QUESTIONS ABOUT THE $700 BILLION 

EMERGENCY ECONOMIC STABILIZATION 

FUNDS 

THE FIRST REPORT OF THE CONGRESSIONAL OVERSIGHT PANEL FOR ECONOMIC STABILIZATION 

DECEMBER 10, 2008.—Ordered to be printed 

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e:\Seals\Congress.#13
45–840 

For sale by the Superintendent of Documents, U.S. Government Printing Office 

Internent: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 

QUESTIONS ABOUT THE $700 BILLION 

EMERGENCY ECONOMIC STABILIZATION 

FUNDS 

THE FIRST REPORT OF THE CONGRESSIONAL OVERSIGHT PANEL FOR ECONOMIC STABILIZATION 

DECEMBER 10, 2008.—Ordered to be printed 

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e:\Seals\Congress.#13
(IV) 

CONGRESSIONAL OVERSIGHT PANEL FOR ECONOMIC STABILIZATION 

PANEL MEMBERS

ELIZABETH WARREN, Chair 

REP. JEB HENSARLING 1

RICHARD H. NEIMAN

DAMON SILVERS

1 Rep. Hensarling did not approve this report. See Press Release, Hensarling Statement 

on First Congressional Oversight Panel Report, Office of Representative Jeb Hensarling (R– 

TX), Dec. 9, 2008. 

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(V) 

C O N T E N T S 

Page 

Introduction .............................................................................................................. 1 

Ten Questions from COP ........................................................................................ 4 

Ten Questions from COP: Discussion .................................................................... 5 

1. What is Treasury’s Strategy? ...................................................................... 5 

2. Is the Strategy Working to Stabilize Markets? ......................................... 8 

3. Is the Strategy Helping to Reduce Foreclosures? ...................................... 9 

4. What Have Financial Institutions Done With the Taxpayers’ Money 

Received So Far? ....................................................................................... 11 

5. Is the Public Receiving a Fair Deal? .......................................................... 12 

6. What is Treasury Doing to Help the American Family? ........................... 14 

7. Is Treasury Imposing Reforms on Financial Institutions That Are 

Taking Taxpayer Money? .......................................................................... 16 

8. How Is Treasury Deciding Which Institutions Receive the Money? ........ 17 

9. What is the Scope of Treasury’s Statutory Authority? .............................. 18 

10. Is Treasury Looking Ahead? ...................................................................... 20 

About COP ................................................................................................................ 20 

Future Oversight Activities .................................................................................... 21 

Appendix: Statutory Authority of the Congressional Oversight Panel ............... 22 

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2Peter S. Goodman, U.S. Jobless Rate Hits 14-Year High, N.Y. Times, Nov. 8, 2008, at A1. 3Sudeep Reddy et al., Job Losses Worst Since 74: 533,000 Shed in November, Wall St. J., Dec. 

6, 2008, at A1. 4 Ellen Simon, Service Sector Shrinks As New Orders Fall In Nov., Associated Press, Dec. 3, 

2008, available at http://news.yahoo.com/s/ap/20081203/ap_on_bi_ge/economy_services. 5 James R. Hagerty & Deborah Soloman, U.S. News: Rising Number of Homeowners in Trouble, Wall St. J., Dec. 6, 2008, at A2. 6 Caroline Humer, Consumer Bankruptcy Filings Jump Vs Year Ago, Reuters, Dec. 3, 2008, 

available at http://www.reuters.com/article/domesticNews/idUSTRE4B25U620081203. 

QUESTIONS ABOUT THE $700 BILLION EMERGENCY 

ECONOMIC STABILIZATION FUNDS 

DECEMBER 10, 2008.—Ordered to be printed 

INTRODUCTION 

The U.S. and the global economy have been in a steadily accelerating downward spiral since the early spring of 2007. The American family is at the epicenter of this crisis. 

The headlines may belong to the financial markets and mega-institutions, but the recession has visited every household in the 

country. The crisis affects Americans’ ability to pay their bills, to 

secure their retirement, to continue their educations, and to provide for their families. The unemployment rate is the highest it has 

been in fourteen years.2 In the last three months, 1.2 million Americans lost their jobs; 533,000 in November 2008 alone.3 Service sector employment levels, in particular, fell far faster than expected 

last month.4 One in ten mortgage holders is now in default, unable 

to make payments on their homes.5 More than 200,000 families 

and small businesses filed for bankruptcy protection in the last two 

months.6 Middle- and lower-income families have watched nervously as reductions in state funding threaten college access and afsmartinez on PROD1PC64 with HEARING

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7 Robert Tomsho, For College-Bound, New Barriers to Entry—Their Budgets Squeezed, State 

Schools Cap Enrollment, Weigh Tuition Increases; Fears for Lower-Income Students, Wall St. J., 

Dec. 3, 2008, at D1. 8Stephanie Rosenbloom, In November, Shoppers Cut Spending Even More, N.Y. Times, Dec. 

3, 2008, at B6. 9Kristina Dell, With Defaults Rising, Is a Credit-Card Crisis Looming, Nov. 14, 2008, Time, 

available at http://www.time.com/time/business/article/0,8599,1859224,00.html. 10 Henry Kaufman, How the Credit Crisis Will Change the Way America Does Business, Wall 

St. J., Dec. 6, 2008, at A11. 11 Robert Powell, Crisis Forces About One-In-Five Savers To Tap Retirement Assets, 

MarketWatch, Dec. 4, 2008, available at http://www.marketwatch.com/news/story/crisis-forcesabout-one-in-five-savers/story.aspx?guid=B2F244D0-CC95-4906-AF0F-4B8CB7AC2220. 12See John M. Berry, Borrowers Elbow for Position, Bloomberg.Com, Dec. 4, 2008, available 

at http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist—berry&sid= 

aohbHGXFYtKU. 13See, e.g., Dow Jones Industrial Average, MSN Money, available at http:// 

moneycentral.msn.com/investor/charts/chartdl.aspx?Symbol=%24indu.Dow. 14Quarterly Banking Profile: Third Quarter 2008, FDIC 3 available at http://www2.fdic.gov/ 

qbp/2008sep/qbp.pdf. 

fordability.7 Retail sales continue to fall,8 credit card defaults are 

rising,9 and savings rates hover at zero.10 Shrinking retirement 

funds have left millions of retired people to wonder how they will 

pay basic expenses and millions more to wonder if they must continue working until they die.11

A short summary of the economic history of the past few months 

is grim. 

• Credit, when it is available, has become dramatically more expensive for all borrowers, and some worry it will get even more expensive next year.12

• U.S. stock markets have lost more than 40% of their value over 

the past year, and markets elsewhere in the world have also declined sharply.13

• In September, the federal government took control of the two 

largest mortgage financing intermediaries, generally known as 

Fannie Mae and Freddie Mac. 

• All three major U.S.-based auto companies have told Congress 

they face the threat of imminent bankruptcy. 

• The largest U.S. commercial bank, Citigroup, and the largest 

U.S. insurance company, AIG, have both received substantial infusions of capital from the U.S. government, with AIG under threat 

of imminent bankruptcy. 

• Two major investment banks, Bear Stearns and Merrill Lynch, 

have disappeared in mergers. One major investment bank, Lehman 

Brothers, has filed for protection under the bankruptcy laws. The 

two largest remaining investment banks, Goldman Sachs and Morgan Stanley, have transformed themselves into bank holding companies. 

• The largest thrift savings banks, Washington Mutual and 

IndyMac, have been taken over by their regulator. 

• The Federal Deposit Insurance Corporation has placed 171 banks, with combined assets of $116 billion, on the problem list as 

of September 30, 2008.14

In response to the financial crisis, Congress passed the Emergency Economic Stabilization Act of 2008, authorizing the Treasury 

Department to commit up to $250 billion in taxpayer dollars, to be 

followed by another $100 billion and another $350 billion if warsmartinez on PROD1PC64 with HEARING

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15 Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343 § 115 (Oct. 3, 2008). 16 Id., at § 125. 17 Id., at § 2. 18 Capital Purchase Program Transaction Report, Nov. 25, 2008 available at http:// 

www.treas.gov/initiatives/eesa/docs/TransactionReport-11262008.pdf; id.; Summary of Terms, 

Nov. 23, 2008 available at http://www.treas.gov/press/releases/reports/cititermsheet_112308.pdf; 

see also Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, 

Accountability, and Transparency, GAO, 09–161, December 2008, at 16–20, 28. 19See Current Population Survey, 2007 Social and Economic Supplement, Table HINC–06, 

U.S. Census Bureau, available at http://pubdb3.census.gov/macro/032007/hhinc/new06_000.htm. 20The Fed’s evolving liquidity toolkit, Reuters, Dec. 2, 2008, available at http:// 

www.reuters.com/article/bondsNews/idUSN2635039920081202?sp=true. 

ranted.15 The statute also created a Congressional Oversight 

Panel.16 The Act’s purposes are to ‘‘restore liquidity and stability 

to the financial system of the United States . . . in a manner that 

(A) protects home values, college funds, retirement accounts, and 

life savings; (B) preserves homeownership and promotes jobs and 

economic growth; (C) promotes overall returns to the taxpayers of 

the United States; and (D) provides public accountability.’’ 17

From the passage of the Emergency Economic Stabilization Act 

of 2008 to the present date, Treasury has used its authority under 

the Act to provide 87 banks with $165 billion in exchange for preferred stock and warrants. Treasury further used its authority to 

provide AIG with $40 billion in exchange for preferred stock and 

warrants, and to provide Citigroup with a further $20 billion in 

preferred stock and warrants. As part of a program to guarantee 

approximately $306 billion in Citigroup’s troubled assets, Treasury 

receives $4 billion of Citigroup preferred stock and warrants.18 Together, these disbursements constitute approximately $1,900 per 

American family, or almost 3% of the typical family’s pre-tax income.19

This is not the full extent of the federal government’s actions to 

date. Treasury has worked in coordination with the Federal Deposit Insurance Corporation, the Board of Governors of the Federal 

Reserve System and other financial regulators. The Federal Reserve has injected trillions of dollars of liquidity into the financial 

system, dwarfing by an order of magnitude expenditures by Treasury under the Act.20

This is the first report of the Congressional Oversight Panel. We 

are here to investigate, to analyze and to review the expenditure 

of taxpayer funds. But most importantly, we are here to ask the 

questions that we believe all Americans have a right to ask: who 

got the money, what have they done with it, how has it helped the 

country, and how has it helped ordinary people? 

These questions, in greater detail, form the heart of this report. 

This report, issued two weeks after the Oversight Panel’s first 

meeting, does not attempt to answer the questions Congress and 

the American people have about the use of the powers granted to 

Treasury under the Emergency Economic Stabilization Act of 2008. 

Rather we seek to pose those questions clearly in the context of the 

events that have occurred since the adoption of the Act in October. 

In doing so, we intend to set the agenda for our future work and 

to advise the Congress as to the issues that it will need to address 

in the next Administration. 

In framing these questions, the Oversight Panel has benefited 

from its consultations with Treasury, Treasury’s Inspector General, 

the Government Accountability Office, and the staff of the Federal 

Reserve Board. We intend to consult with the newly appointed Spesmartinez on PROD1PC64 with HEARING

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21Paul C. Light, Senate Confirms N.Y. Prosecutor As Inspector General for Bailout, Wash. 

Post, available at http://www.washingtonpost.com/wp-dyn/content/article/2008/12/08/ 

AR2008120803538.html. 22Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency, GAO, 09–161, December 2008. 

cial Inspector General as soon as possible.21 The Oversight Panel 

in particular has benefited from the report of the Government Accountability Office on the implementation of the Emergency Economic Stabilization Act of 2008, dated December 2, 2008.22

In the months to come the Congressional Oversight Panel— 

COP—will do its best to guarantee that public actions are built on 

robust foundations that will strengthen the real economy. The 

American people have an important role to play in this process. As 

we continue our work on behalf of Congress and the American people, we will issue monthly reports. But we will always return to the 

American people, searching for answers and asking more questions. 

TEN QUESTIONS FROM COP 

1. What is Treasury’s Strategy? What does Treasury think the 

central causes of the financial crisis are and how does its overall 

strategy for using its authority and taxpayer funds address those 

causes? What specific facts caused Treasury to change its strategy 

in the last two months? What specific facts changed that made the 

purchase of mortgage-backed assets a bad idea within days of the 

request and what specific facts changed again to make guaranteeing such assets a good idea a few weeks later? 

2. Is the Strategy Working to Stabilize Markets? What specific metrics can Treasury cite to show the effects of the $250B spent 

thus far on the financial markets, on credit availability, or, most 

importantly, on the economy? Have Treasury’s actions increased 

lending and unfrozen the credit markets or simply bolstered the 

banks’ books? How does Treasury expect to achieve the goal of 

price discovery for impaired assets? Why does Treasury believe 

that providing capital to all viable banks, regardless of business 

profile, is the most efficient use of funds? 

3. Is the Strategy Helping to Reduce Foreclosures? What steps 

has Treasury taken to reduce foreclosures? Have those steps been 

effective? Why has Treasury not generally required financial institutions to engage in specific mortgage foreclosure mitigation plans 

as a condition of receiving taxpayer funds? Why has Treasury required Citigroup to enact the FDIC mortgage modification program, but not required any other bank receiving TARP funds to do 

so? Is there a need for additional industry reporting on delinquency 

data, foreclosures, and loss mitigations efforts in a standard format, with appropriate analysis? Should Treasury be considering 

others models and more innovative uses of its new authority under 

the Act to avoid unnecessary foreclosures? 

4. What Have Financial Institutions Done with the Taxpayers’ 

Money Received So Far? What have the companies who received 

money from Treasury done with the money? Have the companies 

used the funds in the way Treasury intended when it disbursed 

them? How have institutions supported under the Capital Purchase 

Program used their funds, and have they leveraged the capital support to increase lending activity? Is this different from the way 

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funds were utilized for institutions who received funds pursuant to 

the Systemically Significant Failing Institutions plan? 

5. Is the Public Receiving a Fair Deal? What is the value of the 

preferred stock Treasury has received in exchange for cash infusions to financial institutions? Are the terms comparable to those 

received in recent private transactions, such as those with Warren 

Buffett and the Abu Dhabi Investment Authority? 

6. What is Treasury Doing to Help the American Family? Does 

Treasury believe American families need to borrow more money? 

Have Treasury’s actions preserved access to consumer credit, including student loans and auto loans at reasonable rates? What restrictions will Treasury put on credit issuers to assure that taxpayer dollars are not used to subsidize lending practices that are 

exploitive, predatory or otherwise harmful to customers? What is 

Treasury doing to ensure that its spending is directed in ways that 

maximize the impact on the American economy? 

7. Is Treasury Imposing Reforms on Financial Institutions that 

are taking Taxpayer Money? Congress has told the auto industry 

to reform its current practices before it could be considered for taxpayer aid and the British are requiring reforms on their banks as 

a precondition for capital infusions. Has Treasury required banks 

receiving aid to: 

• Present a viable business plan; 

• Replace failed executives and/or directors; 

• Undertake internal reforms to prevent future crises, to increase oversight, and to ensure better accounting and transparency; 

• Undertake any other operational reforms? 

8. How is Treasury Deciding Which Institutions Receive the 

Money? What factors is Treasury using to determine which institutions receive equity infusions, purchase of portfolio assets, or insurance of portfolio assets? Is Treasury seeking to use TARP money 

to shape the future of the American financial system, and if so, 

how? 

9. What is the Scope of Treasury’s Statutory Authority? What is 

Treasury’s understanding of the statutory limits on its use of 

funds? How does Treasury justify its decisions under the Act in relation to its view of these limits? How is Treasury carrying out its 

statutory mandate regarding credit insurance? 

10. Is Treasury Looking Ahead? What are the likely challenges 

the implementation of the Emergency Economic Stabilization Act 

will face in the weeks and months ahead? Can Treasury offer some 

assurance that it has worked out contingency plans if the economy 

suffers further disruptions? 

TEN QUESTIONS FROM COP: DISCUSSION 

1. What is Treasury’s Strategy? What does Treasury think the 

central causes of the financial crisis are and how does its overall 

strategy for using its authority and taxpayer funds address those 

causes? What specific facts caused Treasury to change its strategy 

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23Press Release, FACT SHEET: Proposed Treasury Authority to Purchase Troubled Assets, 

Sept. 20, 2008, available at http://www.treas.gov/press/releases/hp1150.htm. 24See GAO Report, supra note 18, at 1, 15–16. 25Press Release, Statement by Secretary Henry M. Paulson, Jr., on Actions to Protect the U.S. 

Economy, Department of Treasury, Oct. 14, 2008, available at http://www.treasury.gov/press/releases/hp1205.htm; see also Mark Lander, U.S. Investing $250 Billion in Banks; Dow Surges 936 

Points, N.Y. Times, Oct. 14, 2008, at A1. 26GAO Report, supra note 18, at 16. 27See Press Release, Statement by Secretary Henry M. Paulson on Financial Rescue Package 

and Economic Update, Department of Treasury, Nov. 12, 2008, available at http:// 

www.treasury.gov/press/releases/hp1265.htm. 28See Press Release, Statement by Secretary Henry M. Paulson on Financial Rescue Package 

and Economic Update, Department of Treasury, Nov. 12, 2008, available at http:// 

www.treasury.gov/press/releases/hp1265.htm. 29GAO Report, supra note 18, at 31; Press Release, Federal Reserve, Nov. 25, 2008, available 

at http://www.federalreserve.gov/newsevents/press/monetary/20081125a.htm. 

in the last two months? What specific facts changed that made purchase of mortgage-backed assets a bad idea within days of the request and what specific facts changed again to make guaranteeing 

such assets a good idea a few weeks later? 

Treasury has pursued a number of strategies using its authority 

under the Emergency Economic Stabilization Act: 

• Strategy 1: Buying Mortgage-Related Assets. In September 

2008, Secretary Paulson requested authority for Treasury to buy up 

to $700 billion in troubled mortgage-related assets.23 According to 

the Secretary, purchasing the assets would reduce systemic risk 

and increase confidence in institutions holding these ‘‘toxic assets.’’ 

Although Congress granted Treasury the authority to execute this 

plan on October 3, Treasury did not act on this authority.24

• Strategy 2: Purchasing Preferred Stocks and Warrants to increase the capital base of banks. On October 14, Treasury announced a plan to invest up to $250 billion into financial institutions in exchange for preferred stocks and warrants in order to 

‘‘significantly strengthen financial institutions and improve their 

access to funding, enabling them to increase financing of the consumption and business investment that drive U.S. economic 

growth.’’ 25 Treasury indicated that it still intended to make purchases of mortgage-related assets from financial institutions.26

• Strategy 3: On November 12, Treasury announced that it 

would not purchase troubled mortgage-related assets, as it had 

asked for authority to do in September.27 Instead, Secretary 

Paulson stated that Treasury was considering programs that would 

allow non-bank financial institutions to participate in the CPP if 

they secure an equivalent amount of capital from private investors 

and providing federal financing to allow private investors to purchase asset-backed securities.28

• Strategy 4: On November 25, Treasury announced it would 

participate in the Federal Reserve’s Term Asset-Backed Securities 

Loan Facility (TALF), a $200 billion program that would provide 

financing to investors of highly rated asset-backed securities, focused on student and auto loans, credit card debt, and small business loans.29 According to Secretary Paulson’s statement announcing the program, ‘‘[b]y providing liquidity to issuers of consumer 

asset-backed paper, the Federal Reserve facility will enable a broad 

range of institutions to step up their lending, enabling borrowers 

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30Press Release, Secretary Paulson Remarks on Consumer ABS Lending Facility, Department 

of Treasury, Nov. 25, 2008, available at http://www.treasury.gov/press/releases/hp1293.htm. 31See, e.g., Edmund L. Andrews, Washington;’s New Tack: Helping Home Buyers, N.Y. TIMES, Dec. 5, 2008, available at http://www.nytimes.com/2008/12/05/business/05housing.html; Robert 

Schmidt & Dawn Kopecki, Paulson Considers New Plan to Resuscitate U.S. Housing Market, BLOOMBERG.COM, Dec. 4, 2008, available at http://www.bloomberg.com/apps/ 

news?pid=20601087&sid=aE1D2EJR0B2k. 32Tami Luhby, FDIC’s Bair Pushes Aggressive Mortgage Plan, CNNMONEY.COM, Nov. 14, 

2008, available at http://money.cnn.com/2008/11/14/news/economy/fdic_bair; GAO Report, supra 

note 17, at 29–30. 33See generally Gretchen Morgenson, Debt Watchdogs: Tamed or Caught Napping, N.Y. 

TIMES, Dec. 7, 2008, at A1. 

to have access to lower cost consumer finance and small business 

loans.’’ 30

• Other Strategies: It has been widely reported that Treasury is 

considering a plan to support the issuance of new mortgages at a 

4.5% interest rate through mortgage-backed securities of Fannie 

Mae and Freddie Mac, which should enable some consumers to 

purchase homes.31 In addition, Treasury has stated it is considering other strategies, such as FDIC Chairman Sheila Bair’s proposal for restructuring residential mortgages, streamlined loan 

modification programs for at-risk borrowers, and guarantee of loan 

modifications by private lenders.32

In empowering Treasury, Congress provided substantial flexibility in the use of funds so Treasury could react to the fluid and 

changing nature of the financial markets. With these powers goes 

a responsibility to explain the reasons for the uses made of them. 

With these monies go a responsibility to ensure that the support 

to the economy from each dollar spent is maximized consistent with 

the purposes of the Act. We ask Treasury to articulate its vision 

of the problem, its overall strategy to address that problem, and 

how its strategic shifts since September 2008 fit into that overall 

strategy. 

For example, efforts to increase the availability of credit assume 

that the fundamental problem is a lack of liquidity. But if Americans are more worried about their own economic security—their 

employment prospects, their current expenses, and their debt levels—then increasing liquidity will have little impact on consumer 

spending. 

Similarly, buying or guaranteeing some mortgage-backed assets 

could help place a floor on the value of those assets and move those 

toxic assets off the books of financial institutions, reducing systemic risk and leaving the institutions with higher-rated assets. 

But if those toxic assets were over-valued across the board, due in 

part to failures in the ratings systems,33 then it is not clear that 

once Treasury has bought or guaranteed some securities that investors would want the remaining assets that Treasury had not purchased. Instead, investors may believe those assets remain toxic. 

Uncertainty—or skepticism—over the value of these assets would 

persist, making efforts to support the market largely unsuccessful. 

In particular, Treasury needs to explain its understanding of the 

role played by each of the following factors and by their interaction: 

(1) capital inadequacy in financial institutions; (2) lack of reliable 

information in credit markets with respect to counterparty risk; (3) 

temporary liquidity shortfalls in particular financial markets; (4) 

falling real estate prices and rising foreclosure rates; (5) stagnant 

family incomes and rising unemployment; (6) changes in consumer 

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34GAO, supra note 18, at 49–57. 

borrowing capacity; (7) business and financial focus on short-term 

gains to the detriment of long-term growth; (8) effectiveness of regulatory oversight; (9) CPP participants’ involvement in and exposure to off balance sheet vehicles and unregulated markets; and 

(10) broader long-term macroeconomic imbalances. 

If Treasury’s understanding of the relative importance of these 

issues and their interaction with each other is changing, Treasury 

needs to explain how the dynamics of that process and how their 

actions have changed in response. If other factors are central to 

Treasury’s thinking, those factors should be identified and clearly 

explained. 

The American people need to understand Treasury’s conception 

of the problems in the economy and its comprehensive strategy to 

address those problems. 

2. Is the Strategy Working to Stabilize Markets? What specific 

metrics can Treasury cite to show the effects of the $250B spent 

thus far on the financial markets, on credit availability, or, most 

importantly, on the economy? Have Treasury’s actions increased 

lending and unfrozen the credit markets or simply bolstered the 

banks’ books? How does Treasury expect to achieve the goal of 

price discovery for impaired assets? 

American taxpayers need to know that their money is having a 

tangible effect on improving financial stability, credit availability, 

and the economy as a whole. As a first step, Treasury needs to provide a detailed assessment of whether the funds it has spent so far 

have had any effect—for better or worse—in these areas. 

It is difficult to disaggregate the effects of simultaneously-taken 

actions by the Federal Reserve, FDIC, and other entities from 

Treasury’s actions. Nonetheless, the Oversight Panel believes it is 

a critical aspect of its mission to attempt to assess the role that 

Treasury’s actions under the Act have played in the recent history 

of our economy. 

The GAO has suggested a number of potential metrics for evaluation: The TED spread (the difference between an average of interests rates offered in the London interbank market and Treasury 

bills), corporate spreads based on Moody’s Aaa and Bbb bond rates, 

mortgage rates, mortgage originations, mortgage foreclosures and 

defaults, in addition to other metrics such as call report data, stock 

prices, and house prices.34

Treasury itself should respond to the GAO report in part by attempting to define what the Department itself constitutes success. 

This is important in terms of assessing both whether changes need 

to be made in the Act and in terms of assessing when direct governmental participation in financial markets and financial institutions could be reduced. 

In recent days Treasury has commented favorably on developments in certain credit spreads such as the TED spread. Treasury 

has not, however, explained the role it believes interbank lending 

costs play compared to the importance of other factors in both the 

credit markets and the economy that appear to have deteriorated 

over the same time period, such as corporate bond spreads, Treasury default swap costs, and foreclosure data. 

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35Speech: Chairman Ben S. Bernanke At the Federal Reserve System Conference on Housing 

and Mortgage Markets, Dec. 4, 2008, available at http://www.federalreserve.gov/newsevents/ 

speech/bernanke20081204a.htm. 36See Steve Matthews & Scott Lanman, Feds Kroszner Says Foreclosures Harming MiddleIncome Areas, BLOOMBERG.COM, Dec. 3, 2008, available at http://www.bloomberg.com/apps/ 

news?pid= 20601213&sid=aSwRduPiiLjc. 37 Yalman Onaran & Dave Pierson, Banks Subprime-Related Losses Surge to $591 Billion, 

BLOOMBERG.COM, Sep. 29, 2008, available at http://www.bloomberg.com/apps/ 

news?pid=newsarchive&sid=aSlW.imTKzY8; IMF Urges Collective Central Bank Action, SYDNEY

MORNING HERALD, Oct. 7, 2008, available at http://news.smh.com.au/business/imf-urges-collective-central-bank-action-20081008-4w01.html. 38 Hagerty & Soloman, supra note 5. 39Dan Immergluck & Geoff Smith, The External Costs of Foreclosure: The Impact of SingleFamily Mortgage Foreclosures on Property Values, 17 HOUS. POLY DEBATE 57, 69, 72, 75 (2006), 

available at http://www.fanniemaefoundation.org/programs/hpd/pdf/hpd_1701_immergluck.pdf. 40 Amy C. Cutts & Richard K. Green, Innovative Servicing Technology: Smart Enough to Keep 

People in Their Houses? (Freddie Mac, Working Paper No. 04–03, 2004), available at http:// 

www.freddiemac.com/news/pdf/fmwp_0403_servicing.pdf (citing Craig Focardi, Servicing Default 

Continued 

The Oversight Panel intends over time to make its own assessment of the effectiveness of the TARP program in achieving the objectives set forth by Congress. The Oversight Panel would be greatly assisted in its effort if Treasury did the same. 

3. Is the Strategy Helping to Reduce Foreclosures? What steps 

has Treasury taken to reduce foreclosures? How effective have 

those steps been? Why has Treasury not generally required financial institutions to engage in specific mortgage foreclosure mitigation plans as a condition of receiving taxpayer funds? Why has 

Treasury required Citigroup to enact the FDIC mortgage modification program, but not required any other bank receiving TARP 

funds to do so? Is there a need for additional industry reporting on 

delinquency data, foreclosures, and loss mitigations efforts in a 

standard format, with appropriate analysis? Should Treasury be 

considering other models and more innovative uses of its new authority under the Act to avoid unnecessary foreclosures? 

Federal Reserve Board Chairman Bernanke recently reported 

that foreclosures in 2008 will number approximately 2.25 million.35

Neighbors see their home prices decline from blighted nearby properties, and foreclosure sales saturate the real estate market with 

low-priced inventory, further pushing down home prices.36 Foreclosures also place a double burden on local governments, as they 

impose direct costs from crime and fires while eroding the local tax 

base. Global asset write downs and credit losses relating to home 

mortgages currently exceed $590 billion and may eventually rise to 

$1.4 trillion by some estimates.37 Moreover, foreclosure rates have 

continued to increase in recent months, and one in ten American 

mortgage holders are now in default or foreclosure.38 Rapidly rising 

unemployment is likely to increase mortgage defaults and drive 

foreclosure rates even higher. Several economists have identified 

the unresolved foreclosure crisis as a key causal factor in financial 

instability and economic decline. 

As rising foreclosure rates continue to put downward pressure on 

home prices, financial institutions will be forced to recognize even 

greater losses. Each time a family loses its home due to foreclosure, 

the value of every home within one eighth of a mile declines nearly 

1%.39 In 2002, when home prices were rising, researchers estimated that the holders of a loan are forced to recognize an average 

loss of $58,792 each time they foreclose on a home.40 Losses are 

much greater, however, when home prices are declining. 

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Management: An Overview of the Process and Underlying Technology (TowerGroup, Research 

Note No. 033–13C, 2002)). 41Francis Parisi, The Anatomy of Loss Severity Assumptions In U.S. Subprime RMBS, Standard & Poors, available at http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/ 

4,5,5,1,1204835910066.html. 42Deep Dive into Subprime Mortgage Severity, Fixed Income Research Report, Credit Suisse, 

June 19, 2008. 43 Emergency Economic Stabilization Act, supra note 15, § 109(a) (‘‘the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the 

Secretary to encourage the servicers of the underlying mortgages, considering net present value 

to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 

of the National Housing Act or other available programs to minimize foreclosures.’’) 44 Edmund L. Andrews, Washingtons New Tack: Helping Home Buyers, N.Y. Times, Dec. 5, 

2008, available at http://www.nytimes.com/2008/12/05/business/05housing.html. 45 Id. 

Standard & Poor’s, a ratings service, estimates that for subprime 

mortgages originated in 2006, servicers will only be able to recover 

55% of the total value of the loan on a foreclosed home. Total losses 

include direct costs, such as legal fees and maintenance that average around 26% of the value of a loan, as well as losses from 

missed mortgage payments and declines in resale values.41 These 

losses are exacerbated by the fact that the resale value for a foreclosed home is often 5% to 15% lower than the resale value of a 

comparable home sold by the homeowner.42

While Treasury has promoted voluntary mortgage assistance 

through its HOPE NOW program, it is unclear what effect this activity has had. Although there are data on the number of people 

who have contacted HOPE NOW, there appear to be no systematic 

data on the number of people who have negotiated reductions in either the principal amounts of their mortgages or in their monthly 

payments. 

Preserving homeownership is an explicit purpose of the Act. 

Under Section 109, the Treasury Secretary has the authority to 

‘‘use loan guarantees and credit enhancements to facilitate loan 

modifications to prevent avoidable foreclosures.’’ When the Act was 

passed, Congress expected the primary use of the authority under 

the Act to be to purchase troubled assets from financial institutions. In that context, Treasury is required to ‘‘implement a plan 

to maximize assistance to homeowners’’ and to encourage mortgage 

servicers to use the HOPE for Homeowners Program or loan guarantees and credit enhancements to facilitate loan modifications and 

prevent foreclosures ‘‘[t]o the extent that the Secretary acquires 

mortgages, mortgage-backed securities, and other assets secured by 

residential real estate.’’ 43 Given Treasury’s shift to direct equity investments in financial institutions, the Department should explain 

how its broad authority still reflects the purposes of the act. 

Treasury is reported to be considering a possible new proposal 

for reducing rates on fixed 30-year mortgages to as low as 4.5% by 

directing Fannie Mae and Freddie Mac to guarantee and purchase 

these low-rate mortgages.44 The low mortgage rate would be available only to those purchasing homes, not those who hope to refinance.45 The goal of such a program would be to encourage new 

buyers to enter the housing market. The program does not appear 

to offer any help to already distressed homeowners. Even if it were 

expanded to permit refinancing, the nearly 20% of homeowners 

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46See Dan Levy, More U.S. Homeowners Have Mortgage Higher Than House Is Worth, 

Bloomberg.Com, Oct. 31, 2008, available at http://www.bloomberg.com/apps/ 

news?pid=20601213&refer=home&sid=aYyk2_TLjGao. 47GAO Report, supra note 18, at 28. 48Federal Deposit Insurance Corporation, FDIC Loss Sharing Proposal to Promote Affordable 

Loan Modifications, Nov. 20, 2008, available at www.fdic.gov/consumers/loans/loanmod/. 

who have negative equity in their homes will remain unable to refinance their mortgages.46

If Treasury believes that offering low interest rates on purchasemoney mortgages to new homebuyers will help stem foreclosures 

among existing homeowners, then Treasury should articulate more 

clearly the process by which this will occur. Is there a substantial 

body of potential homeowners who could take advantage of these 

low rates, but who did not purchase homes on easy credit during 

the mortgage bubble? Will lower rates create a large enough pool 

of new home buyers to lead to a general increase in home prices? 

As importantly, are the assumptions underlying Treasury’s plan 

still valid in a time of great economic uncertainty for the households that would be expected to take advantage of the lower mortgage rates? Will lower interest rates induce demand for home ownership in the face of falling housing prices, consumer uncertainty 

about the future of the economy and employment, and the reasonable expectation that an even better deal might be available in the 

future? 

Additionally, Treasury should explain what if any steps it is taking to encourage mortgage servicers, including affiliates of financial 

institutions that have received CPP or TALF funding, to engage in 

loan modifications, participate in the HOPE for Homeowners Program (in which none of the institutions receiving CPP funds have 

participated), or take other steps to minimize foreclosures. In particular, Treasury should explain why foreclosure relief was not a 

condition of CPP funds. Treasury should also consider the need for 

additional industry reporting on delinquency data, foreclosures, 

and loss mitigation in a standard format. Such data should be analyzed by an appropriate bank regulatory agency, to assess the effectiveness of each institution’s efforts. 

As part of its aid to Citigroup, Treasury required Citigroup to implement the FDIC’s mortgage modification program.47 Separately 

and not in connection with Citigroup, FDIC Chairman Sheila Bair 

has proposed a program that would provide additional incentives 

for loan modifications by paying servicers $1,000 to cover related 

expenses and by sharing up to 50% of the losses on modified loans 

that subsequently re-default. 

The FDIC estimates that such a plan could avoid 1.5 million foreclosures at a cost of $24.4 billion.48

The Oversight Panel believes Treasury has an obligation to explain its objection to the FDIC proposal and why its objection to 

the FDIC proposal is not also relevant to Citigroup. 

4. What Have Financial Institutions Done With the Taxpayers’ 

Money Received So Far? What have the companies who received 

money from Treasury done with the money? Have the companies 

used the funds in the way Treasury intended when it disbursed 

them? How have institutions supported under the Capital Purchase 

Program used their funds, and have they leveraged the capital support to increase lending activity? Is this different from the way 

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49See also GAO Report, supra note 18, at 25. 50 Id., at 10. 51 Jenny Booth, Darling to Order Recapitalised Banks to Lend to Small Businesses, Times 

(London), Oct. 21, 2008, available at http://www.timesonline.co.uk/tol/news/politics/ 

article4985470.ece; Press Release, Financial Support to the Banking Industry, HM Treasury, 

available at http://www.hm-treasury.gov.uk/press_100_08.htm. 52Press Release, Treasury statement on financial support to the banking industry, HM Treasury, Oct. 13, 2008, available at http://www.hm-treasury.gov.uk/press_105_08.htm. 

funds were utilized for institutions who received funds pursuant to 

the Systemically Significant Failing Institutions plan? Is Treasury 

seeking to use TARP money to shape the future of the American 

financial system, and if so, how? 

In the course of its meetings with Treasury, the Inspector General of Treasury, and the staff of the Federal Reserve, the Oversight Panel has confirmed that the Office of Financial Stabilization 

has administered the TARP program without seeking to monitor 

the use of funds provided to specific financial institutions.49 Interim Assistant Secretary for Financial Stability Neel Kashkari has 

said that Treasury favors monitoring through ‘‘general metrics’’ 

that look at the overall economic effects of the disbursed funds.50

The decision to measure the efficacy of TARP through general 

economic metrics presents a difficult challenge. In the short run, it 

is impossible because systemic economic effects take time to manifest themselves. In the long run, such metrics are problematic because other actors such as the Federal Reserve, FDIC, and foreign 

governments are also taking aggressive action to address the crisis. 

Using general metrics could be a substitute for using no metrics at 

all, thus committing taxpayer resources with no meaningful oversight. 

If the funds committed under TARP have an intended purpose 

and are not merely no-strings-attached subsidies to financial institutions, then it seems essential for Treasury to monitor whether 

the funds are used for those intended purposes. Without that oversight, it is impossible to determine whether taxpayer money is used 

in accordance with Treasury’s overall economic stabilization strategy. Treasury cannot simply trust that the financial institutions 

will act in the desired ways; it must verify. 

Such efforts to measure the impact of public funds on specific financial institutions have been underway in Great Britain. Chancellor of the Exchequer Alastair Darling and Lord Peter 

Mandelson, the Secretary for Business, Enterprise, and Regulatory 

Reform, have required recapitalized banks to lend to small and medium size enterprises.51 To demonstrate compliance with the intended purpose of recapitalization, Chancellor Darling and Lord 

Mandelson are using 2007 levels of lending as a comparison.52

Treasury should consider metrics it can use to measure compliance 

with the intended purposes of its funds. 

The Oversight Panel believes the public has the right to know 

how financial institutions that have received public money are 

using that money. It also believes that Treasury should be responsible for holding individual institutions accountable for how they 

use the public’s money. 

5. Is the Public Receiving a Fair Deal? What is the value of the 

preferred stock Treasury has received in exchange for cash infusions to financial institutions? Are the terms comparable to those 

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53 Aaron Lucchetti, Propped Up, Morgan Stanley Now Sets Forth to Right Itself, Wall St. J., 

Oct. 14, 2008, at C1. 54 Id. 55 Ben White, Buffett Deal at Goldman Seen as a Sign of Confidence, N.Y. Times, Sep. 24, 

2008, at A1. 56 Id. 57 Eric Dash & Andrew R. Sorkin, Citigroup Sells Abu Dhabi Fund $7.5 Billion Stake, N.Y. 

Times, Nov. 27, 2007, available at http://www.nytimes.com/2007/11/27/business/27citi.html?hp. 58 Id. 59TARP Capital Purchase Program, Summary of Senior Preferred Terms available at http:// 

www.treas.gov/press/releases/reports/document5hp1207.pdf. 60 Id. 61 Id. 

received in recent private transactions, such as those with Warren 

Buffett and the Abu Dhabi Investment Authority? 

The Oversight Panel believes that a critical aspect of its mission 

is to determine whether the United States government has received 

assets comparable to its expenditures under the Emergency Economic Stabilization Act of 2008. To date, Treasury has made two 

types of expenditures under the Act. The majority of its expenditures have been cash infusions for which the Department has received preferred stock with associated warrants to purchase common stock. In the case of Citigroup, however, Treasury has participated, together with the Federal Deposit Insurance Corporation 

and the Federal Reserve Board, in a guarantee supporting a pool 

of assets held by Citigroup. 

Several major TARP recipient companies have received major 

capital investments recently, including Mitsubishi’s investment in 

Morgan Stanley, Warren Buffett’s investment in Goldman Sachs, 

and the Abu Dhabi Investment Group’s investment in Citigroup. 

On October 14, 2008, Mitsubishi UFJ (MUFJ) Financial Group 

of Japan invested $9 billion in Morgan Stanley.53 In exchange, 

MUFJ received a 21% stake in the company through perpetual preferred shares with a 10% annual dividend.54

Warren Buffett announced on September 23, 2008 that he would 

invest $5 billion into Goldman Sachs.55 In return, Buffett’s company, Berkshire Hathaway, received perpetual preferred shares 

with a 10% annual dividend. If Goldman Sachs wishes to buy back 

the preferred stock, it can do so at a premium of 10%. Berkshire 

Hathaway also received warrants to purchase common stock at 

$115 per share, up to $5 billion within the next five years.56

In November 2007, the Abu Dhabi Investment Authority invested $7.5 billion in Citigroup, amounting to 4.9% of Citigroup’s 

equity.57 The Abu Dhabi Investment Authority received equity 

units that pay an 11% annual dividend and will be converted into 

common stock in 2010 or 2011 at a price between $31.83 and 

$37.24.58

Under the CPP terms, Treasury receives senior preferred shares 

paying annual dividends of 5% for five years and 9% thereafter, 

and the shares can be redeemed at face value after three years or, 

if the institution receives a minimum amount from ‘‘qualified equity offerings,’’ prior to three years.59 In addition, Treasury receives warrants to purchase common stock up to a market value of 

15% of senior preferred investment for public securities or 5% for 

private securities.60 The exercise price is the financial institution’s 

market price of common stock on the day it is accepted into the 

Capital Purchase Program.61 The exercise price of the common 

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62 Id., at 21–22. 63See id.. 64Press Release, Joint Statement by Treasury, Federal Reserve and the FDIC on Citigroup, Department of Treasury, Nov. 23, 2008, available at http://www.ustreas.gov/press/releases/ 

hp1287.htm. 65Dan Wilchins & Jonathan Stempel, Citigroup Gets Massive Government Bailout, Reuters, 

Nov. 24, 2008, available at http://news.yahoo.com/s/nm/20081124/bs_nm/us_citigroup. 66 Id. 67Summary of Terms, Department of Treasury, Nov. 23, 2008, available at http:// 

www.ustreas.gov/press/releases/reports/cititermsheet_112308.pdf. 

stock warrants is reduced each six months if shareholder approvals 

are not obtained or if the institution completes a qualified equity 

offering prior to December 31, 2009.62

The Oversight Panel intends to work with Treasury, the GAO, 

and the Congressional Budget Office to determine the value of the 

preferred stock acquired by Treasury at the time of acquisition, 

particularly in light of these comparable transactions, and to understand how these terms were negotiated and determined. The 

Oversight Panel will also seek to understand Treasury’s plans for 

the terms of future capital investments through the Capital Purchase Program in private financial institutions, S–Corporations, 

and mutual organizations.63

Under Section 102(c), the Secretary of the Treasury must collect 

premiums from financial institutions whose financial assets are insured, and those premiums must provide sufficient reserves to 

meet any anticipated claims and to ensure that taxpayer funds are 

safeguarded. 

Treasury, the Federal Reserve, and the FDIC announced on November 23 a plan to insure against the loss of $306 billion in loans 

and mortgage-related securities held by Citigroup.64 Under the 

plan, Citigroup will take the first $29 billion in potential losses, 

plus 10% of any additional losses.65 Treasury, the FDIC, and the 

Federal Reserve are responsible for any additional losses, which 

could be up to nearly $250 billion.66 Citigroup will issue $4 billion 

in preferred stock to Treasury Department and $3 billion in preferred stock to the FDIC as a fee in exchange for the guarantee.67

In relation to the asset guarantees provided to Citigroup, Section 

102 of the Emergency Economic Stabilization Act appears to govern 

all insurance policies and other guarantees of the value of financial 

institution assets. Section 102(c) requires that the Secretary of the 

Treasury collect premiums from financial institutions whose financial assets are insured through this program. The premiums must 

provide sufficient reserves to meet any anticipated claims and to 

ensure that taxpayer funds are safeguarded. The Oversight Panel 

will seek to understand whether the Citigroup guarantee falls 

under the requirements of Section 102, and if so, whether it conforms with these requirements. 

6. What is Treasury Doing To Help the American Family? Does 

Treasury believe American families need to borrow more money? 

Have Treasury’s actions preserved access to consumer credit, including student loans and auto loans at reasonable rates? What restrictions will Treasury put on credit issuers to assure that taxpayer dollars are not used to subsidize lending practices that are 

exploitive, predatory or otherwise harmful to customers? What is 

Treasury doing to ensure that its spending is directed in ways that 

maximize the impact on the American economy? 

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68Press Release, Treasury Provides TARP Funds to Federal Reserve Consumer ABS Lending 

Facility, Nov. 25, 2008, available at http://www.treas.gov/press/releases/hp1292.htm. 69 Eric Dash, American Express To Be Bank Holding Company, N.Y. Times, Nov. 11, 2008, 

at B2. 70Statistical Release, Consumer Credit G.19, Federal Reserve, available at http:// 

www.federalreserve.gov/releases/g19/current/. 71See Credit Cards and Bankruptcy: Opportunities for Reform, Hearing Before the Senate 

Comm. on the Judiciary, 110th Cong. (Dec. 4, 2008) (testimony of Prof. Robert M. Lawless), 

available at http://judiciary.senate.gov/pdf/08-12-04LawlessTestimony.pdf. 72 2004 Survey of Consumer Finances, Federal Reserve, available at http:// 

www.federalreserve.gov/PUBS/oss/oss2/2004/scf2004home_modify.html. 73See generally GAO, Credit Cards: Increased Complexity in Rates and Fees Heightens Need 

for More Effective Disclosures to Consumers, GAO–06–929, September 2006, available at http:// 

www.gao.gov/new.items/d06929.pdf. 

On November 25, 2008, Treasury announced that it would provide $20 billion of credit protection for the Federal Reserve’s Term 

Asset-Backed Securities Loan Facility (TALF), which will finance 

investments in securities backed by automobile loans, credit card 

loans, student loans, and small business loans.68 In addition, since 

the beginning of the CPP, American Express became a bank holding company, allowing it to apply for a capital infusion of over $3 

billion.69

American families are already loaded with debt. According to 

Federal Reserve Board calculations, total U.S. consumer debt, excluding loans secured by real estate, increased at an average annual rate of 5.0% between 2003 and 2007, growing from approximately $2.1 trillion to approximately $2.55 trillion.70 Total household debt outstanding in the U.S. now exceeds annual national personal income.71 According to the 2004 Survey of Consumer Finances, 46% of American families carry monthly credit card balances, and the average level of credit card debt for those families 

is $5,100.72

The Oversight Panel believes that as the Treasury moves toward 

using public money to support the secondary market for credit card 

and other consumer debt, the Treasury, the public, and Congress 

need to understand better the financial strains affecting American 

families. While increased consumer spending is an important part 

of economic stimulation and recovery, for many families, incurring 

additional debt would only add to their financial stress. There is 

evidence that relying on borrowing by individuals as a form of economic stimulus has proved destructive. In addition, there are questions about the extent to which increased consumer spending stimulates the U.S. economy when marginal consumer dollars are spent 

on imports. Ultimately, sustainable consumer spending must depend upon rising incomes and broadly shared prosperity, not debt. 

In addition to the massive amounts of debt, the complexity of individual credit products has made it impossible for even the most 

sophisticated consumers to understand the implications of debt for 

their future payment obligations.73 The proliferation of intricate 

mortgage products—including hybrid ARMs, option ARMs, and 

other exotic species featuring teaser periods and balloon payments—contributed to the pattern of home buyers taking on mortgages that were initially affordable but that quickly became unmanageable. The Government Accountability Office reported that 

credit card issuers charge consumers up to three different interest 

rates depending on the transaction and high punitive rates (some 

in excess of 30%); in addition, average late payment fees have more 

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74 Id., at 5, 14, 18. 75See, e.g., Liz Moyer, Holiday Surprise: More Credit Card Fees, Forbes, Dec. 5, 2008, available at http://www.forbes.com/business/2008/12/05/credit-card-fees-biz-wallcx_lm_1205badcards.html; Abigail Bassett, As Debt Grows, Collections Boom, CNNMoney.com, 

Nov. 26, 2008, available at http://money.cnn.com/2008/11/25/pf/debt_collections/ 

?postversion=2008112611. 76 U.K. Credit Cards to Give Borrowers Extra 60 Days to Pay, Wall St. J., Nov. 26, 2008, http:// 

online.wsj.com/article/SB122773056319560653.html. 77 Emergency Economic Stabilization Act, supra note 15, § 114(b) (‘‘the Secretary shall determine whether the public disclosure required for such financial institutions with respect to offbalance sheet transactions, derivatives instruments, contingent liabilities, and similar sources 

of potential exposure is adequate to provide to the public sufficient information as to the true 

financial position of the institutions. If such disclosure is not adequate for that purpose, the Secretary shall make recommendations for additional disclosure requirements to the relevant regulators.’’) 

than doubled between 1995 and 2005.74 From the onset of the financial crisis, credit card issuers have been accused of increasing 

interest, accelerating fees and penalties and using more aggressive 

debt collection practices.75

In the context of consumer credit, it is also important to ask 

what restrictions Treasury will put on credit issuers to assure that 

taxpayer dollars are not used to subsidize lending practices that 

are exploitive, predatory or otherwise harmful to customers. 

In response to similar trends in the United Kingdom, the U.K. 

government has required credit card companies to work with consumers as a condition of receiving public funds. The U.K. has required credit card issuers to suspend payments for 60 days in 

many cases of financial hardship.76

Households that are struggling with debts—mortgages, student 

loans, credit cards, car loans, payday loans, and other credit devices—are at the center of the current crisis. Their defaults have 

driven the losses on asset-backed securities that have weakened 

balance sheets of financial institutions, and their reduction in purchasing has contributed to the contraction in economic activity. For 

Treasury’s disbursements to be effective in the context of the 

broader economic downward spiral, Treasury must have a strategy 

that addresses this underlying problem. 

7. Is Treasury Imposing Reforms on Financial Institutions That 

Are Taking Taxpayer Money? Congress has told the auto industry 

to reform its current practices before it could be considered for taxpayer aid and the British are requiring reforms on their banks as 

a precondition for capital infusions. Has Treasury required banks 

receiving aid to: 

i. Present a viable business plan; 

ii. Replace failed executives and/or directors; 

iii. Undertake internal reforms to prevent future crises, to 

increase oversight, and to ensure better accounting and transparency; 

iv. Undertake any other operational reforms? 

Treasury has provided capital to financial institutions under two 

programs, the CCP and SSFI. In general, the Act provides the Secretary of the Treasury with broad authority to set the conditions 

under which companies may receive aid. In particular, Congress required that the Secretary determine whether the public disclosure 

requirements for each financial institution are sufficient to provide 

the public with an accurate picture of that institution’s true financial position.77

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78See GAO Report, supra note 18, at 15. 79See David M. Herszenhorn, Big Bailout for Detroit Fails for Now, N.Y. Times, Nov. 21, 

2008, at B1. Speaker Nancy Pelosi stated, ‘‘Until we see a plan where the auto industry is held 

accountable and a plan for viability on how they go into the future—until we see the plan, until 

they show us the plan, we cannot show them the money.’’ Id. 80Press release, HM Treasury supra note 51; see also Steven Erlanger & Katrin Bennhold, 

Governments on Both Sides of the Atlantic Push To Get Banks To Lend, N.Y. Times, Nov. 7, 

2008, at A6. 81 Release: Interim Assistant Secretary for Financial Stability Neel Kashkari Testimony before 

the Senate Committee on Banking, Housing and Urban Affairs, Oct. 23, 2008, available at 

http://www.treas.gov/press/releases/hp1234.htm. 82 Id. 83 Id. 84 Id. 

It is unclear whether there have been any efforts to assess the 

business plans, the management, or the accounting and general 

transparency of firms receiving aid from the CPP.78 In order for the 

Big Three auto companies—Ford, Chrysler, and GM—to be considered for any taxpayer aid, however, Congress has proposed considerable reforms and presentation of viable business plans.79 The 

British have imposed significant reforms on their banks in the context of government aid during the financial crisis. In exchange for 

recapitalization, the British Treasury has required that Banks 

maintain 2007 levels of lending to homeowners and small businesses, develop an effective scheme for people to stay in their 

homes, reform their compensation policies going forward, include 

the Government in decisions on dividend policy, and provide the 

Government with influence on the appointment of new independent 

non-executive directors.80

The Oversight Panel believes the public has a right to know to 

what extent conditions have been imposed on financial institutions 

receiving public funds, and if not, why not. 

8. How Is Treasury Deciding Which Institutions Receive the 

Money? What factors is Treasury using to determine which institutions receive equity infusions, purchase of portfolio assets, or insurance of portfolio assets? Is Treasury seeking to use TARP money 

to shape the future of the American financial system, and if so, 

how? Why does Treasury believe that providing capital to all viable 

banks, regardless of business profile, is the most efficient use of 

funds? 

Treasury has informed both the Oversight Panel and the GAO 

that its process for determining which banks receive aid from 

TARP under the CPP is based on one criterion—the financial viability of the institution. In doing so, Treasury relies on recommendations from banking regulators to determine which institutions will receive equity infusions.81 Bank regulators consider bank 

examination ratings, selected performance ratios, and, in some 

cases, the intended use of capital injections.82 Treasury has stated 

that the process is consistent for all banks. Those with higher bank 

examination ratings are presumptively approved by the regulators, 

while those with low examination ratings are sent to the CPP 

Council, which may consider additional factors such as the existence of a signed merger agreement and private equity investment.83 Although no bank has been denied, some institutions have 

withdrawn their applications.84 As of December 9, Treasury had insmartinez on PROD1PC64 with HEARING

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85 Capital Purchase Program Transaction Report, Dec. 9, 2008 available at http:// 

www.treas.gov/initiatives/eesa/docs/CPPTransaction%20ReportDec%209.pdf. 86 Id. 87Mark Landler, U.S. Is Said To Be Urging New Mergers in Banking, N.Y. Times, Oct. 21, 

2008, at B1. 88See, e.g., Peter Cohan, Washington Likely To Put Capital Into Banks: A Great Idea if Done 

Right, BloggingStocks, available at http://www.bloggingstocks.com/2008/10/09/washington-likelyto-put-capital-into-banks-a-great-idea-if-don. 89See, e.g., E. Scott Reckard, Which Banks Live or Die? Wielding $250 Billion, U.S. May Decide, L.A. Times, Oct. 15, 2008, at A1; Nicole Gelinas, Storm Proofing the Economy, Wall St. 

J., Oct. 28, 2008, available at http://online.wsj.com/article/SB122513954599373277.html; Evan 

Greenberg, The Insurance Industry Doesn’t Need Subsidies, Wall St. J., Oct. 31, 2008, available 

at http://online.wsj.com/article/SB122541594014986703.html. 90 Emergency Economic Stabilization Act, supra note 15, at § 101(a). 

vested in 87 institutions.85 Of these capital infusions, $115 billion 

has gone to 8 lenders.86

Some commentators are concerned that Treasury actions are designed to drive consolidation in the banking industry by directing 

funds to financial institutions that are willing to purchase weaker 

banks.87 Opponents of concentration worry about the too-big-to-fail 

dynamic encouraging excessive risk taking by surviving institutions. 

Others are concerned about too little thought about over-supply 

in banking and the need to concentrate taxpayer resources on backing up a more limited number of stronger banks.88 Still others have 

expressed concern that with Treasury intervention, the banks that 

behaved prudently and whose balance sheets are strong are now 

losing their comparative advantage in a crisis.89 Finally, concerns 

have been expressed by some banks that their decision not to seek 

TARP money has been perceived as a sign of weakness by investors 

and business partners. 

The Citigroup experience and the AIG experience raise questions 

about assessments of institutional health and need by Treasury 

and bank regulators. In assessing the health of financial institutions, the Oversight Panel is interested in the extent to which 

Treasury and bank regulators involved in funding decisions have 

assessed future likely losses in derivatives and troubled assets, and 

the implications for funding levels necessary to restore specific institutions to the point where they can resume normal lending practices. 

The Oversight Panel believes it is critical for Congress and the 

public, including participants in the banking industry, to understand exactly what the criteria are for receiving money under the 

TARP programs, what the strategic intentions of the criteria are, 

if any, what the strategic effects of the criteria are, and how the 

criteria advance the purposes of the Act. 

9. What is the Scope of Treasury’s Statutory Authority? What is 

Treasury’s understanding of the statutory limits on its use of 

funds? How does Treasury justify its decisions under the Act in relation to its view of these limits? How is Treasury carrying out its 

statutory mandate regarding credit insurance? 

The Emergency Economic Stabilization Act of 2008 granted the 

Secretary of the Treasury the authority both to purchase and to insure ‘‘troubled assets’’ held by ‘‘financial institutions.’’ 90 Moreover, 

the Act defines ‘‘troubled asset’’ as any residential or commercial 

mortgage-backed security and related assets issued before March 

14, 2008, and ‘‘any other financial instrument that the Secretary, 

after consultation with the Chairman of the Board of Governors of 

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91 Id., at § 3(9). 92 Id., at § 3(5) (emphasis added). 93See generally Greg Hitt, Auto Makers Force Bailout Issue—Government Finds It Difficult to 

Deny Aid to Detroit in Wake of Wall Street Rescue, WALL ST. J., Nov. 10, 2008, at A3. 94Press Release, Federal Reserve, supra note 29. 95 Id. 96TALF Terms and Conditions, Federal Reserve, available at http://www.federalreserve.gov/ 

newsevents/press/monetary/monetary20081125a1.pdf. 97Press Release, Joint Statement by Treasury, Federal Reserve and the FDIC on Citigroup, 

Department of Treasury, Nov. 23, 2008, available at http://www.ustreas.gov/press/releases/ 

hp1287.htm. 

the Federal Reserve System . . . determines the purchase of which 

is necessary to promote financial market stability’’ so long as that 

determination is transmitted to Congress.91

The term ‘‘financial institution’’ is defined as ‘‘any institution, including but not limited to any bank, savings association, credit 

union, security broker or dealer, or insurance company.’’ 92 The remainder of the definition limits the definition to U.S. institutions 

not owned by a foreign government. Treasury has purchased the 

preferred stock of banks relying upon these definitions. 

Some have raised concerns that these purchases appear not to be 

contemplated by the overall language of the Act, and have questioned whether Treasury’s interpretation of its authority in fact 

places any substantive limits on the assets it could buy, and from 

whom. 

On the other hand, others, contemplating Treasury’s refusal to 

date to provide aid to U.S. automakers, have asked whether in 

light of Treasury’s generally broad interpretation of its mandate, 

the refusal to aid the automakers, given their significant role in the 

financial markets and the economy, is arbitrary and not supported 

by the statute’s broad definition of both ‘‘troubled asset’’ and ‘‘financial institution.’’ 93

The Term Asset-Backed Securities Loan Facility (TALF) program, authorized by the Federal Reserve Act, features $20 billion 

in TARP funds used to finance purchases of assets backed by auto, 

student, credit card, and small business loans, with any additional 

funding coming from the Federal Reserve Bank of New York 

(FRBNY).94 This program will provide up to $200 billion on a nonrecourse basis to holders of assets backed by new and recent 

loans.95 Under the TALF terms, the first $20 billion comes from 

TARP and is subordinated to any additional funds provided by 

FRBNY.96

The Citigroup loan guarantee discussed above similarly commits 

the TARP to a $20 billion investment in conjunction with guarantees offered by the FDIC and the Federal Reserve.97

It is unclear what Treasury believes its authority and obligations 

are surrounding guarantees in the context of the limits placed on 

insurance in Section 102 of the Act. It is also unclear what Treasury believes its limits are, if any, in working with other regulators 

and government bodies to jointly finance stabilization efforts. Lastly, it is unclear how Treasury intends to fulfill its obligation under 

Section 114 of the Act to ensure transparency when FRBNY is responsible for implementing the TALF. 

The Oversight Panel believes Congress and the public have a 

vital interest in understanding how far Treasury sees its authority 

under the TARP extending. 

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98See generally Matt Apuzzo, They Warned Us: US Was Told To ‘Expect Foreclosures, Expect 

Horror Stories’, ASSOCIATED PRESS, Dec. 1, 2008, available at http://www.baltimoresun.com/business/nationworld/sns-ap-meltdown-ignored-warnings,0,1683858.story. 99See e.g. Charles Feldman, Alt-A Loans: The Crisis Yet to Come, BIGGERPOCKETS, available 

at http://www.biggerpockets.com/renewsblog/2008/05/20/alt-a-loans-the-crisis-yet-to-come; Bill 

Vlasic, G.M., Teering on Bankruptcy, Pleads for a Federal Bailout, N.Y. TIMES, Nov. 12, 2008; 

Nouriel Roubini, Desperate Measures by Desperate Policy Makers in Desperate Times: the Fed 

Moves to Radically Unorthodox Policies as Economy Is in Free Fall and Stag-Deflation Deepens, 

RGE MONITOR, Nov. 26, 2008, available at http://www.rgemonitor.com/roubini monitor/254591/ 

desperate_measures_by_desperate_policy_makers_in_desperate_times_the _fed_moves_to 

_radically_unorthodox_policies_as_economy_is_in_free_fall_and_ stagdeflation_deepens. 

10. Is Treasury Looking Ahead? What are the likely challenges 

the implementation of the Emergency Economic Stabilization Act 

will face in the weeks and months ahead? Can Treasury offer some 

assurance that it has worked out contingency plans if the economy 

suffers further disruptions? 

While there has been much discussion about the speed with 

which the financial system seemed to deteriorate, there were many 

signs of serious problems. Defaults rates on home mortgages had 

been rising, concerns had been raised about the quality of the commercial rating systems, distrust in the valuations of asset-backed 

securities had surfaced, and the extraordinary risks associated 

with unregulated (and unmonitored) credit default swaps indicated 

that our financial system was not unshakeable.98 While investors 

might be forgiven their focus on short-term profits, it is the job of 

our financial experts in the government to take the longer perspective, to be alert to the possibilities of shocks, and to have some 

thoughts about how those shocks might be addressed if they arose. 

Even in the context of a massive crisis, we cannot manage one 

battle at a time. As we noted at the outset of this series of questions, we need to hear a coherent strategy for managing us out of 

this crisis. We note at the end of this series that we also need to 

think ahead, both to where the next failures may occur and to 

some principles which the government may follow by way of response. 

The Oversight Panel is very interested in the thinking of Treasury and the other agencies with which it coordinates, such as the 

FDIC and the Board of Governors of the Federal Reserve, as to 

what the implications for the TARP program are of possible future 

events such as the resetting of Alt-A loans, a possible bankruptcy 

of one or more major auto makers, or a change in the environment 

for financing TARP funding.99

This question connects to the first of our questions. Planning for 

the future requires an overall strategic approach to trying to address our financial and economic crisis. The Oversight Panel does 

not expect Treasury to predict the future. We are interested in 

learning more about how our government is planning for it. 

ABOUT COP 

In response to the escalating crisis, on October 3, 2008, Congress provided the U.S. Treasury with the authority to spend $700 billion 

to stabilize the U.S. economy. Congress created the Office of Financial Stabilization (OFS) within Treasury to implement a Troubled 

Asset Relief Program (TARP). At the same time, Congress created 

a Congressional Oversight Panel (COP) to ‘‘review the current state 

of financial markets and the regulatory system.’’ COP is empowered to hold hearings, review official data, and write reports on acsmartinez on PROD1PC64 with HEARING

21 

tions taken by Treasury and financial institutions and their effect 

on the economy. Through regular reports, COP must oversee Treasury’s actions, assess the impact of spending to stabilize the economy, evaluate market transparency, ensure effective foreclosure 

mitigation efforts, and guarantee that Treasury’s actions are in the 

best interest of the American people. In addition, Congress has instructed COP to produce a special report on regulatory reform that 

will analyze ‘‘the current state of the regulatory system and its effectiveness at overseeing the participants in the financial system 

and protecting consumers.’’ 

On November 14, Senate Majority Leader Harry Reid and the 

Speaker of the House Nancy Pelosi appointed Richard H. Neiman, 

Superintendent of Banks for the State of New York, Damon Silvers, Associate General Counsel of the American Federation of 

Labor and Congress of Industrial Organizations (AFL–CIO), and 

Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law 

School to the Oversight Panel. With the appointment on November 

19 of Congressman Jeb Hensarling to the Oversight Panel by 

House Minority Leader John Boehner, the Oversight Panel had a 

quorum and met for the first time on November 26, 2008, electing 

Professor Warren as its chair. 

This report was prepared under very tight time constraints. COP 

owes special thanks to Ganesh Sitaraman, Dan Geldon, John 

Beshears, and Cassie Walbrodt who helped with drafting, and 

Heather Slavkin and Catherina Celosse, who were careful editors. 

Students from the Harvard Law School provided critical research 

under tight deadlines; COP offers thanks to Neal Desai, Faisal Mohammed, Eric Nguyen, Jeff Pauker, Adam Pollet, Walter Rahmey, 

Saritha Tice and Ting Yeh for their service. 

FUTURE OVERSIGHT ACTIVITIES 

PUBLIC HEARINGS

In the weeks ahead, COP will hold a series of field hearings to 

shine light on the causes of the financial crisis, the administration 

of TARP, and the anxieties and challenges of ordinary Americans. 

The first of these hearings will occur next week in Las Vegas, Nevada. At each hearing, COP members will conduct a thorough investigatory process on behalf of American taxpayers, consumers, 

and workers. 

UPCOMING REPORTS

Next month, COP will release two public reports. On Jan. 10, it 

will release a report that examines the administration of the TARP 

program, including the impact thereof on the economy to date. On 

Jan. 20, COP will release a report providing recommendations for 

reforms to the financial regulatory structure. This report will provide a roadmap for a regulatory system that would revitalize Wall 

Street, protect consumers, and ensure future stability in our financial markets. Through these reports, the Oversight Panel will reveal the results of its investigations to the American people. 

PUBLIC PARTICIPATION AND COMMENT PROCESS

COP will soon release a public website, which will provide resources pertaining to the financial crisis, the TARP program, and 

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COP’s ongoing efforts. The website will also offer opportunities for 

concerned citizens to share their stories, concerns, and suggestions 

with the Oversight Panel. By engaging in this dialogue, COP aims 

to enhance the quality of its ideas and advocacy on behalf of the 

American public. 

APPENDIX: STATUTORY AUTHORITY OF THE 

CONGRESSIONAL OVERSIGHT PANEL 

Emergency Economic Stabilization Act of 2008 

Public Law No: 110–343 

SEC. 125. CONGRESSIONAL OVERSIGHT PANEL. 

(a) ESTABLISHMENT.—There is hereby established the Congressional Oversight Panel (hereafter in this section referred to as the 

‘Oversight Panel’) as an establishment in the legislative branch. 

(b) DUTIES.—The Oversight Panel shall review the current state 

of the financial markets and the regulatory system and submit the 

following reports to Congress: 

(1) REGULAR REPORTS.— 

(A) IN GENERAL.—Regular reports of the Oversight Panel 

shall include the following: 

(i) The use by the Secretary of authority under this 

Act, including with respect to the use of contracting 

authority and administration of the program. 

(ii) The impact of purchases made under the Act on 

the financial markets and financial institutions. 

(iii) The extent to which the information made available on transactions under the program has contributed to market transparency. 

(iv) The effectiveness of foreclosure mitigation efforts, and the effectiveness of the program from the 

standpoint of minimizing long-term costs to the taxpayers and maximizing the benefits for taxpayers. 

(B) TIMING.—The reports required under this paragraph 

shall be submitted not later than 30 days after the first exercise by the Secretary of the authority under section 

101(a) or 102, and every 30 days thereafter. 

(2) SPECIAL REPORT ON REGULATORY REFORM.—The Oversight 

Panel shall submit a special report on regulatory reform not 

later than January 20, 2009, analyzing the current state of the 

regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers, 

and providing recommendations for improvement, including 

recommendations regarding whether any participants in the financial markets that are currently outside the regulatory system should become subject to the regulatory system, the rationale underlying such recommendation, and whether there 

are any gaps in existing consumer protections. 

(c) MEMBERSHIP.— 

(1) IN GENERAL.—The Oversight Panel shall consist of 5 

members, as follows: 

(A) 1 member appointed by the Speaker of the House of 

Representatives. 

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(B) 1 member appointed by the minority leader of the 

House of Representatives. 

(C) 1 member appointed by the majority leader of the 

Senate. 

(D) 1 member appointed by the minority leader of the 

Senate. 

(E) 1 member appointed by the Speaker of the House of 

Representatives and the majority leader of the Senate, 

after consultation with the minority leader of the Senate 

and the minority leader of the House of Representatives. 

(2) PAY.—Each member of the Oversight Panel shall each be 

paid at a rate equal to the daily equivalent of the annual rate 

of basic pay for level I of the Executive Schedule for each day 

(including travel time) during which such member is engaged 

in the actual performance of duties vested in the Commission. 

(3) PROHIBITION OF COMPENSATION OF FEDERAL EMPLOYEES.—Members of the Oversight Panel who are full-time officers or employees of the United States or Members of Congress 

may not receive additional pay, allowances, or benefits by reason of their service on the Oversight Panel. 

(4) TRAVEL EXPENSES.—Each member shall receive travel expenses, including per diem in lieu of subsistence, in accordance 

with applicable provisions under subchapter I of chapter 57 of 

title 5, United States Code. 

(5) QUORUM.—Four members of the Oversight Panel shall 

constitute a quorum but a lesser number may hold hearings. 

(6) VACANCIES.—A vacancy on the Oversight Panel shall be 

filled in the manner in which the original appointment was 

made. 

(7) MEETINGS.—The Oversight Panel shall meet at the call 

of the Chairperson or a majority of its members. 

(d) STAFF.— 

(1) IN GENERAL.—The Oversight Panel may appoint and fix 

the pay of any personnel as the Commission considers appropriate. 

(2) EXPERTS AND CONSULTANTS.—The Oversight Panel may 

procure temporary and intermittent services under section 

3109(b) of title 5, United States Code. 

(3) STAFF OF AGENCIES.—Upon request of the Oversight 

Panel, the head of any Federal department or agency may detail, on a reimbursable basis, any of the personnel of that department or agency to the Oversight Panel to assist it in carrying out its duties under this Act. 

(e) POWERS.— 

(1) HEARINGS AND SESSIONS.—The Oversight Panel may, for 

the purpose of carrying out this section, hold hearings, sit and 

act at times and places, take testimony, and receive evidence 

as the Panel considers appropriate and may administer oaths 

or affirmations to witnesses appearing before it. 

(2) POWERS OF MEMBERS AND AGENTS.—Any member or 

agent of the Oversight Panel may, if authorized by the Oversight Panel, take any action which the Oversight Panel is authorized to take by this section. 

(3) OBTAINING OFFICIAL DATA.—The Oversight Panel may secure directly from any department or agency of the United 

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States information necessary to enable it to carry out this section. Upon request of the Chairperson of the Oversight Panel, 

the head of that department or agency shall furnish that information to the Oversight Panel. 

(4) REPORTS.—The Oversight Panel shall receive and consider all reports required to be submitted to the Oversight 

Panel under this Act. 

(f) TERMINATION.—The Oversight Panel shall terminate 6 months 

after the termination date specified in section 120. 

(g) FUNDING FOR EXPENSES.— (1) AUTHORIZATION OF APPROPRIATIONS.—There is authorized 

to be appropriated to the Oversight Panel such sums as may 

be necessary for any fiscal year, half of which shall be derived 

from the applicable account of the House of Representatives, 

and half of which shall be derived from the contingent fund of 

the Senate. 

(2) REIMBURSEMENT OF AMOUNTS.—An amount equal to the 

expenses of the Oversight Panel shall be promptly transferred 

by the Secretary, from time to time upon the presentment of 

a statement of such expenses by the Chairperson of the Oversight Panel, from funds made available to the Secretary under 

this Act to the applicable fund of the House of Representatives 

and the contingent fund of the Senate, as appropriate, as reimbursement for amounts expended from such account and fund 

under paragraph (1). 

Æ 

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