using it as a capital buffer to be able 

to withstand any downturn in the economy. 

We will be able to give you a good analysis, but anecdotally it 

really does cover across the board. As I mentioned, two banks had 

plans to increase lending, but then other banks called in their debt 

so they had to take the TARP money and use it to pay back other 

TARP banks. So, there is a variety. 

The CHAIRMAN. What is your sense on the issue that has been 

in the press a lot, the AIG issue, where a lot of the TARP money 

that AIG received went to counter-parties, even though there is no 

assessment of whether those counter-parties really needed to be 

paid? Goldman Sachs took $100 billion. Now they say they want to 

give $1 billion back to Uncle Sam. So, are you yet in a position to 

know who decided that those payments should be made to those 

counter-parties, and on what basis those decisions were made? 

Mr. BAROFSKY. Mr. Chairman, we are announcing an audit this 

week that answers directly that question. We received a letter from 

27 members of Congress last week asking us to look into that 

issue. Right now, my audit team is preparing the guidelines for 

that audit, and we are going to announce it this week. We hope to 

quickly bring an answer to that question of what the decisionmaking process was. 

The CHAIRMAN. Well, my time is close to expiring, and I want to 

question other panelists. 

But Senator Grassley, you are next. Go ahead. 

Senator GRASSLEY. I start with the premise that the public’s 

business ought to be public, and the expenditure of this money I 

have put in the category of ‘‘public’’ except for a few things like 

military secrets and intelligence, privacy, and a very narrow definition of executive privilege. Outside of that, everything we are talking about Congress ought to have access to under our constitutional responsibility of oversight. That is where I am coming from. 

So in order to get this information, I need to ask the three of you 

the same question, but a little bit different, so I will ask you one 

at a time. 

I am going to start with Mr. Dodaro. You know about the bill 

that Senator Baucus and I introduced to have access to books and 

records of anybody who receives TARP funds. Our bill has been referred to the Banking Committee; unfortunately, no hearing is set 

on that. You said in your testimony that you supported that legislation. That would have been my first question. 

The second question. Could you explain why GAO needs this additional authority and how it limits your ability to report to us 

without it? Let me ask a second question right along with that. In 

your statement, you mentioned that GAO is statutorily prohibited 

from auditing the Federal Reserve’s monetary policy activities. 

Given the significant emergency authority exercised by the Fed in 

this crisis, how does this limitation affect your ability to oversee 

TARP money? 

Mr. DODARO. First, on S. 340, the reason that we have a limitation—and that legislation would help—is, under the Banking AuVerDate Nov 24 2008 20:03 Feb 25, 2011 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 R:\DOCS\64387.000 TIMD
14 

diting Act and associated guidelines, we have access at GAO to all 

the information that the financial regulatory agencies have, but we 

do not have the ability to go directly to financial institutions to get 

the information from them. 

This, your legislation that you, Senator Baucus, and Senator 

Snowe have sponsored, would enable us to do that for all TARP recipients. We think that is an important safeguard, particularly 

given how the program has evolved. Initially, if it was just purchasing the toxic assets, we would have had all the authorities that 

we needed. Now it has shifted, and it may shift again as things go 

forward. So this is an important safeguard. We are getting cooperation when we do ask, but as an auditor I would rather have the 

authority to go behind and be able to get the information. 

Senator GRASSLEY. All right. 

Mr. DODARO. Now, with regard to the Federal Reserve, that is 

a very important issue. I am very, very concerned that the limitation that we have, it is one of the very few areas in government 

that we are statutorily prohibited from addressing. 

Now, I understand why it is in the legislation to protect the independence of the Federal Reserve, but that is in normal circumstances, and we are not in normal circumstances right now. As 

more and more TARP money is partnered with funding and activities of the Federal Reserve, we have no ability to be able to get any 

information from the Federal Reserve other than publicly available 

information. That is not satisfactory. If the Congress wants us to 

basically have this additional oversight role, we need a legislative 

remedy. We understand it needs to be carefully crafted, and we are 

willing to work with Congress in doing that. 

Senator GRASSLEY. All right. 

Mr. Barofsky, I am not going to go through a paragraph or two 

explaining the problems that you had in getting around the Paperwork Reduction Act, but I do want to point out that a spokesman 

for Inspectors General generally has supported your efforts in that 

you should not have to go through that red tape. 

If you had been required to go through the normal Paperwork 

Reduction Act procedures, how much longer would it have taken 

you to gather the information from the banks on how they use the 

taxpayers’ money? Two, could the Treasury have required that 

banks provide the same sort of information that you gathered on 

how they would use the taxpayers’ money as a condition of receiving it in the first place, and why did they not require banks to provide the information? Those three questions. 

Mr. BAROFSKY. Senator Grassley, I want to thank you personally 

for helping us cut through that red tape. But the answer is, it 

would have taken us at least 3 to 4 months to get through the Paperwork Reduction Act by a normal procedure had we not gotten 

the emergency exception. To answer your second question, yes. 

Treasury could, can, and should require the banks to report on 

their use of the funds. 

Senator GRASSLEY. And then, can you tell me why the Treasury 

did not do that? 

Mr. BAROFSKY. I think the question would be best posed to 

Treasury itself. I think Mr. Kashkari has said in testimony that, 

due to the fungibility of money, that they may have questioned the 

15 

usefulness of that exercise. I do not want to speak for him, but I 

think the response to our survey indicates that not only is it useful, 

I think it is important. 

Senator GRASSLEY. Ms. Warren, has the Congressional Oversight 

Panel had sufficient access to all the information it needs in order 

to do its part of overseeing TARP, and what do you need that you 

have not been provided? 

Ms. WARREN. Senator, we are your Congressional Oversight 

Panel. Our concern right now is that we do not seem to be a priority for the Treasury Department. We have sent letters, we have 

requested that there be someone named so that we can get technical information, and so far we have not been a first priority. We 

use what you give us, and we will exercise the leverage given to 

us by Congress. In part, that is why I am here today. I am here 

to talk to you about what has happened so far, what we have discovered so far, the inquiries that we have in midstream and for 

which we continue to await responses. That is where we are, Senator. 

Senator GRASSLEY. Thank you. 

The CHAIRMAN. Senator Snowe? 

Senator SNOWE. Thank you, Mr. Chairman. I want to thank all 

of you as well for your very substantive and crucial testimony. 

What I find absurd, frankly, is the fact that you all really seemingly have to struggle to get and ascertain information in order to 

fulfill your responsibility in oversight of this critical program that 

ultimately would yield confidence for the American people if they 

had transparency and could definitively point to results that had 

been accomplished as a result of the $3 trillion that have already 

been issued. 

My concern, as I look from my perspective and the people I represent in the State of Maine, is they do not see the program working as is, with what they have heard about the bonuses, not only 

AIG. Senator Wyden and I attempted to address that early on 

through the stimulus package, to address all bonuses committed 

and issued from 2008 through January of 2009 of $18.4 billion, including Merrill Lynch, that issued about $2.5 billion in December, 

3 days before they were acquired by Bank of America. 

Well, the list goes on. The fact is, we are not seeing any definitive evidence to suggest that it is working. The credit markets are 

very, very tight, and the Federal Reserve survey recently indicates 

that the markets have tightened considerably, and most especially 

for small businesses that are job generators. What I hear as the 

common theme among all three of you is that there are no consistent standards for oversight, that you really have to struggle to 

get information from the Treasury Department, and that there is 

no clearly articulated goal, as you said, Ms. Warren. 

What do we need to do? Besides in the powers issue, what standards should we set in place for TARP recipients, for example, to 

have to disclose and to document how they are using their funds? 

And also whether or not they are lending, because that is the other 

crucial concern—the money is not being used to lend appropriately. 

Even those healthy banks are not lending, which is also freezing 

the ability on Main Street to open doors or avert closures and has 

led to, as we know, historic unemployment rates. 

16 

So, Mr. Barofsky, Ms. Warren, Mr. Dodaro, can you answer that 

question? We need to do something quickly, I believe, because in 

every testimony that you have given, all three of you, in your perspectives, it is abundantly clear that we have to do something to 

not only give the enforcement powers, but the standards that essentially have to be agreed to and adhered to by the Treasury Department in implementing this $3 trillion. 

Mr. BAROFSKY. I would say, to begin with, to support us and to 

continue to press for greater and greater transparency. It is very 

difficult to make the policy determination without having all of the 

information. That is one of the things that we have fought to do, 

is to bring that level of transparency so we can see where the 

money is going. I think, indeed, Senator, pressing on what is success, what is the measure of success, is an important question that 

has to be clarified. 

Senator SNOWE. Well, I would hope that we could get a list from 

you of exactly what should be required of Treasury, from each of 

you, because I really think that we should incorporate that into law 

so that there are consistent standards. 

Ms. Warren? 

Ms. WARREN. Yes. Senator, I think you have put your finger on 

the central problem here. I want to say, this problem starts with 

Treasury in the following sense. There is not a bank in this country 

that would loan money under the terms of, take the money and do 

what you want with it. If they are lending to businesses, they ask 

businesses what you plan to do, and most importantly, not just 

what you plan to do, not saying afterwards—although I am very 

glad that Mr. Barofsky has asked—but in advance, what would be 

the metrics? How will we know that is what you did? 

Senator SNOWE. Exactly. I agree. 

Ms. WARREN. Accountability is not just, I used it for all the good 

things and I used my money for all the bad things. It is to make 

it clear up front, this is what my books look like now and this is 

what they look like after I get the money. This will be the difference between the two and this is how you can see how American 

taxpayer dollars were used. So I am talking about accountability in 

a very real sense of this word. 

As I see it, you really have two options here. Either you get 

Treasury to get some religion on this point and put their own 

standards in place, or Congress is forced to step in. We will do everything we can on your behalf as your Congressional Oversight 

Panel, but what we can best do for you now is to identify and pinpoint that this is precisely where the problem starts, and then the 

problem has roll-down effects all the way through the system of 

lack of accountability, complexity, that no one can figure out what 

is going on, so that we never identify the place where we need to 

start the solution. 

Senator SNOWE. Mr. Dodaro? I could not agree with you more on 

the metrics issue, absolutely, to measure in advance instead of reacting, but being proactive in having it up front so everybody is on 

the same page about it. 

Ms. WARREN. Yes, ma’am. 

Senator SNOWE. Mr. Dodaro? 

17 

Mr. DODARO. Our philosophy on this has been 3-fold. Number 

one, it is Treasury’s responsibility, as the disburser of the money, 

as the manager of the program, to collect this data and to report 

it publicly and to the Congress. To do that, we have recommended 

they build upon an already-existing mechanism that the regulators 

use with quarterly call report data from the financial institutions. 

They get information every quarter. It is audited. Regulators review it. We suggested, though, that it needed to be collected more 

frequently, and that is why we suggested monthly information. 

Now, they have moved to do that for the 20 largest institutions 

for the last couple of months. That is good. They have reported 

that. That is good. They have now extended it to all institutions. 

Right now there are over 532, I think, institutions that have received money. There are another 1,190 that are with Treasury for 

decisions, and another 750 that are still with the regulators to recommend to Treasury. So you are going to have hundreds of institutions. If they use or implement our recommendations successfully, 

this should greatly increase the transparency over this program, 

and then the call report data that is audited could be used to verify 

the reporting of the monthly survey information. 

Third, we have also collected and started to develop a set of indicators about specific interest rates and also the spread between interest rates and treasuries, which are used to measure credit risk. 

This market basket of indicators can measure whether or not, in 

totality, the TARP and other activities are improving the situation. 

So far, the record has been mixed. 

Senator SNOWE. Thank you. 

The CHAIRMAN. Senator Stabenow? 

Senator STABENOW. Thank you very much, Mr. Chairman. And 

thank you to each of you for the work that you are doing. We desperately need it. There is no question that the public has a right 

to distrust this government recovery process that has gone on here 

because, as you have described, lack of transparency, lack of accountability, institutions that have taken the funds and hoarded 

them or used them for excessive bonuses to reward failed business 

models, or otherwise used them for purposes outside the original 

intent. So this administration has a huge task in front of it, and 

we urge them all to be moving with full speed. I know they are focused on it, but there is so much that needs to be done. 

I want to ask you specifically about one piece of the program and 

how it compares to others. Yesterday the President announced further sacrifices that are going to be made by people in my State, as 

well as across the country, in order to create a revitalized auto industry that the President has talked about. These were part of conditions that were placed on GM and Chrysler in order for them to 

receive the TARP funds. GM has been given 60 days to present a 

new viability plan, and this will bring it to 5 months since GM became eligible for the TARP funds. 

So here we are today, 6 months after funds have begun to be 

given, to do oversight, yet we have not asked the same requirements of the financial institutions that have been asked of the auto 

industry. Not only have these institutions not come under the same 

scrutiny, but they have not provided the information to prove that 

18 

when the crisis is over these companies will be viable, will be able 

to survive future downturns. 

So my question is, what should be done to ensure that, at the 

end of the program, we will have revitalized financial institutions 

that will be able to make it on their own? What lessons can we 

learn from the rigorous oversight of the auto industry, to learn 

from that and place it on the financial institutions that have been 

receiving TARP funds? 

Ms. WARREN. Senator? 

Senator STABENOW. Yes. Ms. Warren? 

Ms. WARREN. Thank you. I think that this starts at the beginning with a question of policy and approach. With the financial institutions, we could take effectively one of two approaches. We 

could say we are going to subsidize them, and subsidize them for 

however long we decide to subsidize them. That gives us no guarantees, other than however we may decide as we go along to put 

some new strings in place. 

The alternative is to say we are going to reorganize them. A reorganization typically means that the senior management may be 

taken away. It may mean that a lot of stakeholders have to share 

in the pain, that bond holders are written down and have to bear 

much of the loss. Of course, at a financial institution, we must protect depositors. We have our insurance guarantees that we have 

made with FDIC and other institutions. 

But this very real difference starts right at the beginning, and 

it then colors everything that happens after that. We had hearings 

last week at the Congressional Oversight Panel talking about what 

had happened during the RTC, for example, the crisis in the late 

1980s. 

In the late 1980s, the position with financial institutions was 

very straightforward. The financial institutions that were in trouble were liquidated. The people in charge lost their jobs. Debt holders took some substantial losses. The equity was wiped out and the 

depositors were fully protected. That is one approach. It is an approach that was also used in Sweden. There was real confidence in 

the system about those that remained. Indeed, those that remained 

were able to pick up the business of those who were failures and 

were ultimately able to thrive. 

Taking the different approach, and that is continuous subsidization without rigorous oversight, is precisely what has led to the difference now that we are seeing between the approach with the auto 

industry, which is much more modeled on a reorganization approach, and the approach that is being used throughout the financial services industry, and that is a straightforward subsidization. 

So I see this as an issue that starts right back at the beginning. 

Which of the two plans that Treasury is putting in place, which of 

the two strategies it is following—and this is the debate we need 

to have, quite frankly, Congress with Treasury, and we are part of 

this debate as well. 

Senator STABENOW. Right. 

Ms. WARREN. To say, this is the real question: do we think that 

subsidies lead us to the right place or do we think reorganization 

does that? 

19 

Senator STABENOW. Well, if I might just say that on the one 

hand you missed—and just to add to the group of people being 

hurt, the main people being hurt are the people who are losing 

their jobs—— 

Ms. WARREN. Of course. 

Senator STABENOW [continuing]. And the communities where the 

plants are being closed. Reorganization in my State means job loss 

and means plant closings. So there are very real efforts and very 

real sacrifice going on. 

What I see on the other side are banks that have been given 

money and are not giving the loans, as Senator Snowe was talking 

about. Small businesses are losing their lines of credit in Michigan. 

People who have paid on time forever cannot get a loan. Suppliers 

cannot get a loan to be able to do business with the auto companies 

as they normally would do. So, huge discrepancies. 

Mr. Chairman, I look forward to working with you further to look 

at the two models being used here in terms of accountability on one 

side and total lack of accountability on the other side. Thank you. 

The CHAIRMAN. I think you make a point, Senator. I do think 

part of it is a cultural difference. New York establishments, the financial establishments, but generally with the financial establishments in Washington, DC, is a totally different culture from the 

manufacturing and other economy establishments. I do think that 

is one reason why each is being treated a bit differently, and I 

think it is an issue. 

Senator STABENOW. And if I might, just one more editorial comment. If we do not make things in this country, we will not have 

an economy. So, thank you. 

The CHAIRMAN. Senator Lincoln? 

Senator LINCOLN. Thank you, Mr. Chairman. 

I certainly want to align myself with comments from Senators 

Stabenow and Snowe about the importance in terms of where these 

resources are going and who is actually benefitting. I know that the 

multiple small businesses that call me are saying the same thing: 

we are long-time customers, we have good accounts. These financial 

institutions are not loaning the kind of resources that we need for 

operating budgets and other things like that, and it is just not 

reaching down. 

I agree wholeheartedly with the chairman, it is a cultural difference, there is no doubt about it. If you look at how this country 

was established, the success of business 60 years ago was determined by whether the business was creating jobs and whether it 

was reinvesting in its company and whether it was reinvesting in 

its community. 

Right now, obviously the problems we see from Wall Street are 

not the fact that nobody up there is reinvesting in themselves, they 

are just leveraging and leveraging, and that has become a real 

issue. So we appreciate the chairman bringing us together on this 

hearing and certainly appreciate all of you all and hope you will 

not go far, because we will need you as we continue. 

I think the other thing is building confidence and trust, which is 

a huge part of this equation, among investors and among working 

families across this country. I mean, that is a task that humanity 

has dealt with for eons. It is going to be something we are going 

20 

to have to work from the economic side, but also in terms of the 

humanity side, of whether people are willing and ready to be more 

confident and trusting of the system that we put together. That is 

going to be a critical part of it. 

Professor Warren, I just wanted to highlight a point that you 

made in your testimony. You said Congress has given Treasury 

substantial discretion, as befits this fast-moving crisis. That happened to a lot of us. Last fall, we were approached by the Secretary 

of Treasury and others who said the sky was falling and this crisis 

is going to happen tonight if you all do not do something. But you 

continue in your testimony that that discretion carries within it an 

equivalent obligation to explain in real time why the discretion is 

exercised as it is. I could not agree more. 

One of the things we continued, even before we voted for the first 

TARP, and even after many of us have continued to, is to talk 

about how important it is to have accountability and transparency 

and to understand what the plan is. If there is not a plan and we 

cannot describe it to our constituencies, we cannot defend the government playing a role in it. 

The stakes are high and people need a better understanding of 

how and why their taxpayer dollars are being used, and we cannot 

expect confidence to return if people cannot understand the steps 

that are being taken to combat the crisis. That is a real issue, and 

I hope Secretary Geithner will take that to heart and do more to 

explain, on a real-time basis, what he and his people are doing and 

why. I think they have a responsibility to the American people. I 

know he is a technical person who is extremely bright and smart, 

and I think can be very helpful. But without a doubt, conversation 

and communication are going to be critical in terms of building 

that trust and that confidence. 

Professor Warren, you mentioned AIG. From the sound of your 

testimony, you still have a lot of questions about that assistance. 

When do you anticipate that you will receive the information that 

you have sought from Treasury and the Fed regarding AIG, and 

are they being forthcoming? If not, what do you need us to do to 

compel that information to be forthcoming? 

Ms. WARREN. Well, Senator, I do not want to over-promise here. 

We have been told that we will receive this information shortly, but 

we are a panel that has lived on ‘‘you will receive this information 

shortly.’’ So I am not without hope, and I am hopeful that our conversation may find its way to people who are responsible for getting back to us on this. But we have substantial questions about 

AIG. We have substantial questions—I just want to be clear here— 

about the TALF—— 

Senator LINCOLN. Yes. 

Ms. WARREN [continuing]. About TARP 2, the CAP (the Capital 

Assistance Program). How many acronyms can you do here? 

Senator LINCOLN. Which most average Americans do not understand. 

Ms. WARREN. Well, but that is the point. I want to stop here for 

a second on exactly that point. When we have enough complex programs that have lots of wires and bells and whistles with no articulation of what they are supposed to accomplish and how we are 

measuring whether or not they accomplish that, with no underlying 

21 

discussion about, hey, this is a subsidy—you know, Secretary 

Paulson wrote me a letter that said, as flatly as you can, ‘‘this is 

not a subsidy.’’ When we scratched the surface, it was absolutely 

clear $1 out of $3 was a subsidy. 

So, when that is the case, that means there is no transparency. 

Indeed, it means Congress and the American people have been cut 

out of the conversation. So transparency is partly about websites 

and being able to track exactly who got what dollars, and that is 

an incredibly important part of it. 

The transparency is about articulating up front what you are trying to accomplish, why you chose one path instead of another, why 

one group of people are asked to bear enormous pain and why others are not. That is the heart, that is the start, of this entire process. Until we clearly have Treasury’s attention—we have them focused on these questions for purposes of a public conversation—I 

am afraid we will not go forward. 

The CHAIRMAN. Senator Schumer? 

Senator LINCOLN. Thank you, Mr. Chairman. Thank you. 

The CHAIRMAN. Thank you. 

Senator SCHUMER. Thank you, Mr. Chairman. And just let me 

add my congratulations to your 30 years as chairman. 

The CHAIRMAN. Not quite. 

Senator SCHUMER. Not quite as chairman. That is coming. 

[Laughter.] But as a member of this committee. When you became 

a member of the Finance Committee I was probably, within a 

month or two, within the Speaker of the New York State Assembly’s Office, asking him if he could please put me on the New York 

State Assembly Ways and Means Committee. So, I very much appreciate what you have accomplished. 

My first question is for Mr. Barofsky, but I did want to welcome 

Ms. Warren here because of the great work she has done. I have 

used your studies on the fact that median income in America has 

declined from 2001 to 2007—that is before the recession—but the 

average family was hurting even before the recession. I think if you 

add in buying power, you told me, it would go down to $43,000. 

We have never had a period of so-called prosperity where median 

incomes declined. If you do average incomes, of course, it raises it 

way up because, if someone goes from $30 million to $50 million, 

that raises the average up, but it does not raise the median up a 

jot. I think your study is groundbreaking, and I hope you will continue to look at that. 

Mr. Barofsky, welcome. Thank you for the job you are doing. I 

am concerned with the estimate of the money that remains in the 

TARP. Secretary Geithner has said that is $135 billion. I notice you 

have a slightly lower figure of $109 billion. There are outside experts who believe it is considerably lower than that. Some have 

said it is 3 times lower than the $30 billion amount. How do you 

account for the differences? Which number should we believe? Can 

you give us some feel for this, because obviously it is a very important number. 

Mr. BAROFSKY. Sure. The primary difference between our number and Treasury’s number is that they calculate an anticipated return of $25 billion of money that has already been out, that has 

been invested, that they expect banks to return. 

22 

Senator SCHUMER. Because they want to be out of the TARP. 

Mr. BAROFSKY. Because they want to get out of the program. 

Senator SCHUMER. And is this a lot of banks returning a little, 

a few banks returning a lot? Do you know? 

Mr. BAROFSKY. Treasury has not given us the back-up for this estimate. This is something that we just learned about over the 

weekend. Certainly a number of banks have publicly stated that 

they intend to give the money back but, when the rubber hits the 

road, they have to get regulatory approval before doing so to make 

sure that they will still be well-capitalized. 

Senator SCHUMER. Yes. 

Mr. BAROFSKY. But a large number of banks have said it. 

Senator SCHUMER. All right. 

Mr. BAROFSKY. So I think that is the difference between us and 

Treasury. 

As to the other number you mentioned, as little as a third, our 

number too before this weekend was significantly lower than the 

$109 billion. Treasury has changed some of its estimates. They 

originally had $250 billion for the Capital Purchase Program. That 

has come down to $218 billion. There are some other areas where 

the originally announced numbers have been scaled back a bit, 

which is why that bottom number on the chart, which is what is 

left over, $109.5 billion, is where it is. 

Senator SCHUMER. Yes. Just explain that, the scaling back of the 

Capital Purchase Program. 

Mr. BAROFSKY. Sure. I think they initially estimated that there 

would be $250 billion that would go out the door on that program. 

Senator SCHUMER. Yes. 

Mr. BAROFSKY. They have now said, based on the number of applications they have received and the timing, they are now estimating it is only $218 billion. 

Senator SCHUMER. Just, Professor Warren, in your oversight 

function, do you agree that this is about the right number? 

Ms. WARREN. We think it is about the right number, yes. 

Senator SCHUMER. Do you agree with that, Mr. Dodaro? 

Mr. DODARO. Well, I think at the current moment it is. But one 

of the things that we want to look at, or some of these new programs that have not started, is to the assumptions—for example, 

in the Making Home Affordable Program there are some assumptions underlying how many people will participate and at what levels. I think we are going to take a closer look at some of those assumptions. So I would expect that the figures are going to change 

a bit given the evolving nature of some of these programs. 

Our main point has been that Treasury needs good internal controls to track all this. There are also dividend payments that are 

being made. Now, those do not go back into the program as if principal does get repaid, but all these things need to be tracked, and 

they need to have good assumptions. 

Senator SCHUMER. Great. 

Finally, last question. I do not have much time. Conflicts of interest in the public/private partnership. Have you been focusing on 

that, Mr. Barofsky? Are there guidelines? Are they adequate? How 

do we deal with that issue, which is a very significant issue? 

23 

Mr. BAROFSKY. There are no guidelines yet. I think it is going to 

be an incredibly significant issue. There are three different public/ 

private programs, and it would take me a while to go through all 

three of them, but I think one thing that they have is, in many of 

them you have those who are setting the price who could benefit 

in other areas of their business by that price increasing. This creates a very, very significant conflict of interest. We have raised this 

issue already with the Treasury. I am meeting tomorrow with the 

Federal Reserve to discuss this issue. 

Senator SCHUMER. And they are taking it seriously? 

Mr. BAROFSKY. So far, they are taking it seriously. But it is of 

significant concern. 

Senator SCHUMER. Any comment on that, Ms. Warren? Then my 

time is up. 

Ms. WARREN. We are also looking at the structural conflict of interest, that is, the way these are set up in order to potentially reward the same person on both sides of the transaction. 

Senator SCHUMER. Great. All right. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator SCHUMER. Congratulations, again. 

The CHAIRMAN. Thank you. 

Senator Carper, you are next. 

Senator CARPER. First, a question for our acting head of the 

GAO. A lot of people have testified over the years—in fact, we all 

have—and it is rare that anyone ever testifies without notes. I 

have seen you testify any number of times, and you have never 

used notes. How do you do it? [Laughter.] 

Mr. DODARO. I study all the reports, and I listen to my staff. 

[Laughter.] 

Senator CARPER. Is there a member of your staff sitting behind 

whose lips move when you speak? [Laughter.] 

Mr. DODARO. No. No, no. 

Senator CARPER. Is that what is going on? 

Mr. DODARO. No. I stay close to the work, and that enables me 

to do it. 

Senator CARPER. I have kidded him about this before. He is pretty amazing. All right. 

Again, our thanks to each of you for being here today and for 

your stewardship. 

Mr. Barofsky, I understand from your testimony that you sent 

out some 364 letters to each TARP recipient asking how they utilized the fund to date, and your response rate has been about 100 

percent. That is not bad. I appreciate your testimony as well as to 

the substance of the responses that your staff have analyzed to 

date. 

There is some concern, and I do not know if others on the committee have heard it, from one of the banking folks in the banking 

community that those participants in the Capital Purchase Program not be lumped together with those who have needed TARP 

funding because they were too big to fail. Many of those in the 

Capital Purchase Program are just satisfied, though the government, they think, has been moving the goalposts on them and 

changing the rules of the game. 

24 

In some cases—I will give you an example. Some of these folks 

did not want to take TARP money, they did not want to take Capital Purchase Program money, and we said we need for you to, and 

we need for you to take it not because you think you are going 

down, but because we want to take the stigma away so that others 

who really need the money will be inclined to accept it. 

But let me just ask you if you could give us some sense as to 

whether you are hearing this concern, some of the concerns, in the 

responses you have received from recipients of the TARP money 

and the CPP money. Are the responses from the recipients of the 

CPP overwhelmingly positive or overwhelmingly negative? Are they 

somewhere in between? 

Mr. BAROFSKY. We have heard those concerns in our correspondence. Part of our survey is not just for use of funds, but also how 

financial institutions are dealing with, and preparing to comply 

with, executive compensation restrictions. I have seen, in a number 

of those letters, frustration from these banks from what they perceive to be a changing of the rules and an indication that they are 

looking to pay back the money because executive compensation 

rules have become more strict. So I think that is something we 

have seen in the correspondence. 

Senator CARPER. If you were sitting in our shoes and people were 

saying, look, we took this money under duress, we really did not 

want to, and now that we have done it at your encouragement to 

take away the stigma, now you are changing the rules on us. That 

troubles my sense of equity. Does it yours? 

Mr. BAROFSKY. Well, I would say that, when the rules became 

more strict in the Recovery Act, Congress also put in the carve-out 

that made it much easier for banks to repay the money. Before, 

they would have had to have matching private equity equal to the 

amount of the stake of the TARP investment in order to get out. 

Now, if they want to pay back the money, they can pay back the 

money as long as their capital is adequate according to the regulator. So, I think that concern has been lessened by the Recovery 

Act. 

Senator CARPER. All right. 

One last question. It was reported a couple of weeks ago, I think 

March 20, that at least 13 companies receiving billions of dollars 

in bail-out money owe a total of more than $220 million in unpaid 

Federal taxes. As I understand it, banks and other companies receiving Federal monies were required to sign contracts stating that 

they have no unpaid Federal taxes, but were not required to 

produce their tax records. Do you know if this error has been corrected? Do you know where this investigation stands? 

Mr. BAROFSKY. My Investigations Division is coordinating with 

Department of Justice, and it is under review. 

Senator CARPER. All right. Thanks very much. 

Again, we appreciate your being here and your good work. 

Mr. BAROFSKY. Thank you. 

The CHAIRMAN. Senator Menendez? 

Senator MENENDEZ. Mr. Chairman, let me take a moment of my 

time, since I was both in the Banking and Energy mark-up, to congratulate you on 3 decades of service to not only your great State, 

but to the country, and particularly in your leadership of this comVerDate Nov 24 2008 20:03 Feb 25, 2011 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 R:\DOCS\64387.000 TIMD
25 

mittee. You have steered through some of the most challenging and 

difficult issues that the Nation has faced, and you have done it 

with extraordinary intellect and ability. 

As we look at some of the major challenges we are facing now, 

I cannot think of a better person at the helm, particularly as we 

try to tackle health care reform. So, I want to salute you as well. 

The CHAIRMAN. Thank you. Thank you, Senator. 

Senator MENENDEZ. Mr. Barofsky, when you came before the 

Banking Committee for your nomination, I asked you a bunch of 

questions, and I want to follow up on them now. One of the things 

is, you have the power to pursue waste, fraud, and abuse in the 

system as you review this. I am wondering whether anything that 

you have done to date has given you cause to pursue any of those 

elements as you are reviewing the documentation from the survey 

and other information flows that you have. 

Mr. BAROFSKY. I think that in particular, with respect to fraud, 

we are very concerned by the design of some of these programs, 

and in particular the ones that have recently been announced. I 

think that any time you push out trillions of dollars—even millions 

of dollars, but certainly trillions of dollars—in a very short period 

of time, you run the risk and almost a certainty of a large percentage of fraud. 

The FBI estimate that I have seen is that 10 percent of any government program is going to be vulnerable to fraud. That would be 

$300 billion. So, that is a keen issue for us and one that we are 

trying to be proactive about. We need something that I think has 

not been done before with a government program, which is setting 

up a task force of different experts in the law enforcement community and training them now so that they will be ready if and when 

the fraud hits. 

This says two things. One, because the programs are so complicated, law enforcement is not necessarily comfortable with a lot 

of the concepts, with a lot of the mechanisms of the program, so 

it sensitizes law enforcement people to react quickly and rapidly to 

any fraud. 

But second, and I think even more importantly, we are going to 

have a forum of ideas to make recommendations. S. 383, which was 

supported by this committee and which passed both houses unanimously, strengthens our already-good strong power of making recommendations. 

Senator MENENDEZ. If I may, so you have the wherewithal, you 

have some concerns, but at this point you have not had any reason 

to pursue any of the waste, fraud, and abuse because it has not 

come to your attention? 

Mr. BAROFSKY. Oh, no. 

Senator MENENDEZ. You are? 

Mr. BAROFSKY. We actually have probably more than a dozen ongoing criminal investigations based on fraud related to the TARP. 

Senator MENENDEZ. That is what I wanted to know. 

Mr. BAROFSKY. Unfortunately—— 

Senator MENENDEZ. I do not expect you to talk about those. 

Mr. BAROFSKY. Yes. 

Senator MENENDEZ. I just want to know that you are pursuing 

them. 

26 

Mr. BAROFSKY. Oh, no. Absolutely, Senator. That is one of our 

primary mandates. 

Senator MENENDEZ. All right. 

Second, and this may be a hybrid question for both you and Professor Warren, when we also had your nomination we talked about 

what the purpose of the act was. I read specifically from the act, 

which talked about restoring liquidity and stability to ensure that 

such authority is used in a manner that protects home values, college funds, retirement accounts, life savings, preserves home ownership and promotes jobs and economic growth, maximizes overall 

returns to the taxpayers of the United States, and provides public 

accountability for the exercise of such authority. 

The question in my mind is, have we met those goals as we can 

envision what has happened today? I am concerned, Professor Warren, when I read from your testimony, both this time and in the 

past. I am one of those who was a big believer in conditionality up 

front so that we could have benchmarks and more easily ascertainable ways in which we could determine whether we are achieving 

success. 

On page 4 of your testimony where you said, ‘‘The most important lesson we draw from our analysis is that, without a clearer explanation from Treasury about its overall plan for each capital infusion and without more transparency and accountability for how 

that plan was carried out, it is not possible to exercise meaningful 

oversight over Treasury’s actions.’’ 

Could you talk about that? And Mr. Barofsky, could you respond 

to that as well? 

Ms. WARREN. Thank you, Senator. I would make two points here. 

The first one is the good news point. I want to say there is a little 

bit of water in the glass. The little bit of water in the glass is we 

are not going to let these goals be forgotten. This is not going to 

be a statute that, you put a lot of good language into it and then 

everyone went off and just spent the money and forgot what it was 

there for. 

So I see our job as to come back to you, to go back to Treasury, 

to go to the public and keep reminding them of these goals, and 

reminding Treasury why it is they need to articulate what the plan 

is, why they have made the choices they have. That said, it is only 

a small amount of water in the glass, because at this point we 

clearly are not there. 

Frankly, I think the American people understand that we are not 

there, that we have not yet had a statement of what we are trying 

to accomplish, why it is that some have to take losses and others 

do not, why there are no metrics put in place in advance for us to 

condition how the money is spent and to test whether or not it is 

achieving any goals on the other end. So we are not there. We are 

just simply not there. It is not yet happening with Treasury. 

Senator MENENDEZ. Mr. Chairman, if I may. 

The CHAIRMAN. Go ahead. 

Senator MENENDEZ. Would you care to comment on that? 

Mr. BAROFSKY. Yes. I think, Senator, you hit the nail right on 

the head, and that is putting the right conditions on up front. The 

initial TARP programs were rolled out before we got there. Since 

then, one of the things that we have been doing with every proVerDate Nov 24 2008 20:03 Feb 25, 2011 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 R:\DOCS\64387.000 TIMD
27 

gram and every contract is making the recommendations, just like 

the type that you mentioned, requiring internal controls and the 

reporting of conditions, getting that up front so we can keep close 

track of what is happening. I think that is vital to what we do. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Again, how well is Treasury complying with those up-front conditions before sending the money out—that is, setting them? 

Mr. BAROFSKY. Well, for this administration we are really going 

to find out in the very near future. With the mortgage modification 

program and the recent programs we have had, we will continue 

to make recommendations on a rolling basis. Now with S. 383 having passed both Houses, the Secretary will be required—assuming 

the President signs it into law—to either adopt our recommendations or explain to you, to Congress, why he has not. So I think we 

will have a very good mechanism of being able to keep track. 

The CHAIRMAN. All right. 

Earlier I said I was going to ask each of you what additional 

powers you think you should appropriately have. Let us go down 

the table, go down the list. I will start with you, Mr. Barofsky. 

What additional powers do you think you should appropriately 

have in order to protect taxpayers’ interests? Go ahead. 

Mr. BAROFSKY. Sorry. I think to the extent there was any ambiguity in our powers, they were clarified by S. 383, so for now I do 

not see any issues. We will certainly, as I promised during my confirmation hearing before you, let you know if we see any other additional need. But for now, I think we are good. 

The CHAIRMAN. Feel free to come back. 

Ms. Warren? 

Ms. WARREN. Senator, I would describe it this way. We need to 

find a way to make these policy issues and the articulation of these 

plans higher on Treasury’s priority list. I am not here to ask for 

more power from Congress; I am here to say that is ultimately 

what we need. We will use whatever you give us. 

The CHAIRMAN. I appreciate that. But you are a United States 

citizen, you are a red-blooded American. What additional powers do 

you think someone in your position should have to protect the 

American taxpayers? 

Ms. WARREN. Well, Senator, the question that would be appropriate for Congress is whether or not Congress wants to move to 

the next step, which would be having Treasury required to consult 

with us on these issues and make public statements. I am just trying to find ways to step in that you can respond to. What we are 

asking for is not rocket science here. We are not asking for something extraordinary. 

Mr. Barofsky, who actually really has to get down to the papers, 

he has a badge for a reason. We are asking for the much broader 

articulation of what the plan is, transparency in the goals, transparency in the execution, in the strategy. What we need is, we need 

Treasury’s commitment. If that commitment is better done by statute, then that would be Congress’s decision. 

The CHAIRMAN. Well, can you get the answer to that question, 

Mr. Barofsky, by the questions you ask of Treasury when you are 

28 

talking about conditions? That is going to give you some clue as to 

what the goals are. 

Mr. BAROFSKY. Absolutely, Senator. Part of our reporting requirement is to set that information out. We asked Treasury, with 

each of our data calls on a quarterly basis, to give an explanation 

for each of the programs. In our last report they just referred us 

to the website, but we are always hopeful that they will provide 

more detailed information this time. 

The CHAIRMAN. Yes. I will not go there. 

Mr. Dodaro, what more powers should GAO have to do the job? 

Mr. DODARO. I need two bits of help: number one, passage of 

S. 340 would be an important safeguard for us going forward. I 

again appreciate your and Senator Grassley’s sponsorship of that 

legislation. That would be a big help. But even beyond that is the 

Federal Reserve issue. Based on your chart here, most of the 

money in the $2.9 trillion is being spent under the tutelage of the 

Federal Reserve activities, and that is an area where we are statutorily prohibited. As long as they are operating under monetary 

policy and the discount window operations and an open market 

committee, we just cannot—— 

The CHAIRMAN. You make a good point. The role of the Fed has 

changed dramatically, so the usual defense that we should not intrude on the integrity and the independence of the Fed, I think, no 

longer applies. We are talking about a role, an involvement which 

is beyond just regulating the money supply. 

Mr. DODARO. Yes. 

The CHAIRMAN. There is an honest, direct involvement, trillions 

of dollars which have very significant effects on inflation, or potential inflationary effects, real management effects related to what 

the Treasury does or does not do. I mean, clearly the Fed is working in concert with the Treasury. They are hand in hand here. 

So I think it is only appropriate that we find some way to find 

out how the Fed is operating, how it spends its money, and how 

recipients are using that money, too. You also said we should address this in a constructive way, and I agree with you. But clearly 

the role of the Fed has changed, and therefore I think we have to 

look more closely and encourage the Fed to act much more transparently than it has. 

Mr. DODARO. Yes. And I think in the short term, Mr. Chairman, 

there could be some carefully crafted legislation to give us authority, either piggy-backing off of when they use their emergency authority or not. But I would make this point, also. We have said that 

there is a need to modernize the financial regulatory system, more 

broadly speaking, that the current system is outdated, fragmented. 

The CHAIRMAN. Yes, it is. 

Mr. DODARO. This whole issue, as that system is modernized, the 

question of proper oversight, proper accountability, and proper 

transparency will need to be revisited in that broader—— 

The CHAIRMAN. What about resources? Mr. Barofsky, do you 

have the adequate resources to do your job? Because you have a 

lot of responsibility here. 

Mr. BAROFSKY. We do, Senator. Part of S. 383 released the full 

$50 million that you had fought for us to receive under the Stabilization Act, and that will certainly take care of us for the time 

29 

being. We will be coming back for more when the time is right to 

seek more financial resources. 

The CHAIRMAN. Well, I thank you all for the job you are doing. 

Clearly, this hearing indicates the immense uncertainty as to how 

the money is being spent. I think you are all doing a very good job 

in trying to answer that question. 

But I also think that you need a little help from this committee 

and from the Congress. You mentioned legislation, which is helpful. 

But we encourage you to keep up, keep the job up, do what you 

are doing. Be very aggressive. Be very aggressive. If you run into 

any problems at all, you let us know, because we want to work 

with you and help you do your job. You are in a much better position to ask these questions than we are, but we want to give you 

the full authority to go ahead and proceed. This is very worrisome. 

The potential exposure, as I mentioned in my opening statement, 

is close to $6 or $7 trillion. We spent $2.9 trillion, on the chart 

there. As I said in my statement, that is the size of the whole U.S. 

Government last year. We have two governments here, one is a second government just bailing out financial institutions. There is a 

lot of transparency and accountability in the first government. This 

next one is the issue here that we are trying to grapple with. 

Thanks for what you are doing. 

Senator Grassley? I have to leave, so you can finish up. 

Senator GRASSLEY. All right. Thank you. 

I only have a couple of questions, so obviously I will not keep you 

long. So the chairman can hear this, Ms. Warren, maybe if you are 

having trouble getting Treasury to give you information, if they 

would like to sit down and have some Senators sit down with you 

when you are asking Treasury those questions, I would like to hear 

them say why we are not entitled to this information. 

The same people who are telling you no come before this committee and tell us they will answer our questions, and they do not 

do it. So I do not think they are lying, but there is a culture—not 

just in Treasury—in too much of the bureaucracy that, we are 

going to drag our feet as long as we can get away with it. 

Senator Lincoln touched on this a little bit, but to you, Ms. Warren, about small business. Your panel has a different job than the 

IG’s or the GAO when it comes to oversight. Your panel is focused 

on policy. I would like to know how you think that the TARP is 

helping small business. 

I consider them the engines of growth and job creation, et 

cetera—I think 70, 80 percent of the new jobs. The overwhelming 

majority of TARP money has, however, gone to large national, and 

even multinational, institutions. Yet these institutions are the ones 

that seem to be doing less lending after getting the TARP money, 

which means less money for small businesses. Thank God our community banks have stepped in and kept up their responsibilities. 

Two questions. One is a short one, and one is a long one. I want 

to ask them both at the same time. Do you have any suggestions 

on how to hold these large banks accountable? Number two, also, 

since the Federal Government, through SBA, already guarantees 

small business loans, can you tell me how Treasury’s purchase of 

these loans through the Term Asset Loan Facility—TALF, I supVerDate Nov 24 2008 20:03 Feb 25, 2011 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 R:\DOCS\64387.000 TIMD
30 

pose is the acronym—will improve small business owners’ access to 

credit? 

Ms. WARREN. Yes, Senator. I share your view that small businesses are probably our best engine for being able to get this economy back on track in job creation and in every other kind of innovative economic activity. But I am going to go back to where I 

started this about laying out what your plan is and what you are 

trying to accomplish. 

If the plan had been announced from the beginning that what we 

want to do is make sure that small businesses have enough money 

to continue to operate, then I do not think we would have designed 

the initial infusion of capital into the financial institutions in the 

same way. It would have gone to financial institutions that did 

small business lending as a substantial part of their operations, 

and then it would have gone on terms that said, show us what you 

have done in the past and show us what you are doing after you 

receive the money. 

So this program is not designed, from the beginning, in my view, 

to focus efforts on small business lending. We raised this question 

in our December report, and we came back to it again in our January report. Now the place we are in, we are now going forward, this 

will be a significant focus not on the report that will be out in a 

few days, our April report, but our May report. We are deep into 

investigations about small business lending. 

I would say for your question about the TALF, Senator, I am 

deeply puzzled about the underlying theory that, when a portion of 

the loans that are already 100-percent guaranteed cannot be sold 

in the marketplace and somehow we need to pay hedge funds in 

order to get involved in the sale of those loans, I am struggling to 

understand the premise behind this portion of the program and 

therefore struggling to understand how it is that it will increase 

small business lending. 

This is something I hope I will have a better answer for in another month. We are working and we are investigating this right 

now. We are looking for more answers on it. But I can only say at 

this point, this is a top priority for the Congressional Oversight 

Panel and an area where we are deeply troubled by the direction 

the Treasury has gone. 

Senator GRASSLEY. Yes. So I think what you are saying is, we 

were not explicit enough when we wrote the legislation. I do not 

know. Maybe this is too transparent on my part. But I think maybe 

Congress was awed by a person who comes off of Wall Street, making tens and tens of millions of dollars’ salary before he comes into 

the Cabinet, awed that you think he has all the answers. Then you 

find out when it is all said and done, he does not know a whole 

lot more about it than we in Congress do who are very generalist. 

I think that is why this legislation was so poorly written in the 

first place, at least based upon what you just told me; if we wanted 

to do small business, we should have said so more. 

My last question. This is to Mr. Barofsky. I have reviewed AIG’s 

retention bonus plans. What bothers me is that the so-called retention bonuses were really performance bonuses based on 2007 performance. From the design of the plan, it looks like people who put 

it together knew that the 2008 performance was going to be bad, 

31 

so, because AIG knew it was not going to be paying performance 

bonuses in 2008, in a wink and a nod AIG simply paid its employees their 2007 performance bonuses a second time, and they will 

do it again in 2009, regardless of the company’s performance. However, AIG’s disclosure of the plan to investors in its May 2008 filing 

with SEC did not make that clear. It just describes a retention plan 

in vague terms without mentioning that it was calculated on 2007 

performance. 

I have three questions, and I will ask you to answer them separately. Is it possible to find out whether people at AIG wrote the 

bonus plan based on the 2007 performance because they knew AIG 

was facing massive losses in 2008? 

Mr. BAROFSKY. Yes. That will be part of an ongoing audit that 

we have and will capture that information. 

Senator GRASSLEY. All right. 

If it is true that management rigged the bonus plan for that reason and failed to properly disclose that to investors, would that be 

a potential violation of securities law? 

Mr. BAROFSKY. An intentional misrepresentation of a material 

fact, if it met that criteria, would certainly potentially be a violation of the criminal law. 

Senator GRASSLEY. Do you happen to know whether SEC is examining whether the disclosure of the bonus plan was adequate? 

Mr. BAROFSKY. We coordinate with the SEC on a regular basis, 

but I would be reluctant to comment on any pending or existing 

matter. 

Senator GRASSLEY. All right. You cannot comment on it, but do 

you think you know? 

Mr. BAROFSKY. Senator, I am sorry. I do not mean to be overly 

cautious here, but we generally do not comment on other agencies’ 

activities unless they are public. 

Senator GRASSLEY. All right. Well, I should not push you to do 

something you cannot do, unless you are trying to get around me, 

and I do not think you are. 

Mr. BAROFSKY. Never, Senator. Never. I know better. [Laughter.] 

Senator GRASSLEY. All right. 

Since AIG is a major recipient of TARP funds, are you able to 

investigate whether disclosure of the bonus plan was adequate? 

Mr. BAROFSKY. We can, and we will. 

Senator GRASSLEY. All right. 

Now, for the chairman and all the other members, thank you for 

this fine testimony. We are obviously going to have to be in touch 

with you on a regular basis. I hope the chairman will call you back 

frequently. 

Thank you very much. 

The hearing is adjourned. 

[Whereupon, at 12:19 p.m., the hearing was concluded.] 

(33) 

A P P E N D I X 

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