FOLLOWING THE MONEY: REPORT OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED

ASSET RELIEF PROGRAM [SIGTARP]

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

JULY 21, 2009

Serial No. 111–88

Printed for the use of the Committee on Oversight and Government Reform

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FOLLOWING THE MONEY: REPORT OF THE SPECIAL INSPECTOR GENERAL FOR THE

TROUBLED ASSET RELIEF PROGRAM [SIGTARP]

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FOLLOWING THE MONEY: REPORT OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED

ASSET RELIEF PROGRAM [SIGTARP]

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

JULY 21, 2009

Serial No. 111–88

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

——— ———

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

——— ———

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 21, 2009 ............................................................................... 1

Statement of:

Barofsky, Neil, Special Inspector General for the Troubled Asset Relief

Program ......................................................................................................... 14

Letters, statements, etc., submitted for the record by:

Barofsky, Neil, Special Inspector General for the Troubled Asset Relief

Program, prepared statement of .................................................................. 17

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 70

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, prepared statement of ................................................................ 10

Towns, Chairman Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 4

Watson, Hon. Diane E., a Representative in Congress from the State

of California, prepared statement of ........................................................... 73

(1)

FOLLOWING THE MONEY: REPORT OF THE

SPECIAL INSPECTOR GENERAL FOR THE

TROUBLED ASSET RELIEF PROGRAM

[SIGTARP]

TUESDAY, JULY 21, 2009

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 10 a.m., in room 2154,

Rayburn House Office Building, Hon. Edolphus Towns (chairman of

the committee) presiding.

Present: Representatives Towns, Cummings, Kucinich, Tierney,

Clay, Watson, Lynch, Connolly, Quigley, Kaptur, Van Hollen,

Cuellar, Speier, Driehaus, Issa, Burton, Mica, Duncan, McHenry,

Bilbray, Jordan, Flake, Fortenberry, Chaffetz, and Schock.

Staff present: John Arlington, chief counsel, investigations; Beverly Britton Fraser, counsel; Kwane Drabo and Katherine Graham,

investigators; Jean Gosa, clerk; Adam Hodge, deputy press secretary; Carla Hultberg, chief clerk; Phyllis Love and Christopher

Sanders, professional staff members; Mike McCarthy, deputy staff

director; Jesse McCollum, senior advisor; Leah Perry, senior counsel; Jason Powell, counsel and special policy advisor; Ophelia Rivas,

assistant clerk; Jenny Rosenberg, director of communications; Joanne Royce, senior investigative counsel; Ron Stroman, staff director; Lawrence Brady, minority staff director; John Cuaderes, minority deputy staff director; Jennifer Safavian, minority chief counsel for oversight and investigations; Frederick Hill, minority director of communications; Dan Blankenburg, minority director of outreach and senior advisor; Adam Fromm, minority chief clerk and

Member liaison; Kurt Bardella, minority press secretary; Christopher Hixon, minority senior counsel; and Brien Beattie and Mark

Marin, minority professional staff members.

Chairman TOWNS. We will come to order. Good morning and

thank you for being here.

The Troubled Asset Relief Program [TARP], has evolved into a

program of unprecedented scope, scale and complexity. TARP funds

are being used in connection with 12 separate programs under

which the Treasury has already committed $643 billion and spent

$441 billion.

Today we will hear from the Special Inspector General for TARP,

Neil Barofsky, as he presents his quarterly report to Congress. His

findings, quite frankly, are astonishing.

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According to the IG, ‘‘TARP has become a program in which taxpayers are No. 1, not being told what TARP recipients are doing

with their money; No. 2, have not been told what their investments

are worth; and No. 3, will not be told the full details of how their

money is being invested.’’

He found that even though Treasury receives monthly reports on

the value of TARP investments, it will not make that information

public. Incredibly, the Treasury Department has taken the position

that it will not even ask TARP recipients what they are doing with

the taxpayers’ money. In short, taxpayers now have a $700 billion

spending program that is being run under the philosophy of don’t

ask, don’t tell.

However, this committee has been asking a lot of questions about

last fall’s financial meltdown and its consequences. The key question is this: Are these programs being run for the benefit of the

American taxpayers who are funding them or for the benefit of

Wall Street? That is the question. Without more transparency in

these programs, we cannot answer that question for sure. But what

we have learned from the IG is not encouraging.

Treasury has hired nine private firms to be asset managers for

the Public-Private Investment Program. All of these large firms are

engaged in extensive private investment activities. According to the

Special IG, this arrangement is vulnerable to conflicts of interest,

collusion, and money laundering. Yet Treasury is allowing these

firms to share information between employees who make investment decisions on behalf of the Government and those who manage

private funds. This arrangement is further indication that Federal

financial regulation is a bit too cozy with Wall Street.

Meanwhile, lending to American businesses and consumers remains weak. Some firms claim to have used TARP funds to increase lending but others have used it to acquire other businesses

or shore up their own balance sheets and then award bonuses to

employees. There is no evidence that Treasury has made any attempt to determine whether TARP funding has resulted in increased lending and whether that has had any effect on reducing

unemployment.

I also want to voice my deep concern over recent news that

Treasury has requested a legal opinion from the Department of

Justice challenging the Special Inspector General’s independence.

Congress would not have established a Special Inspector General

to oversee the TARP if all we wanted was a yes man or yes woman

that Treasury could ignore. It is critical that oversight, investigations, and audits of TARP remain unencumbered. Congress may

have given Treasury some leeway when it comes to the TARP but

we didn’t give them a blank check.

The problem is that we can’t even say whether the TARP programs are working or not because the information that would allow

Congress and the taxpayers to analyze whether they are getting a

good return on their investments has not been made available.

I hope today’s hearing and the Special IG’s report will be a wakeup call to the Treasury and the Federal Reserve that our financial

system cannot be run behind closed doors. Again, I want to thank

Mr. Barofsky for appearing today. I look forward to his testimony.

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At this time, I yield time to the ranking member from the great

State of California, Congressman Issa.

[The prepared statement of Chairman Edolphus Towns follows:]

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Mr. ISSA. Thank you, Mr. Chairman. Thank you again for this

vigorous oversight.

As you have said so often, all we ask for is transparency. Today

we will hear that all we are not getting is transparency.

Mr. Chairman, because I am going to include them in my opening statement, I would like to ask unanimous consent that three

pieces be put in the record. The first, Mr. Chairman, is your letter

to Tim Geithner asking that he specifically include the recommendations of the Special IG, something which I am not sure

there is an answer to, but it is from February 5th. The second is

today’s New York Times that says ‘‘Big Estimate, Worth Little, on

Bailout.’’ I suspect that will be referred to many times today.

The third is because it is related to TARP and to a case recently

settled against the Government. I have a letter in response to a letter from myself, on which the chairman has been copied, from

Maurice Hank Greenberg concerning his continued willingness to

arbitrate rather than to litigate the disputes which so far he has

been winning.

Chairman TOWNS. Without objection, so ordered.

Mr. ISSA. Thank you, Mr. Chairman. Today we are going to hear about a $23.7 trillion figure related

to the TARP. Additionally, we are going to hear that the full transparency, which we asked for and which this President and this administration have promised, is being blocked by the bureaucracy

that often seems to say, ‘‘just trust us and we will deliver.’’ Now,

just trust us and we will deliver, quite frankly, I am not making

the comparison except for the purpose of people understanding why

we can’t trust, Bernie Madoff said, ‘‘trust us, we have high returns.’’

The fact is Treasury is saying, ‘‘trust us because you really don’t have $23.7 trillion at risk.’’ As a matter of fact, effectively they are

saying that the only thing at risk is a fraction of the $700 billion

that we have committed. Mr. Chairman, nothing could be further

from the truth. Over my decades in business, one thing I learned

was that insurance policies cost money because the amount insured

is, in fact, at risk.

Anyone who thinks that we mark to market assets to half of

their original value with some regularity, when they include toxic

assets and written-down homes, and then believes that there would

be no risk in guaranteeing those, particularly Freddie, Fannie and

the other guarantees that are out there, is simply living in a dream

world. If we underwrite in various forms over $23 trillion, we will

in fact have losses. There are no gains, for all practical purposes,

in these assurances so they are not offset by profits.

In the case of the TARP directly, and I know we are going to

hear from the Special IG today, there will be some good news.

There already has been some return and some profit on moneys extended in the TARP. That is not so of many of our guarantees.

Most of our guarantees are, in fact, insurance without cost to both

profit and nonprofit organizations.

Mr. Chairman, I believe that this administration desperately

wants the kinds of transparency that will allow us to uncover potential insider trading or cozy relationships between the part of a

trading organization which is trading for the Government and the

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part which is trading for itself. I believe only through our vigorous

oversight will this administration be able to create a kind of sandwich where on one side is the President asking for transparency,

on the other side is the Congress demanding it, and in the middle

is the IG trying to overcome a bureaucracy that has always been

able to outlast administrations and chairmanships.

Mr. Chairman, today we have to make sure that this Special IG

goes back with the clear message that Congress will not be outlasted. Our patience is running out for the transparency promised

by the administration, promised by the Congress, and not yet delivered by the people who transcend administrations one after another.

Mr. Chairman, I look forward to the testimony of the Special IG

and I commend you for continuing this vigorous oversight. I yield

back the balance of my time.

[The prepared statement of Hon. Darrell E. Issa follows:]

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Chairman TOWNS. Thank you very much. I thank the gentleman

for his statement.

We will now turn to our first and only witness, Mr. Neil

Barofsky. It is the long standing policy that we swear all of our

witnesses in. Will you please stand and raise your right hand?

[Witness sworn.]

Chairman TOWNS. Let the record reflect that the witness answered in the affirmative.

He is the Special Inspector General for the Troubled Asset Relief

Program [SIGTARP]. Prior to assuming this position on December

15, 2008, Mr. Barofsky was a Federal prosecutor in the U.S. Attorney’s Office for the Southern District of New York for more than

8 years. In that Office, Mr. Barofsky was a senior trial counselor

and headed the Mortgage Fraud Group, which investigated and

prosecuted cases of mortgage fraud and securities fraud with respect to collateralized debt obligations. Notably, Mr. Barofsky led

the broad investigation into the $55 trillion credit default swap

market and is a recipient of the Attorney General’s John Marshall

Award for his work.

We welcome you, Mr. Barofsky. You are allowed as much time

as you may consume. We generally give people 5 minutes. We

thought about giving you 10 minutes but then I thought about the

importance of it and so I said as much time as you may consume.

But try to stay within 10 minutes.

STATEMENT OF NEIL BAROFSKY, SPECIAL INSPECTOR

GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM

Mr. BAROFSKY. Thank you, Mr. Chairman. Mr. Chairman, Ranking Member Issa, and members of the committee, it is an honor

and privilege to appear before you today and to present to you our

quarterly report to Congress. In my testimony I would like to outline what is contained in our quarterly report, section by section,

going over some of the highlights.

In Section 2 of our report, we do as we do in each of our quarterly reports to summarize what has happened in the last 3 months

in the TARP. This has been a busy quarter for the TARP. We have

seen the expansion of several programs; the bankruptcy of General

Motors and Chrysler, and the extraordinary Government support of

those industries; and the expansion of the Mortgage Modification

Program with the selection of servicers and the allocation of approximately $18 billion in support of that program.

We have seen paybacks of TARP money, more than $70 billion

from Capital Purchase Program recipients, and the launch of the

Public-Private Investment Program with the selection of nine asset

managers and the commitment to provide up to $30 billion of taxpayer funds to fund that program. That is all laid out in Section

2.

In Section 3, we have attempted to put the TARP program in

context. Originally started as a $700 billion program to purchase

toxic assets from financial institutions, the TARP has expanded to

12 separate programs involving up to $3 trillion. But it doesn’t

stand alone in the support of the financial system from the Federal

Government. Since 2007, more than 50 different programs from different agencies have been announced, instituted, and implemented.

15

A lot of what we have seen when hearing about TARP recipients

and their participation is that it is not a loan. A bank may have

an investment from the TARP but also participate or issue debt

with an FDIC guarantee or borrow money from the Federal Reserve.

There are so many numbers flying around that we thought to

further the goal of transparency we wanted to put the TARP in the

necessary context of these other programs. That is what we have

done in Section 3. For each of the 50 programs, we put out three

different numbers. One is the amount of money that is currently

outstanding on each of those programs, which is about $3 trillion.

Two is the high water mark from their inception until January 30,

2009, which is about $4.7 trillion. The third number is the total exposure of each of these programs were they fully subscribed to, if

each of the insurance contracts were used, all of the different programs were used, and all the support in total, and that number totals $23.7 trillion.

Now, since we have issued this report, there has been some

harsh criticism coming from Treasury. I have seen some public

statements that attack the numbers in our report as being inflated.

One press comment said that a Treasury spokesman described

them as ridiculous. We take offense to that.

I think that if you look at the report, in context it is very clear

where these numbers came from. They came from the Government

itself. These are all open source, public source information. This is

from the Web sites of the Treasury and the Federal Reserve, and

submissions to Congress. If the numbers are inflated, then it was

the Government itself that inflated them, not us.

Second, as far as the suggestion that we are trying to shock and

awe with this number, again, I think that we have made very clear

in this report in black and white what this number means. We explain that this number involves programs that, yes, have terminated. We explain that some of these numbers are collateralized

and that there is collateral. All that is set forth in black and white.

But one thing is very clear: The number is basically just the accumulation of what these 50 separate programs are and what the

total amount of financial support that the Government has committed to is.

Frankly, this attack is a challenge to the basic transparency that

we try to provide in this report so that Members of Congress and

members of the public understand in total what is going on as part

of the Government’s support of the financial system in this crisis.

That brings us to our next section, Section 5 of the report, where

we talk about our recommendations. One of our primary recommendations brings us to the same issue of transparency. We

have now been in existence for 7 months, my Office. Over those 7

months we have been pushing, really from my 8th day in my Office

when I made the first recommendation, to push for greater and

greater transparency. That recommendation is one that we continue to make today, that Treasury require TARP recipients to report on how they are using the money.

Treasury has repeatedly refused to adopt this recommendation.

As a result, in February we sent out letters to each and every financial institution to ask them directly to report to us to prove that

16

they can provide meaningful information, that there is a purpose

to requiring banks to account for their use of funds. Yesterday we

issued that audit result and the evidence is as we suspected.

Contrary to Treasury’s suggestions, banks can and should be required to report on how they are using funds. Banks reported a variety of different uses aside from just lending, as the chairman

noted. They used it to acquire other financial institutions, to make

investments in mortgage backed securities, and to pay down debt,

all different forms of use of funds that can and should be verified

and that can be part of the basic transparency of the TARP program.

As we note in our recommendations, this is not the only recommendation regarding transparency that has not been adopted.

We set four different recommendations, including those related to

basic concepts so taxpayers can know the value of the assets that

they are the chief investors for. Treasury receives monthly reports

on those valuation estimates but will not share them with the public. We think that, too, is a failure of transparency.

Similarly, we have recommendations related to the TELF Program and the Public-Private Investment Program. They involve the

basic concept of transparency so that one, the taxpayers can know

what is going on with their investments; and two, as has been famously quoted, ‘‘sunshine is the best disinfectant,’’ and it will discourage and deter bad behavior.

In Section 1 of our report, we talk about what we have been

doing for the past 3 months, namely building our Audit and Investigations Divisions. We are concluding six audits this quarter. We

have announced or are about to announce five separate audits. We

talk about that. Our Investigations Division is continuing. We have

35 open criminal investigations.

We will continue to strive forward with bringing greater transparency to this program. Mr. Chairman, Ranking Member Issa, it

is again a privilege to be here today to present this report, which

we believe is an essential part of continued transparency. We have

had more than 12 million hits to our Web site since we have started and almost 700,000 downloads of our previous reports. I think

that we act in deed as in word to bring this necessary transparency.

I thank you for your indulgence on time. I look forward to answering any questions you may have.

[The prepared statement of Mr. Barofsky follows:]

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Chairman TOWNS. Thank you very much. We really appreciate

your being here.

I understand that Treasury collects monthly data showing the

value of its TARP portfolio. Is there any reason why that should

not be made public?

Mr. BAROFSKY. In our view, absent some maybe very limited circumstances, we believe it should be made public. One of the arguments that was offered against doing this was that it may impinge

upon Treasury’s ability to liquidate some of those assets. But

frankly, we think that just like any asset manager or any mutual

fund, the investors have a right to know what the value of their

assets are. Frankly, the one good example of when you don’t know

is Ranking Member Issa’s example of a Madoff-type hedge fund

where investors can’t see what is behind the numbers. We think

this is an essential part of transparency.

Chairman TOWNS. We are concerned about conflicts of interest.

Treasury hired nine private firms to be asset managers for the

TARP Public-Private Investment Program, including large companies such as BlackRock, GE Capital Real Estate, Invesco, and others. All of these large firms are engaged in extensive private investment activities. Yet Treasury has refused to require these firms

to establish firewalls between their employees who makes investment decisions on behalf of the Government and those who manage

private funds. Why does Treasury oppose firewalls at these firms

to prevent conflicts of interest and collusion?

Mr. BAROFSKY. We have been pushing this recommendation over

the last couple of months. We have consulted with the Federal Reserve Bank of New York, which operates similar programs. They

have asset managers both buying and selling assets. Even Treasury itself, we have taken a look at some of their programs. One

constant is that when asset managers receive market moving information and have the ability to or know about information to set

market prices, a firewall comes attached to that responsibility in

every program other than in the PPIP program. We have made this

recommendation.

In our quarterly report, Treasury has detailed, I think, in a

lengthy letter their explanation as to why they are not requiring

this. In short, they say it is not practical in this program for a variety of different reasons.

We strongly disagree. We think that the taxpayer is entitled to

the exact same protection that the Federal Reserve requires when

it hires an asset manager. We believe the same protections should

and must be part of the TARP program.

Chairman TOWNS. Is there a downside to this?

Mr. BAROFSKY. Treasury makes a number of different arguments. One is that it may be more expensive, that there may be

a limit as to the firms that are willing to participate with a wall.

All of these may be valid arguments, but from our perspective,

tilting the scales are the tremendous dangers that come from not

having a wall ranging from being able to take advantage of conflicts of interest to wildly recognized profits in different parts of the

firm to the reputational risk. People are going to ask the question,

‘‘why does BlackRock operate under a wall when they are managing funds for the Federal Reserve but not when they are managing

27

for the Treasury?’’ If there are incredible profits, there is going to

be a lot of explaining that needs to get done.

Chairman TOWNS. I find your testimony quite amazing. Do I understand you correctly? Let me put it this way: Does Treasury ask

TARP recipients what they are doing with the money? Do they ask

them that question?

Mr. BAROFSKY. Overall, no. They have asked Bank of America,

CitiGroup, and AIG. They are the only capital recipients that are

required to report the use of funds. Some of the other extraordinary

assistance recipients also have reporting requirements. But as far

as the rest of the recipients, Treasury says no.

They say they won’t do it because it won’t be meaningful and it

won’t be reliable information. So of course the question we ask is,

if it is a meaningless exercise, why are you doing it with respect

to CitiGroup, Bank of America, and very recently AIG? We haven’t

really gotten an answer to that question.

Chairman TOWNS. I think it is very, very important because in

creating this in discussions early on, it was about job creation. I

think that we need to have the information in terms of what they

are doing with it. When I look at the fact that in the minority community the unemployment rate is 15.5 percent, and of course it is

running 9 percent generally, it appears to me that is a legitimate

kind of question that should be raised because we feel and recognize that job creation is important.

Mr. BAROFSKY. Of course, Mr. Chairman. I couldn’t agree with

you more. What Treasury does is it puts out lending survey information. So it is already collecting information from each of the financial institutions reporting on lending. But as our audit demonstrates, that is only part of the story. It doesn’t talk about all the

other things that banks are doing with TARP funds like investments, retaining capital cushions against future losses, and all

these types of things which go right to the heart of the question

that you are posing.

Chairman TOWNS. Let me ask you: Did the TARP recipients have

any trouble telling you what they were doing with the money?

Mr. BAROFSKY. We had a variety of responses. We had 364 responses. Nearly every single financial institution was able to provide us with meaningful information on this survey.

I have to remind you, this is a voluntary survey. What we are

recommending is that Treasury actually require this information.

But we just asked and we still got very meaningful responses.

Chairman TOWNS. Is there any reason why the public should not

be told what is happening with the TARP money or how it is being

used?

Mr. BAROFSKY. I can’t think of one. The one argument that was

presented to us was that it would be a meaningless endeavor. I

think our audit report proves that to be false. I think that banks

can and should be required to report on their use of funds.

I think that this Congress can make better policy decisions.

Frankly, I think it will assist the Treasury in making better decisions if they have a better understanding of what is being done

with funds as we continue in the bailouts and the continuing administration of the TARP.

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Chairman TOWNS. Thank you very much, Mr. Barofsky. I yield

to the ranking member.

Mr. ISSA. Mr. Chairman, before I begin my questioning, I am not

sure that everyone understands that you came here on a day when

others probably would have taken the day off. Mr. Chairman, is it

actually true that today is your birthday? [Laughter and applause.]

Chairman TOWNS. Thank you very, very much.

Mr. ISSA. That is the power of a chairman if I have ever seen it.

Chairman TOWNS. Thank you so much.

Mr. ISSA. The coffee will be coming, Mr. Chairman.

Chairman TOWNS. Thank you very much. I appreciate that.

Thank you.

Mr. ISSA. Mr. Chairman, just in case anyone thinks this isn’t a

bipartisan committee, Jimmy Duncan has decided to have his

birthday today just to make sure there was one on each side.

[Laughter and applause.]

Do your part. The chairman blew it out without even showing it.

It is much harder as you go down the dais. Thank you, Mr. Chairman. Your coffee is coming.

Mr. Barofsky, I am not sure I can begin to tell you how pleased

we are to have you here today. We are pleased for a number of reasons.

I will read from that New York Times article, if I may. ‘‘Andrew

Williams, a spokesman for the Treasury Department, called the figures ‘‘distorted’’ because they did not consider the value of the collateral posted for loan programs.’’ I would like you to put this into

perspective. First of all, did you ever say anywhere in your report

or in your findings that we would lose $23.7 trillion?

Mr. BAROFSKY. Of course not. We explicitly point out in the report the existence of collateral.

Mr. ISSA. So when you talk about $23.7 trillion—or about 30 times as much money as you would have if you gave away $1 million a year from the birth of Christ until today, just for somebody

to try to figure out if that is true or not—that quantity of money,

what you are talking about is the amount other than the $700 billion that is essentially under assurances and insurance. Is that

right?

Mr. BAROFSKY. If every program is maximized to the greatest extent possible, that is what that number is. Coming from a slightly

different persuasion, I would say that even if you went back to the

time when Moses parted the Red Sea, you would still be in the

right numbers.

Mr. ISSA. I think actually Abraham would be sitting here trying

to figure it out, too. There is no question, this is an amazing

amount of money. When you look at millions over thousands of

years and not getting to that number, it is hard for people to understand.

But let us look at it another way. If, in fact, just 5 percent of this

$23 trillion or $24 trillion under assurances of various sorts were

to go bad, isn’t that a dramatic amount more than we ever authorized or appropriated from Congress?

Mr. BAROFSKY. It is, of course, a staggering large number. The

TARP itself has staggeringly large numbers as it has been expanded through other programs as well.

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Mr. ISSA. Now, our previous Neil came before us, Neel Kashkari,

and we asked him about how much money the assets were worth.

He said he didn’t know but he would get it to us in 30 days. Then

30 days later he said he would get it to us in another 30 days. He

is gone now so you are the one we have.

Has the Treasury been willing to cooperate and provide the information as to the current value of assets purchased?

Mr. BAROFSKY. This is a recommendation we have made since

early February. They have not yet made this information public.

Mr. ISSA. So the assurances made by Neel Kashkari, both in the

last Congress and in this Congress, that this was forthcoming in

fact were not truthful in the sense that it doesn’t appear as though

they were ever forthcoming in a, if you will, mark to market value

of what the assets are worth?

Particularly I am interested in AIG’s assets. Do you have any idea how much money has evaporated permanently from the $180

billion that AIG has received?

Mr. BAROFSKY. I don’t have that information at my fingertips.

We are doing a couple of audits on AIG where we are going to have

a better sense and be able to report on what is going on in those

portfolios, particularly in the context of its counter-party transactions. But I don’t have that information.

Mr. ISSA. Do you think that Congress is overdue to find out how

many dollars have gone out in a manner that can never be refunded?

Mr. BAROFSKY. I think it is absolutely essential for transparency

that Congress and the taxpayers who invested in this program

know what Treasury’s best estimate is as to the value of their investment, absolutely.

Mr. ISSA. We own AIG and there is litigation against the founder

of AIG. You are obviously very familiar with the court decision and

apparently follow-on litigation. Do you have any day to day contact

or any ability to find out why we continue to spend my understanding is over $200 million in legal fees trying to recover initially $4

billion, which the court has said we are not entitled to get back

from C.V. Starr and Co.? As a matter of fact, apparently they said

it in very short time, essentially that the case never had merit. But

we have spent over $200 million. Is that something that is on your

radar screen?

Mr. BAROFSKY. We haven’t addressed that situation. We have

two ongoing audits of AIG, which are consuming a good chunk of

my audit staff. But, of course, we are always going to be continuing

to look for followup aspects.

That also, though, maybe included as well in an overall audit

that we have just recently announced. We are doing an audit on

corporate governance as a whole, including the Government’s role

in governing and as an 80 percent part owner of AIG. So it may

come in that context as well.

Mr. ISSA. Is there any way that we can get an independent assessment of the Federal Government’s pursuit of these lawsuits

rather than going to binding arbitration, which was offered repeatedly when Mr. Greenberg was before this committee? Is there any

way to second guess this as $1 million a week is being spent on

legal fees?

30

Mr. BAROFSKY. I think what we can bring through our audits is

an explanation of what the Federal Government’s involvement has

been in those decisions. In other words, as an 80 percent owner,

how involved is the Federal Government in making those decisions

versus AIG’s management itself?

Mr. ISSA. I want to go back to the firewall question that you have

been working on and that this committee is very concerned about,

I am a member of a public board. I own stock. Actually, my foundation owns stock. I am not allowed to trade that during blind periods. Is it any different to say that a Member of Congress who happens to have a foundation which owns stock and who also sits on

the board as an individual, would you say that was unwieldy to say

you can’t trade on behalf of yourself while in fact you have inside

information? Is that any more difficult than what you are dealing

with, with various firms who are being given huge underwriting

and leverage advantages at the Federal Government’s expense in

return for trading primarily on our behalf?

Mr. BAROFSKY. I think that is exactly the right difference. Here, these fund managers have up to $3 billion of taxpayer money and

the whole design of the program is to encourage them to set prices

in an illiquid market. This is a remarkable amount of power. Once

they make that decision, it is a remarkable piece of inside information. I think it would be difficult for any Member of Congress to

replicate because actually the design of the program is to set

prices. So I think it is a far more extreme example in the case of

the PPIP.

Mr. ISSA. Thank you. Thank you, Mr. Chairman.

Chairman TOWNS. I now yield 5 minutes to the gentleman from

Maryland, a very active member of this committee, Congressman

Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. Mr.

Barofsky, it is good to see you again.

Have you had a conversation with Mr. Geithner since you took

office?

Mr. BAROFSKY. I spoke to him in late January.

Mr. CUMMINGS. That is it?

Mr. BAROFSKY. That is it.

Mr. CUMMINGS. For how long was that conversation?

Mr. BAROFSKY. It was a couple of minutes before a larger meeting with Mr. Dinaro and Ms. Warren from the congressional oversight panel.

Mr. CUMMINGS. The reason why I ask that question is that as I

listen to the chairman’s questions and our ranking member’s, it

seems to me that you all should be on the same team, to a degree.

I know there is a wall there but I guess a lot of the things that

are coming up should concern all of us.

I want to followup on some of the chairman’s questions. You said

a moment ago that you got 12 million hits. That is a lot of hits to

your system. What that means is that apparently the public is very

interested in what is going on with regard to this money.

I think the thing that concerns me is something that you had

said in the Joint Economic Committee not very long ago regarding

your concern about the appearance of some conflicts. Do you still

have those concerns?

31

Mr. BAROFSKY. I think my concerns are greater today than they

were a couple of months ago when I spoke to you in the Joint Economic Committee.

Mr. CUMMINGS. Why do you say that?

Mr. BAROFSKY. Because of the absence of walls in this Public-Private Investment Program. I think that the danger here is the perception of picking winners and losers, of giving these nine economic

firms out of the 100 that applied the ability to set prices and not

put the right type of restrictions in place to make sure that they

are not going to otherwise profit unfairly at the expense of the

market.

If these firms do start having those types of profits in other aspects of their firms, I think the criticism that has previously been

leveled at Treasury, of picking the winners and losers and of the

opaqueness in how decisions are being made, could be potentially

devastating to the program and potentially devastating to the way

the American people view their Government. So it is a very serious

concern of mine.

Mr. CUMMINGS. This morning on Morning Joe they had a fellow

named McDonald who has written a book. He used to work for

Lehman Brothers. He alleged that Mr. Paulson intentionally allowed Lehman to fail. Now, normally I wouldn’t pay too much attention to that. But then he laid out the evidence and it sounded

pretty logical.

The reason why I mentioned the 12 million hits is that—and I

really believe this—in order for us to get past this economic situation that we find ourselves in, the public has to believe that we are

doing the right thing. They have to believe. I think one of the

things that makes them believe is transparency. I agree with you

on that.

One of the things that I am concerned about is that a lot of times

when we see a report that doesn’t look too favorable, a lot of times

we have a tendency to shoot the messenger and not address the report.

But there is one thing that you said here that is quite telling as

a former prosecutor. I guess you are still a prosecutor now. You

said something about 35 open criminal investigations. I know what

it takes to even get to the point to start investigating. Let us assume only five of them have some legs on them. Are you seeing any

kind of pattern?

I think my concern is that if there is a pattern, maybe this Congress needs to be doing something. I am trying to figure out whether there is there anything that we need to be doing to give you

more power than what you have to accomplish the things that you

have to accomplish.

One thing is for sure: If we cannot get to a point of the American

people, at 12 million hits, if we can’t show them that we are doing

the right thing with their money, as the chairman has alluded to,

we are going to have problems. I don’t see how we can get past this

because the American people are not going to buy it.

Mr. BAROFSKY. I couldn’t agree with you more about the importance of transparency for all the reasons that you stated, as well

as just the fundamental fact that the taxpayers are the investors.

I think the reason why we see 12 million hits and more than

32

700,000 downloads of our reports is because the American people

want to know what is going on in their investments. They want to

understand these programs.

We serve a role, basically, to translate these programs from the

very, very complicated descriptions that the Treasury puts out. We

try to translate it into English with tutorials and explanations. So

I do agree.

As to your question about the criminal investigations, we haven’t

seen a major pattern. We have a lot of investigations related to the

mortgage modifications. There are a lot of scams out there, people

trying to take advantage of struggling home owners. So there are

a fair number there. But the rest of the investigations really go

across the board. We have some incredibly complex securities and

accounting fraud investigations of banks that have either attempted to or actually applied for and received TARP funds that

may have lied to the Government in order to get that funding. We

have cases of insider trading, trading on inside information they

may have learned about the TARP. Really, almost any type of

white collar crime you can think of, we are touching on in our investigations. Really, it is what you would expect when you are putting so much money out over such a short period of time and in

many instances with very few conditions. They really do cover the

board.

Mr. CUMMINGS. Thank you very much.

Chairman TOWNS. Thank you very much. I yield now to the gentleman from Florida, Congressman Mica.

Mr. MICA. Thank you. Thank you, Mr. Barofsky.

Let me followup on Mr. Cummings’s questions. Actually, you

stated that TARP and these programs have grown into more than

50 different programs?

Mr. BAROFSKY. Not within the TARP. Within the TARP there are

12 programs. In our report, we talk about approximately an additional 50 programs that are across the U.S. Government, everywhere from the FDIC to the Fed and FHFA.

Mr. MICA. So there are about 12 TARP. But the 50, are you keeping sort of a watch over those or just the 12 TARP?

Mr. BAROFSKY. Thankfully, we just have the 12. The rest are

being covered by other agencies.

Mr. MICA. Again, some of this seems to have dramatically expanded. Probably the nature of the responsibility required some of

that. But to get to the point Mr. Cummings is raising, do you have

enough resources to conduct sufficient investigations and oversight?

Mr. BAROFSKY. We are building as an Office. We currently have

70 personnel onboard. We are building to about 160 with a target

date of early next year.

Mr. MICA. I read not all of your report but scanned through it.

You do have recommendations in here. I notice that only 8 of your

32 major recommendations have been implemented; 5 of 32 have

been partially implemented. Is there any way to enforce implementation? Do you have any recommendations as to how we can put

some teeth into what you are doing or recommending?

Mr. BAROFSKY. Really, we feel like our statutory role is to make

these recommendations.

33

Mr. MICA. We have to pick up the responsibility. But it appears

that a number of your recommendations are not implemented or

that some of your recommendations take a while to get implemented. For example, executive compensation, I guess that was finally adopted as a rule on June 15th?

Mr. BAROFSKY. That is correct.

Mr. MICA. So that is why we have seen since June 15th a lot of

folks interested in paying back their loans?

Mr. BAROFSKY. I think that is an explanation that has been offered.

Mr. MICA. But it took us, what, 6 months to get that recommendation in place and implemented. Is that correct?

Mr. BAROFSKY. I think it was about 4 months from our February

report.

Mr. MICA. I think part of what you said is you are trying to develop and encourage transparency. Many of the things that deal

with transparency are recommendations that have not, in fact,

been addressed by the various groups that you oversee. That still

remains the case?

Mr. BAROFSKY. It does.

Mr. MICA. That is unfortunate. Finally, maybe you could tell me—first, I didn’t vote for it—but we started out with about $700

billion that Members of Congress thought they were going to help

bail out financial institutions with. Then you said some of the liability grew to $3 trillion. Maybe you could explain that? Then it was $4.7 trillion, and now the total exposure is $23 tril- lion. So how did a little tiny, teeny $700 billion program balloon

into $23 trillion worth of exposure? Maybe you could tell us about

the $3 trillion level you cited and how far we are at risk at that,

followed by the $4.7 trillion, and $23 as the ultimate.

Mr. BAROFSKY. Sure. For the TARP, we start off with $700 billion. We include a chart that gives the precise numbers for each

program and where they come from. But then that number got expanded to approximately almost $3 trillion from other related Federal Government programs.

For example, the Public-Private Investment Program, which we

have been discussing, is seeded with about $100 billion of TARP

money. But then the Federal Reserve, and at one point the FDIC,

were going to issue nonrecourse loans from the Federal Reserve.

Those are loans that don’t have to be paid back but are posted with

collateral.

Mr. MICA. So that ballooned it?

Mr. BAROFSKY. Right. Then there were also guarantees from the

FDIC.

You have the TELF Program, which has been up to a $1 trillion

program, seeded by $80 billion or $100 billion of TARP funds. So

you have these other Federal Government entities coming in and

supplementing these programs. You have an asset guarantee of

$300 billion from CitiGroup, which is done partly by Treasury,

partly by FDIC, and partly by the Federal Reserve. So that is how

we get to the $3 trillion.

Those other numbers are actually non-TARP programs. The $23.7 trillion does actually include the $3 trillion from the TARP,

but it also includes other programs that have nothing to do with

34

the TARP other than the fact that they are also supporting the financial industry and that the same institutions that can take advantage of the TARP also can take advantage of these other programs. At times they can use one perhaps to pay off another, something we have even coined as ‘‘bailout arbitrage.’’

Mr. MICA. So $700 billion seeded a potential of $23.7 trillion?

Mr. BAROFSKY. I would say the $700 billion seeded the $3 trillion and then the other $20.7 trillion really comes from other Federal

Government programs that are non-TARP related.

Mr. MICA. They are riding sort of the same saddle?

Mr. BAROFSKY. They are all for the support of the financial system.

Mr. MICA. Thank you. Thank you, Mr. Chairman.

Ms. KAPTUR. Will the gentleman yield?

Chairman TOWNS. The gentleman’s time has expired.

Ms. KAPTUR. May I just ask, Mr. Chairman——

Chairman TOWNS. The gentleman’s time has expired.

Ms. KAPTUR. Is that in your report, sir? What you just stated to

Congressman Mica’s questions, is that summarized, that stair step?

Mr. BAROFSKY. Yes. The $3 trillion and what is there is featured

in the chart in the executive summary.

Ms. KAPTUR. Up to the $23 trillion?

Mr. BAROFSKY. All of that is set forth in Section 3 of our report

with the explanations of what those numbers really mean.

Ms. KAPTUR. Thank you.

Chairman TOWNS. I now yield to the gentleman from Ohio, Mr.

Kucinich.

Mr. KUCINICH. Thank you very much.

Mr. Barofsky, I am reading your report about lending where you

talk about how banks have been leveraging TARP funds to support

lending activities. You say on commercial lending, 20 percent of respondents reported that they used TARP funding for commercial

lending activities, 17 percent of respondents deployed TARP funds

for other consumer lending, and 13 percent used it for small businesses.

You talk about the capital cushion and how some banks are basically parking their funds to create a cushion against loan losses.

I looked at your report and I want to use that report as a backdrop

for a news report that came in today.

We went back into the TARP history here. We know that the

first intent that Congress had was to purchase toxic assets, which

were mortgage-backed securities. We were told that would keep

people in their homes. Well, the last administration threw that out

the door. Then we were told we are going to switch the TARP funds

to help bail out the banks with a direct capital infusion.

But I think something else has happened here. I want to make

sure it doesn’t escape this committee. I hope that you can tell me

it hasn’t escaped your notice. We are now seeing that we have another switch that has occurred. We actually have the Fed paying

banks not to use their ‘‘excess capital’’ to make loans.

I direct your attention to a news report today which says that

‘‘banks’ excess reserves at the Fed rose to a record $877.1 billion

daily average in the 2-weeks ended May 20th from $2 billion a year

earlier. Excess reserves, money available for lending that banks

35

chose to leave with the Fed, instead averaged $743 billion in the

first 2 weeks of this month.’’ Sir, the Fed is paying banks higher

interest rates now to keep their funds parked at the Fed instead

of loaning the money to the American people. Is that not true?

Mr. BAROFSKY. Yes. The reason I opened up the book is that on

page 142 of our report we actually have a chart that depicts exactly

what you are saying.

Mr. KUCINICH. Tell me about the chart. Tell this committee

about that chart.

Mr. BAROFSKY. It shows the increase in the amount of money

that is being parked at the Federal Reserve over time. We link it

to one of the Fed programs, a different program. But we do think

there is a connection between the Federal programs and the increased reserves that are being held there.

Mr. KUCINICH. If the banks had not received this direct capital

injection as a result of the TARP funds, is it conceivable that they

would have had, according to this news report, an average of $743

billion in reserves parked at the Fed? Is it possible that they could

have had that?

Mr. BAROFSKY. It may be, but only because of all the other programs that we detail in Section 3 of the report.

Mr. KUCINICH. ‘‘All the other programs’’ meaning Government

programs that have helped to sustain the banks, right?

Mr. BAROFSKY. It would certainly appear to be the case.

Mr. KUCINICH. See, members of the committee, first we started

out with being told that money was going to mortgage-backed securities. They did a bait and switch on that. Then we were told it is

being used to bail out the banks so we can have a loosening of credit through a direct capital infusion. Now, you and I know that

there are businesses in our communities who are credit starved.

Meanwhile, the Fed is paying banks a premium to keep their

money parked at the Fed instead of loosening it up.

This is one fraud after another on the American people. They

might use the excuse that they are trying to control inflation.

Check it out. Unemployment is skyrocketing. Businesses can’t get

money so they are laying off more people. We are thinking that

somehow we have solved the problem, here.

I want to submit for the record this report out of the Bloomberg

News Service.

Chairman TOWNS. Without objection.

Mr. KUCINICH. Thank you. I want to ask Mr. Barofsky, this

money is fungible, as we know.

Mr. BAROFSKY. Yes.

Mr. KUCINICH. But, generally speaking, you would agree that

there is just no question that a significant part of the money that

is being parked at the Fed right now is Government money, money

from these Government programs that Congress created?

Mr. BAROFSKY. I think we would have to look institution by institution. But I think if we did so, I wouldn’t disagree with what you

are saying.

Mr. KUCINICH. Mr. Chairman, I hope that we can get another

hearing on this particular matter because this goes to the heart of

the entire bailout program. This has been one thing after another,

one bait and switch after another.

36

Mr. BAROFSKY. Congressman Kucinich, in our audit, I think we

described that the banks have communicated to us this tension

that they feel as well that is really right in line with your comments. On the one hand they are getting pressure to increase lending and get this capital out there, but they are also getting pressure from the regulators to maintain the capital and increase their

capital cushions.

Mr. KUCINICH. ‘‘Regulators,’’ read the Fed?

Mr. BAROFSKY. The Fed, FDIC, OCC, and OTS. Indeed, that is

what a portion of the stress tests were. So I think that is a very

real dichotomy.

Mr. KUCINICH. I thank the gentleman. I thank the chairman.

Chairman TOWNS. Thank you very much. I now yield to the gentleman from Tennessee, Mr. Duncan. Happy birthday.

Mr. DUNCAN. Well, thank you, Mr. Chairman. Happy birthday to

you, too.

Mr. Barofsky, thank you very much for your report. I read with

great interest the story in the Washington Post yesterday where

the lead paragraph says, ‘‘Many of the banks that got Federal aid

to support increased lending have instead used some of the money

to make investments, repay debts, or buy other banks.’’ I read at

one point that back a few months ago that the Bank of America

had taken $7 billion of the first $15 billion they got and increased

their investment in the Construction Bank of China. I don’t think

any of us ever intended that this money be spent in that way.

I think a part of the problem was that this legislation was

rushed through. We weren’t given proper hearings on it or a chance

to offer amendments and things like that.

But I can tell you that all of the business people, all of the small

business people in Knoxville and east Tennessee have been telling

me for months that what is being said at the top is not getting

down to that level. The President and the Secretary of the Treasury have been saying under both administrations lend, lend, lend

but these examiners on the local level are saying no, no, no. In fact,

there was a cartoon to that effect in the Congress Daily publication

that we get every day at each of our offices. It shows the President

and the Secretary of the Treasury urging the banks to lend and

shows the banks with huge piles of money and then these examiners on the local level saying no, no, no. I have heard that from realtors, home builders, other small business people, and bankers from

all lines.

But I want to read a portion of the letter I received from Robert

S. Talbott, who has been one of the most successful business people

in Knoxville. He wrote to me and said, ‘‘I’d never seen anything

like this in almost 30 years I have been in the business world.’’

Listen to this: He said, ‘‘Holrob Investments’’—that is his company—‘‘is the mother company of over 50 partnerships and limited

liability companies, all of which are involved in commercial and

residential real estate projects. We have been in business for many

years and currently own interest in 18 shopping centers and numerous other retail and residential properties. Our loan obligations

consistently are in excess of $100 million and we have multiple

lenders with which we do business, large life insurance companies,

regional lenders, banks. We are not currently in default with reVerDate 11-MAY-2000 16:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 U:\DOCS\62118.TXT KATIE PsN: KATIE
37

spect to any monetary obligation, nor have we ever been. Our business depends on access to credit and despite public protestations by

our Government to the contrary, it has been our experience this

year that credit is contracting. We have been told by numerous

banks that unsecured lines of credit to developers are being

frowned upon by bank regulators. And, consequently, we have been

informed by SunTrust, Mountain Commerce Bank, and First Bank

that they would not renew personal lines of credit. While Fifth

Third did not technically extinguish our line, it was apparent to us

that they did not want our business and consequently we are in the

process of extinguishing our lines of credit with them.’’

This is what I am hearing, except this is a stronger letter. But

is this what you have been finding out in your investigation of all

of this? Is this true around the country or is my area unusual in

this regard? Because I am hearing this from many, many people.

Mr. BAROFSKY. I think this tension does exist. I think we have

seen it across the board. On the one hand is the desire for banks

to do more and more lending and then on the other hand is the regulators’ desire for banks to buildup capital cushions against further

losses. It is a very real tension.

Mr. DUNCAN. I also have heard this from many bankers who say

that they can’t speak out publicly because they will receive retribution from the examiners and the situation would grow even worse.

Mr. BAROFSKY. Well, we did see this in response to some of our

survey questions. Our source of information for this is the banks

themselves, who have come forward and have pointed out this tension. Frankly, it is natural. Part of the results of the stress test

was to encourage the financial institutions to raise an additional

$70 something billion. These additions to capital are that. They are

additions to capital. Now, capital can be leveraged in certain instances to increase lending but there is a tension there. It is one

from conflicting policy concerns.

Mr. DUNCAN. I have written the top banking regulators twice—

and those two letters were several months apart—to tell them that

this situation is occurring in our area. I hope that other members

of the committee who are running into this in their areas will also

write these regulators. This money is not being used, I don’t think,

in the ways in which the Congress really intended for it to be used.

Thank you very much.

Chairman TOWNS. Thank you. I now yield to the gentleman from

Illinois, Congressman Quigley.

Mr. QUIGLEY. Thank you, Mr. Chairman. Good morning.

Sir, you spoke of the extraordinary power placed with the fund

managers. But I think you have more faith in the firewall system

than others do. Given this extraordinary power, almost life and

death over so much money and what can happen to other companies, are firewalls enough? I guess there are firewalls and then

there are firewalls, but is there anything else that can be done to

protect the trust that is put in them?

Mr. BAROFSKY. A firewall left standing alone would not be

enough. There have to be vigorous and strict enforcement and compliance regimes set up over that firewall.

Mr. QUIGLEY. By whom?

38

Mr. BAROFSKY. It should be both by the company itself within

their internal functions and, of course, by Treasury. Our baseline

suggestion where we thought the starting point should be—and

just as a starting point—should be what the Federal Reserve Bank

of New York does with BlackRock and its Maiden Lane facilities

and with its four asset managers in its mortgage-backed security

buying program. We thought that would be a good starting point

because they do have walls and they do have vigorous compliance

set up by FRBNY compliance.

That is a starting point but it isn’t the ultimate goal. We haven’t

gotten to that starting point and that is why our recommendations

are where they are. But we agree. A wall standing alone isn’t going

to do it if it there is not a vigorous compliance regime in place as

well.

Mr. QUIGLEY. Were you aware of whether these conflicts were

discussed when Treasury made these decisions choosing the nine

out of the over 100?

Mr. BAROFSKY. We were not involved in the formation of this

program before it was publicly announced. We learned about it

really a couple days before it came out. We became involved during

the selection process of the nine managers. One of the members of

my audit team actually sat in on some of the interviews. We have

been engaged in a dialog with Treasury, a back and forth on this

issue, since at least early June.

Mr. QUIGLEY. Did the discussions of the conflicts of interest and

protections that were needed, were those discussed after the fact

to you?

Mr. BAROFSKY. We have been engaged in an ongoing dialog.

There is an amendment to one of the housing bills. It is called the

Ensign-Boxer Amendment because of those two sponsors. It actually requires Treasury to consult with us in the formation of these

rules. They certainly have abided by that.

Mr. QUIGLEY. Do you have the authority, the desire, and I guess

the ability to audit Treasury’s decisionmaking process to pick the

nine?

Mr. BAROFSKY. We certainly are going to be doing an audit on

the conflicts issues and many of the issues associated with the

PPIP program. We haven’t announced it yet because the program

itself hasn’t had lift-off but we are going to do that. Frankly, there

would be no way for us to do our job without auditing.

Mr. QUIGLEY. Well, given the lack of cooperation that you are

facing now, how is that audit process going to work?

Mr. BAROFSKY. I would have to say that when it comes to conducting our audits, Treasury has been cooperative. They have provided the documents that we have asked for. They have made their

personnel available to us for interviews. So I see no reason to

worry that we are not going to be able to conduct our audits as we

have conducted our other audits without interference from Treasury.

Mr. QUIGLEY. Do you suspect that could be completed by the

time you do your next quarterly report and repeat all your recommendations again?

Mr. BAROFSKY. Because of the timing of the PPIP program, the

final contracts haven’t been written. The time the fund managers

39

are being given to raise the funds is up to 12 weeks, which would

take us into the next quarter. I think it is unlikely. We may be able

to do something very quickly depending on what the timeframe of

the program is. But until sort of all the terms are set and the conditions are set, it is difficult to launch an audit. But we are going

to do so.

Mr. QUIGLEY. Very good. Thank you, Mr. Chairman. I yield back.

Chairman TOWNS. Thank you very much. I now yield 5 minutes

to Mr. Chaffetz.

Mr. CHAFFETZ. Thank you. Mr. Chairman, I would ask unanimous consent to insert into the record the letter that was referenced in Congressman Duncan’s questioning. He would like to

have this submitted into the record.

Chairman TOWNS. Without objection, so ordered.

Mr. CHAFFETZ. Thank you.

Thank you for being here. I appreciate your work. This is important work. Taxpayers’ money is at hand and we have a role and

responsibility in Government to make sure that it is dealt with in

a responsible manner.

My understanding is that Treasury has formally asked the Office

of Legal Counsel in the Department of Justice to opine on whether

SIGTARP is subject to the supervision of the Secretary of the

Treasury. Can you give us an update as to where that is at and

your understanding of that?

Mr. BAROFSKY. My understanding is that is where it is. Treasury

put in their request. We put in our response, giving our opinion

that the intent of this Congress was quite clear that we be a strictly independent agency within Treasury. They have submitted their

response to our response. The issue is still pending.

Mr. CHAFFETZ. Other than trying to maybe get away from the obligation that SIGTARP puts upon them, have there been any further instances of Treasury attempting to exert control over your Office or investigations?

Mr. BAROFSKY. Nothing even comes to mind. I think that they

generally have been cooperative with our investigations and audits.

Mr. CHAFFETZ. What would be the implications if they were to

have control over your Office?

Mr. BAROFSKY. I think that in the IG Act and where Treasury

suggests that we fit within that scheme, the Secretary of Treasury

has the ability to shut down an audit or an investigation of the

Treasury IG. We have a great fear. We think that would be a great

threat to our independence if the Secretary had that ability over

us.

By way of an example, obviously the Treasury has very strongly

worded comments about portions of our report that they disagree

with. Theoretically, could they use that type of supervision authority to order us to keep that out of the report and keep that information from the American taxpayers and Members of Congress? I am

not sure. But we think that those are the types of dangers that we

see if we are under the supervision of the Secretary. If that type

of authority was asserted, I think that would be a direct threat to

really the reason why we were created.

Mr. CHAFFETZ. I concur with that. I would hope that you would

let this body know, and me in particular, if there is any instance

40

or movement toward them trying to exert that control. I think that

the natural tension of having an independent auditor come in is a

healthy one for the process and for the viability and visibility to the

American people.

Let me talk real briefly about the personnel and resources that

you have in place. My question is, do you need more resources? My

understanding is that at the end of June you had 60 personnel

with plans to get to 160 people. You have 35 ongoing criminal and

civil investigations and over 3,200 tips that have come in through

the hotline and what-not. Help me understand what is happening

within your department regarding the stress and workload with

the personnel that you do have.

Mr. BAROFSKY. We have been very busy. We have put together

really an amazing team of auditors and investigators.

Mr. CHAFFETZ. What are you short? What do you need immediately that you don’t have at your fingertips?

Mr. BAROFSKY. I think that right now we are just going through

the normal process of hiring and finding the right people. The one

thing that we identify in our report is that we are projected to basically run out of money mid-fiscal year 2010. We have a budget

amendment request to Treasury to get the necessary money that

we would need to keep going through the end of fiscal year 2010.

We have been working with them to achieve that, as well as with

OMB. Obviously, if that is unsuccessful, we will have to come back

to Congress and ask for a direct appropriation. But basically, assuming we get that necessary money, we will be good through fiscal year 2010.

Mr. CHAFFETZ. In my short time that I have left, let me totally

shift gears and talk about the value of the TARP portfolio. There

is very limited exposure to this. Tell me what you are able to see

and not see. What is the value to the public in having that information?

Mr. BAROFSKY. Well, we think it is essential from a basic transparency point of view that members of the public, the investors,

know what their investment is worth.

Mr. CHAFFETZ. But how hard would that information be to provide?

Mr. BAROFSKY. Treasury is getting monthly estimates right now.

Mr. CHAFFETZ. So they have the information but we don’t?

Mr. BAROFSKY. It would just be a matter of making that information public.

Mr. CHAFFETZ. It is just a matter of flipping the switch? I would

urge this committee, I would hope that we would insist that those

evaluations be made public so that the taxpayers can understand

the valuation of their assets.

Mr. ISSA. Would the gentleman yield?

Mr. CHAFFETZ. Yes.

Mr. ISSA. Is that something that you believe would be appropriate for us to consider subpoenaing under cover so we could at

least see what they see once and then maybe reach the same conclusion you have reached?

Mr. BAROFSKY. I don’t think it is necessarily my position to suggest what the committee should or should not subpoena. But certainly if the committee wanted that information, the committee cerVerDate 11-MAY-2000 16:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 U:\DOCS\62118.TXT KATIE PsN: KATIE
41

tainly should request it, evaluate it, and make its own determination.

Mr. CHAFFETZ. I see my time is up. Thank you, Mr. Chairman.

Thank you.

Chairman TOWNS. Let me just say that is something we are considering as well.

I now yield 5 minutes to the gentleman from Virginia.

Mr. CONNOLLY. Thank you, Mr. Chairman. Let me add my voice

to happy birthday and good felicitations. I want to thank you for

your leadership of this committee.

Welcome, Mr. Barofsky.

Mr. BAROFSKY. Thank you.

Mr. CONNOLLY. Let me ask a question. Is the TARP program

working? Has it in fact achieved the ends for which it was designed?

Mr. BAROFSKY. I think that really depends on what your definition of working is. I think that the goals of the TARP have changed

over time. Different folks have different definitions of what is working and what is not working. I think if the goal was to remove $700

billion of toxic assets off the books of financial institutions, that

clearly has not happened. If the goal was to increase lending, I

think that, too, unfortunately has not happened. If the goal was to

avoid a complete systematic collapse of the financial industry, that

may very well have happened.

I think that it is impossible to look in the crystal ball and know

exactly what would have happened absent the TARP. But from

what we have seen from what financial institutions have told us,

we were on the precipice of a potential total collapse. Shoring up

the capital may have indeed achieved that goal if that was a goal.

Mr. CONNOLLY. I haven’t been a big fan of TARP either but I

think you have to give credit where credit is due. I voted against

the release of the second traunch, which was the only vote I got

to have as a new Member of Congress on TARP, because I didn’t

feel that the accountability and transparency standards were in

place. The House, in fact, had a statutory framework to allow that

but the Senate didn’t agree to it.

But having said that, we were facing a systematic financial meltdown last September, were we not?

Mr. BAROFSKY. In the conducting of our audits and gathering of

information, that is certainly an opinion we have heard many times

from the top regulators as well as members of the industry.

Mr. CONNOLLY. While the flow of credit may still be impeded, the

fact of the matter is that stability in the financial system, the

stress tests on 19 banks, for example, would seem to suggest that

some stability has returned in the system that was lacking as recently as last fall.

Mr. BAROFSKY. I think we are certainly in a much different situation than we were last fall. It may very well be that the TARP

is responsible for that, or responsible in part. Again, part of the

reason why we do Section 3 and talk about all these programs is

so that you can have in one place all the different supports that

were out there and that have been in place, of which the TARP is

only a small part. I think GAO has pointed this out. It is hard to

42

say specifically whether the effect is from the TARP or from a different program.

Mr. CONNOLLY. But it might be fair to say that had we not had

some intervention of some magnitude such as TARP, we might

have actually faced a much more serious situation?

Mr. BAROFSKY. That is certainly the opinion of the people that

we have spoken to who were there at the time, including Chairman

Bernanke and former Secretary Paulson.

Mr. CONNOLLY. Let me ask about the $300 billion in TARP funding was invested directly in systematically important firms through

the Capital Purchase Program, the Target Investment Program,

and the Systematically Significant Failing Institutions Program.

The Bush administration pretty much opposed giving the Federal

Government a voting stake in banks in which the Federal Government made equity injections. Do you think oversight and accountability capabilities might have been improved if we had not resisted that?

Mr. BAROFSKY. I am sorry. I just missed the last part of your

question.

Mr. CONNOLLY. I said the Bush administration, in making those

funds available through those programs, opposed giving the Federal Government a voting stake in banks in which it made equity

injections. Did we make a mistake in that respect? Could oversight

and accountability have been improved if we had a voting stake in

those banks?

Mr. BAROFSKY. I think oversight and accountability certainly

would have been improved if there were more conditions that were

in place and if there were oversight triggering mechanisms that accompanied those conditions. There were very, very few conditions

put on the initial output of funds.

I think it is a policy decision that increased transparency, as we

look and see what has happened and as we report, hopefully, and

convince Treasury to give us an accounting on the use of funds, I

think we can be in a better position to make that evaluation by

looking at exactly what has happened.

That is why we push for transparency, so that the Members of

Congress could make those determinations. You will have all the

information available to look back and say, the next time that we

are in a bailout, what worked, what didn’t work, and what was the

impact of the various decisions.

Mr. CONNOLLY. Let me give an example. The Bank of America

is now attempting to back out of the Federal Reserve’s ring fencing

arrangement. If we had insisted as part of the $118 billion we

pumped into BOA that one of the tools would be to have a voting

stake in BOA in return for that, would that be helpful from an

oversight and accountability point of view from your perspective

today?

Mr. BAROFSKY. It certainly would have an impact on the decisionmaking process and that. I am not sure if voting in particular,

from our perspective in SIGTARP, what difference that would

make. Although it certainly would make a difference from Treasury’s perspective on their ability to control the actions of these financial institutions.

43

Mr. CONNOLLY. Thank you. My time is up. Thank you, Mr.

Chairman.

Chairman TOWNS. Thank you very much. Now I yield 5 minutes

to the former chairman of this committee, the gentleman from Indiana, Mr. Burton.

Mr. BURTON. Thank you, Mr. Chairman.

I don’t want to be redundant because I got here late so I apologize if I ask questions that you have already answered. But why

do you think the Treasury Department is dismissive of your calculations?

Mr. BAROFSKY. I don’t know. I hate to try to crawl into the minds

of some of the comments that have been made. I think that if they

had read the report in total and had read some of the charts and

pages they couldn’t be saying some of the things they are saying

with their dismissiveness and their description of numbers that are

inflated when all the numbers came from them. So I am not sure.

Mr. BURTON. You haven’t had a chance yet. I have been told that

you have only been able to spend maybe 1 or 2 minutes with Mr.

Geithner since he took over. Is that right?

Mr. BAROFSKY. I had a several minute meeting with him in January. It was followed by a larger meeting that probably went about

45 minutes that included a number of members of Treasury, GAO,

and the congressional oversight panel. That was all in one occurrence in late January.

Mr. BURTON. Did he take into consideration your comments and

your positions?

Mr. BAROFSKY. We didn’t really have that much time in that one

meeting.

Mr. BURTON. Did you make some suggestions to him?

Mr. BAROFSKY. I think we conveyed where we were in late January. At that meeting he actually announced to the press his adoption of one of our recommendations, which was posting TARP

agreements on the Internet. So that was some progress that we

saw at that time.

Mr. BURTON. Well, do you think he wants to keep any information from the people? Do you think there is a deliberate attempt

to do that?

Mr. BAROFSKY. I am not sure, again, of what the intent is. The

effect is that information that the taxpayers and Members of Congress we believe should have as part of transparency is not being

provided.

Mr. BURTON. You said here, and you probably answered this already, that the total potential Federal Government support could

reach up to $23.7 trillion. Obviously, there is some speculation

there but the liability could reach that amount?

Mr. BAROFSKY. I think the speculation is if every one of these

programs was fully subscribed to, that is the total commitment in

guarantees. But I don’t think there is a speculation as to what the

numbers are. These are numbers that have been provided to us by

the Federal Government. Frankly, every one of these numbers any

member of the public could go find. It is all publicly available information.

Mr. BURTON. Well, if even half of that is correct, we have a big

problem.

44

Mr. BAROFSKY. I think the important caveat which we set forth

in the report is that we don’t have $23.7 trillion outstanding right

now. Right now the number outstanding is closer to $3 trillion.

Since the inception of the crisis, again as we put out in the report,

the total maximum amount has been about $4.7 trillion. But when

you add up all of the different programs, including programs that

have been paid back, ones that may have been canceled, and

collateralized programs, the total amount of support, which is what

we are trying to capture here, does total $23.7 trillion.

Mr. BURTON. We are concerned about the terrorist problem. That

is one of the top issues that the American people are concerned

about. I understand SIGTARP has recommended that Treasury require its private fund managers to collect information on whether

any of their investors are involved in organized crime, terrorism,

or fraud in order to prevent such groups from using PPIP to launder money.

As currently designed, are you confident that the Obama administration has taken steps to prevent organized crime syndicates and

terrorist groups from using PPIP money to launder?

Mr. BAROFSKY. I think they are most of the way there but I think

there is a little bit more that needs to be done. They are requiring

these fund managers to use the normal procedures like KYC and

different procedures to screen for that information. What we have

recommended and what they have not adopted is that Treasury not

only receive all the information about all the different investors in

these programs but also have the unilateral right to kick one out.

To use an example, let us say that a fund manager does all the

right diligence but doesn’t know that a particular investor has a

pending FBI investigation into them being involved in drug trafficking, organized crime, or even terrorism. They would accept that

person, that individual, or that institution into the program but

wouldn’t know any better. But we, Treasury, or our law enforcement partners could run those names in a data base, kick something out, and then reject that investor. We wouldn’t necessarily

want to tell the PPIP fund manager that we have a pending criminal investigation into one of their clients because it might be pending.

But I still think it is important that Treasury have the ability

to unilaterally knock those types of folks out of it. That is a recommendation that we have made and that has not been adopted.

Mr. BURTON. Well, let me just end up by asking this question:

The TARP funds that have been allocated by Congress do not reach

the $3 trillion level. What do you think is going to happen? Do you

think they are going to ask for another bailout?

Mr. BAROFSKY. Congressman, I don’t have that crystal ball.

Mr. BURTON. Do you think it is going to be needed? Do you think

additional funds will be required to meet their obligations or their

requirements?

Mr. BAROFSKY. I really can’t answer that question. I don’t know.

I think there is a lot in question about what is going to happen in

the economy in the next 3, 4, 5, or 6 months or in the next year.

I am just not in a position to really answer that.

Mr. BURTON. What would your recommendation be?

45

Mr. BAROFSKY. I think right now Treasury has stated that they

don’t need additional funds. So at this point I assume that is where

we are.

Chairman TOWNS. The gentleman’s time has expired. Now I yield

to a senior Member of Congress, not in age but in years of service,

Marcy Kaptur.

Ms. KAPTUR. Thank you. Thank you, Mr. Chairman, very much.

Happy birthday. This is just the beginning of your life.

Mr. Barofsky, thank you so very much. You have a really important job on behalf of the American people and your staff. We thank

you for that.

My first question is what more can we do to help you do your

job?

Mr. BAROFSKY. Congress has been amazingly supportive of our

agency since we have begun. We really have, I think, all the necessary tools in place right now.

Ms. KAPTUR. All right. Your report came out today. Most Members of Congress have not had a chance to digest it and take it

apart. Would you or your staff be willing to come back and help

us ferret out some of the information we feel we still need in its

interpretation? Would you be willing to do that?

Mr. BAROFSKY. Of course. At any time my staff will be available

to brief your staff. Any time this committee or any of the subcommittees want to hear our testimony, we will always be available. We are a creation of Congress and part of our job is to inform

the American people through its representatives of everything that

is going on. So of course.

Ms. KAPTUR. Now, you have a hotline, 877-SIG–2009. Your report states that you received over 3,200 tips from the American

people. That hotline is available to the American people if they

work for one of these hotshot companies and they were involved in

activity that they have now reflected might not have been cricket

and above board. They can report that to you, can’t they?

Mr. BAROFSKY. Yes. They can and should also go to our Web site

if they don’t want to use the phone, www.sigtarp.gov. This has

been a crucially important aspect of what we do. More than half

of our criminal investigations have been initiated by tips from the

hotline. So people are using it and we really strongly encourage it.

Ms. KAPTUR. So some of those tips are good?

Mr. BAROFSKY. Some of the tips are very good.

Ms. KAPTUR. So the American people have to muscle up here as

well. I think the fact it is a free phone number, 877–SIG–2009,

means people ought to use it. This was networked across the country. There is knowledge all across America and we need to pull it

together.

I can tell you, in my region of northern Ohio, mortgage foreclosures are going up. Unemployment is going up. Four businesses

told me this weekend that they can’t get credit, and these are excellent businesses. The system is not working at the grassroots

level in Ohio.

I voted against the TARP and I voted against the bailout because

I thought that they weren’t the right means to resolve a crisis inside the mortgage system. We had done that before back in the

1980’s when we used mark to market accounting. We actually went

46

into the books of troubled institutions using FDIC examiners and

SEC accountants. So you had accountants plus bank examiners in

there. The burden was not put on the American people. This was

back when Continental Bank failed in Illinois and when all the

banks in Texas went down but for one.

When they came up with this concoction of these particular

means, investing all this power in Treasury, and ramrodded it

through Congress 6 weeks before an election, I have to tell you I

became very, very suspicious. I still am.

One of my questions to you is this: You have had background in

your own life in mortgage fraud. Have you ever had a background

in control fraud and systemic fraud?

Mr. BAROFSKY. I don’t know how much control fraud or systemic

fraud as sort of cases are concerned. I have certainly been involved

in securities fraud of what would probably today be considered

some systematically significant institutions. I looked at some of the

accounting frauds and frauds that those companies have committed.

Ms. KAPTUR. I would urge you very much to look at, of course,

the Enron situation. Because this goes to the very highest levels of

finance and of institutional structures in our country. Ultimately,

it had international repercussions. But I would urge you to look at

the Enron situation and to think about the kind of staff that you

might hire up and the additional authorities that you have been

given.

Mr. BAROFSKY. Well, it is funny that you mention that because

we just recently brought on, I prosecuted the Refco matter and we

just recently brought on as one of our attorney advisors one of the

prosecutors on the WorldCom matter. So we are gearing up with

that in mind.

Ms. KAPTUR. Very good. One of the most insightful people I have

read on this is Mr. Bill Black out of I think the University of Missouri, Kansas City. He had worked for the Commodity Futures

Trading Commission back in the early 1990’s. I don’t believe he is

for hire. But I am just saying his way of thinking about what went

on is very, very useful. I wish to share that with you.

I also want to put two issues out there. One is warrants and my

deep concern about, for instance, Goldman Sachs and their warrants. It is my understanding that the American people have the

right to 12.2 million shares of Goldman Sachs, according to the

numbers that I have. Goldman Sachs actually has the privilege

under the agreement of determining when our taxpayers have to

sell those warrants and exercise their rights. So they control the

price and they control the timing.

I think it is really important on the warrant issue that you examine these warrant potentials, sales prices, and the timing of this

for the American people. The other day the price was $1.60 per

share and apparently Goldman was saying they will sell it to us

for $1.229. That difference yields $450 million if we were to sell

today. What if we held it for 9 years? Nobody is asking those questions, as far as I know.

I am very concerned for the American people if Goldman and all

these other companies get their money back plus.

47

Mr. BAROFSKY. We have an ongoing audit into exactly these

issues on the warrant repurchase process. So that is something

that is pending that we are looking at.

Ms. KAPTUR. Mr. Chairman, I just wanted to say for the record—

I don’t have time to ask on the PPIP program—but what troubles

me, Mr. Barofsky is some of the individuals. Forget the company

names like BlackRock. I am concerned about the people who were

involved in inventing the mortgage sub-prime instruments, then

moving it to market, changing it from a bond to a security, and

then creating the derivative instruments. They are changing the

companies they were in so now they are the same people who have

gone to the Fed and have gotten these contracts.

I really think you need to look at people, where they were in the

system over the last 20 years; what impact that has had now on

our economy; and who is in place, in my mind, with the potential

power to cover over some of their own very bad mistakes. I would

urge you to look at those firms closely.

Thank you.

Chairman TOWNS. The gentlewoman’s time has expired. I now

yield to the gentleman from North Carolina, Mr. McHenry.

Mr. MCHENRY. Thank you, Mr. Chairman. The tune of $23.7 trillion worth of taxpayer exposure for the bailouts is quite striking

and frightening.

I appreciate your testimony and your frankness. I am grateful

that the President has not fired you like he has fired two other Inspectors General.

Mr. BAROFSKY. Me, too.

Mr. MCHENRY. But I do think it is a big concern that the administration is choosing to remove Inspectors General. You, as well as

your colleagues within the various Inspector General Offices across

the Government, do a yeoman’s task of making sure the Government is accountable to the taxpayer.

With that, I would like to yield to the ranking member the remainder of my time.

Mr. ISSA. I thank the gentleman.

In following up on that line, I will bring to your attention that

according to the Wall Street Journal, some of the private fund

managers selected to participate in the PPIP may have consulted

informally to the Obama administration in writing the PPIP itself.

In other words, they wrote what they now participate on, which is

not surprising.

Additionally, the New York Times reports that BlackRock CEO

Laurence Fink, who has been chosen as one of the PPIP fund managers, is a member of Larry Summers’s inner circle. The program

lets him select fund managers that use 75 percent of the taxpayers’

money and assets.

My question to you is if, in fact, these and other activities begin

to look like a cordial relationship where information is being

passed and positions are being given because of friendships of people that go in and out of Government, are you in a position to investigate that?

Mr. BAROFSKY. I think that certainly any type of corruption is

squarely within our mandate. But the points that you raise go so

importantly to what we were discussing earlier as far as the

48

reputational risk to Treasury. If, in fact, these individuals had a

hand in writing these programs, it becomes all the more important

that from a perception area alone we have the tightest and most

significant ethical and informational barriers and walls to prevent

them from taking advantage of a program that they may have had

a hand in creating.

Mr. ISSA. Mr. Barofsky, you have been criticized a little bit for this $23.7 trillion, as we entered in the record earlier, partially because these are assurances and partially because it is outside of

the TARP itself. How many IGs would have to be at your table if

we were to cover all the guarantees, assurances, promises, and underwriting that the Government is doing? How many different

parts of Government would we be dealing with here?

Mr. BAROFSKY. If you go through our chart and count up the institutions, I don’t have the number at hand, but certainly the

FDIC, Federal Reserve, Pension Guarantee, and the National Credit Union. It would be basically the financial services roundtable of

IGs.

Mr. ISSA. So if we can’t fit them all at the present table, and the

chairman has not yet said we are going to increase the size of the

witness table, then is it fair for us to consider here the fact that

when we created your position we were thinking in terms of $700

billion in TARP and today we are thinking in terms of the financial

recovery and oversight process that now has a dozen or more IGs

loosely associated who are not able to coordinate their activities, at

least by design?

Do you believe that either your position or another position

should be created that would be the IG for financial oversight to

bridge all these various IGs so that our systemic risk, which is

$23.7 trillion of risk, could in fact be overseen in a coordinated

way?

Mr. BAROFSKY. I think the most vital thing that I have as an Inspector General, being obviously brand new to the Inspector General system, coming here last December——

Mr. ISSA. But not to the Inspector part of it?

Mr. BAROFSKY. The most vital thing is my independence. The

independence is the most vital thing for an Inspector General.

I think it is very important for us to coordinate with one another.

In the TARP, I formed an IG council so all the different IGs that

touch on TARP programs meet monthly and we talk about audits

and investigations. We have subcommittees. I think that type of coordination is very good. In fact, I will be going on Thursday, there

is a monthly lunch for regulatory IGs. So we are coordinating with

each other.

I think putting an umbrella over other Inspectors General, I

think that almost invariably will impinge on their independence. I

think we are coordinating and will continue to do so.

Mr. ISSA. But in fairness, since we are seeing you, it is important

that you be able to give us, if you will, the results of that coordination so that we are looking at the entire financial oversight as we

are here today.

Let me just ask you one closing question. In the case of Chrysler,

it has been reported, and I believe this to be true, that we have

given up $3.8 billion worth of DIP financing, meaning we gave

49

them the money out of TARP in order to go through a process. We

then sold them and took back nothing in return. Is that something

that needs to be investigated, whether or not it was necessary to

write off nearly $4 billion of the last money into Chrysler?

Mr. BAROFSKY. Yes. In our report we detail those numbers of

what has been waived, both in Chrysler and in General Motors,

and what has been received on the other side, including equity interest. I think that sort of the facts are what they are on that and

are certainly open to any fair inquiry as to how we got to that situation.

Mr. ISSA. So perhaps it is for us to decide whether it is worth

investigating now that you have given us the facts?

Mr. BAROFSKY. Yes. It is certainly something that we can look

into potentially, or one of our oversight partners, as part of an

audit as to what that decisionmaking process was.

Mr. ISSA. Thank you. Thank you, Mr. Chairman.

Chairman TOWNS. The gentleman from North Carolina’s time

has expired. I now yield to the gentlewoman from California, Congresswoman Watson.

Ms. WATSON. Mr. Chairman, I want to say to you on your birthday that yesterday is the past, tomorrow is the future, but today

is a gift from God. That is why it is called the present. Happy

birthday, Mr. Chairman.

Chairman TOWNS. Thank you very much. I appreciate your kind

words.

Ms. WATSON. Thank you so much, Mr. Barofsky, for being here

and being so open with us. I want to get back to the Bank of America. According to recent reports, Bank of America is now trying to

avoid paying billions of dollars in fees to the U.S. taxpayers in return for the $118 billion in guarantees they received from the Federal Government. According to the Bank of America, the agreement

was never signed but the guarantees have been announced as part

of the assistance they received to complete the acquisition of Merrill Lynch.

Do you believe that the Bank of America benefited from increased investor confidence because of the perception that they had

Federal ring fencing of their toxic assets?

Mr. BAROFSKY. I really am reluctant to comment as Inspector

General on an ongoing negotiation between Treasury and Bank of

America. I think that the events are what they are on that. But

I think we may be crossing a line as an agency if we start publicly

commenting on something that is an ongoing investigation. So respectfully I would ask for your permission not to answer that question.

Ms. WATSON. We had the former Secretary of the Treasury, Mr.

Paulson, in here for 5 hours last week. It was like trying to unscramble rotten eggs. It is very frustrating to us.

Has the Treasury Department provided an explanation for why

they did not require Bank of America to join the Asset Guarantee

Program agreement? Do you know?

Mr. BAROFSKY. We haven’t gotten that explanation. We have

been monitoring the program since its announcement. We have a

little bit of information basically that there has been ongoing discussions.

50

We have an audit coming out I think that tracks a lot of the fine

work of this committee on the Bank of America and its participation in the various TARP programs. We will be presenting that in

September. I would be happy at that time to come back to the committee and discuss the findings if the committee would think that

would be helpful.

Ms. WATSON. Yes. I would ask the Chair to hold a followup meeting in due time so that we can followup on some of this.

You lead right into my next question I wanted to ask. Have you

discovered any other large scale agreements which the Federal

Government has entered into with financial institutes without

valid contracts to enforce the proper repayment of the taxpayers’

investments? This is a question that you can keep in mind for our

followup meeting. I do hope we can set that sometime in the very

near future.

In your April quarterly report, you noticed the risk of conflicts

of interest and collusion vulnerabilities inherent in the design of

the Public-Private Investment Program [PPIP]. However, the

Treasury Department has declined to adopt your recommendation

to impose an informational barrier between the employees who do

or do not handle PPIP funds at the nine PPIP fund managers. Can

you comment on that or should we wait for a subsequent meeting?

Mr. BAROFSKY. Absolutely. We think that this is a fundamental

deficiency in the current structure of the PPIP program. We think

that it is absolutely essential that there be an informational barrier

or ethical wall that prevents the fund managers’ firm from taking

advantage of confidential market moving information that the fund

managers are going to have. We think it is a problem and we think

it is a deficiency in the program.

Ms. WATSON. Thank you. Why do you believe that the Treasury

Department is unwilling to impose the measure despite having

placed similar restrictions on asset managers in comparable Federal bailout-related programs?

Mr. BAROFSKY. Treasury has provided to us and we have included in our report a very detailed written description of their justifications and reasoning. In our report, we address each of those

and show why we disagree with them.

One of them is that it is impractical, that the design of the program doesn’t make it susceptible to such walls. It may very well

be that the program is fundamentally flawed in its design in such

a way that in its current structure it may be impractical. Our response is that, because this is such an important issue for such a

variety of reasons, if it is impractical with the current nine fund

managers then before selecting these nine fund managers Treasury

should have changed its criteria or did what was necessary to put

in the necessary walls to protect the taxpayers.

Ms. WATSON. My time is up. Mr. Chairman, I would hope that

in our subsequent hearing with Mr. Barofsky that we can get these

recommendations and get some ideas about how you would assess

the standard functions of such a department. So thank you.

Are we going to recess?

Chairman TOWNS. No, we are going to continue all the way

through. Just to give you an update, the House is in recess, which

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makes it good for us. We can continue. We are not in recess. When

the House is in recess, that is when we really do our work.

Ms. WATSON. Thank you, Mr. Chairman.

Chairman TOWNS. I now yield to the gentleman from California,

Mr. Bilbray.

Mr. BILBRAY. Thank you, Mr. Chairman. I would like to join the

committee in congratulating you on your birthday. All of us were

witnesses to how quickly you blew out that candle so maybe we can

negotiate with Mr. Waxman for a carbon credit for you on that

item, OK? [Laughter.]

First of all, I watched this morning, Mr. Barofsky, the way you

were attacked for releasing this report. I would just like to say to

you as one member of this committee, thank you for giving us the

hard, cold facts. I just hope that you remember that when you get

attacked like that, basically because you brought a message a lot

of people didn’t want to hear in this town, that contrary to public

belief the ancient Egyptian tradition was to always send your best

people to give bad news. The guys who were sent with the good

news were sacrificed to thank the gods for the good news.

So it should be a credit to you to understand that you are attacked because you are bringing this up. I want to thank you very

much for that. I am sure that not just this committee but the public at large is going to thank you for your report. The hard, cold

facts do get into trouble.

Speaking of footprints, I want to talk about the whole concept of

looking at BlackRock and some of these others, the nine players

here, looking at the footprint of the Federal Government picking

winners in this whole game. Do you have any idea, or if you don’t

and you need to have time I understand because you can get back

to us in writing, how did these nine major players get chosen as

the winners in this game to be blessed not just by the bureaucracy

of the Federal Government but by all the taxpayers in the Federal

Government? How did these nine players become the winners in

this game as opposed to the other losers that were pointed out by

the former Mayor of Cleveland, Mr. Kucinich?

Mr. BAROFSKY. Treasury’s explanation is that they put out applications. They received about 140 applications. The next step was

to remove duplicative or incomplete applications. That came down

to 102. They then applied the criteria, which they have put out on

their Web site, of what they were looking for in the ideal asset

managers. Basically, those that didn’t meet that cut, I think they

narrowed the number down to 13. They then did a series of interviews and ended up with the final nine.

I think those are the numbers. I think the exact numbers are

likely reflected in our report. That is essentially how Treasury has

described their process.

Mr. BILBRAY. Thank you, Mr. Chairman. I just think this report,

again, really reinforces the fact that we have ventured into a very,

very scary territory. It is a brave new world where Washington decides what happens on Wall Street and Main Street. Hopefully, we

can somewhere in the future find a way to have an exit strategy

and remove ourselves from imposing our footprint over the rest of

American society. I thank you very much for this report because I

think it is a dose of reality to make all of us work together here.

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I yield back, Mr. Chairman.

Chairman TOWNS. Thank you very much. I now yield 5 minutes

to the gentlewoman from California, Ms. Speier.

Ms. SPEIER. Thank you, Mr. Chairman. Thank you, Inspector

General. It is a pleasure to have you before us. In your short time

you have done an extraordinary job. We thank you on behalf of the

American people.

Let me first ask this question: Did any bank you surveyed not

participate by returning the survey?

Mr. BAROFSKY. No, we had 100 percent participation.

Ms. SPEIER. Very good. Should we pass legislation to require the

tracking of TARP funds since evidently it was not required in the

actual providing of the TARP moneys?

Mr. BAROFSKY. We believe that requiring recipients to account

for their use of funds is a fundamentally important part of transparency. It is why we make this recommendation and continue to

make this recommendation.

As a policy, we tend not to cross into the policy recommendations

as to what Congress should do or what Treasury should do. We do

say what Treasury should do but we don’t suggest legislation for

Congress just as a policy matter and to maintain our independence.

We certainly do feel it is our obligation to present to you why we

think it is such an important factor of transparency.

Ms. SPEIER. Did the contracts that the Treasury devised with the

banks for the distribution of the TARP funds prohibit the use of

the money for any purpose?

Mr. BAROFSKY. There are different contracts and different programs. There are some restrictions on stock buybacks in the Capital Purchase Program and certain restrictions on increasing the

level of dividends. So there are some restrictions, although not

many.

Ms. SPEIER. So the fact that they would use the money to make

investments, pay debts, or buy other banks was all legal under the

granting of the TARP funds?

Mr. BAROFSKY. Absolutely.

Ms. SPEIER. Should we change that?

Mr. BAROFSKY. As I said, that is a real policy decision that needs

to get made. I think in making that decision, we should take a look

at both sides of these arguments. Part of the role of transparency,

as the Special Inspector General we think that these debates are

best informed by bringing transparency so we can see what happened. But I can give you arguments that I have heard on both

sides of any one of these issues. I think one of the more controversial is acquisitions. I have heard some very powerful, strong arguments that is actually good for the banking system and arguments

on the other side that it would be an inappropriate use of TARP

funds.

Ms. SPEIER. Let us talk about acquisitions. Which banks actually

took the TARP money and made acquisitions?

Mr. BAROFSKY. We are going to be publishing, necessarily in

some redacted form, each of the responses that we received. The

reason why I say redacted is that there is some confidential business information that we would be prohibited by law from making

public. Since we are still in the process of that, I am reluctant to

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comment on any specific response that we had. We will be making

that information public hopefully within the next 30 days.

Ms. SPEIER. In terms of alarms that go off in your head because

of what you have been able to ascertain through your surveys,

what are those alarms that we should be particularly focused on?

Mr. BAROFSKY. I don’t think that there are any alarms. I think

when we did this survey we were taking great care not to make

any judgments for all the reasons that I have stated.

The most alarming thing to me is that Treasury continues to

refuse to adopt this recommendation even in light of the proof that

we now have in this audit. They continue to tell us that it is a

meaningless survey even though no one from Treasury has taken

us up on our offer to come look at these survey responses in

unredacted form. We said, ‘‘come over, take a look at them, and see

if you think that these are meaningless responses that can’t provide transparency.’’ So I think the most alarming thing to me is

this steadfast refusal, this willful refusal to adopt a recommendation that we think is so important to provide transparency.

Ms. SPEIER. So you are saying that even though you now have

over 360 surveys that provide information on how the TARP funds

have been used, no one from the Treasury Department has come

over to look at this information?

Mr. BAROFSKY. No. Their refusal to adopt our recommendation

was made purely off of our audit report. They have not come over.

Ms. SPEIER. I think that is astonishing. I yield back.

Chairman TOWNS. Thank you very much. I now yield to Congressman Schock from Illinois.

Mr. SCHOCK. Thank you, Mr. Chairman. Likewise, happy birthday on your special day. I am just noticing your election to office

in 1983. As someone who is 28 years old in Congress, that is a lifetime.

Chairman TOWNS. I feel it, too.

Mr. SCHOCK. So thank you for your service this Congress and

your country. Happy birthday.

Mr. Barofsky, I am specifically interested in the change in purpose that has occurred under the new administration with the use

of TARP funds and how that might change your role or add additional responsibilities. How does your responsibility as the Special

Inspector General for TARP interface with our Federal Government’s decision to bail out the automakers? Could you speak to

that?

Mr. BAROFSKY. Sure. I think that in the near term we are addressing that through our audit function. We have announced an

audit of corporate governance, which of course oversees the fact

that we do have a controlling equity interest in General Motors

now and a minority interest in Chrysler Financial. My team is

going to be heading out to Detroit next week, some of my audit

team, to start that process.

We are also going to be sending representatives of our Investigative Division as well to make the necessary contacts and make sure

that the word is out, including the word about our hotline if anyone

within these companies knows of any misrepresentations. There is

a whole bunch of reporting that is required as a condition of the

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Federal funds. So we are going to keep a very close eye and dedicate the necessary resources to fulfill our oversight role.

Mr. SCHOCK. So you feel you are being given the latitude you

need in terms of allowing your personnel into GM and Chrysler to

oversee the use of those TARP funds?

Mr. BAROFSKY. I will let you know next week. But I don’t anticipate that we are going to have a problem.

Mr. SCHOCK. OK. The next question is your opinion. When this

bill was sold to Congress last fall, it was predicated on the idea

that this money, in the words of former Treasury Secretary Hank

Paulson, would be if not all paid back, most of it. And there was

a slim likelihood that we might actually make money on the TARP

money for the taxpayers. Do you believe that the majority of this

money will be paid back?

Mr. BAROFSKY. I think if you look at the way the program has

evolved, I think it is extremely unlikely that we are going to get

$700 billion back. The Mortgage Modification Program alone is $50

billion. There is no anticipation that any of that money will come

back. That money is being directly given to mortgage servicers to

help convince them to lower mortgage payments and payments

they will make on behalf of home owners. So I think it is very unlikely that TARP will turn a profit significant enough on other activities to generate a profit to cover that $50 billion.

In addition, on some of the other programs, as the ranking member noted, the money has been written off from Chrysler. We still

have to see what happens with our equity interest in those companies.

So it is certainly possible that more may be retained or earned

back over time than maybe we even suspect right now. But I think

the idea of getting a dollar for dollar return would be extremely unlikely.

Mr. SCHOCK. Then I wonder specifically about your statements

earlier about asking Treasury to detail or to basically collect information from TARP recipients and also the use of the taxpayer

funds from those TARP recipients. Treasury kind of gives this response that would be meaningless and really is not necessary.

What is your view of that?

Mr. BAROFSKY. First of all, if it were meaningless, I don’t understand why Treasury does this with respect to Bank of America,

Citigroup, and AIG. Recently with AIG, are they including conditions in their contracts that they believe are meaningless? I certainly hope not.

My view is that sure, money is fungible. That is a true concept.

But just to use a simple example from my own life, I get direct deposit of my Federal paycheck. Normally I couldn’t tell you if I buy

some groceries whether it is from 1 week or a different week because money is fungible it all goes into my checking account. A couple of years ago when I won the John Marshall Award for my work

on the Refco case, there is a small cash component. I knew that

was going to be direct deposited into my checking account. Before

I got that check, I knew what I was going to do with that money.

I was going to pay off a piece of my student loan. Sure enough, the

money came into my account and then went out to pay off the student loan. So sure, money is fungible but I could tell you with a

55

great deal of certainty what I did with that bonus money, that

extra money that came in.

What we see is that the financial institutions have been able to

do the exact same thing. The TARP was an extraordinary amount

of money and an extraordinary investment. Banks can tell what

they did with that money. If they are responsible companies, they

are budgeting for the fact that they are increasing the capital by

these amounts. This is all money that can be verified and tested.

So much of Treasury’s compliance system is based on similar

types of self reporting where financial institutions report their compliance and then Treasury comes back and hopefully one day will

test through its compliance function. This is no different. If a bank

says, I used the money to acquire another financial institution

which I wouldn’t have been able to do otherwise because I wouldn’t

have had enough money, that is certainly a verifiable fact. If they

go buy agency mortgage-backed securities and say this is what we

did with the money, we can look at what their total volume of securities were before the TARP money and afterwards and test that

money.

So we do believe that this is an important part of transparency.

It is important for the Members of Congress, for the American people, and for Treasury as well to know what is going on with the

taxpayer funds.

Mr. SCHOCK. I agree. Thank you very much for your testimony.

I hope you will continue to press on. Thank you, Mr. Chairman.

Chairman TOWNS. Congressman Schock’s time has expired. I now

yield 5 minutes to the gentleman from Massachusetts, Congressman Lynch.

Mr. LYNCH. Thank you, Mr. Chairman. Mr. Barofsky, thank you

for your great work. I appreciate the work being done by Mr.

Dodaro and Elizabeth Warren as well. The work that you do obviously allows us on the Oversight Committee to do a lot of our work.

Let me ask you: One of the programs that Treasury has set up

was this Asset Guarantee Program where Treasury will guarantee

certain toxic assets held by qualifying financial institutions. They

have focused mainly on toxic assets held by Bank of America and

Citigroup. I think those are the two big outfits that they focused

on. Have you been able to get information on the specific assets

that Treasury has acquired from Citigroup and Bank of America?

Mr. BAROFSKY. We are in the process of putting together an

audit that is going to address exactly that question. We received

a letter request from Congress to look into that. We are right now

in the process of putting together the audit structure that is going

to address exactly that issue of what is in there, what the cashflows are, and how it came to be. It will be really a thorough audit

on the entire process and what is going on at Citigroup.

For Bank of America, Ken Lewis, the CEO of Bank of America,

indicated that they are withdrawing from that program. The contract was never signed and therefore it is not actually going to be

imposed. We do have a pending audit that we expect to complete

in September that addresses Bank of America and its participation

in the TARP programs. So we will touch on that there but we won’t

be doing a similar study of the assets given the change in status

of that program.

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Mr. LYNCH. I know this was instituted in November 2008 and I

am just wondering what actually was purchased. My question really focuses on our potential exposure. If we are providing a guarantee behind a credit default swap or some complex derivative, our

exposure may be greater than what your monetary assessment has

been, even at $3 trillion. I am just worried about our exposure

there.

Let me just shift. I certainly anticipate your report in September.

That will be great.

Let me ask you about your own position here. We originally set

up the Special Inspector General for TARP in connection with the

$700 billion that was allocated. I did not vote for that but it went

through anyway. A lot of us didn’t. Originally you were set up to

oversee and to safeguard the taxpayers’ money. However, recently

I understand that Treasury has challenged your authority as an

independent oversight body. Reportedly, Treasury has requested an

opinion from the Justice Department Office of Legal Counsel questioning whether your Office in fact falls under Treasury’s authority.

Can you comment on Treasury’s challenge to your independence,

which you talked about earlier as being so important, integral to

your operation there?

Mr. BAROFSKY. Yes. We do think this is potentially an issue that

could impair our independence. Treasury has sought this legal advice from LLC. We have submitted our own submission detailing

our position. We think it is crystal clear what Congress’s intent

was, for us to be an independent agency operating within the

Treasury Department. We are going to wait and see. But we think

that there is a danger that Treasury could try to assert, depending

upon what the LLC opinion is, the authority to shut down investigations or audits that we may seek to initiate. We think that

would obviously be contrary to the intent of Congress. Certainly we

will let Congress know if we do get an adverse opinion.

I am pretty confident, though. I think the statute is so clear and

the intent of Congress is so clear. I am hopeful that LLC will see

it the right way, I think really the only way that makes sense

based on how the statute is written and what the statements of

Congress have been both at the time of enactment and since then.

Hopefully this issue goes away. I always thought this was an unnecessary thing for Treasury to do. I continue to think so.

Mr. LYNCH. Obviously if this challenge is diverting the energies

of your staff to defend itself, perhaps we in this committee can,

there are some vehicles that are going through Congress right now,

we could simply amend one of those just to clarify that our intent

was that you would be independent and that you conduct oversight

over the operations of Treasury in connection with this TARP program.

I also heard that Treasury’s decision to challenge this came immediately in response to some of your questions regarding the

bonus payouts at AIG. Is that correct?

Mr. BAROFSKY. That was the timing. I wouldn’t go so far as to

do a causal relationship between the two because I don’t know for

sure. It did come up, the issue, on the eve of an interview that we

were going to have with a member of Treasury’s General Counsel’s

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Office who was involved in the executive compensation issue at

AIG. So it certainly was at that time.

Mr. LYNCH. I only speak for myself and I know my time has expired. I just want to say that I think it would be a terrible miscarriage of what Congress’s intent was to have you hamstrung by

being put under Treasury. We established your Office to oversee

and to protect taxpayer money. We do not expect you to be answering to Treasury. We expect you to be investigating them and conducting your oversight.

Thank you. I yield back, Mr. Chairman. Happy birthday.

Chairman TOWNS. You can’t yield back. You don’t have any time.

[Laughter.]

Congressman Fortenberry.

Mr. FORTENBERRY. Thank you, Mr. Chairman. Mr. Barofsky, welcome. Thank you for your testimony today. You have made the news with your $23.7 trillion pronouncement

in your report. I would like ask you to unpack that further. That

obviously is the fullness of potential taxpayer liability, the potential exposure to taxpayer liability. Many of us have been operating

off of a working assumption that total taxpayer liability was about

$12 trillion, that between the Fed and the FDIC as well as the

Treasury Department that totaled about $12 trillion. Now, the

other number that I thought was significant that you said was

about $4 trillion of actual realized expenditures.

So I have two questions. Let us just try to break this down into

categories that are manageable. Tell the American people where

that taxpayer liability is located. To whom has it has been gifted,

basically? Then, again, under the $4 trillion actual realized expenditures, to whom is that going and in what form, direct expenditures, loans, guarantees? By whom, to whom?

Mr. BAROFSKY. Your question actually encapsulates why I made

this an entire section of our report. It is obvious there are some

very complicated issues here. In Section 3 of this report, we do that

breakdown. We talk about each of the numbers that we are talking

about.

The $3 trillion that is currently outstanding, the $4.7 trillion

that has been expended or guaranteed in total including money

that has been paid back and canceled programs from the initiation

of the crisis through June 30th, and then the $23.7 trillion number,

which is the maximum number if every one of these programs was

subscribed to to the highest amount, every guarantee was done.

The purpose of this really wasn’t to make the news or to make

a splash. What we did here is we took the 50 programs because we

thought it was important to show what the 50 programs were in

addition to TARP that address the Government’s support of the financial system. Really, the $23.7 trillion which has generated so

much controversy and so much comment from the Treasury Department is just adding up the number of what the total high

water mark is for each of those 50 programs. That is what is reflected in here.

So it is not that the taxpayer is on the hook right now for $23.7

trillion. We do not say that and we do not suggest it. But that is

the maximum if you take all of the programs that have been initiated since the inception of the financial crisis.

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Mr. FORTENBERRY. That is the total potential exposure. But

again, let us get back, let us try to frame that a little bit more concisely. This is 250 pages, the particular section you are referring

to I do not know how many pages is that, I do not know if you have

a particular chart that categorizes this in broad terms so that we

can all have a working framework that is useable so that we can

understand the total liability that exists and actually where it is

going.

Mr. BAROFSKY. Table 3.4 on page 138. I would say that any taxpayer or anyone interested, this report is at our Web site

www.sigtarp.gov, anyone can download this and see all the facts.

But if you look at page 138, that has a table which is entitled Incremental Financial Systems Support. What we have done here is

some existing programs were increased, so we have not included

the total program but only the increase that is attributable to the

financial crisis.

What we have here is it lists the different sources of where the

guarantees or support are coming from and lists what the current

balance is, the maximum balance from inception, and what the

total potential support is. And that is the phrase that I think is the

right one, it is total potential support. Now each of these entries

in here, and we list the Federal Reserve, the FDIC, Treasury

TARP, Treasury non-TARP, and then others, is supported subsequently in the report by other charts.

So, for example, if you wanted to see what the Federal Reserve

portion of this is, you just turn the next page and in Table 3.5 we

list each of the Federal Reserve programs that is described again

with this same information, the current balance, the maximum balance, and the total support related to the crisis. What you do when

you add up each of these charts and the total support, that is

where the $23.7 trillion number comes from.

Mr. FORTENBERRY. Now, out of this comes about $16 trillion between the Federal Reserve, Treasury, and the FDIC. Again, the operating assumption that we have been working off of for basically

the balance of this year because there were no numbers available,

easily available, was $12 trillion. So that is a very significant increase.

Mr. BAROFSKY. That is one of the reasons why we have done this.

We have come under some criticism for having done this. But every

time that we would look at a different article or a different newspaper there would be a different number there. We thought it was

important to put the TARP in context to collect what the major

numbers were, and that is what we have tried to do here.

Mr. FORTENBERRY. What level of detail does it go into in terms

of actual recipients of these various funds between FDIC, Treasury,

as well as the Federal Reserve?

Mr. BAROFSKY. We had a page limit. Ultimately, this is TARP in

context and given the number of these programs, what we have

done is really a one or two paragraph summary of each program.

Also, everything that is in here is based on publicly available information. This is all stuff that we got off the Web sites or congressional testimony of the different agencies. Getting into the recipients would be I think in a large part in many cases beyond what

59

is publicly available and, frankly, beyond our jurisdiction or authority because these are non-TARP related.

Chairman TOWNS. The gentleman’s time has expired. Thank you.

I now yield 5 minutes to the gentleman from Massachusetts, Mr.

Tierney.

Mr. TIERNEY. Thank you very much, Mr. Chairman. Thank you,

Mr. Barofsky, for the work that you are doing and for being here

today. I just have two lines of questions, should not take too long.

One concerns the term asset backed securities loan facility, the socalled TELF. This is an idea where they need a AAA rating from

two of the rating firms and a not less than AAA rating from the

third firm. But we continue to have these rating agencies paid by

the issuers, by the people whose product they are rating.

You made mention of that in your report. You said essentially

they are ‘‘paid by the issuers of the very securities that they are

rating. As a result, the agency has an incentive to issue a high rating to attract future business from that issuer.’’ That is one of the

problems that got us to where we are today in this whole financial

crisis. It should boggle our minds that we are continuing down that

path and in relying on those as part of this program. So you would

agree, obviously, that we should be concerned about this. Moreover,

what would you suggest that we do as a different methodology for

the TELF program and others?

Mr. BAROFSKY. This is something that we have been pushing for

since our initial report to Congress in February. We have some

suggestions. One of our concerns is a race to the bottom. Moody’s

actually came out, one of the three rating agencies, and has said

basically that they are losing business because they have been

more strict than the other two and, as a result, they have not been

getting enough business.

We have not investigated that. We think that the Federal Reserve and Treasury needs to investigate that further. But it sort of

raises the ultimate issue of a potential race to the bottom. And

then it was expanded when the TELF went into commercial mortgage-backed securities they added more rating agencies but kept

the number at two that are required to get approval. That only exacerbates the issue of more rating agencies for that race to the bottom to occur.

I think what they need to do is what the Federal Reserve, to

their credit, has started to do, which is, stop relying on rating

agencies to do the work, the diligence, the underwriting that stands

behind these asset-backed securities. The Federal Reserve has

hired a collateral monitor for commercial mortgage-backed securities to come up with its own evaluations as to what these things

might be worth in a stressed environment. We think that it is important to keep pushing in that direction, away from reliance or

the importance of rating agencies in this process to make sure

when we are dealing with taxpayer money that the level of protection is a little bit higher than what has, as you correctly state, got

us into this soup in the first place.

Mr. TIERNEY. What can Congress do to help you push that point?

Obviously, if we are not going to have somebody other than the

issuer pay, then we should do exactly what the Fed is doing with

this program.

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Mr. BAROFSKY. It is not really our policy to advise Congress on

specific legislation on these policy issues.

Mr. TIERNEY. But saying that legislation would be the only thing

we could do or one of the things we could do or whatever, it would

be helpful, generally.

Mr. BAROFSKY. I think it also is sort of worth noting that in the

regulatory reform that this Congress is considering, taking a good

hard look at what the reforms are for the rating agencies and

whether the reforms truly and squarely address these conflicts of

interest that had such disastrous consequences leading into the financial crisis.

Mr. TIERNEY. Thank you. My other line of questioning has to

deal with the credit derivative contracts that AIG held with third

party counter-parties. The financial situation when it occurred obviously created a situation where the counter-parties claimed that

the contract terms had been violated. They demanded either payment or additional collateral from AIG. AIG’s lack of liquidity obviously made that difficult to come up with, and there was a contest

between AIG and those third party people as to whether or not

there was money owed, if so, how much should it be, and there was

a negotiation that was going on on that.

When Mr. Liddy from the AIG was before the committee we

asked him why it was they paid 100 percent on the claim. He said

he did not believe they necessarily should have, that in fact there

was contention amongst that, and he had been somewhat surprised

because he and the people at AIG had not done it, that in fact it

had been the Fed and the New York branch, in particular, that had

done it. Are you looking at that at all? Are you able to tell us what

happened that all of a sudden in contested claims they just up and

forked over 100 percent?

Mr. BAROFSKY. We are. We are looking at that. We have a pending audit into that very specific issue, the credit party payments,

the payment of 100 cents on the dollar, and who made that decision. I expect that audit will be finalized by September.

Mr. TIERNEY. Thank you very much. I yield back.

Mr. ISSA. Would the gentleman yield?

Mr. TIERNEY. Yes, I will.

Mr. ISSA. I have just one quick followup. Are you familiar with

the XBRL and are you in a position to help get this kind of transparency data base access available to agencies that currently are

not reporting in a transparent fashion?

Mr. BAROFSKY. We are familiar with the XBRL product. I heard

some testimony about it. Actually, my office received a presentation

on it. It does appear to be a useful type of product to track these

types of funds.

Mr. ISSA. Thank you. I yield back, Mr. Chairman.

Chairman TOWNS. I yield to the gentleman from Indiana, Mr.

Burton.

Mr. BURTON. Thank you very much. I want to thank Congressman Issa for the letter that he gave to me.

We had Mr. Paulson and Mr. Bernanke before the committee just

in the last couple of weeks. They had an epidemic of memory loss

on a number of issues. Mr. Paulson was working of course very

closely with Mr. Geithner, the now Secretary of Treasury, on a

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number of issues, as well as Mr. Bernanke. This whole pattern

really kind of bothers me about how they have appeared to keep

things from the Congress of the United States because they can’t

remember who did what on the Merrill Lynch deal with Bank of

America and now Geithner’s work with Paulson.

Now they are in effect threatening you. I don’t see how anybody

can get anything out of this letter that we received other than they

were putting the hammer to you to back off.

You say here that on April 15th, Mr. Knight wrote to the OLC

over at the Justice Department attaching a copy of SIGTARP’s

April 7th memorandum regarding the presented issues. They were

asking whether or not you should fall under the jurisdiction or control of the Treasury Department. It is pretty clear I think to everybody on this committee that you should be independent because

that is what your job is.

But then there was some kind of correspondence between you

and the Department of Justice. They asked you to redact a portion

of the email exchange from OLC. That was to you, right?

Mr. BAROFSKY. I think all of the information that our correspondence that we—oh, yes. I am sorry, yes. The response from OLC to

us, which then generated an additional response from Treasury,

yes. We were asked to redact that.

Mr. BURTON. I wonder why they asked you to redact that. Did

they give you a reason?

Mr. BAROFSKY. The stated reason from OLC is that the information was indicative of their current thinking on an uncompleted

matter. Therefore, it was privileged information. Until they came

to a final resolution, they didn’t want——

Mr. BURTON. I was chairman of this committee for 6 years and

I worked with the Justice Department on a number of occasions,

a lot of occasions, as a matter of fact. They didn’t give any information out or send any correspondence whatsoever that would have

to be redacted. The reason they didn’t is because until they made

a final determination, they didn’t want any information out there

in the hinterlands.

When they sent you this information, and then they tell you that

it has to be redacted, it seems to me that is once again working

with the Treasury Department to kind of keep the hammer on you

and hold things in abeyance so that you will walk the chalk. Do

you have any comment on that?

Mr. BAROFSKY. I really can’t, unfortunately.

Mr. BURTON. I didn’t think you could. I think this is such a blatant attempt to intimidate you. I am so happy that you contacted

Ranking Member Issa and Senator Grassley. What it has done is

it has illuminated this issue so that these people that are trying

to slow you down and not let this information get out in the public

domain, they are going to be threatened by this right now.

The only thing I would admonish you to do is to watch your back.

You, as I understand it, are subject to the President. You serve at

his pleasure. So I think there could be some reason they could

come up with down the road that would get you replaced.

But in the meantime, I want to congratulate you for having the

intestinal fortitude—and I would use some other terminology if I

weren’t in public—to stand up for what you believe in. I think it

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is really great and I am glad you sent this letter to Mr. Issa. Thank

you.

Mr. BAROFSKY. Well, thank you very much. I can assure you and

I can assure this committee that I will not spend a single moment

worrying about my job security or my future. I am just going to

continue to do the job that I have been hired to do, which is bring

as complete transparency as possible and to continue to audit and

investigate to the best of my abilities.

Mr. BURTON. I have not met you before but I like you, man.

Mr. BAROFSKY. I have had a tough couple of days so I appreciate

that.

Mr. ISSA. Would the gentleman yield?

Mr. BURTON. I would be happy to yield.

Mr. ISSA. I have one followup question. Much has been said of this $23.7 trillion plus or minus a trillion here or there. But because constitutionally we must authorize and appropriate moneys,

wouldn’t it be fair to say that we need to have the transparency

so we can anticipate in each fiscal year the likely outlays of additional money where risk is beginning to become recognized?

Wouldn’t that be something that this committee has to be able to

access if we are going to allow the appropriators to make those

funds available, presumably because additional losses may still

occur in a number of markets like the housing market?

Mr. BAROFSKY. I have to confess that I don’t have an intimate

knowledge of the emergency authorities that have been invoked by

the Federal Reserve and to a certain extent by the FDIC in authorizing these maximum amounts and what Congress’s role is for authorizing them. So I am not really sure what the constitutional

structure is.

Mr. ISSA. Assuming that we believe that, currently, in your opinion, are we getting that information assuming that we believe that

we should appropriate moneys in the years in which the loss occurs?

Mr. BAROFSKY. I think from a looking back perspective, we have

done our best to bring that information to your attention to the

best that we can based on publicly available information.

Mr. ISSA. Thank you, Mr. Chairman.

Chairman TOWNS. Let me just say before I yield to the gentleman from Missouri that I like you, too. Let me just say that you

also serve at the pleasure of the Congress as well. I don’t think you

have a problem because the President has said that he is for transparency. Every conversation I have ever had with him, he talked

about the importance of transparency. So to me, you should be in

good shape.

Mr. BAROFSKY. Thank you, Mr. Chairman. Happy birthday.

Chairman TOWNS. Thank you very much. I yield to the gentleman from Missouri, Congressman Clay.

Mr. CLAY. Thank you, Mr. Chairman. Happy birthday also.

Chairman TOWNS. I am afraid this is making me even older.

[Laughter.]

Mr. CLAY. Mr. Barofsky, thank you for being here. I look forward

to your insight on questions that are asked frequently in Missouri’s

First Congressional District. I did not agree with the original

thrust of TARP and am still troubled by some results that I see.

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One of the most important reasons for the legislation was to provide liquidity for businesses and home owners as the ultimate benefit of shoring up the banks and investment houses. We are seeing

large banks and investment houses experiencing exorbitant profits

but no relaxation of credit and no significant increase in liquidity.

Why has liquidity not been restored to small businesses and individual consumers as a result of stabilizing these lenders? Do you

find that too much of the moneys and profits are invested in Treasury bonds rather than in moneys made available for lending?

Mr. BAROFSKY. I think that the lack of transparency and the failure to adopt our recommendations regarding requiring the recipients to report on their use of funds makes answering that question

almost impossible. Until we know with some degree of precision exactly how the financial institutions are using the money, it is hard

to answer the question of why they are not using it to increase

lending. We do not know what they are doing.

In our survey, our audit report, which was just their responses

to our survey, we have a lot of answers that could lead to some conclusions. But that survey, of course, was from a certain point in

time, basically March of this year. The banks that responded to the

survey, 75 percent of them, said that they had not yet allocated or

spent all of their TARP funds.

Since the time of this survey, another 200 institutions received

TARP money, including insurance companies, which, frankly, I do

not think anyone expects is going to be using the money as part

of their banking subsidiaries that entitle them to receive TARP

funds.

So it is very difficult to answer the question of why are they not

increasing lending if we do not know what they are actually doing

with the money. The only way we can get that on a more timely

and regular basis is if Treasury adopts our recommendation and

commits itself in deed as well as in word to maximum transparency.

Mr. CLAY. In your crystal ball, do you suspect that they are perhaps paying out lucrative bonuses or paying off debt? What do you

think is happening?

Mr. BAROFSKY. Based on what we saw from our snapshot back

in March, a certain number are using it to pay off debt, different

types of debt. Some are paying down lines of credit with the Federal Reserve with TARP funds.

One smaller institution reported to us that, in substance, they

were planning on using the TARP money for one purpose. I think

it was to increase lending but right around the time that they got

their TARP funds they got a line of credit that they had with another financial institution called in and they ended up using substantially all of the TARP funds to make good on this money that

they had borrowed from another financial institution that they may

have had real trouble paying back but for the TARP funds. So we

get glimpses, at least from the dates of our survey, as to what happened.

Mr. CLAY. On another subject, how do you see the private program of AIG, the Systemically Significant Failing Institution Program, as having worked to the advantage of the taxpayers? AIG is

the only company to receive funds under this program. We own 80

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percent of the company yet allow fire sales of the most valuable assets, which are on the insurance side of the company. Why do we

do this?

Mr. BAROFSKY. That is a question I think is better addressed to

Treasury than to myself. It is very hard to go back into the old way

back machine and know exactly what would have happened if we

had not bailed out AIG through the Federal Reserve or through

Treasury and what the implications and ramifications would have

been. Certainly from some folks’ perspective, those who were responsible for the bailout and those at AIG warned that the consequences would have been disastrous. But it is hard to really

know, to go back and know exactly what would have happened.

What we have to do and will continue to do in our audits of AIG

is to try to bring transparency to that decisionmaking process and

transparency to what is happening over there. We are going to continue to do so.

Mr. CLAY. Who do you think are the recipients of these below

dollar deals?

Mr. BAROFSKY. For AIG to sell the AIG assets?

Chairman TOWNS. Yes.

Mr. BAROFSKY. I think AIG has disclosed some of their sale of

assets and, to the extent that they have, those are included in our

report.

Mr. CLAY. Thank you so much for your answers.

Mr. BAROFSKY. Thank you.

Chairman TOWNS. I now yield to Congressman Driehaus.

Mr. DRIEHAUS. Thank you very much, Mr. Chairman. Let me

echo my colleagues in wishing you a happy birthday as well.

Mr. Barofsky, thank you very much for your testimony. I share

the opinion of many of the members of the committee that you

should, in fact, be independent. If there are challenges with Treasury, we should certainly be addressing those because we value your

independence. We certainly value the information that you have

provided us here today.

I, too, like many of my colleagues, am astonished by the potential

exposure that you have identified. I guess I take a little different

view. I go back to how this may have been prevented and am astonished that so few people are willing to look at the inaction and

the failure of regulation to work properly to prevent the almost collapse of our financial markets. I was not serving in Congress last

fall when the markets nearly collapsed but I said at the time that

I would have reluctantly supported the TARP if only to stabilize

the financial institutions. I subsequently voted against the second

round TARP because it did not include many of the conditions on

transparency that so many of my colleagues have talked about here

today.

But I go back to the failure of Congress and the failure of previous administrations to regulate mortgage-backed securities,

CDOs, and CLOs while at the same time the banking industry was

suggesting that they are the most regulated industry in the country and there was not any need for us to move forward. Many of

these same folks that are complaining about the exposure are also

working against regulatory reform in financial services. So I am

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struck by some of the comments that have been made by some of

my colleagues.

Specifically, I would like to pursue a line of questioning regarding some of these toxic assets and the valuation of the toxic assets.

There was an article in the Wall Street Journal yesterday that I

think was very interesting when they talked about collateralized

debt obligation and the fact that this was related to the mortgagebacked securities which allowed the predatory lending to happen.

But trying to pull all of these assets apart and value them in any

real way is a Herculean task. There is so little in terms of collateral, in terms of capital that is actually behind them. From your

perspective, when looking at these toxic assets, how do you believe

we can best value them?

Mr. BAROFSKY. I, too, read the Wall Street Journal article on the

pulling apart of one of these CDOs. I think it was a great illustration of the problem of these unbelievably complex securities and

the challenge that Congress has in creating the right type of regulatory reform that will ensure oversight so that these types of products do not reek the damage that they did.

I think the valuation issue is a very challenging one and I think

it is one that at first instance has to be done by the Treasury itself,

to the extent that they have these assets on their books, whether

it is through an asset guarantee of Citigroup or whether it is in its

own collection of assets. It is a very complicated structure that

needs a great degree of expertise and I think a great degree of

skepticism.

We also have to see what happens with the other programs,

whether these complex derivative products start coming across in

the actual purchase programs or other subsequent TARP programs

where I think that issue will come more to the front.

Mr. DRIEHAUS. I realize your function is in evaluating the way

in which the TARP moneys are being spent. But as you look at it

and as you look at the causes of this financial collapse, can you

offer advice as to moving forward, the type of regulation and the

type of products that we should be looking to regulate as we move

forward?

Mr. BAROFSKY. I think that one is a little bit outside of my lane.

I think I would be uncomfortable offering opinion on that. I think

when it gets to the core issues of regulatory reform it is fair for us

to identify some areas like the role of credit rating agencies because we are seeing that. But when you get into the nuts and bolts

of regulatory reform, I would be uncomfortable offering my opinion.

Mr. DRIEHAUS. Is it fair to say that much of the exposure that

you have identified is due to a failure to regulate appropriately certain products?

Mr. BAROFSKY. I do not think that, short of an audit product or

short of a more thorough examination of these causes, I would feel

comfortable offering that opinion.

Mr. DRIEHAUS. Thank you, Mr. Chairman.

Chairman TOWNS. Thank you very much. I now yield to the

ranking member from California, Congressman Issa.

Mr. ISSA. Thank you, Mr. Chairman. I am just going to close. I

realize there is a second round but our side will not be asking for

it. We thank Mr. Barofsky. The fact is that you have been very

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generous with your time and you have given us a lot of food for

thought.

I just want to close, first of all, by thanking the chairman, and

second, by asking the chairman if would he consider bringing the

Treasury Secretary here next to help close the loop on a lot of these

areas of transparency. I think Treasury deserves an opportunity to

tell us from their perspective why they have not yet implemented

these.

Chairman TOWNS. The gentleman makes a good point. We will

definitely look into it.

Mr. ISSA. Finally, in closing, I want to echo your words when you

said, ‘‘in deed as well as in word.’’ President Obama promised us

an unparalleled level of transparency and it is very clear that the

bureaucracy that stands between President Obama and what he

has told both the chairman and myself and all of us is in the way.

So in closing, and we look forward to having you back here again

in a quarter, I want to thank you for doing everything you can do

to bring about that level of transparency.

For myself, and the chairman has already said for himself, we

want to promise that we will be your partners in bridging that bureaucratic nightmare that always exists between a President, like

President Obama who has promised us transparency; the Congress

who begs for transparency; the IGs who help produce it; and the

bureaucracy that stands in the way. So you have our support on

a bipartisan basis. You will continue to have our support because

we agree with you that transparency, this light is the only form of

disinfectant that is going to prevent Government waste.

With that, Mr. Chairman, I thank you again for this series of

very good oversight hearings. I thank our witness and look forward

to seeing you in about 90 days. I yield back.

Chairman TOWNS. Thank you very much. I now recognize the

gentlewoman from Ohio.

Ms. KAPTUR. Thank you, Mr. Chairman. We appreciate this and

we appreciate your endurance, Mr. Barofsky. I wanted to just state

for the record that at least this Member and many of the people

she represents believe that this is the largest transfer of wealth in

American history that we have ever seen from those whose equity

has been moved to Wall Street institutions that now have become

even more concentrated as a result of what has occurred with the

meltdown in the financial sector. I just wanted to again share information.

It is interesting to me that some of the companies like BlackRock

that are involved in the resolution are headed by individuals who

were heavily involved formerly when they headed other companies

in inventing the sub-prime instrument itself. We do not know

where they did all of their handiwork necessarily, but I find it very

interesting that the Federal Government now rewards them in very

non-transparent processes. I said to myself, could they well be handling paper that they invented and trafficked 10 years ago or 15

years ago? The derivative instrument itself, I understand, was

heavily influenced by a gentleman who is now the vice chair of

PNC.

At our home in Ohio, I have just received a notice that our certificate of deposit that has been with National City Bank is going

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to be transferred to PNC come this November. I do not want PNC

owning our meager assets. That is not my choice and yet I see this

having an impact. Ohio is now left with only three money center

banks. National City is disappearing. I see this power gravitating

elsewhere to the very people who caused this problem in the first

place.

One of my questions really has to do with Freddie Mac, and I

could concentrate on Fannie Mae and FHA, because basically what

has happened is all the bad paper is being dumped on the taxpayer, as you have well noted in your report, in different ways, putting it here, here, and every place else in the Federal Government

so it is not easily traceable.

But if one looks at Freddie Mac, which is central in terms of

being a dumpster as well as an enabler during the 1990’s, let me

just ask you why, and when I looked at your report I could not find

the word Freddie Mac, but why have Freddie Mac and Fannie

Mae’s paper been hidden behind the walls of Oz over at the Federal

Reserve? Do you have any role at all in unwinding the role of

Freddie Mac in all of this going back into the 1990’s?

Mr. BAROFSKY. We do not have jurisdiction over Freddie Mac in

any aspect other than the fact that Treasury has hired them as a

financial agent to help do compliance for the mortgage modification

program. But other than that, since Freddie Mac is not involved in

TARP specifically, we do not have jurisdiction over them.

Ms. KAPTUR. I do not know if you are aware of this or if the pub- lic is aware of this, but Freddie Mac had over $500 million of fines

placed on it already for fraudulent activities. The fact is that during the heyday of their nefarious activity they had blown up profits

over 30 percent on their books, they underestimated risk, and they

have begun to pay a heavy price for that.

I am very interested in your opinion as an auditor, do you find

it rather interesting that we cannot get at that paper even though

the American people are the recipient of all the mistakes? Our

mortgages are not being worked out at the local level. J.P. Morgan

Chase is the worst forecloser in my district, including through one

of its affiliates called Plymouth. Yet they can dump their paper,

and theoretically a lot of it moves through Freddie and Fannie, and

behind these walls of the Federal Reserve we cannot get at that.

As I look at a capable individual like yourself and your staff, I

am saying to myself, you are never going to get at the truth because they divided up the turf in such a way that you can never

tell us the whole. How do you respond to that concern of mine?

How do we get the whole truth?

Mr. BAROFSKY. I think it should be no surprise at this point that

I agree wholeheartedly that more transparency is better than less,

that the more information that is out there for policymakers and

the American people is better. Because it is not related to a TARP,

it is outside of our scope and our jurisdiction.

Ms. KAPTUR. You are saying it is unrelated yet the Fed has just

hired I believe Black Rock to help to resolve, whatever that means,

the Freddie Mac and Fannie Mae paper. Let me just quote from

the Washington Post: ‘‘Freddie Mac’s alleged manipulation and accounting errors caused it to understate profit by 30.5 percent in

2000 and 42.9 percent in 2002 and to overstate profit by 23.9 perVerDate 11-MAY-2000 16:47 Dec 10, 2010 Jkt 000000 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 U:\DOCS\62118.TXT KATIE PsN: KATIE
68

cent in 2001. These manipulations include transactions that shifted

windfall earnings into later periods or it might have been hard for

the company to meet Wall Street expectations.’’

My point is I do not see how we can know the whole truth and

this troubles me, Mr. Chairman, because even the secret TARP report today, there are so many agencies, it is like they have divided

up into a thousand pieces just like they did the derivatives so we

can never know the truth. How do we get our arms around the

whole? How do we do that? Can you think about that?

Mr. BAROFSKY. I think the question is best addressed to the Inspector General for the Federal Reserve as well as the Inspector

General for FHFA who oversees the conservatorship of Fannie and

Freddie. They would be in a better position since these things are

under their jurisdiction to help you find the answers.

Ms. KAPTUR. From a Federal Government standpoint, are you

disallowed from working together?

Mr. BAROFSKY. Oh, no, no, no. We do coordinate together. Those

Inspector Generals are both on part of my TARP IG council because they do have actions that impact the TARP, and I am part

of the Financial Regulatory IG Council and we do talk and do coordinate with one another where our interests intersect. Here, this

is sort of apart from the TARP program so I do not really have an

ability to go in and look at that information.

Chairman TOWNS. The gentlewoman’s time has expired. But I

think she makes a great case as to why the Inspectors General

should have independence. I agree, when there is $23.7 trillion at

stake it is important that we make certain that they are independent.

Let me thank you, Mr. Barofsky, for your testimony. I appreciate

the interest of the Members who attended today’s hearing.

Earnings at the largest banks and the bank holding companies,

such as J.P. Morgan, Goldman Sachs, are up yet lending remains

down. It is unacceptable that profits go up while lending goes

down. The taxpayers have invested very large amounts of money

in these banks, but what have we gotten in return? It remains unclear. The taxpayers deserve to know how their tax dollars are

being spent. The Treasury Department needs to publish full and

detailed information on the use of TARP funds and publish the

value of TARP portfolio on a monthly basis. They have that information and they should make it public.

Moreover, Treasury also requires the largest banks to file monthly reports showing the dollar value of their new lending. That

should be made public also. If Treasury does not put this information up on its Web site, this committee will. And if Treasury does

not turn over this information voluntarily, Secretary Geithner will

be brought before the committee to explain why not.

What we have heard today convinces me that one of the best

things Congress did when it created the TARP was to also create

the Special Inspector General to oversee TARP spending. I can now

understand why the Treasury Department would like to reign in

SIG TARP. But we are not going to let that happen. You heard

from the members on this committee today in terms of their commitment.

69

Again, I thank our witness, Mr. Barofsky. We thank you for your

time and information that you shared with us.

Finally, let the record demonstrate my submission of a binder

with documents relating to this hearing. Without objection, I enter

this binder into the committee record.

Without objection, the committee stands adjourned.

[Whereupon, at 2:40 p.m., the committee was adjourned.]

[The prepared statements of Hon. Gerald E. Connolly, Hon.

Diane E. Watson, and additional information submitted for the

hearing record follows:]

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