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OVERSIGHT CONCERNS REGARDING 

TREASURY DEPARTMENT CONDUCT OF THE 

TROUBLED ASSETS RELIEF PROGRAM 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

DECEMBER 10, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–148 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

December 10, 2008 ........................................................................................... 1 

Appendix: 

December 10, 2008 ........................................................................................... 99 

WITNESSES 

WEDNESDAY, DECEMBER 10, 2008 

Dodaro, Hon. Gene L., Acting Comptroller General of the United States, 

U.S. Government Accountability Office .............................................................. 19 

Hensarling Hon. Jeb (TX–05), Congressional Oversight Panel Under the 

Emergency Economic Stabilization Act .............................................................. 53 

Issa, Hon. Darrell E., a Representative in Congress from the State of California ..................................................................................................................... 1 

Kashkari, Hon. Neel, Interim Assistant Secretary for Financial Stability and 

Assistant Secretary for International Affairs, U.S. Department of the Treasury ......................................................................................................................... 20

Pascrell, Hon. Bill, Jr., a Representative in Congress from the State of New 

Jersey .................................................................................................................... 3 

Warren, Elizabeth, Leo Gottlieb Professor of Law, Harvard University, and 

Chair, Congressional Oversight Panel Under the Emergency Economic Stabilization Act ........................................................................................................ 89 

APPENDIX 

Prepared statements: 

Baca, Hon. Joe .................................................................................................. 100 

Carson, Hon. Andre .......................................................................................... 101 

Dodaro, Hon. Gene L. ....................................................................................... 103 

Kashkari, Hon. Neel ......................................................................................... 115 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Castle, Hon. Michael N.: 

Letter to Hon. Barney Frank, dated December 9, 2008 ................................ 121 

Dodaro, Hon. Gene L.: 

GAO Report to Congressional Committees entitled, ‘‘Troubled Asset Relief 

Program, Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency,’’ dated December 2008 ........................... 122 

Kanjorski, Hon. Paul E.: 

Letter from the American Council of Life Insurers (ACLI), dated December 10, 2008 ................................................................................................... 194 

Letter from the American Insurance Association (AIA), dated December 

2, 2008 ............................................................................................................ 196 

Maloney, Hon. Carolyn B.: 

Letter to Hon. Henry M. Paulson, Jr., and Hon. Gene L. Dodaro, dated 

December 5, 2008 .......................................................................................... 199 

Warren, Elizabeth: 

‘‘Questions About the $700 Billion Emergency Economic Stabilization 

Funds, The First Report of the Congressional Oversight Panel for Economic Stabilization,’’ dated December 10, 2008 ......................................... 201 

Written statement of the National Association of Realtors ................................. 238 

(1) 

OVERSIGHT CONCERNS REGARDING 

TREASURY DEPARTMENT CONDUCT OF THE 

TROUBLED ASSETS RELIEF PROGRAM 

Wednesday, December 10, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:01 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Kanjorski, Waters, 

Maloney, Watt, Ackerman, Sherman, Meeks, Moore of Kansas, 

Capuano, Hinojosa, Clay, McCarthy of New York, Baca, Lynch, 

Miller of North Carolina, Scott, Green, Cleaver, Moore of Wisconsin, Davis of Tennessee, Hodes, Klein, Mahoney, Perlmutter, 

Murphy, Donnelly, Foster, Carson, Speier; Bachus, Castle, Royce, 

Manzullo, Biggert, Capito, Feeney, Hensarling, Garrett, BrownWaite, Barrett, Neugebauer, Price, Campbell, Putnam, Bachmann, 

Roskam, McCotter, and Heller. 

Also present: Representatives Issa and Pascrell. 

The CHAIRMAN. The hearing will come to order. We have been 

asked by the Republican side to use the full 20 minutes on each 

side for opening statements, so we will go to that, but I was also 

asked to accommodate the gentleman from California. So, we will 

begin. The gentleman from California is recognized. 

STATEMENT OF THE HONORABLE DARRELL E. ISSA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. ISSA. Thank you, Mr. Chairman. I appreciate your indulgence in this. I know we are all on kind of a crazy schedule here 

in this extended, extended, extended Congress. 

Mr. Chairman, Ranking Member Bachus—if he was here—and 

members of the committee, I want to thank you for this opportunity to speak today. There is no more important issue before 

Congress now than ending the financial crisis that besets our country, whether it is in fact the financial crisis that we believed we 

were dealing with only weeks ago or it is the auto companies that 

were before you this week. 

As you know, I have been a critic of the bailout from its inception. I have stressed deliberate action and warned of potential failures. I think I have been vindicated in my objection to that spendVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
2 

ing of $700 billion of taxpayers’ dollars, of which half already appears to have been spent. 

I am not pleased with that. I wish I had been wrong. After all, 

these are not private funds that companies can use freely. These 

are, in fact, the future tax dollars of Americans, and our children 

will be paying not just the principal but the interest for generations to come. 

To date, the oversight of the bailout has been severely lacking. 

Through no fault of the Congress, we were pushed to quickly pass 

a bill that only generally called for accounting. The Government 

Accountability Office—as we will hear more about today—the 

Washington Post and other media outlets, and most importantly, 

the American people have been critical of the lack of oversight and 

the inability to apply oversight. People want to know where their 

money is being spent and if it is having the impact that is intended, and few think that it is. 

While we know there are many bad actors and causes of financial 

crisis from lack of lending practices to insufficient regulatory scrutiny, substantial questions regarding the root causes still remain. 

Yesterday, in our Committee on Government Reform we dealt with 

Freddie Mac and Fannie Mae, and we came away with more unanswered questions than answered questions. 

Neither Congress nor officials within the Administration have 

sufficient expertise to gain a full understanding of the complex 

issues surrounding both how we got in and how we will get out of 

this. A Colombia University professor recently stated that any reform must begin with a dispassionate and informed assessment of 

what went wrong. And I agree. 

We must pass legislation to create a bipartisan or nonpartisan 

blue-ribbon panel that can give the American people an objective 

assessment of the causes and the handling of the financial crisis. 

Although no one bill would be perfect, and certainly mine is no different, in November, I introduced H.R. 7275, the Financial Oversight Commission Act of 2008. Modeled after the 9/11 Commission, 

the Financial Oversight Commission is designed to have experts 

examine the causes of this crisis, evaluate corrective measures 

taken thus far, and make recommendations for alternative measures. The commission should examine the missteps of we as Congress, the Administration, the private sector, nonprofit organizations, certainly the GSEs and all others have taken, and then make 

recommendations on the next step forward. Had we done this in 

the original legislation, we would already be halfway through the 

commission process. 

The commission could take up to a year to conduct its entire investigations, make findings, and report the recommendations to 

Congress and the President. However, as I am sure the Chair 

would agree, commissions in the first 90 days often accomplish a 

great deal of what they will accomplish in 1 year by bringing the 

type of focus and the type of individuals and the type of scrutiny 

that causes others to begin to volunteer changes. 

As economic conditions in the financial sector itself are not static, 

the panel will continue its review and would evaluate ongoing circumstances. In a report to Congress, the commission shall make a 

complete accounting of the circumstances surrounding the crisis, 

3 

the private sector, the government role in causing the crisis, and 

the extent to which the United States preparedness for immediate 

response to a future crisis. The report should offer a conclusion and 

recommendations for corrective measures that can be taken to prevent further economic breakdown. 

Mr. Chairman, Ranking Member Bachus, it is time that we realize that we are a partisan organization; the next President will be 

a partisan organization; that we had a hand in the creation of this 

problem, whether it was a large hand or a small hand; whether it 

was in fact things we told the financial institutions to do or, quite 

frankly, oversight we failed to assert over them at both the executive and the congressional level. 

So Mr. Chairman, I strongly recommend that as you deliberate 

the current, you begin thinking about how we would put together, 

on a broad basis, a commission that would be a tool of this Congress. I thank you for this opportunity. 

The CHAIRMAN. The gentleman from New Jersey. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

The CHAIRMAN. I am going to try to hold Members as close as 

possible to 5 minutes. As close as possible means as long as I don’t 

daydream, 5 minutes. 

STATEMENT OF THE HONORABLE BILL PASCRELL, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PASCRELL. Thank you, Mr. Chairman, Ranking Member 

Bachus, and members of the committee for allowing me to present 

testimony before this committee. I am here to talk about the need 

to use TARP funds to open up the credit market for consumers to 

start purchasing automobiles again. 

Mr. Chairman, while I was back home in New Jersey this last 

week, I happened to pass the Port of Newark, and saw an endless 

stream of brand-new cars, just row upon row, sitting there, seemingly hoping to be moved by fate, if not by sale. I have never seen 

that many cars piled on top of each other—well, not unless you 

count D.C. traffic on a Friday afternoon when everyone is trying 

to get out of town. 

Mr. Chairman, the fact is that no bridge loan or bailout of the 

auto industry or any other industry for that matter, no matter how 

well-structured or planned, will work unless credit is available to 

consumers to make these purchases. And purchasing power and 

credit is down 99 percent from last year. 

The reason why I voted, and I believe so many Members of Congress voted, to approve the $700 billion in October was so that the 

Treasury could open up the frozen credit market. This was supposed to help keep people in their homes, and make it possible for 

the American people to make large purchases, like automobiles, 

that could boost our ailing economy. Sadly, that does not seem to 

be occurring. 

The economic health of our Nation depends on a robust automotive industry. Nearly 1 in 10 Americans rely on the automotive 

industry for their livelihood and their financial security. Auto sales 

constitute 20 percent of all retail spending in the United States 

4 

and generate up to 20 percent of the sales tax revenue for State 

and local governments. We know how hard-pressed they are today. 

We have heard a lot of talk in the past few weeks about the 

bridge loan being a bailout for the Big Three or an economic stimulus intended just for Detroit. But I don’t think one Main Street 

in America, I can’t think of one that isn’t affected when a local 

new-car dealer closes shop, takes good jobs and economic opportunity with them. When a new-car dealer goes out of business, they 

not only take away jobs and money, but they also become a blight 

upon the landscape, a visual reminder of the failures in our economy. 

Nearly 700 mostly family-owned new-car retail businesses have 

closed in the past 11 months. That equates to some 20,000 newly 

unemployed Americans, just in time for this holiday season. The 

automobile retail industry is highly credit-dependent and has been 

hit especially hard by the recent financial crisis in flagging consumer confidence. 

Although it is an opportune time to buy a new car, thanks to 

many industry deals and great incentives, the public cannot get the 

financing they need to bring that new car home. People who have 

the good credit necessary to get car loans can no longer gain approval for their purchases. In fact, for 2008, only an estimated 13.5 

million new vehicles were likely to be sold, down from 16.1 million 

in 2007, which is a 15-year low. 

The truth is that this crisis in the automobile industry goes far 

beyond the Big Three. Sales at Toyota and Honda are down more 

than 30 percent from last year, and are down more than 40 percent, roughly in line with the loss of sales for American automakers. 

We need to stop making this an issue of blame and find the constructive solutions necessary to get the economy moving. It was my 

understanding, and I thought it was your understanding, Mr. 

Chairman, that the TARP was supposed to be one of the main solutions, but so far that has not come to fruition for the average American. TARP funds have been greatly mismanaged to date and they 

have not been used to help consumers purchase the goods that they 

need. 

I believe that the TARP funds should go directly into helping 

consumers gain access to these loans which would provide a direct 

stimulus to the economy. Credit is essential in our economy. If 

loans don’t get made, businesses don’t expand, orders don’t get 

placed, and workers don’t get hired. As banks have restricted access to mortgages, auto loans, and credit cards, consumers have 

had to alter their spending behavior so rapidly that companies cannot adjust fast enough. The Treasury should use TARP funds to 

open a credit market for auto loans because, as I stated before, no 

amount of loans or bailout will work in the short or long term unless consumers are able to buy the cars in the first place. 

Mr. Chairman, I would like to mention that I also believe we urgently need to consider new tax incentives for consumers. I would 

in closing say, as you know, I introduced the bill, we talked about 

it in the last meeting, the Auto Insurance Tax Assistance bill. I call 

on you, Mr. Chairman, and Mr. Ranking Member, to do something 

5 

about the TARP funds to get this economy moving. And automobiles have a lot to do with it. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I thank both Members. I will now begin our 

opening statements. I will of course begin by—we had to sit 

through yours, but you don’t have to sit through ours. 

The gentleman from New Jersey well understands, as a member 

of the Ways and Means Committee, the last item he mentioned is 

not within the jurisdiction of this committee, but of the Ways and 

Means Committee. 

While we are on the subject of jurisdiction, I want to be sure the 

new ranking member of the Oversight Committee, who apparently 

yesterday expressed some concern that we would screw his committee out of doing their job, nothing could be further from the 

truth. That was what was reported. The AP said they heard that. 

Mr. ISSA. Thank you, Mr. Chairman. I will be glad to talk to you 

anytime. We don’t have to use the AP. 

The CHAIRMAN. Excuse me. I haven’t yielded. We have rules 

here. I was responding to an AP comment. The gentleman said we 

could talk at any time. I don’t remember hearing from him. I read 

it in the AP. 

I want to just respond here in this way: Some of my Republican 

colleagues appear to believe that the world was created in January 

of 2007 when we became the Majority. I will tell you this: The relationship between this committee and what was then the Committee 

on Government Reform did not change in 2007. The notion that 

somehow there was some machination on the part of myself or others to diminish the role of that committee is: (a) wrong; and (b) 

completely ignores the history. There was literally no change in 

that relationship between the chairmanship of Mr. Oxley. So this 

notion that somehow in January of 2007 we began some change is 

wrong. 

Secondly, I will say that I have at no point ever asked any member of that committee not to do anything. I worked with Mr. 

Kucinich, who is the chair of the appropriate subcommittee. At one 

of our most recent hearings, I read into the record a letter that he 

had done. I encouraged Mr. Waxman to go forward. So if there was 

not oversight to the gentleman’s satisfaction, that was entirely the 

result of decisions made within that committee. During the 12 

years of Republicans being in the Majority, and during the last couple of years, it did seem to me they began to do some things. So 

I did want to allay the gentleman’s fears. 

Mr. ISSA. If the chairman would yield? 

The CHAIRMAN. I listened to the gentleman’s statement, and read 

what he said in the paper. 

Mr. BACHUS. May I ask the chairman, what is the order here? 

The CHAIRMAN. I am making my opening statement. 

Mr. BACHUS. This is your opening statement. Okay. 

The CHAIRMAN. It is not my closing statement. 

I said we were through with them and we would now go to opening statements. I said they didn’t have to listen to ours. I would 

have preferred an opening statement that was more relevant to 

this hearing, but when things are said inaccurately, and reported 

6 

in the newspaper, and they cause some concern, I like to calm people down. 

I have people worried that this committee is plotting to take 

away their jurisdiction. I don’t want to ruin anybody’s Christmas 

by thinking I am going to Grinch-like take away the jurisdiction of 

another committee. 

I yield to the gentleman from California. 

Mr. ISSA. I thank the chairman. As you know, we worked together very well while we were both on Judiciary together. The 

comments yesterday with an open mike quite candidly, taken properly, would have been a compliment to you and to Mr. Waxman. 

The CHAIRMAN. I appreciate the compliment. I would say my advice—the gentleman is free to take it or not—is that I would shut 

off both the compliments and the mike next time. 

I have to get back to the subject of this hearing, which is the 

TARP. I am not going to exceed my 5 minutes, and no one else is. 

I did vote for this. I continue to think I was right to vote for this. 

One of the advantages that economists have over people in the public sector is that they can employ something called the 

counterfactual. They can—and Professor Warren is nodding her 

head; I appreciate the validation—compare what was happening to 

what would have happened in the absence of action. That is the 

counterfactual. 

I have said before what people say to me, ‘‘Well, what do you 

think about the way that TARP is working?’’ I have invoked before 

the wisdom of the great 21st Century philosopher, Henny Youngman in his exchange, ‘‘How’s your wife?’’ ‘‘Compared to what?’’ The 

metric of, ‘‘compared to what’’ is a very important one when you 

are doing this. 

I do believe that the counterfactual here, namely our failure to 

have done anything at all late last fall in the face of the credit crisis, would have left us in a worse situation. I would just cite, as 

I have done before, the treasurer of the State of Massachusetts, 

who reported he couldn’t roll over short-term notes, meaning payroll for the Commonwealth of Massachusetts, paying vendors. Once 

the bill was passed, he was able to do it. The treasurer of California, Mr. Lockyer, I know has communicated similarly. 

So the question is not whether we should or shouldn’t have done 

that, in my mind; but having done it, could it have been executed 

better? I believe it can. 

I would cite two things as I draw this to a close. In the legislation, indeed essential to the passage of the legislation was the language the gentlewoman from California worked on, among others, 

to ensure that some of these funds would be used to reduce foreclosures, not solely or even largely as a matter of compassion for 

individuals, but because in the macroeconomic sense foreclosure reduction is an essential part of the problem of getting us out of the 

problem we are in. The refusal so far to use the money for that 

purpose has been, I think, a violation of the intent and undermines 

the ability to get votes in the Congress to do things in the future. 

Similarly, I was distressed when we were told we didn’t have 

good oversight. The fact we are in this hearing, responding to a 

GAO report, shows that we did have good oversight. The GAO was 

in there from day one. We met with them. They have done a very 

7 

good job. There is a new board that will also be doing some oversight. 

The point is that what troubled me was when Treasury was 

asked by GAO, ‘‘Do you know how much money each bank is lending out, those that have gotten capital infusion?’’, they appeared to 

say, ‘‘We are not going to try to find that out.’’ Now, I am hoping 

and some indications are we are going to get a clarification of that. 

On those two issues, I was disappointed. 

The gentleman from Alabama is recognized for how much time? 

Mr. BACHUS. You took 7 minutes. If I could have an equal 

amount of time. 

The CHAIRMAN. It is 20 minutes and 20 minutes. I am surprised 

he is acting as if there are new rules here; it is 20 and 20. 

Mr. BACHUS. I will take just take 5 minutes. I am sure I will 

have other members. 

First of all, and I didn’t realize we were going to depart from the 

subject matter of the hearing, but I want to compliment you, Ranking Member Issa, for yesterday’s hearing. I want to say to Members 

on both sides and to the general public that what you are hearing 

revealed yesterday was quite astounding, and that is that we had 

Fannie and Freddie—if I am characterizing this right, there were 

multiple warnings; people within those organizations which were 

warning that what they were doing was dangerous. They were 

being pushed by mandates, affordable housing mandates and mandates to make loans which should not have been made. 

I hope this Congress will take a look at the various sometimes 

congressional-mandated, sometimes administrative-mandated, directives to loan money to people who, quite frankly, did not have 

the ability to pay them back. No document loans, stated income 

loans, just a smorgasbord of bad business decisions. And it wasn’t 

as if people in the organizations were not sounding the alarm. I 

thank you and Scott Garrett on this committee who participated in 

that. 

I listened to a great deal of that. People wondered where I was 

yesterday. I was following that hearing. It was a very important 

hearing. 

As we attempt to pick up the pieces with you and not make mistakes of the past, I hope we won’t let what went on at Fannie and 

Freddie go on in the future. 

So I compliment you, Ranking Member Issa—Ranking Memberelect Issa. 

Mr. ISSA. I think that is more appropriate. 

Mr. BACHUS. And I compliment you, Mr. Garrett, for your, I 

think, very constructive role. 

It has now been a little over 2 months since Congress passed legislation establishing TARP. A lot has happened in that time, some 

good and some bad. A particular concern of many members on this 

committee has been the Treasurer’s ever-shifting strategies and explanations for its actions in implementing TARP, which have resulted in uncertainty among market participants and confusion 

among the American people. This has made it more difficult to 

achieve the goals that Congress has set in creating TARP and stabilizing the financial markets and increasing the flow of credit to 

Main Street. 

8 

There has been some semblance of order restored in certain segments of the credit markets and among the financial service industry, and that is a good thing. No one faults Treasury for trying to 

tailor its policy responses to changing market conditions and challenges. But as the GAO report clearly states, implementing its various initiatives, Treasury has often failed to explain to Congress 

and the public what it hoped to achieve or to clearly communicate 

its expectations for the institutions that receive funding. 

For example, Treasury and the regulators have indicated recently that they expect the banks that have received an infusion 

of government money under the Capital Purchase Program to lend, 

rather than hoard, the cash. But the time to have thought about 

that, about what we expected banks to do with those funds, was 

before the money went out the door as a condition of investment 

rather than after the money was already in the banks’ vault. 

That is why some of us in the negotiations on TARP asked if 

there would be conditions, and we were told that would limit the 

program. We talked about clawbacks, we talked about restrictions 

on dividends, we talked about something that Mr. LaTourette has 

complained about, and that is these banks using those funds to acquire their competitors or other banks. We think that is a serious 

matter. It is not in the legislation. But if there is any way to undo 

that admission, it needs to be done. 

Now I will close with this. I wonder whether Secretary Paulson 

or Mr. Kashkari, back when they were still working for Goldman 

Sachs, ever agreed to a deal in which billions of dollars changed 

hands, based on a 2-page application, without asking what the 

money was going to be used for or whether it was going to be paid 

back. For instance, the Uniform Residential Mortgage Application 

is 8 pages. The application for Federal Student Aid is 11 pages. 

When student lenders and mortgage companies ask more questions 

in lending thousands of dollars than the Federal Government does 

when it injects billions of dollars’ worth of capital, we should all be 

concerned. 

The application process for the Capital Purchase Program, consisting of a 2-page form in which the bank identifies itself as a 

bank and asks for money and little else is very surprising. Secretary Paulson and Mr. Kashkari, you cannot be faulted for not 

having all the answers and for not being able to predict the future. 

But when you are acting on behalf of the American taxpayer, the 

taxpayer has the right to expect they will exercise the same basic 

judgment, the same standard of care that they would have exercised when they were working for Goldman Sachs and its investors. 

They should be held to the standard of care that we would expect 

from a reasonable, prudent investment banker whom I hope would 

not agree to a deal without doing some minimal amount of due diligence and conditions. 

Secretary Paulson and Mr. Kashkari should learn something 

from what we have seen in these past few weeks in connection with 

the committee’s consideration of a possible bailout for the domestic 

auto industry. The CEOs of those automobile makers appeared before us to present detailed business plans showing how they intended to return their companies to profitability. They tried to justify their pleas for taxpayer help by admitting that their business 

9 

models were flawed and explaining how they are going to change 

them. While the jury is still out on whether they made their case 

successfully, the detailed explanations and documents they put before us and the American people stand in stark contrast to the lack 

of information we have received from Treasury or from the financial institutions that have received taxpayer money under TARP. 

Let me close by thanking Chairman Frank for holding today’s 

hearing, giving me the opportunity to focus on yesterday’s hearing 

before the Oversight and Government Reform Committee, which 

was very important, and for inviting our colleague, the gentleman 

from Texas, Mr. Hensarling, to testify on the important work being 

done by the TARP Congressional Oversight Panel. He has some 

concerns. I share those concerns, and I look forward to his testimony. I look forward to his insights and those of the other witnesses. 

Thank you. 

The CHAIRMAN. Given the concern about time, how much time 

did the gentleman consume? Someone tell me how much time. The 

gentleman consumed 71⁄2 minutes, so the gentleman has 121⁄2 minutes left to allocate. We have consumed 51⁄2 minutes, so we have 

141⁄2 minutes left. 

The gentleman from Pennsylvania is recognized for 5 minutes. 

Mr. KANJORSKI. Thank you, Mr. Chairman. The oversight of the 

Troubled Assets Relief Program is inadequate and must quickly improve. Where it takes time to establish an appropriate oversight 

program, we have run out of time. Of the $350 billion allocated to 

Treasury to date, $335 billion has been spent or obligated. 

The Emergency Economic Stabilization Act became law on October 3rd and called for strong oversight. However, the first members 

of the Congressional Oversight Panel were not named until 6 

weeks later, on November 14, 2008, and the Senate confirmed the 

special inspector general of TARP a mere 2 days ago. It was difficult to have quality oversight when the overseers did not exist. 

Surely Americans are baffled that corporations have, to date, 

been given taxpayer money with no strings attached and without 

transparency. The dire need for improvement is evident to everyone who reviewed the Government Accountability Office study released last week. It is full of examples of failed supervision. According to GAO, the Treasury has implemented TARP by directly investing $150 billion in 52 financial institutions. While the Treasury 

claims its purpose behind the Capital Purchase Program is to increase financing and to incur mortgage modifications, it makes no 

such demands that the capital recipient actually engage in those 

activities. 

The GAO also reports that institutions have no reporting requirements, and while the Treasury asks the companies to comply 

with executive compensation limits, no compliance mechanism is in 

place. Further, conflicts of interest have not been adequately addressed. According to GAO, the Treasury must prove its communication with both the Congress and the public. We deserve to 

know why and how the Treasury is implementing this program. 

Two of the members of the Congressional Oversight Panel are 

here with us today. We know that from press reports that Ms. Warren is dissatisfied with Treasury’s lack of a clear sense of its fundaVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
10 

mental purpose with regard to TARP, for what began as a troubled 

assets relief program has morphed into something entirely different. 

I look forward to learning more about the Congressional Oversight Panel’s findings from today’s testimony and its report. My 

hope is that greater oversight, transparency, and accountability 

will be pursued with the utmost urgency. If necessary, Congress 

should consider legislation to provide the special inspector general 

with broader powers. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Mr. Castle, for 11⁄2 minutes. 

Mr. CASTLE. Thank you, Mr. Chairman. Thanks for continuing to 

hold hearings on the Troubled Asset Relief Program. 

I am concerned that when we passed the Emergency Economic 

Stabilization Act, we developed layers of oversight for the Troubled 

Asset Relief Program and not a capital injections program, which 

is what we actually have been carrying out. I am pleased that GAO 

and Treasury have published these recent reports, which are very 

insightful on TARP’s progress, but I would like to ask the witnesses today if they believe the regulations we have implemented 

need to be modified due to the Treasury’s switch from a troubled 

asset buying plan to the capital purchase program. 

Additionally, Mr. Chairman, I am equally concerned about the 

almost $1 trillion in emergency loans and private asset purchases 

recently made by the Federal Reserve, and the absence of oversight 

we are dedicating to these expenditures. Section 129 of the Emergency Economic Stabilization Act requires oversight of decisions 

made by the Federal Reserve Board when acting pursuant to section 13–3 of the Federal Reserve Act. However, I believe the EESA 

requirements could go farther. The details of these emergency acts 

by the Fed are not subject to the same rigorous scrutiny that Congress required of Treasury actions made under the TARP. 

While I respect the long-established history of the Fed to keep 

intervention of institutions confidential under other sections of the 

Federal Reserve Act, these emergency actions have been widely reported in the press and subject to very limited review. I would welcome a hearing by this committee in consideration of the Government Accountability Office’s review of the expenditures made by 

the Federal Reserve. 

Mr. Chairman, I would like to submit for the record a letter raising these concerns, which was given to your staff yesterday. 

The CHAIRMAN. Without objection, it is so ordered. 

Mr. CASTLE. Thank you. I yield back. 

The CHAIRMAN. The gentlewoman from California is recognized 

for 4 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. If there is 

one thing I regret, I regret attempting to be cooperative in providing to Treasury the flexibility to deal with our economic crisis. 

Not only, again, did I work very hard with members of this committee, but the Congressional Black Caucus, and the Hispanic Caucus, showing just how homeowners would be helped, how the loans 

would be modified, and ensuring them that I trusted the Treasury 

to do what it claimed it would do when they came to us to request 

this extraordinary amount of money without a lot of strings atVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
11 

tached. And so here we are, and we don’t have any systematic way 

of helping homeowners to modify these loans. The Treasury has refused to use their dollars to buy up the nonperforming assets. And 

the money has basically gone as equity investment in banks that 

are not putting the money back out so that our consumers can have 

access to credit. 

Take a look at what is happening in Chicago, where you have 

poor workers who are sitting in a Republic Windows and Door factory because Bank of America—to whom we gave $15 billion in 

TARP funds—refused a line of credit and refused to follow through 

on its commitment to finance the company. 

Now I don’t know who the Treasury—I, too, don’t know who they 

believe we are and what we can or cannot do, but I am sure, I am 

just sure that Mr. Kashkari, who is here today, has come to tell 

us how they are going to correct this. If he is not here to tell us 

how they are going to correct it, I am going to have to proceed with 

a bill that I am introducing that will basically place into law the 

program that Ms. Sheila Bair has put into place to do loan modifications, a proposal or program that she has shown can work because of what she has done with the takeover of IndyMac. 

And so the world is watching. Many communities are disadvantaged. We are losing the value of homes in communities across this 

country. The foreclosures continue to rise. And we sit here 

twiddling our thumbs, trusting Treasury to do what they said they 

were going to do. 

I want to hear from Mr. Kashkari today. They told us that this 

Interim Assistant Secretary for Financial Stability would come 

with a program and plans that would help us out of this economic 

crisis—that he was a genius and we could expect great things from 

him. So far, I have seen nothing. And I know that in addition to 

what Sheila Bair has done, there are other proposals that have 

been brought to the Treasury for the modification of these loans so 

that we can stem the tide of foreclosures. 

Mr. Chairman, I appreciate everything that you have done, but 

I am not going to even cooperate with you anymore when you try 

to be reasonable. Now don’t come back with a fast answer. I know 

you are about to do that. I just want you to know, as much as I 

respect you and do everything that I can to be supportive, you have 

been too kind, you have been too good, and you have allowed them 

to walk all over us. It doesn’t feel good. These footprints on my 

back are just too tough. And we have to do something to make sure 

that the money that we are signing off on is used appropriately to 

help the consumers and homeowners of this country. 

Thank you. And please do not use your microphone. 

The CHAIRMAN. The gentlewoman doesn’t have to worry about 

much further communication between us. 

The gentleman from California for 11⁄2 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. The question of modifying 

these mortgages is one that I think we are all concerned with. I 

am interested in hearing the Comptroller General’s comments and 

the Assistant Secretary’s comments here. 

This week a new issue has sort of come to light, and one that 

I think all of us should be concerned about. The least expensive 

way for the taxpayers for these modifications of loan agreements to 

12 

occur is by the loan servicers to concur that if you have, let’s say, 

a 5-year ARM that is going to shoot up to 8 percent, it makes more 

sense to modify that loan and convert it into a 30-year loan at 6 

percent and leave it on the books on the basis of the original term 

of the loan. 

What is it that keeps the loan servicers from modifying these 

agreements? The answer is a class action lawsuit last week has 

done exactly what some of us have counseled against, warned 

about. We need to have legislation in order to stop the chilling effect on mortgage servicers of bringing these class action lawsuits. 

This one last week, targeting 400,000 loan workouts, which kept 

borrowers in their homes and, frankly, worked to the benefit also 

of those who had lent the money; because at the end of the day, 

you lose 30 percent to 50 percent during a foreclosure in terms of 

the value of that asset. 

So many presume that this wasn’t required by the way of legislation. Clearly it is. And if we do that, then arguably the 2.7 million 

loan workouts that we have seen—that haven’t cost the taxpayers 

anything—done in concurrence with the work of our Treasury Department and attorneys general across the United States as these 

workouts have proceeded, that number can grow enormously. 

Those in the industry tell me the one thing that is keeping loan 

servicers from coming to the table is this issue. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentlewoman from New York for 2 minutes. 

Mrs. MALONEY. Thank you, Mr. Chairman, for having this hearing. Regrettably, the report from GAO today makes clear that 

Treasury is not taking responsibility for making sure that the moneys are used consistently with the purposes of the Act. We will 

have to legislate that we want accountability, transparency, a systemic system with regulators so that we can track and find out 

where this money is going. A prime purpose of this Congress was 

to help people stay in their homes. I completely support FDIC Commissioner Sheila Bair’s program, and am willing to legislate it with 

my colleagues. But we urge Treasury to put it in place. 

We do not know what banks are doing with their money because 

Treasury will not tell us. But the press tells us that they are buying highways in Europe, that they are buying other banks, or that 

they are holding on to the money. What my constituents tell me is 

they cannot have access to capital. We have put $7.8 trillion of taxpayers’ money out there for the purpose of creating credit, and it 

has been a dismal failure. 

The car dealers were in my office yesterday from New York 

State. Americans want to buy their cars in New York State, but 

they cannot get credit from banks. 

What I am getting calls on is the proposed 4.5 percent interest 

rate to get new homes in the pipeline and get our economy moving. 

We need to get credit out in our communities in order to revive our 

economy. Economist after economist has told us we will not solve 

this crisis until we solve the problem of keeping people in their 

homes and getting the housing market moving again. 

I look forward to your proposal on the 4.5 percent interest rate— 

my phone has been ringing off the hook in support of it—or any 

13 

ideas or programs you have to get credit out into our economy to 

get our economy moving again. 

Thank you. 

The CHAIRMAN. The gentlewoman from Illinois is recognized for 

11⁄2 minutes. 

Mrs. BIGGERT. Thank you Mr. Chairman, and thank you for holding this hearing today. Briefly, I would like to say that I am disappointed in several findings of the GAO report. 

First, Treasury has yet to establish an insurance program, which 

I think is critical to the matter of determining the value of the liquid assets on the books of the financial institutions, not to mention 

helping us to understand the magnitude of the problem. 

Second, Treasury has yet to set up a loan modification program 

to help worthy borrowers stay in their homes. 

Third, and most importantly, it baffles me that there are no reports about where American tax dollars are going once a TARP 

check is written to a financial institution. With billions of dollars 

at stake, taxpayers deserve regular reports on how their money is 

being used to keep both financial institutions and our economy 

afloat. There must be far more accountability and transparency 

weaved into the implementation of this program. 

I hope that today’s hearing will give us an opportunity to hear 

Mr. Kashkari outline a concrete timetable as to when these items 

will be addressed. 

With that, let me say I look forward to today’s hearing, and I 

yield back. 

The CHAIRMAN. The gentleman from Texas has asked for 1 

minute. 

Mr. GREEN. Thank you, Mr. Chairman. I want to be as concise 

as I can and make this very clear. We live in a world where it is 

not enough for things to be right; they must also look right. And 

it may have been right to convince the American public that we 

would spend some of this $700 billion on mortgage-backed securities by way of a reverse mortgage process; it may have been right, 

but it doesn’t look right when that kind of course change takes 

place and the American public is left without a clear and concise 

understanding of what happened. That has to be explained sufficiently to the public or it does create some harm as we move forward and make attempts to do the just thing in a time of economic 

crisis. 

I yield back the balance of my time. 

The CHAIRMAN. The gentlewoman from West Virginia for 11⁄2

minutes. 

Mrs. CAPITO. I want to thank you for holding this hearing today, 

and I look forward to learning the progress of the TARP program. 

As many of my colleagues did, I opposed the creation of the TARP 

for three basic reasons: It was too fast; had too much risk for the 

taxpayers; and it did not contain enough oversight. 

Since the creation of the TARP, we have seen several iterations 

of the plan. My major question today is, you keep shifting the plan, 

the plan keeps going to different facets of the financial markets, 

and is this working and is it accounted for? 

The recent GAO report expresses concern that there is not sufficient oversight of the TARP within the Treasury. That, to me, is 

14 

alarming. Proper oversight is needed to assure that the Treasury 

is being good stewards of the taxpayer dollars, but also to guarantee that institutions participating in the new Capital Purchase 

Program are complying with the limitations that are within those 

programs. 

I can assure you the American taxpayers were certainly leery of 

this program to begin with. We must work together to make sure 

companies utilizing the TARP and the Capital Purchase Program 

follow important guidelines and find out the status of those initiatives. 

I look forward to this hearing today. I am really astounded that 

as we move forward, the oversight portion of this huge program 

has not been one of the most detailed and most communicated 

parts of the program with the initiative that certainly I felt in my 

constituency, and felt in the constituency across the country, questioning the expenditure of $700 billion of taxpayers’ dollars. 

Thank you. 

The CHAIRMAN. We will go to the gentleman from New Jersey for 

11⁄2 minutes, so we can balance it off. 

Mr. GARRETT. I thank the chairman and the ranking member as 

well. 

When Congress passed the Economic Stabilization Act, which 

created TARP, I also did not support the legislation, and I voiced 

many serious concerns that it was not the best solution to address 

the credit crisis. I advocated that Congress take a little bit more 

time to examine other alternatives, consider possible unintended 

consequences, and put in proper safeguards to make sure the 

money is actually spent appropriately. Had that been done, maybe 

members today who voted in favor of it would not have regrets. 

Unfortunately, Congress rushed ahead, passed an open-ended bill 

that was sold to members as an asset purchasing plan, but was instead used to inject capital into the banking industry. Because the 

capital injection authority was really buried throughout the several 

different sections of the text and very little discussion was given 

during the debate to the strategy, apparently none of the appropriate safeguards—to include necessary provisions to guarantee the 

banks would actually lend the money and not hoard the capital or 

use it to pay dividends or buy other assets—were included in the 

bill. 

If you had taken that legislation through the regular legislative 

process and had a committee markup, allowed amendments, perhaps we would have addressed some of the concerns that are being 

raised today. 

I am also worried that we are making the same mistake right 

now with the auto bailout legislation being drafted. Democrat leadership and the Administration do not have a monopoly on good 

ideas. I think it would be very helpful for more members to have 

an opportunity to present ideas on how to improve that piece of important legislation as well. 

Also, I am also concerned with the amount of time it has now 

taken for the Congressional TARP Oversight Committee to be established, before hiring staff. 

With that, I yield back. 

15 

The CHAIRMAN. The gentleman from California, Mr. Sherman, 

for 1 minute. 

Mr. SHERMAN. There are not just those who supported the bill 

and those who rejected it, but many of us who wanted to adopt a 

very different bill. Among those appear to be Secretary Paulson 

himself, who testified on September 18th that he would use the 

TARP bill only to buy toxic assets and not to buy preferred stock; 

then, by October 3rd, had changed his mind, buttoned his lips, and 

had us vote on what we thought was a toxic asset plan, only to 

have the Treasury implement its preferred stock asset plan. 

I might have voted for the preferred stock investment plan, not 

because it is all that effective, but because it is far less expensive 

than the original toxic asset purchase plan. Being a basically nice 

guy, let me use this opportunity not to praise the frugality of the 

Treasury, rather than to disparage its duplicity. 

While we talk about the cost of the bill, let us recognize it would 

cost the Treasury even less if we had negotiated tough with the 

banks. Instead, we got half the yield and one-sixth the warrants 

that private investors were able to get on similar transactions. Had 

we not played Santa Claus, had we not accepted the same number 

of warrants from those banks that posed very large risk to the 

Treasury as we accepted from those who posed less risks, we would 

have a smaller Federal debt to pass on to our children. 

I yield back. 

The CHAIRMAN. The gentlewoman from Florida for 11⁄2 minutes. 

Ms. BROWN-WAITE. Thank you, Mr. Chairman. Thank you for 

holding this hearing today. Over the past 2 months, a number of 

my constituents have contacted me about problems they are having 

with foreclosures and also obtaining loans. One of them is a small, 

very successful businessman in my district, who has had an account with his bank, which is the same bank, by the way, that received billions in bailout money. They are now blaming the financial crisis on the fact that they are substantially curtailing his line 

of credit. What does that mean? It means he is going to have to 

lay off people. It means he may very well be closing his business 

because right now he is operating it on his retirement funds that 

he is using to keep his employees employed. 

Far from using the money from the Capital Purchase Program to 

increase the flow of financing to businesses, homeowners, and consumers, banks are actually hoarding the cash in their vaults. And 

if they are not hoarding it, they are using that cash for mergers 

and acquisitions. This should have been foreseen. 

I voted against the bailout because it lacked a very clear plan 

and enough oversight to prevent our current situation. Let me be 

clear, I didn’t support the bailout programs proposed by Secretary 

Paulson. However, many of my colleagues did. I believe that they 

thought that it would help the consumers. With this lack of oversight, clearly we have been sold a pig in a poke and a bait-andswitch has occurred. That is not fair to the taxpayers who are funding this massive bailout. 

I hope we hear more about plans to protect not the banks, not 

the investors, but the taxpayers today. Thank you. 

I yield back. 

The CHAIRMAN. The gentleman from Georgia for 1 minute. 

16 

Mr. SCOTT. Thank you, Mr. Chairman. What we have here, quite 

honestly, is one big mess. That is exactly what we have. The people 

sitting at that table looking at us ought to be Secretary Paulson 

and the Treasury Department and the banks. We have been lied 

to; the American people have been lied to. We have been bamboozled; they came to us to ask for money for one thing, then used 

it for another. They said we would have oversight, and no oversight 

is in place. We have given these banks $290 billion for the sole purpose of so-called buying these toxics. They change it, and all of a 

sudden now they are not lending it but using it for acquisitions, 

using it for salaries. These are lies. We have been bamboozled. The 

Secretary of the Treasury owes us an explanation about this, owes 

the American people an explanation about this. 

We have the auto companies coming to us. In a few days, we are 

going to give them a $15 billion loan. When they were here, we 

asked them, why can’t you go to the banks? The banks won’t lend 

it. Here we have sent them $290 billion, but they won’t lend it. 

Why won’t the banks lend the money to small businesses and the 

American people? That is the question. 

The CHAIRMAN. The gentleman from South Carolina for 1 

minute. 

Mr. BARRETT. Thank you, Mr. Chairman. In the interest of time, 

I will submit my statement for the record. This is about oversight; 

this is about accountability; this is not about writing a blank check 

and forgetting about it. This is the taxpayers’ money, and we need 

some answers. 

I yield back. 

The CHAIRMAN. The gentleman from North Carolina for 2 minutes. 

Mr. WATT. Thank you for convening this very important hearing. 

I really want to focus in on some very practical issues related to 

the use of the money that has been approved. When toxic assets 

were proposed to be purchased, a set of professionals were hired to 

administer that program. We received the announcement of who 

those professionals were. Then, right after, the whole focus of the 

program shifted from purchase of toxic assets to investments in 

banks, purchase of equity positions or preferred stock positions, or 

whatever. The professionals who had been hired under contract to 

administer that program, the toxic asset program, continued under 

contract and have continued to be paid. I would be interested in 

knowing, if they were hired to do the administration of toxic assets, 

what exactly are they doing now with taxpayer money? 

These are multimillion-dollar contracts that we entered into, or 

at least hundreds of thousands of dollars of contracts that we entered into to administer a program that was never put in place. 

And it seems to me that we have a responsibility to know what 

those people who were under contract to do are now doing with 

taxpayer money. So that is one of the focuses that I will be pursuing today. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from Michigan for 11⁄2 minutes. 

Mr. MCCOTTER. Thank you, Mr. Chairman. At the risk of being 

counterfactual, let me be clear, I appreciate the way that you have 

17 

held these oversight hearings and expect them to continue into the 

future. 

We saw recently the auto companies appear right at that table 

because they requested tens of billions of dollars of taxpayer 

money. And yet as we continue to go through this process, we see 

no CEO or anyone from the financial institutions that have, to 

date, received hundreds of billions of dollars of taxpayer money. I 

hope that in the future, we can correct that. I don’t care if they 

take a yacht, I don’t care if they hitchhike; I think they should be 

here to account for what they did to put us where we are, how they 

will get us out of this, what they will do with the money they have 

received, and how it will help working Americans. 

Thank you. 

The CHAIRMAN. The gentleman from Texas for 11⁄2 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. Just recently, the 

budget deficit numbers for the first 2 months of this October-November were released, and it is half-a-trillion dollars. At that clip, 

that means we are on tap to do a $6 trillion deficit if things continue. One of the things that actually boggles my mind is that we 

are passing out billions of dollars without a plan. 

The Treasury Secretary and the Chairman of the Federal Reserve have come to this group and they have talked about how we 

are trying to stabilize the markets. But we really don’t have a defined plan with stated results so that the oversight board can actually monitor what is going on. 

You can’t go borrow money, as small businessmen in America, on 

the basis that the money is being passed out by the Treasury. 

What we need and what the oversight board needs is, we need to 

have some measurements that we are at some expectations, and we 

need an overall plan because we can’t keep just throwing money at 

this problem until it gets better, because there is not an unlimited 

supply of money because we are spending money that we don’t 

have. We are spending the next generation’s money on the basis 

that we are operating now. The numbers people are throwing are anywhere from $4 trillion to $7 trillion. I think that is a number that the oversight board 

needs to know. I think we need to know what the direct and contingent liabilities of all of the entities that are involved in this process 

have committed the American taxpayers to. But, more importantly, 

if you are going to have oversight, you have to have a plan to oversee, and there is no plan, and that should be of great concern to 

the American people because it is a great concern to me. 

The CHAIRMAN. The gentleman from Nevada for 1 minute. 

Mr. HELLER. I appreciate the opportunity to spend a few minutes 

here in this hearing to discuss what I am hearing as frustration 

in the community banking, especially the small community banks 

across this country. As they go to the Web site, they fill out these 

applications and wait. They literally wait, wondering when and if 

these TARP funds will become available. 

I think this frustration, as I continue to get these phone calls— 

they want to know what the criteria are. ‘‘We filled out the 2-page 

application, and we heard nothing.’’ What are the thresholds, what 

are the expectations, what are the criteria to know the difference— 

is it assets, is it deposits? What is the threshold that is going to 

18 

determine between a small bank and a big bank whether they receive assistance? Because these small community banks are not 

lending, they are saying they are not lending. In fact, most of them 

are just wondering if we are sitting around, waiting to be acquired 

by people who do receive TARP funds. So I am hoping that we can 

get answers to some of these questions. 

Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. This side has 30 seconds remaining. I am just 

going to use it to respond to a very important point made by the 

gentleman from California, Mr. Royce, about the lawsuits interfering with servicers. The gentleman from California has consistently raised that. This committee is determined next year to 

change the legislation defining legal rights here, so that we will not 

have this continuing ambiguity about servicers. 

I will say, though, that acting on the initiative of the gentleman 

from Pennsylvania, Mr. Kanjorski, and the gentleman from Delaware, Mr. Castle, we did include in the legislation that we passed 

as good a clarification as we could have going forward that 

servicers who do what is economically in the best interest of the 

holders of those loans should not be sued. 

The only further step we could take would be to indemnify them. 

The problem there is you would be using taxpayer dollars. And if 

the holder of the loan could sue the servicer and we then indemnified the servicer, you would put taxpayer dollars in the hands of 

the people who made these bad loans. I don’t believe there would 

be any support for that. 

The last thing I would say is the gentleman from California correctly mentioned a class action lawsuit. Of all the outrageous acts 

of social irresponsibility I have ever seen, it is the lead plaintiff in 

that lawsuit who bought paper solely for the purpose of doing it. 

We are not talking here of an owner who, having made the loans 

or having acquired the loans, subsequently ran into this problem. 

He bought that paper after the fact, I believe solely for the purpose 

of lawsuits. It is greatly irresponsible. 

I have spoken to Treasury, and I think it is very important that 

we encourage Bank of America, which is the target of this suit, to 

stand up and fight that lawsuit. I hope there will be amicus briefs 

filed by the United States Government, by ourselves and others, 

because I think this is a scurrilous, socially irresponsible effort by 

someone who has no legitimate problem, because he is not talking 

about loans that had been previously been made. 

I do think that the gentleman from California hit on an important problem. It is important that we deal with it at every level. 

With that, we call up our witnesses. We have the Acting Comptroller General and the Interim Assistant Secretary. One of these 

days, we will get back into actual people. But we do appreciate the 

very hard work that both gentlemen are doing in their status. 

Mr. Dodaro is the Acting Comptroller General of the Government 

Accountability Office. And I would just say, for people who want to 

know whether the Government Accountability Office puts its principles into practice, they are for saving money. We changed the 

name from the Government Accounting Office to a more descriptive 

name, the Government Accountability Office. But you will notice 

that we did it in a way that does not require them to change their 

19 

towels; it is still the GAO. So we all deserve credit for that efficiency. 

And Mr. Neel Kashkari, who is the Interim Assistant Secretary 

for Financial Stability. 

Mr. Dodaro, we will begin with you. 

STATEMENT OF THE HONORABLE GENE L. DODARO, ACTING 

COMPTROLLER GENERAL OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. DODARO. Thank you very much, Mr. Chairman. Good morning to you and to the members of the committee. I am pleased to 

be here today to discuss GAO’s efforts to evaluate the TARP program to date. 

Soon after the legislation was enacted on October the 3rd, we 

moved quickly to put our team in place. And, as mentioned, we 

issued our first report within the 60-day requirement under the 

legislation last week, on December the 2nd. Now, that report outlines the actions that the Treasury Department has taken to date 

to implement the program and recognizes the challenges that they 

faced in starting a new program from scratch. 

The report also, however, points out several critical issues that 

are not yet addressed. And, as a result, we made a series of recommendations that we think are very important and that, if properly implemented, can improve the integrity, the accountability, 

and the transparency of this very important program. Those recommendations fell into four general categories. 

The first dealt with ensuring that the funds are being used in 

compliance with the legislation and that requirements, such as limits on executive compensation and payment of dividends, are complied with. To date, Treasury hadn’t finalized its strategy for monitoring these very important initiatives. So we recommended that 

the Treasury Department work with the financial regulators which 

are already in place to develop a systematic means for ensuring 

that there is monitoring and reporting on the use of the funds to 

ensure that it is consistent with the Act and that it is being done 

in a timely fashion, and that there be an effective monitoring program put in place to ensure that the program requirements are adhered to by the institutions receiving the funds. 

The second area had to do with the communications strategy. As 

has been pointed out this morning in virtually every member’s 

opening comments, the program has undergone a lot of changes. 

And, in addition to that, the economic situation has been rather 

fluid. Because of all these changes, that really put a premium on 

having effective communications to not only explain by Treasury as 

to what they were doing but why they were undertaking the initiative. So we recommended that they give this area and the communications strategy some additional attention. 

The third area has to do with people, having the right numbers 

and skills necessary to effectively carry out this program. To date, 

Treasury has made many efforts to try to bring people onboard on 

an interim status. But they have yet to bring on the full complement of people that they need in order to effectively manage the 

program over time. We recommended that they expedite their hiring practices and also put in place a comprehensive plan to ensure 

20 

a smooth transition to the next Administration. Right now, they 

only have a very limited number of people who are committed to 

make that change going forward. 

The fourth area has to do with a comprehensive system of internal controls. Treasury recognizes that they need internal controls. 

In fact, one of the contractors that was hired was brought in to 

help them craft the system. And so, you know, we gave them credit 

for acknowledging that they need to do this. But the system needs 

to be fully designed and put into place. 

And a couple of areas that are really important, one is overseeing 

contractors. To date, the contractors that have been hired have 

been on a time and materials basis, which puts the onus more on 

the government to manage the contractors, so that they need additional people to be able to do that properly. We recommended also 

that, in the future, to the extent that the Department can, they put 

in place fixed-price contracts to provide the necessary support for 

them going forward. 

We also recommended that the Department finalize their regulations on conflict of interest and put in place a robust monitoring 

effort to make sure that the conflict-of-interest provisions and the 

associated mitigation plans that are put in place are properly implemented going forward so that there are proper safeguards in 

place. 

In summary, in our first report and set of recommendations, we 

believe—or have very important suggestions for the Treasury Department to implement, to ensure that this program has the accountability, has the transparency necessary and what the expectations are going forward. We plan to continue to work with the 

Treasury Department to monitor their implementation of those recommendations and also the TARP program, as it continues to unfold in the coming months. 

I would ask, Mr. Chairman, that our detailed report of December 

2nd be submitted into the record, since it was statutorily required, 

along with my testimony today, if that would be permissible. And 

I would be happy to answer any questions members may have at 

the appropriate period of time. Thank you very much. 

[The prepared statement of Mr. Dodaro can be found on page 103 

of the appendix.] 

Mr. KANJORSKI. [presiding] Thank you very much, Mr. Dodaro. 

Without objection, the gentleman’s request is agreed to. 

Mr. Kashkari? 

STATEMENT OF THE HONORABLE NEEL KASHKARI, INTERIM 

ASSISTANT SECRETARY FOR FINANCIAL STABILITY AND ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. 

DEPARTMENT OF THE TREASURY 

Mr. KASHKARI. Good morning, Mr. Chairman, Ranking Member 

Bachus, and members of the committee. Thank you for asking me 

to testify before you today regarding oversight of the Troubled 

Asset Relief Program. 

We are in an unprecedented period, and market events are moving rapidly and unpredictably. We at Treasury have responded 

quickly to adapt to events on the ground. Throughout the crisis, we 

have always acted with the following critical objectives: One, to staVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
21 

bilize financial markets and reduce systemic risk; two, to support 

the housing market by avoiding preventable foreclosures and supporting mortgage finance; and three, to protect the taxpayers. The 

authority and the flexibility granted to us by the Congress has 

been essential to developing the programs necessary to meet those 

objectives. 

Today, I will describe the many steps we are taking to ensure 

compliance with both the letter and the spirit of the law and what 

measurements we look at to gauge our success. 

A program as large and complex as the TARP would normally 

take many months or years to establish. Given the severity of the 

financial crisis, we must build the Office of Financial Stability, we 

must design our programs, and we must execute our programs all 

at the same time. We have made remarkable progress since the 

President signed the law only 68 days ago. 

The first topic I will address is oversight of the TARP. We first 

moved immediately to establish the Financial Stability Oversight 

Board. The board has already met 5 times in the 2 months since 

the law was signed, with numerous staff calls between meetings. 

We have also posted bylaws and minutes from those board meetings on the Treasury Web site. 

Second, the law requires an appointment of a Senate-confirmed 

special inspector general to oversee the program. We welcome the 

Senate’s confirmation, just on Monday, of Mr. Barofsky as special 

IG. I spoke with him just yesterday, and we look forward to working closely with his office. 

In the interim, pending his confirmation, we have been coordinating closely with the Treasury’s inspector general. We have had 

numerous meetings with Treasury’s Inspector General to keep 

them apprised of all TARP activity. And we look forward to continuing our active dialogue with both the Treasury IG and the special IG as he builds up his office. 

Third, the law calls for the GAO to establish a physical presence 

at Treasury to monitor the program. We have had numerous briefings with GAO, and our respective staffs meet or speak on an almost daily basis to update them on the program and review contracts. 

The GAO published its first report on the TARP, as Mr. Dodaro 

said, on December 2nd. They provided a thorough review of the 

TARP program and progress to date, essentially a snapshot in time 

at the 60-day mark of a large, complex project that continues to be 

a successful work in progress. 

We are pleased with our auditors’ recommendations, because the 

GAO has identified topics that we are already focused on. The report was quite helpful to us because it provided us with thoughtful, 

independent verification that we are, indeed, focused in the right 

topics. And we agree with the GAO on the importance of these 

issues. Our work continues. 

Finally, the law called for the establishment of a congressional 

oversight panel, the fourth oversight body to review the TARP. 

That oversight panel was recently formed, and we had our first 

meeting with them on Friday, November 21st. We look forward to 

having additional meetings with the congressional oversight panel. 

22 

Now, people often ask, how do we know our programs are working? First, and this is very important, we did not allow the financial system to collapse. That is the most important information 

that we have. 

Second, the system is fundamentally more stable than it was 

when Congress passed the legislation. While it is difficult to isolate 

one program’s effects, given the numerous steps that policymakers 

have taken, one indicator that points to reduced risk among default 

of financial institutions is the average credit default swap spread 

for the eight largest U.S. banks. That CDS spread has declined 200 

basis points since before Congress passed the law. 

Another key indicator of perceived risk in the financial system is 

the spread between LIBOR and OIS. The 1-month and 3-month 

LIBOR–OIS spreads have each declined 100 basis points since the 

law was signed and 180 basis points from their peak before the 

CPP was announced on October 14th. 

People also ask, when will we see banks making new loans? 

First, we must remember that just over half the money allocated 

to the Capital Purchase Program is out the door. Although we are 

executing at report speed, it will still take a few months to process 

all of the remaining applications. The money needs to get into the 

system before it can have the desired effect. 

Second, we are still at a point of low confidence, both due to the 

financial crisis and due to the economic downturn. As long as confidence remains low, banks will remain cautious about extending 

credit, and consumers and businesses will remain cautious about 

taking on new loans themselves. As confidence returns, we expect 

to see more credit extended. 

We are actively engaged with regulators to determine the best 

way to monitor these capital investments in bank lending. We may 

utilize a variety of supervisory information for insured depositories, 

including the Home Mortgage Disclosure Act data, the Community 

Reinvestment Act data, call report data, examination information 

contained in CRA public evaluations, as well as broader financial 

data and conditions. 

In conclusion, while we have made significant progress, we recognize that challenges lie ahead. As Secretary Paulson has said, 

there is no single action the Federal Government can take to end 

the financial market turmoil or the economic downturn, but the 

new authorities that you provided, you and your colleagues provided in October, dramatically expanded the tools available to address the needs of our system. We are confident we are pursuing 

the right strategy to stabilize the financial system and support the 

flow of credit to the economy. 

Thank you again for having me here today, and I would be happy 

to take your questions. 

[The prepared statement of Mr. Kashkari can be found on page 

115 of the appendix.] 

Mr. KANJORSKI. Thank you very much, Mr. Secretary. 

Mr. Secretary, it is sometimes, in my opinion, sort of unfortunate 

that we don’t have more of a mix of associating between Members 

of Congress and the Executive Branch. But when you are in a role 

such as mine, you get to hear very often the opinions of Members 

23 

out of the public realm and off the newspapers, but their honest 

opinions of what happened. 

And I think one of our colleagues, yesterday at a caucus, made 

a great observation, Mr. Kucinich of Ohio. He posed the question, 

after all the turmoil of the last 10 or 12 weeks, why is it that we 

do not have the beginning of an industrial policy in this country 

so that, as we start structuring the recovery acts and various programs, we don’t have a standard or a base to measure what we are 

doing against? I thought that was a good observation. 

And now working on the auto recovery program, having worked 

tirelessly just 6 or 8 weeks ago on the ‘‘bailout’’ of Wall Street, I 

am beginning to think that somebody has to become a drafter of 

a master plan of what we are going to do, what we intend to do, 

what we are doing, so that we have some measure of objective 

judgment or understanding. 

Now I, for one, have been very sympathetic to the Secretary and 

to the Administration. And you obviously know I am on the other 

side of the aisle, politically, from the Administration. Because I 

think that we are in such a challenge in our economic structure 

that we have to tell the American people the truth, and that truth 

is going to hurt. Some of that truth is we are going to spend billions of dollars incorrectly and wrongfully and wastefully. And they 

are going to have to know that, because we are like mad scientists 

in an economic laboratory trying to get the correct potion to resolve 

this problem. And I don’t know that anyone has gotten that. 

So that we can’t be harsh judges of what the Administration is 

doing and hold you to such a high order when, in fact, none of us 

know what the true answer is. I think as you have testified and 

just indicated, nobody does really know. 

On the other hand, it is very disconcerting to listen to the Secretary come up here 1 week, as he did in September, and tell us 

the sky was falling, and I can’t even repeat some of the issues that 

were raised by him and Dr. Bernanke, in terms of they are still 

confidential and secret, as I understand it. But they did shake the 

hell out of Congress, I can tell you that. 

We did react within a couple of weeks to pass the rescue program, and in my opinion, we did it inadequately. We didn’t accrete 

the Office of the Inspector General with the powers necessary to 

really do the job. We didn’t get the people in place on the oversight 

board. We didn’t get the inspector general, until 2 days ago, appointed. And we really up here don’t know what is totally going on. 

But I keep looking at the Administration. And Mr. Paulson, 

when he called that reverse in the backfield, going from purchasing 

toxic assets to making investments, and he did it overnight without 

any pre-information, just did it, and now he has been making these 

calls, totally reversing the position of where we thought we were 

going and where we were informed previously in the huddle as to 

where we were going, it is starting to shake our confidence. 

And when I say that, it is not just the confidence of the Congress. We are probably not important in that regard. But we do 

represent, to an extent, the confidence of the American people. 

And, to a large extent, we are not coming out of this economic problem until we build the confidence of the American people. I think, 

by that nature, we have to build a relationship between the AdminVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
24 

istration and the Congress to build our confidence, because, in 

some respects, we do represent the American people. 

When do you see a capacity that you are going to come forward 

and tell us what your plan is, what we can expect, perhaps developing an industrial policy for this country, and to give everybody 

a little comfort that we seem to know what we are doing and we 

have a game plan to play the whole game? 

Mr. KASHKARI. Congressman, thank you for the question. Let me 

answer it in two parts. 

First, in terms of the remaining use of the TARP funds, right 

now we are executing the programs that we have announced. So 

we have announced the Capital Purchase Program. We are deep in 

execution; the execution is going quite well. We can discuss that, 

and I am sure members have views. 

Second, we have announced, the Federal Reserve has announced 

a program for asset-backed securitization facility, which is going to 

get consumer credit going—auto lending, consumer loans, student 

loans, etc. That program in the process of being developed and 

stood up. That also will use $20 billion from the TARP. 

In terms of future programs, we have a lot of policy development 

work going on. That policy development work, in many cases, is we 

are consulting with the transition team to keep them informed of 

what we are developing. At this point, there has been no determination made by the Secretary on whether or when to request 

further funds from the Congress, the $350 billion. If that determination were to be made, he would do it, consult with the transition team, also notify Congress and provide details of exactly what 

our plans would be for those remaining funds, number one. 

Number two, in terms of a master industrial policy, candidly, 

Congressman, that is not something that I have spent much time 

thinking about. My focus, and I think the Treasury Department’s 

focus right now, is just to ensure the stability of the financial system so that credit can flow to our communities and our consumers 

and our businesses. 

I think that, as a Nation, my personal perspective is, once we get 

through the immediate crisis, we need to take a step back and 

thoughtfully review our regulatory system to make sure we don’t 

get back here again in the future. Sometimes it is hard to make 

those judgments in the middle of a crisis. 

Mr. KANJORSKI. Thank you very much. I wish we could go on, 

but we have others. Let uss turn to the ranking member now, Mr. 

Bachus. 

Mr. BACHUS. Well, it might take a while. 

Mr. Dodaro, the original asset purchase program, it had a pretty 

extensive mechanism to administer the program, you know, where 

we would pay fair value or fair price, etc., etc., you know, and that 

the goals would be realized. 

Has the Treasury adopted a similar detailed mechanism to ensure that the Capital Purchase Program fulfills its goals? 

Mr. DODARO. The Department has been largely relying on the 

regulators for the industries to help in their process for determining which institutions they will approve under the Capital Purchase Program and that the institutions are sound and financially 

25 

viable going forward. So I think relying on the regulators was a 

good step in that process going forward. 

What our— 

Mr. BACHUS. Let me ask you, when you say relying on regulators 

to inject capital into this, hold off on that, what about the Statechartered institutions? Is there a bias against them? Are they also 

consulting with— 

Mr. DODARO. I think all the institutions are going through the 

same process. 

Mr. BACHUS. All right. 

Mr. DODARO. The applications come in, are screened by the regulators, and then they go forward to the Treasury Department, 

where Mr. Kashkari then makes the decision, you know, going forward with the process. 

What our recommendations are focused on is, once the Capital 

Purchase Programs are approved and the money is then transferred to the institutions, that is where we see the need to have 

greater monitoring by the regulators, more timely reporting. The 

regulators get a lot of information— 

Mr. BACHUS. Is that into what they are doing with the money? 

Mr. DODARO. Yes, yes. That is what they are doing with the 

money, whether it is consistent with the purposes of the Act, and 

what kind of effect is it having to achieve the program’s objectives. 

Mr. BACHUS. I understand. 

Is there leverage under the law, or under the lending regulations, to require them to lend it, as opposed to, say, they pay the 

amount of dividend or to make acquisitions? 

I will ask Mr. Kashkari or either one of you gentlemen. 

Mr. DODARO. Basically—and Mr. Kashkari can elaborate on 

this—my understanding is the requirements that are signed basically require the institutions to spend the funds in accordance with 

the purposes of the act. 

Mr. BACHUS. Okay. 

Mr. KASHKARI. And, Congressman, I would just add that the contracts that these banks—we have now funded 87 banks in 30 

States. The contracts that we have entered into restrict their dividends; they cannot increase their dividends. They cannot do a 

share buy-back. So we have put— 

Mr. BACHUS. Yes, I know they can’t increase it, but they are 

using it to pay and maintain the dividend. 

Mr. KASHKARI. That is correct. And, again, one of the keys here 

is we want to attract private capital to our banking system. To 

come in to healthy banks and wipe out all their dividends would 

drive away private capital. We want to encourage private capital. 

And may I respectfully repeat that this is a program for healthy 

institutions of all sizes. Hundreds, potentially thousands, of banks 

from across the country are applying. We feel great about that. 

Mr. BACHUS. In fact, you know, we had conversations that we 

wanted all the banks to participate. Now, I wasn’t in the end game 

there, but let me ask you about that. The Subchapter S banks, a 

third of the banks are in that case. You still haven’t come up with 

a program for them, have you? 

Mr. KASHKARI. Not yet. We have professionals at Treasury working on it and consulting with outside experts. It is a very complex 

26 

legal issue. Our program intention is that every bank in America 

that is healthy gets to participate on equal terms. There are some 

real legal complexities on how to make equity investments in Subchapter S and mutuals. And if you can make the investments, how 

do you get it out in the end so that the taxpayers can get their 

money back in the future? We are looking hard at that. 

Mr. BACHUS. Right. I think there are 2,500 such institutions. 

Let me ask you this. You know, the switch from troubled assets 

to capital injection, did that imply that it was a solvency issue as 

well as a liquidity issue? 

Mr. KASHKARI. Congressman, this has always been about capital. 

Buying troubled assets, the initial plan was also focused on getting 

more capital into the system and freeing up their balances sheets. 

The Secretary made the determination to lead with capital, because, although Congress moved with lightning speed, just 2 weeks 

between when Secretary Paulson and Chairman Bernanke came to 

the Congress and the legislation was passed and signed, credit 

markets deteriorated rapidly. And we realized very quickly that we 

had to lead with capital. 

The key for an asset purchase— 

Mr. BACHUS. And I agree with that. As you know, I proposed 

that in the first meeting. 

Mr. KASHKARI. The key, Congressman, for an asset purchase program to work is it must be done on a very, very large scale. And 

once it became clear that we had to lead with significant capital 

and maybe more capital, we would be left with a very much smaller asset purchase program that may not be big enough to do the 

trick. 

Mr. BACHUS. Okay. Let me say this, and I will close with this 

question. You know, you have done repeated capital injections into 

AIG and Citigroup. I say repeated; it is over $100 billion in the 

case of AIG. You know, have you required any corrective action on 

their part, similar to what you are hearing about the auto companies today, as opposed to what you— 

Mr. KASHKARI. We should segment—this is very important; I am 

glad you raised it—we should segment failing institutions, such as 

AIG, Fannie Mae, Freddie Mac, from the healthy bank program. If 

you look at our track record, in the case of AIG, Fannie, and 

Freddie, in each case we replaced the management. The taxpayers 

got 80 percent of the equity of those institutions. Their existing 

shareholders paid the ultimate price. And so, when we have a situation like that, we are very, very aggressive to protect the taxpayers. 

When we have a healthy bank program and we want thousands 

of banks to participate, we want to make it attractive for them to 

volunteer to participate in the program, not to scare them off. 

Mr. BACHUS. And I like that model, as opposed to having the 

Congress or the Administration micromanage these operations; you 

replace the management. I think maybe that might be a model for 

some, not all, but some of our automobile companies, too. 

Thank you. 

Mr. KASHKARI. Thank you. 

Mr. KANJORSKI. Thank you very much, Mr. Bachus. 

And now we will hear from Ms. Waters. 

27 

Ms. WATERS. Thank you very much. 

Mr. Kashkari, you know that I and some of the others are focused on trying to save homeowners and stop these foreclosures so 

that American citizens can remain in their homes. You have done 

nothing, Treasury has done nothing, to pursue any program, except 

I think begrudgingly you took Ms. Sheila Bair’s program and applied it to, I guess, Citigroup, when you gave them all of that 

money. 

If it is good enough for the Citigroup program, why hasn’t it been 

applied to all of the banks, or why didn’t you go back to purchasing 

the toxic paper and doing loan modifications? What is your resistance to helping homeowners stay in their homes and to stopping 

these foreclosures? 

Mr. KASHKARI. Congresswoman, thank you for asking. This is a 

very important topic. And, if you will permit me, I am going to give 

you three parts to the answer. 

The first part is Secretary Paulson came to the Congress to ask 

for this legislation to prevent a financial collapse. And if you will 

permit me, imagine how many foreclosures we would have had if 

we had allowed the financial system to collapse, number one. 

Number two, we continue to work very hard at Treasury, within 

the Administration, with the Federal Reserve, in consultation with 

the transition team, looking at various foreclosure mitigation policies— 

Ms. WATERS. Taking back my time, why haven’t you adopted the 

Sheila Bair program? 

Mr. KASHKARI. These programs are more complicated than they 

seem on the surface. 

Ms. WATERS. Why was it good enough for Citigroup? 

Mr. KASHKARI. That was a request that the FDIC made as part 

of the negotiation. If you will permit me to complete my answer— 

Ms. WATERS. No, I can’t, because what you are doing is you are 

just going over what you have already said. And I really want to 

focus on why we don’t have a comprehensive program to deal with 

the foreclosures and helping homeowners stay in their homes. 

Fannie Mae and Freddie Mac adopted a program. Do you like 

that program? 

Mr. KASHKARI. Yes, actually, thank you for raising that. That is 

where I was going to go. 

We are trying to use the right tool for the right job. So, for example, Fannie Mae and Freddie Mac, we worked with FHFA and with 

Fannie and Freddie to adopt a streamlined model. Why that is so 

important, Congresswoman, is because most of the pooling and 

servicing agreements for private mortgage-backed securities, 

subprimes, point to the Fannie/Freddie servicing standards for how 

their loans need to be serviced. So, by imposing those at Fannie 

and Freddie, we have now adopted a new industrywide standard 

with a streamlined protocol. If we had spent all $700 billion buying 

whole loans, we could have bought 3 million to 4 million loans. As 

you know, there are 55 million loans in America. Versus, using 

Fannie and Freddie, we can now touch almost every loan in America by establishing this new standard. 

28 

Ms. WATERS. Well, let me, if I can, take back my time again. By 

simply working on Fannie and Freddie, you cannot—you cannot— 

cover all of those loans that are out there, those mortgages. 

And let me just say this: You have resisted working with Sheila 

Bair, with what we think is a legitimate program. You have had 

a program presented by RLJ Companies, Mr. Bob Johnson, that 

talked about dealing with the services problem. You have just ignored him, and you have not responded to what looks like a legitimate way in which to deal with these foreclosures. You don’t have 

a comprehensive plan to deal with foreclosures. Now the scam artists have taken over. 

I just recently responded to a scam artist that—the name of the 

company is the Federal Loan Modification Program. I gave them 

phony criteria as a consumer about a foreclosure. They assured me 

that I qualified for their program, and they asked me for $3,500. 

And you are doing nothing about that. The scam artists are now 

filling the gap of a lack of assistance to American consumers and 

homeowners that Treasury should be dealing with. And so you talk about or allude to the other $350 billion. Please 

don’t come here and ask for another penny. Because, if you do, I 

am going to work 24 hours a day with the same people that I 

worked with to support you to make sure that they do not support 

giving you another dime. 

President-elect Obama has said that he wanted to do something 

for the homeowners. You have not even followed up with that request, with that signal that he has sent. And you come here and 

tell us about how you have saved all of the economy with what you 

have done. 

One question, have you called Bank of America? Did you get 

them involved in helping to extend the financing to the door company in Chicago where people have been sitting in? Did you ask 

them to do anything? 

Mr. KASHKARI. We have not talked to Bank of America. 

Ms. WATERS. Why not? You gave them, what, $15 billion? 

Mr. KASHKARI. Congresswoman, I don’t know the details of that 

instance. 

Ms. WATERS. Well, you should. They have been in the media. You 

should be embarrassed by that. 

Mr. KASHKARI. Well, Congresswoman, it is not appropriate for 

me, as a Treasury official, to comment on specific loans or specific 

banks in that regard. They have a bank regulator, the OCC, that 

is their primary Federal regulator, that has dozens of staff on site 

at Bank of America every day as part of their normal supervisory 

activity. 

Ms. WATERS. Okay. I appreciate that you think that is not appropriate, but let me tell you what is appropriate. It is appropriate, 

when you come before this committee, where we have worked very 

hard to follow your lead on buying up all that toxic paper, it is appropriate for you to tell us why you didn’t do it. You haven’t done 

a good job of that, and you still come without a program to deal 

with that. 

I yield back the balance of my time. And I thank you very much, 

Mr. Chairman. 

Mr. KANJORSKI. Thank you, Ms. Waters. 

29 

And now, we will hear from Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you. 

Mr. Kashkari, can you tell me a little bit—87 different entities, 

banks that you have bought, I guess, warrants and preferred stock 

in. What was the criteria? I mean, I am looking at this amount. 

Some people got $10 billion; some people got $17 million. What was 

the criteria on how much money you got? 

Mr. KASHKARI. Sure. Congressman, we established a standard 

program where banks of all sizes could apply for between 1 percent 

and 3 percent of their risk-weighted assets. So it is an equal deal 

for all banks in the country. 

They submit their application to their primary regulator, who reviews the application, makes a recommendation to Treasury. We 

review their recommendation and make a final decision. 

This is meant to be a healthy bank program so that, if a regulator deems an institution is not viable, they will likely not recommend them for the program. But in terms of the amount, the 

guidelines are 1 percent to 3 percent of assets. So, although, you 

know, some banks got as high as $25 billion, the smallest amount 

has been less than $2 million. That is because there are huge 

banks and there are little banks. 

Mr. NEUGEBAUER. Sure. What about the pricing? Was 

everybody’s pricing the same? 

Mr. KASHKARI. Identical. 

Mr. NEUGEBAUER. And so, does that say that every one of those 

entities is an equal risk of that capital that you are putting in 

there? 

Mr. KASHKARI. That is a good question. It is very hard for us to 

go out and value individually the thousands and thousands of 

banks around the country. So we felt that the fairest way to go was 

to apply the same terms for everybody so they could all apply. So 

long as their regulator deems that they are a healthy, viable bank, 

then they would be able to participate on the same terms as their 

neighbors, big or small. 

Mr. NEUGEBAUER. And when these banks applied for this money, 

did they present a business plan? For example, ‘‘If you put $2.2 billion in my bank, this is what we are going to do with it?’’ 

Mr. KASHKARI. Not specifically. In some cases, banks offered 

some indicator. We felt that—a couple of things on this, because it 

is very important. 

The overall purpose was to put more capital in the financial system, to increase the strength of the system and, over time, increase 

lending. By putting more capital in, restricting dividends and restricting share repurchases, the banks have very strong economic 

incentive to want to put that money to work. If they don’t put it 

to work, their return on equity, their return on assets will go down, 

so their returns will suffer. 

So we wanted to put the right economic incentives in there. But, 

at the same time, thousands of banks across the country in all of 

our communities—it is very hard for us to try to micromanage and 

say, ‘‘This is how you should run your business,’’ because each 

bank, and each community, is a little bit different. 

30 

So we wanted to work with the regulators to identify the healthy 

banks, put capital in on the same terms, and then create the economic incentives for them to want to go make new loans. 

Mr. NEUGEBAUER. When you look at the economy and markets, 

many would say that markets are a reflection of the economy. And 

when I look at the plan that Treasury and the Federal Reserve put 

forward, it appears to me you are trying to address the market 

structure, when, fundamentally, I think what a lot of people—and 

somebody said a while ago, we owe the American people the truth. 

We do owe them the truth. The truth is we have fundamental problems with the overall economy, which I think are being reflected 

in the markets. 

And so would you say this plan tries to address markets or it 

tries to address the economy? 

Mr. KASHKARI. That is a great question. I am glad you asked it. 

This is an economic stabilization plan to prevent a financial system collapse, to stabilize the financial system. It is not an economic 

growth plan, an economic stimulus plan. Those are very different. 

And our energy is focused on making sure the financial system 

is stable so that credit can flow. The economy has real challenges, 

as you indicated. And that is not going to be addressed. Even if we 

execute the TARP perfectly, that is different than stabilizing the financial system. 

Mr. NEUGEBAUER. But the question is, then, were we trying to— 

you say this is a healthy bank program. Many of these banks said 

they would not have ever probably participated in this, but, you 

know, it is kind of like, if the candy jar was out there, I think we 

should go and get some of those. So we have banks probably that 

are very healthy, very stable, still they were making loans, participating in the market, but now we have encouraged them to participate in this program. And so I kind of wonder how that is addressing the market. 

Mr. KASHKARI. Right. If we have a dollar and we give this dollar 

to a healthy bank or gave that same dollar to a failing bank, the 

healthy bank is in a much better position to turn around and make 

new loans. And that is exactly why we focused on healthy banks 

for the Capital Purchase Program, because they are the ones who 

are in the best position in this time of economic disruption to step 

up and make new loans to their businesses and their consumers in 

their communities. That is exactly right. 

Mr. NEUGEBAUER. Last question then, as a follow-up on that. Do 

you have evidence that this capital injection has, in fact, led to increased lending activity? Have you monitored that? 

Mr. KASHKARI. We are in the process of working with the regulators to monitor that. 

As I indicated in my opening statement, there are indicators of 

the credit crisis softening, some confidence returning. It is going to 

take time. Think of it this way: Remember the economic stimulus 

checks that Americans got? If a homeowner or a person was nervous about their economic situation, and they got that check, they 

would be more likely to put it in the bank than to go out and spend 

it. And so we need to see confidence return to the system to really 

see the lending take off, and we need to get all the capital in the 

system. It is not going to happen as fast as any of us would like, 

31 

but it is going to happen much faster for us having taken this action than if we hadn’t. 

Mr. KANJORSKI. The gentlelady from New York, Mrs. Maloney? 

Mrs. MALONEY. Thank you. 

And I would like to welcome and thank both panelists for their 

government service and their testimony today. 

I would like to ask Mr. Dodaro about the report that you just 

issued on the program and where we are going and what has happened. Along with several Members of Congress—and I would like 

to place in the record this letter—we sent a letter to you and to 

Secretary Paulson asking if you had the technological capacity to 

provide real-time data, transparency on transactions by the entities 

receiving the TARP moneys, so that we can be sure that the moneys are used for the purposes that they were intended, not only to 

stabilize our markets but to provide credit to Americans. 

We are hearing some stories that this money is being used for 

overseas purchases. We want to make sure this money is not for 

private gain, but is consistent with the purposes of the Act. 

I would like you to comment on the recommendations that your 

report made. And is Treasury accepting your recommendations? 

Are we moving toward a systemic system with regulators so that 

we can track if the money is used for the purpose it was intended? 

Mr. DODARO. Our first recommendation in the report was to 

Treasury to work with the regulators. And, as Mr. Kashkari mentioned, some of the regulators are right in the institutions, and 

some of the larger ones on a regular basis. Others have a lot of 

knowledge, obviously, about the institutions that they regulate. So 

we think it is good. 

You need a systematic process for doing that, and it has to be 

more timely. Right now the regulators get information on a quarterly basis, usually called data quarterly financial statements, but 

that could be modified for a certain amount of the information. 

Now, that is, though, the one recommendation that we made that 

Treasury had a different interpretation on it. And I think it is important for them to reconsider collecting this information at an individual institution level. It is not micromanaging to ask people 

what they did with what you gave them, to the extent that it is 

possible. And I think it is very important, and it is the only way 

that we will have transparency. 

Mrs. MALONEY. I agree completely and I intend to legislate that 

recommendation to make it clear to Treasury that we want transparency and accountability. 

I would like to ask Mr. Kashkari—I am grateful that the financial system of America did not collapse and that we are moving toward stability of our financial institutions. That was a goal, and we 

have achieved that, and we are getting stronger every day. 

But what I am hearing from my constituents is that the next 

step of getting credit out in the community is not happening. We 

have put $7.8 trillion into the financial system—10 times the $700 

billion of the TARP program. 

Yesterday, there were 10 car dealers in my office from New York 

State. They say people want to buy from them, they want to buy 

their cars, but they cannot get a loan from a bank. We are hearing 

from constituents who would like to buy houses, but they don’t 

32 

know where to go to get a loan. The money is not getting out into 

the community. And I would venture that we should look more at 

what is happening to the money now, as opposed to putting it into 

the system. 

I have received numerous phone calls in support of a proposal of 

Treasury of a 4.5 percent program that would allow for people to 

buy their first homes. 

I think what is lacking here is there is not a clarify of programs 

to the people of where they can go for help. This, I believe, got such 

a groundswell of support because it was clear: You can go to Treasury, you can get a 4.5 percent, 30-year loan. And economists tell 

us that key to solving our challenge is helping people stay in their 

homes and getting the homebuilding, the home purchasing, this 

segment of our society moving. 

I want to underscore what many members on this panel have 

said, that we support moneys going to help people stay in their 

homes for long-term loans. And if Treasury has an objection to 

Commissioner Sheila Bair’s program, if you feel you can streamline 

it, you can make it more effective, then do it. But that certainly 

is a goal. 

Numerous economists have told us we will not solve this problem 

—meaning the overall economy—until we stabilize the foreclosures, 

the 2 million to 5 million foreclosures that are predicted by some 

economists. But also a factor is the 4.5 percent program to get the 

economy moving. 

And I would like to know, are you moving forward with this program? I certainly support it. What is the status of it? And any program that you have that will get lending out to the community. 

Mr. KASHKARI. Thank you, Congresswoman. 

Let me answer by starting with we look at the foreclosure problem as a critically important problem and issue that we are working hard on that is distinct but related to getting housing going 

again. And so the mortgage program that you referred to we put 

in the latter category. It is a housing program to help the housing 

market more broadly. We are looking at a variety of programs 

there. This is one thing we are looking at very seriously, trying to 

work out the details to understand exactly how to do it and implement it. 

But I agree with you, reducing interest rates to get borrowers off 

the sidelines so they can afford to buy a home for the first time or 

to afford a bigger home, it is the only thing that is going to help 

home prices, so we think it has some merit. 

On the foreclosure side, again, as I mentioned to Ms. Waters, we, 

again, continue to do a lot of work. We are in consultation with the 

transition team. Ultimately, programs that we implement, they are 

going to be the ones living with and executing, so we want to make 

sure that there is coordination there. So we are doing a lot of work 

on both fronts. And I agree with you in terms of the merit of both. 

In terms of consumer credit more broadly and auto loans and 

auto dealerships, we have heard the exact same thing. If you look 

at the cost of an auto loan today compared to a year or 2 years ago, 

it is remarkable. I mean, who would pay 14 percent to go buy a 

car today? 

33 

That is exactly why we worked with the Federal Reserve to design this new consumer credit securitization facility. That should 

help bring the cost of consumer finance down right directly to our 

consumers—to our homeowners, to our car buyers, to our students 

who want to go to school, etc. 

Mrs. MALONEY. My time has expired. Thank you. 

Mr. KANJORSKI. I thank the gentlelady from New York. There 

has been a request on her part for submission. 

Mrs. MALONEY. Yes. 

Mr. KANJORSKI. If there is no objection, it is so ordered. 

Mr. KANJORSKI. I also have two letters, one from Mr. Keating 

from the ACLI, and one from Mr. Racicot from the American Insurance Association. If there is no objection, we will admit the same 

into the record. The Chair hears none, so they are admitted. 

And now, we will have Mr. Castle of Delaware. 

Mr. CASTLE. Thank you, Mr. Chairman. 

Mr. Dodaro, back in my opening statement, I mentioned what I 

would like to ask you questions about, and that is the role of the 

lending by the Federal Reserve and what is being done with respect to overseeing what they have actually been doing. 

Their loans, actually, are at a rate much higher than anything 

the Treasury has done. It is close to a trillion dollars. I am looking 

at their balance sheet now, which is a very odd balance sheet, because assets become liabilities and vice versa. But it is approximately in that range. 

And I am interested in more oversight and greater detail concerning their expenditures and what they are doing, all of which 

is pursuant to section 13–3 of the Act allowing these loans. 

I realize when I say all this that the Federal Reserve has, by legislation and by fiat in general, certain protections with respect to 

the kinds of lending which they are doing to banks for reasons of 

security. But, to me, these kinds of loans aren’t that dissimilar 

from what is happening in Treasury. And when we deal with these 

section 13–3 loans, we are dealing with something of which there 

should be more transparency and, I think, more knowledge with respect to what is happening. 

I would just like to get your views on it, since you are the ones 

who are really overseeing what Treasury is doing. And I realize 

there is nothing you can do now because of the confidentiality aspects of the Federal Reserve, but should we be doing something as 

legislators to make sure that transparency is increased? 

Mr. DODARO. There is no question, Congressman, that the Fed’s 

activities, you know, in terms of volume and the amount of money, 

you know, it far exceeds the TARP program activities. 

The Federal Reserve has certain protections to statutorily protect 

its independence. Part of that is that it is one of the few areas in 

the Federal Government where there are prohibitions against GAO 

oversight for activities regarding foreign currency transactions, 

transactions with foreign banks, with open market transactions, 

and also with the discount window. So there are limitations on our 

ability to provide this type of oversight. 

There have been legislative proposals in the past to give GAO additional statutory authority to provide greater oversight over some 

of these activities that would be taking place. My view would be 

34 

that a carefully crafted legislative solution would be necessary for 

GAO to have more ability to oversee those type of transactions 

while also providing and safeguarding the confidentiality necessary 

to do that. 

We have a long history of protecting information of a classified 

status in the national security area and others and have an unblemished record, so I think we have the ability to do this. But, in 

my opinion, it would require a statutory change. 

Mr. CASTLE. Oh, I agree with that. I guess my question really is, 

is it something you would welcome? Is it something that would be 

helpful, in terms of the broader picture of all these loans which are 

being made and the return to stability that we are all concerned 

about? 

Mr. DODARO. My philosophy on this is that we exist at the GAO 

to support the Congress in carrying out its constitutional responsibilities. And if the Congress believes that it is necessary, we 

would be happy to work with you to craft the type of legislative 

proposal that would provide that type of oversight and assistance 

to the Congress. 

Mr. CASTLE. And let me just restate, of course, that I am just 

talking about those loans which are being made pursuant to these 

emergency circumstances as opposed to their normal bank lending, 

which I think takes on a different tone all together. 

Mr. DODARO. I understand that, Congressman, and I agree with 

that. And that is what I was speaking about also. 

Mr. CASTLE. Okay. 

Mr. Kashkari, quickly, are you or the regulators who deal with— 

let’s see, there are 87 loans, as you have indicated—following what 

the banks have actually done after they have gotten the money? 

We are all concerned about, is this getting out to Main Street in 

some way or another. And is that being done? 

I realize the representations they made, I realize that you are 

worrying about securing them as far as their capital is concerned. 

But we are somewhat concerned about what are they actually 

doing. Are they doing what they represented they would do, and 

are they actually making sure that, pursuant to what you said here 

today, it is in their best interest to have these loans go out and to 

become economically strong again. 

Is that actually being pursued to make sure that is happening 

as a part of these reports which we are getting and going to get? 

Mr. KASHKARI. Congressman, we are working on that very issue 

with the regulators. We had a call just a day or so ago with the 

four banking regulators to look at their supervisory data that they 

can get to monitor on an individual basis and on an aggregate 

basis what is happening with the banks that have received the 

funds versus the banks that haven’t received the funds. 

So that program is being designed and put into place. It is not 

going to be perfect. And, as you know, you put a dollar into an institution, it is impossible to follow where that dollar goes. You 

know, you have to look at it in the aggregate. And so we are looking at market-wide measures, as well as working with the regulators to look at institutional measures, as well. And we are not 

there yet, but we are working on it. 

Mr. CASTLE. Okay. 

35 

Thank you, Mr. Chairman. 

Mr. KANJORSKI. Thank you, Mr. Castle. 

And now we will hear from the gentleman from North Carolina, 

Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. 

Welcome, Mr. Kashkari. 

I am looking, in front of me, at a sequence of events here. On 

October 6th, at 12:30 p.m., the Treasury Department announced 

procurement authorities and procedures, in which they were talking about purchasing whole assets and whole loans and the whole 

process of things; they outline the procedures. At 1:45 that same 

day, they announced that you were being hired as the Interim Assistant Secretary for Financial Stability. 

On October 13th, you gave a speech to the Institute of International Bankers, in which you were still talking about purchasing 

troubled assets, ‘‘mortgage-backed securities purchase program: 

This team is identifying which troubled assets to purchase, from 

whom to buy them, and which purchase mechanism will best meet 

our policy objectives. We are designing a detail auction protocol,’’ 

so forth and so on. 

On October 13th, at 2:27 p.m., it was announced that a firm, 

Ennis Knupp & Associates, had been hired. And in that announcement, ‘‘The investment advisor will conduct research on mortgage 

whole loan asset managers and on servicing organizations. Firm 

will identify qualified minority- and women-owned businesses to 

provide services for the portfolios.’’ A contract of $2,495,190 was 

announced on that occasion. 

My questions to you: How much has Ennis Knupp been paid, and 

what have they done? 

Mr. KASHKARI. Thank you, Congressman. Ennis Knupp is our 

consultant— 

Mr. WATT. I know who they are. Tell me how much they have 

they been paid and what they have done. 

Mr. KASHKARI. I don’t have the dollar value for how many dollars 

have gone out the door, but I can get it for you. 

They are advising us right now. We have received hundreds of 

applications for equity asset managers for all the equity investments we have made. They are helping us screen through those applications, identifying small, minority- and women-owned equity 

asset managers. 

And so, although we hired them to be our asset manager selection consultant, we thought we would be selecting asset managers 

for mortgages and mortgage-backed securities, we are using the 

same firm to help select the equity asset managers. 

Congressman, we have hired no firm for the asset managers, 

mortgage-backed securities, or mortgages. We never hired anybody. 

And so there is no one that we have hired who is just sitting 

around doing nothing because we changed strategies. We made 

sure that didn’t happen. 

Mr. WATT. But when you put out the request for a proposal, it 

was to deal with the purchase of distressed assets. Did you put out 

another request for a proposal and give other applicants the opportunity to compete for that or you just decided this firm is the firm 

because they had some formal connection to Goldman Sachs and— 

36 

I mean, that is what the public is asking us, Mr. Kashkari. This 

looks like a Goldman Sachs monopoly. And when you have all of 

these people who have these connections to Goldman Sachs in the 

chain, it makes all of us look bad, including yourself, mind you. I 

can’t tell you the number of people who have questioned your credentials, as well as they are, because of your former connections to 

Goldman Sachs. 

Do you see what I am saying? And here are Ennis Knupp principals having connections to Goldman Sachs—people are asking 

me, is Goldman Sachs running this country? What are we doing? 

We have given $700 billion, and there is this monopoly on who is 

controlling it. Nobody is accounting to anybody for it. And the perception, whether the reality is correct or not, the perception is that 

there is something sinister going on here. So I want you to send 

to me, if you would, a detailed description of what has been paid 

to this firm and what they have done, because none of the people 

who have submitted applications to manage any of these assets 

have heard anything from Ennis Knupp. There are 100-and-some 

applicants out there that Representative Waters and I have been 

trying to get in the door to help with this process, and they can’t 

get in the door because you all keep changing the rules about what 

it is they are supposed to do, and Knupp is not doing anything to 

process their applications. 

I yield back, Mr. Chairman. 

Mr. KASHKARI. Mr. Chairman, may I respond? 

The CHAIRMAN. Briefly, Mr. Kashkari, yes. 

Mr. KASHKARI. We have a very formal procurement process, led 

by career staff at the Treasury. Let me segment it in three categories. Mortgage asset managers, we put out solicitations, received applications, hired nobody. Investment manager consultant, 

that is Ennis Knupp. They are not making any decisions. They are 

just advising the career Treasury staff. And we have received hundreds of applications for equity asset managers. Our career staff is 

reviewing those, with advice from Ennis Knupp, has down selected, 

are right now in the process of negotiating conflicts of interest to 

make sure taxpayers are fully protected. 

I am very proud of the procurement process that we have established very quickly, led by the most senior career professionals at 

Treasury. 

Mr. WATT. Let me just say this as gently as I can: All these billions of dollars are out there doing something, and you are telling 

me that nobody has been hired to do any of the management of 

what they are doing. That is not adding up for me, Mr. Kashkari, 

I am sorry. And it is not adding up for the public. I mean, I am 

not a conspiracy theorist here, but I wouldn’t come and make these 

accusations or even ask the questions if people were not asking me. 

The gentleman who ended up being the CEO at Wachovia was 

from Goldman Sachs. And people on the ground in my community 

are saying, what is up here? Is Goldman Sachs running the country 

or is Congress running the country? Is this Administration running 

the country? It looks bad, Mr. Kashkari. That is the problem we 

have. 

The CHAIRMAN. The gentlewoman from Illinois. 

37 

Mrs. BIGGERT. Thank you, Mr. Chairman. And thank you, Mr. 

Dodaro, for your, I think, very thorough report. I really appreciate 

it. My question is for Mr. Kashkari. 

The deadline for submitting insurance proposals has passed. I 

think that was October 28th. Did you receive a large number of responses on the request? And can we expect to hear more from 

Treasury regarding the insurance program? 

Mr. KASHKARI. Yes, Congresswoman, we received, I believe, close 

to 100 responses, which we have gone through very carefully. And 

actually, the recent Citigroup investment that we made, in coordinated action with the Federal Reserve and the FDIC, the Treasury 

provided—the TARP provided $5 billion of insurance against mortgage-related assets. That is the first exercise of our authority under 

Section 102 of the Troubled Asset Relief Plan. 

Mrs. BIGGERT. Well, you know, I applaud the exercise of authorities other than the capital injection. But I wonder why the government didn’t implement a program where it is the insurer of first 

resort, and not secondary. 

Mr. KASHKARI. Forgive me, I don’t follow you. 

Mrs. BIGGERT. Well, for example, under the Aon plan the Treasury Department could implement a program allowing holders of illiquid assets to form an asset stabilization pool so that those entities are the first resort, while in the Citi, isn’t it that the government is the— 

Mr. KASHKARI. No, actually Congresswoman, Citigroup in that 

program is taking the first loss position, followed by TARP and the 

FDIC and then the Federal Reserve. 

Mrs. BIGGERT. Yes, but for a very limited amount. 

Mr. KASHKARI. I don’t have the number. I believe it is close to 

$40 billion, $30- or $40 billion is the Citigroup’s first loss position. 

Mrs. BIGGERT. Could you get that to me? 

Mr. KASHKARI. Absolutely. I would be happy to. 

Mrs. BIGGERT. Thank you. Have you reviewed the Aon proposal 

to develop an insurance solution to deal with the illiquidity of 

mortgage-backed assets? 

Mr. KASHKARI. I personally have not, but we have a team that 

studied all of the proposals, all close to a hundred, and I am almost 

certain that that proposal came in through the formal channels. 

And all of those were reviewed very carefully. 

Mrs. BIGGERT. Well, that proposal was really the same as the 

language that we put into the bill. Isn’t that correct? 

Mr. KASHKARI. Again, Congresswoman, I am not sure. I can find 

out, though. 

Mrs. BIGGERT. Okay. Well, what plans does the Treasury have 

for addressing then the undervalued mark-to-market assets, which 

really do drag down the balance sheets of the financial institutions? 

Mr. KASHKARI. The mark-to-market is a very important issue. 

We are focused on stabilizing the financial system so that they can 

recognize their losses and also raise additional capital and get lending going in our community again. We believe that both by helping 

the consumers directly; for example, through our facility with the 

Federal Reserve that I have spoken about, and putting more capital in the banks, it puts them in a better position so that we can 

weather this downturn and get these assets moving again. So there 

38 

is no one tool. All of the regulators are bringing the various tools 

to bear in a complementary manner to try to get through the financial crisis. The TARP is very important, but it complements the 

other tools that we have. 

Mrs. BIGGERT. Well, you said that you are monitoring, and there 

are indicators that include: One, that the financial system hasn’t 

collapsed; two, that the credit default swap spread for the 8 largest 

U.S. banks has declined more than 200 points; and three, that the 

LIBOR and OIS spreads have declined 100 basis points, but when 

will we hear a more concrete description just about what the institutions are doing with the funds that they are receiving? 

Mr. KASHKARI. Congresswoman, that is something we are working on right now with the regulators. As you know, the four banking regulators, the Fed, FDIC, OCC, and Treasury are the supervisors of these banks. 

Mrs. BIGGERT. Can you give us a date? 

Mr. KASHKARI. I can’t give you a specific date aside from saying 

as we speak right now, just yesterday we spoke about it, we are 

working with the regulators to collect this information on a regular 

basis, taking very seriously the feedback provided by the GAO and 

the Congress. 

Mrs. BIGGERT. Do we have to mandate that if you can’t give us 

some timeline? Everybody, I think, has asked this, when are we 

going— 

Mr. KASHKARI. Again, it will probably be weeks before we are 

going to start seeing the initial data. They collect this data right 

now I believe quarterly, the call report data. We are working with 

the regulators to figure out which are the right metrics that are 

going to get at the fundamental questions that people are asking. 

I don’t want to overcommit here, but it is something that we are 

taking very, very seriously. 

Mrs. BIGGERT. I yield back. 

The CHAIRMAN. I recognize myself for 5 minutes. First, before my 

5 minutes starts, I apologize, but I have been working on the question of the automobile industry, and I will be leaving shortly to go 

testify before the Rules Committee. So the chairman of the Financial Institutions Subcommittee will continue the very good job he 

is doing of presiding. 

I also want to respond, I received a letter apparently today, if 

today is December 10th, from—the lead signature is the minority 

leader, Mr. Boehner, and some others, asking me to immediately 

summon CEOs from institutions that have received TARP funds 

before the committee. Now, we do have a week before we can have 

a hearing, so this is apparently a request for a hearing sometime 

next week. I will consider it and consult with the members. I will 

say this: If it is not likely to be the case that the second $350 billion is requested until January, then I think this is something we 

can accommodate. I will say that I know people don’t always think 

of things instantly, the banks in question have had TARP funds for 

some time. Apparently someone woke up yesterday and thought it 

would be a good idea to have a hearing right away, today being December 10th. I think it will be hard logistically to accommodate 

that next week, but I agree in the substance. And I would say this, 

my assumption is that we will be able to have such a hearing with 

39 

some of the CEOs, obviously not all of them. There are, I don’t 

know, several dozen I would guess who have gotten funds under 

the TARP are banks, but we will call in a representative sample, 

including different sizes, and have such a hearing. At some point, 

there will be a request to trigger the second $350 billion. We will 

have 15 days to vote on that. My intention now would be to have 

that hearing sometime during this period. So I will not, I think, be 

able to comply with the request that I do it immediately. I am not 

sure that the request that I do it immediately was done with any 

expectation that I would do it immediately. But yes, I do think it 

is appropriate to have such a hearing. 

Mrs. BIGGERT. Will the gentleman yield? 

The CHAIRMAN. Yes. 

Mrs. BIGGERT. As a signatory of that letter, I appreciate you taking such a prompt look at it. And I appreciate you considering holding a hearing when it— 

The CHAIRMAN. And if we did it on that timetable, does the gentlewoman think that would be compliant? 

Mrs. BIGGERT. Well, ‘‘immediately’’ is a term that people have 

different ideas about, but I think that timetable would work. 

The CHAIRMAN. Okay. As long as it is clear that by immediately, 

we don’t mean immediately, then we will be able to do it. 

Mr. SCOTT. Mr. Chairman, would the chairman yield for a moment? 

The CHAIRMAN. To whom? 

Mr. SCOTT. To me. 

The CHAIRMAN. The gentleman from Georgia, yes. 

Mr. SCOTT. Thank you, Mr. Chairman. Let me just encourage 

you to move ahead with all deliberate speed to get these CEOs before our committee. There are pertinent questions that we have to 

ask and get that answer as to why they are not lending. 

The CHAIRMAN. That is why I said that we would do it. 

Mr. SCOTT. Yes, sir. 

The CHAIRMAN. Let me say that the deliberate speed I will employ will be a lot quicker than the deliberate speed which the gentleman is well aware of is not the fastest moment in our history 

when we segregated for much longer. 

Mr. SCOTT. Amen. 

Mr. LYNCH. Mr. Chairman? 

The CHAIRMAN. Yes. 

Mr. LYNCH. One question: I know under the original TARP bill 

that it is a joint resolution of disapproval that we would have to 

pass. So is there any fear that there might be some— 

The CHAIRMAN. I have no expectation—let me say this, and I 

have had some business with the Secretary of the Treasury and we 

have discussed this. It is conceivable that we could have a request 

for $350 billion. I will tell you this: If it came, I know that the 

Speaker and the Majority Leader would reconvene our bodies, as 

inconvenient as that might be. I think it is likely at this point, absent a lot of work on foreclosures and other things, that such a resolution of disapproval could pass. Yes, it could be vetoed. Given the 

extent to which the psychology of the investor community is a large 

part of our problem, and I have spoken to people in the Administration, I don’t think anyone thinks that releasing the second $350 

40 

billion as a result of the President vetoing a resolution of disapproval would not in fact be doing more harm than good. So I am 

confident there will be conversations. I think people are behaving 

responsibly here. There were conversations between the outgoing 

Administration, the incoming Administration, and the leadership. 

And my own advice is that I think ultimately we should have that 

$350 billion, but after there has been a lot of conversation about 

how it would be used. And I don’t think it would be in anybody’s 

interest to force that issue before there is a consensus on that. I 

am reasonably confident of that. 

Mr. LYNCH. Okay. Great. Thank you, Mr. Chairman. 

The CHAIRMAN. Mr. Secretary, I apologize for having been in and 

out. One of the things that, as you know, raised my concern was 

the GAO’s recommendation that you do a better job of trying to see 

whether or not the banks in question were relending the money 

that they were lending. 

Let me say my 5 minutes should just be starting now in terms 

of the questions. And I know we had a conversation, and I appreciated your responsiveness, and you may have touched upon this 

in your statement, I believe that the response you put in writing 

was so worded as to suggest that you weren’t going to try to do 

that, and I was afraid that would give a signal to some of the 

banks that they wouldn’t have to worry so much. And I understand 

we had that regulator’s statement of November 12th, which was 

useful. The anecdotal evidence is still overwhelming that there are 

people who think they are good borrowers who can’t get loans. I 

know there is some problem with where the loans could be. 

So I guess I would ask you to clarify what is the state now of 

this? Are you going to be measuring in some near term whether 

the banks that got the money have relended? I understand that 

money is fungible, but total loan amounts are also countable, so 

that there should be some way to do that. What is the current state 

of your view? And the answer to that I think whether or not there 

is a successful request for a drawdown of the second $350 billion 

is dependent, in my judgment, in part on mortgage foreclosure, 

some of the relief going forward, including the 4.5 percent or some 

variant of it, and the consumer matters. 

I will say to people who have been concerned about auto dealers 

that relief for the auto dealers is going to come ultimately from the 

TARP, but that also showing that there is some way of counting 

how we are doing that. And I ask you to comment and then Mr. 

Dodaro to comment on your comment, please. 

Mr. KASHKARI. Thank you, Mr. Chairman. We are working very 

hard with the four banking agencies to look at the supervisory data 

they collect and to understand if that will get at an answer to the 

fundamental questions that you and other members are asking and 

that the GAO is asking. So we are working right now with the four 

banking agencies to look at the quarterly reports that they collect, 

does that shed light on this issue? If not, what other data do we 

need? And how frequently can we collect it? So we have heard the 

feedback, we got it, and we are working on it. 

The CHAIRMAN. Mr. Dodaro, let me ask you to comment, but first 

let me take some credit of there is a credit scarcity in this country, 

one of money to lend, and two, for anything we do. We never get 

41 

any credit. So I want to give us some. One of the criticisms made 

of the bill was it didn’t have adequate oversight. Now, there was 

a slowdown in the creation of the congressional panel. My guess is 

some who were complaining that there was too little oversight, now 

that we have that congressional panel will be heard to complain 

that there is too much of it. I myself welcome it. But we did write— 

and we still have a pending confirmation in the Senate of an Inspector General. But we knew that the GAO was there, we know— 

there are few institutions around here that are as respected across 

the ideological and political spectrum as the GAO. And we were 

very pleased, as you know, Mr. Dodaro, we met with you early. You 

reported to us that with the cooperation of Secretary Paulson and 

Mr. Kashkari you were on the ground as soon as this startup was 

there. You had people there. And the very fact that we are here 

talking about a report which gives them some credit and some criticism I think testifies to the adequacy at the very least of the oversight parts of the bill. 

But would you now comment on Mr. Kashkari’s—are you in on 

these discussions? Do you have some confidence about them going 

forward? 

Mr. DODARO. We have had some preliminary conversations, the 

staff on the team, with Mr. Kashkari and his team. But we need 

to stay involved to see what they come up with in their proposal 

that they are going to work with the regulators on. I think they 

are now headed in the right direction, but you know, I would like 

to see the specifics about what data, how frequently they are going 

to do it. We will stay involved, give them our feedback to ensure 

that recommendation— 

The CHAIRMAN. I appreciate that. Let me just say this, given the 

jurisdictions around here, if there is a request for the second $350 

billion, whether it comes early in January as a joint proposal from 

the two Administrations or it comes later, I would like to be in a 

position to defend the $350 billion, not to oppose efforts to cut it 

off. My ability to give a good answer to this question that we are 

now talking about, are we effectively measuring relending, that 

will be critical to my getting the bill through. I think the extent 

to which I and the Speaker and a few others can get major legislation through entirely on our charm has run out. So we are going 

to need some very hard answers. 

The gentlewoman from Florida is overreacting to that, I might 

say. But we will try to get some hard answers. I thank you. And 

the gentleman from Pennsylvania will resume the Chair. 

Mr. KANJORSKI. [presiding] The gentleman from Texas, Mr. 

Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. Mr. Kashkari, in 

your testimony you speak, I think in the first paragraph, about the 

critical objectives that Treasury has undertaken under the EESA 

statute. By my reading, it appears that Treasury has nine different 

factors it must take into consideration in operating the TARP program, including protecting the interests of the taxpayers, maximizing overall returns, minimizing the impact of the national debt, 

stabilizing our financial markets, helping families keep their 

homes, stabilizing communities, and ensuring that all financial institutions are eligible. 

42 

In your interpretation of the statute, did you get direction from 

Congress on how to weigh these various considerations? And do 

you consider some of them to be competing interests in the short 

term? 

Mr. KASHKARI. Congressman, I think that all of those considerations are important. I think some of them can be competing. And 

it can be difficult to prioritize, especially in a time of financial crisis. As an example, we absolutely want to protect the taxpayer, but 

we first and foremost want to prevent the financial system from 

collapsing. That was our highest priority. Once we were able to do 

that, we want to do that in a manner that provides as much protection to the taxpayer as possible. Also keep in mind what would 

happen to the taxpayers if the financial system had been allowed 

to collapse. So these are very complex and important considerations, and I will just tell you our highest priority was to get out 

there and move aggressively to stabilize the financial system. 

Mr. HENSARLING. Mr. Kashkari, I have a great preference for the 

use of voluntary capital from investors over the involuntary capital 

of taxpayers. I believe that one man’s nimble response to the economic crisis may be another man’s confused ad hoc approach. It is 

anecdotal, but I have heard from many investors that frankly they 

have been less than confident in the actions of the Treasury, that 

their capital is sitting on the sideline, that there are homeowners 

who have the ability to pay their mortgages or to work with lenders, but are unwilling to do it at this time, thinking they may get 

a better deal from Treasury, or a better deal from Chairman Bair 

of the FDIC. 

My question is in bringing stability, at what point is certainty, 

legislative and regulatory certainty, needed in the marketplace? I 

mean some of what we are facing is psychological, I believe, in nature. And in fact Chairman Frank, I see he is no longer in the 

chair, has stated, ‘‘the psychological problem is even worse than the 

real problem.’’ But at least the anecdotal evidence is very strong 

that by careening seemingly from one strategy to another, frankly 

you have done more to incite panic in the markets as opposed to 

calming them. 

Mr. KASHKARI. Congressman, there is no question that clarity 

and certainty are very important for developing market confidence. 

We have had to move and be nimble and react to changes on the 

ground. I say since the beginning of the credit crisis, the one constant has been its unpredictability. And it has only intensified and 

deepened more rapidly than we had expected, even in the few 

weeks that we were working with the Congress on this legislation. 

So I think we have a choice of being on our back foot and seeing 

what happens, potentially risking a financial collapse, or being on 

our front foot and being aggressive to try to stabilize the system, 

prevent a collapse, and then let the system heal. But I agree with 

you that more clarity will help with confidence, and will help the 

system to heal faster. And we think we have the right strategy. 

Mr. HENSARLING. Mr. Dodaro, not a question but a comment, I 

read every word of your report. It was excellent. It was very helpful 

to the process. In the remaining seconds I may have available, Mr. 

Kashkari, I am still somewhat confused about the point. I want 

there to be clarity. For institutions requesting funds under CPP, is 

43 

it the policy of Treasury to allow the regulator of the financial institution in question to determine viability? And is that the only 

criteria that Treasury is employing at this time for access to those 

funds? 

Mr. KASHKARI. The regulator—we are looking at viability. That 

is our test. And the regulator offers us their assessment of the institution’s viability without government assistance. Ultimately, 

Treasury makes the decision. So in some cases the regulator will 

submit an application and recommend a ‘‘yes.’’ We may look at it 

and say, gee, we are not so sure. We will send the application back 

to the four banking regulators so they can review it, a peer review 

process, and come to us with a combined regulation. The point is 

that we don’t want to put government capital into a bank that is 

ultimately going to fail. We don’t think that is protecting the taxpayers. And so there are some unhealthy banks that are out there, 

and the regulators are in the best position to offer us information 

and their judgment on who is healthy and who is not. 

Mr. KANJORSKI. Thank you. Now the gentleman from New York, 

Mr. Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. I am still waiting to hear 

really some answers, especially in regards to some of the questions 

that Ms. Waters asked. I am concerned with reference to just the 

response to Mrs. Maloney when—and I agree that lowering interest 

rates, you know, may be a good thing in trying to get individuals 

back into buying homes, etc. However, the number of individuals 

who can get back into the market because of the lack of availability 

of credit and the fact that you have to have the super high scores 

to be eligible shows that the number of individuals who are going 

to buy homes is not going to be great in comparison to the number 

of individuals who continue to lose their homes. And thereby, you 

know, it seems to me to make sense if in fact we figure out how 

we are going to help those individuals to prevent them from losing 

their homes so that we can make sure that we are starting to stabilize this market. 

And in the Emergency Economic Stabilization Act that we 

passed, we put in there specific words that the Secretary had the 

authority to use loan guarantees and credit enhancements to facilitate these loan modifications to prevent affordable foreclosures. But 

it seems that the Secretary has not moved. Whether it is the program that was put out there by Mr. Johnson or Chairwoman Bair, 

the Secretary has not moved to do anything, or at least it appears 

to us to do anything to make a difference in helping those individuals or preventing individuals from going into foreclosure. 

So my first question is, is the Treasury looking to do anything 

with reference to what he has the authority to do to stop the rising 

tide of foreclosures that are imperiling the economy that we are 

currently suffering from? 

Mr. KASHKARI. Thank you, Congressman. The answer is yes, absolutely. And I am going to give you, if you will permit me, a twopart answer. First, we continue to work very hard looking at the 

various proposals that we have received and that we have developed ourselves working with the Federal Reserve, also consulting 

with the transition team to identify the right approach that is 

going to help homeowners without creating a windfall to hedge 

44 

fund investors. We want to balance it so that the homeowners are 

getting the benefit, not the investors, number one. 

Number two, we are trying to bring all of the tools in the Federal 

Government to bear on this problem. And so, for example, the work 

that we did with Fannie Mae and Freddie Mac by establishing a 

streamlined loan modification protocol for Fannie Mae and Freddie 

Mac, the advantage of that, Congressman, is that most of the 

agreements that govern the subprime loans out there refer back to 

the Fannie and Freddie underwriting—excuse me, the Fannie and 

Freddie servicing standards. So by using Fannie and Freddie, we 

have been able, with their regulator, FHFA, to establish effectively 

a new industry-wide standard for loan modifications. So we are 

looking at what we can do under the TARP, but we are also looking 

at what other tools we have outside the TARP. We want to bring 

all of the tools to bear and use the right tool for the right job. 

Mr. MEEKS. Except it seems as though there is none—because we 

are talking about a small percentage of the TARP money that 

would be utilized in regards to trying to make sure that the mortgagors—that would prevent the foreclosures of these mortgages. 

And when you look at the number of individuals, I think it is 70 

percent of subprime borrowers are not getting the help, that there 

are not enough servicers. And unless we start putting some money 

into training and having more servicers for these loans so that we 

can help save some more individuals from going into foreclosure, 

then we will never get from under this mortgage foreclosure problem, which seems to be the epicenter of all of the problems that we 

are having here. 

And then, let me ask this question also, because I think it goes 

to something of the perception, continuing the perception that Mr. 

Watt talked about. Because I am also concerned that in recent 

weeks the Federal Reserve has approved expedited bank holding 

company applications for numerous companies, including Goldman 

Sachs, and I think Morgan Stanley, and the Treasury Department 

has already awarded TARP money under the Capital Purchase Program to Goldman Sachs and Morgan Stanley, and that these companies are also issuing billions of dollars of federally guaranteed 

debt under the FDIC’s debt guarantee program, designed specifically for banks and bank holding companies. In light of these circumstances, what I want to find out is what safeguards is the 

Treasury Department establishing to ensure that taxpayer money 

under the TARP program and the FDIC programs and the Federal 

Reserve discount window is not being used to support the substantial nonbank commercial activities of any of these newly formed 

bank holding companies? 

Mr. KASHKARI. Congressman, by becoming bank holding companies, these various entities are coming under increased regulatory 

supervision. So the Federal Reserve will now be their regulator, 

perhaps the OCC. They are going to now have Federal regulators 

in their offices on the ground with them supervising their activity, 

making sure they are not putting the taxpayers at undue risk. So 

the Federal regulators are in the best position to do that. They are 

now onsite doing that. 

Mr. MEEKS. But see—just one follow up—because there are bank 

holding companies that also own commercial businesses such as 

45 

travel agency businesses. And what I don’t see, and I am trying to 

find out what safeguards are in place to prevent TARP money from 

going to say the travel agency that happens to be owned by a diversified company? And just because it became a bank holding company? Because we had that same kind of situation when we talk 

about even when we are dealing with the auto industry, that they 

don’t qualify under TARP. But I don’t understand what we are 

doing here in that regards— 

Mr. KASHKARI. It is very difficult— 

Mr. MEEKS. —as far as protections are concerned. 

Mr. KASHKARI. It is very difficult, Congressman, to ring fence 

money in an organization and say, well, this money stays here and 

that money stays there. If we gave money to one part of the organization, that would mean they would have to take less money from 

the other part of the organization in. So this is something that we 

are looking at, but it is very difficult to try to say this money needs 

to stay in this little part of the organization. I haven’t heard a good 

idea how to do that. 

Mr. KANJORSKI. Maybe a good idea would be to separate the institutions. Maybe we ought to revisit that question. Thank you, Mr. 

Meeks. 

The gentleman from New Jersey, Mr. Garrett. 

Mr. GARRETT. Thank you. Thank you for your hard work and 

your dedication to this issue. Let me begin with a question that I 

hear from my district all the time. You sort of touched on it, and 

I think the answer is probably an easy ‘‘no.’’ When you said to one 

of the other questions how many foreclosures would have occurred 

had we not done this, and of course you have heard other people 

say before the bill came along if you don’t do it the credit market 

will crash, and so on and so forth. We did pass the bill, obviously 

the market still crashed, and what have you. It seemed things 

didn’t really begin to get a little bit of an uptick until you saw the 

globalization coordinated effort. 

So the short question is, is there any way to measure what would 

have occurred had we not taken the passage of this bill? 

Mr. KASHKARI. It is very difficult to measure the counterfactual, 

as the chairman started with. 

Mr. GARRETT. Yes. Okay. That is what I thought. To the gentleman behind me, he raised the good question I thought with regard to what some of the goals are here, and is it an economic one 

or is it towards market driven? I appreciate your answer there. To 

the extent that it is not simply to get the market, the stock market 

up again and the market going in the right direction again, but 

larger global or larger economic issues and what have you, one of 

the questions I have is at what level? The number I read the other 

day was, for example, that household debt to income is down for 

2 quarters straight now from a high of 139 percent down to I don’t 

know what the current number is. Now, in one sense, that is bad 

for the economy when going forward. But in the other sense, if we 

can get back to a reasonable level on that, that may be a good 

thing. As the gentleman behind me always asks, what do you have 

against poor people in the sense that they are the ones who want 

to be able to buy into these houses, and what we are trying to do 

46 

with a number of these initiatives is to keep the price inflated. So 

in a nutshell, how do you address that question as to what level? 

Mr. KASHKARI. It is a great question. Clearly, we don’t want our 

consumers to be overlevered. And coming back to a more normal 

savings rate is an appropriate process. I think the challenge for 

policymakers and for legislators is we don’t want that correction to 

happen too quickly, where it becomes destructive to the economy 

as a whole and we suffer grave economic consequences. So having 

a gradual, orderly transition to that new level probably makes 

sense. It is hard for me to opine on what the right level is. 

The other comment, Congressman, I would make is we want to 

be careful to avoid an overcorrection, either an overcorrection in 

house prices or an overcorrection and excessive deleveraging of the 

system, because that will exacerbate our economic problems that 

result from that correction, even if much of the correction is necessary. And so a lot of the actions that we are looking at and that 

we are taking are to stabilize the system and to try to prevent an 

overshoot on the downside. 

Mr. GARRETT. Some of the other economists or experts who speak 

on these things worry about we may go to that overcorrection because of some of the actions we are taking with regard to the valuation of the dollar, and although no one is talking about it today, 

down the road when you V-type approach as far as interest rates 

and inflation down the road, so you may see a spiking of the overcorrection occurring there. 

One of the other comments that you made was with regard to the 

goal initially, or always has been I think you said with regard to 

TARP was to get more capital back into the system. I have to tell 

you that wasn’t always the impression that we got as it was selling. The cap phrase always was, how do we get these toxic assets 

off the books? And then, of course, we were talking about the reverse mortgage aspect. A lot of us were asking how is that going 

to work? Because if you don’t hit the numbers exactly right, you 

may end up with those banks having too low. 

So I have to just share with you that it was not the presentation 

by the Administration that was the goal. It was just to get them 

off and to have lending occur there. And the capital aspect was a 

secondary issue, except for some members, as the ranking member 

was trying to raise those. 

Mr. KASHKARI. I understand your question. From our perspective, and if we didn’t articulate it clearly I apologize, it has always 

been about capital. As the correction has taken its course, Secretary Paulson and Chairman Bernanke were aware that there 

may come a time when there would be not enough capital in the 

system, and the private markets would be unwilling to provide that 

capital. There are different ways you can get at the capital problem. Purchasing illiquid assets— 

Mr. GARRETT. Was one way. 

Mr. KASHKARI. —was one way. 

Mr. GARRETT. Yes. 

Mr. KASHKARI. And then this was a faster way. 

Mr. GARRETT. The last question is, can you just briefly talk about 

the TALF program and explain to me what actually are the assets 

that are actually backing them if you are talking about things like 

47 

student loans or credit cards or even cars, car loans, which obviously are a depreciating asset in normal times, and are probably 

depreciating even more? But what is the actual asset that we are 

looking back to be able to reclaim if these things go bad? 

Mr. KASHKARI. The assets will be—the details are being designed 

right now, but it is new securitizations of new credit card receivables. 

Mr. GARRETT. Yes. 

Mr. KASHKARI. New auto loan securitizations, so the AAA pieces 

of new securitizations. The very high quality credit, low risk for the 

taxpayers, where right now some of the spreads have just completely blown out, and it is just completely unreasonable for someone to go buy a car today. 

Mr. GARRETT. So what is the backing on a credit card, a AAA 

credit card situation? What do you go after? What does the taxpayer go after, in essence, if that asset goes bad? 

Mr. KASHKARI. Well, ultimately, it is the credit cards, and ultimately it is the borrowers who owe on the credit cards, or on auto 

loans. Similarly, these are consumer credit vehicles to start with. 

But what the Federal Reserve and Treasury are focused on is these 

are historically very low credit risk. They are not being priced 

where they are today because of credit risk; they are being priced 

where they are today because of illiquidity in the system. 

Mr. GARRETT. I yield back. 

Mr. KANJORSKI. Thank you very much, Mr. Garrett. Now, Mr. 

Capuano of Massachusetts. 

Mr. CAPUANO. Thank you, Mr. Chairman. Gentlemen, first of all, 

thank you for being here. Mr. Dodaro, my question revolves around 

one item in your report. I want to make sure that I read this clearly. 

You have recommended that Mr. Kashkari’s group monitor individual institutions in the use of their money. Is that correct? 

Mr. DODARO. That is correct. 

Mr. CAPUANO. And Mr. Kashkari, you have been reported as saying you oppose that position. Do you still oppose it? 

Mr. KASHKARI. Congressman, we do not oppose it. We are working with the banking regulators, who are collecting various data 

from these institutions, to look at the best way to do it. Our hesitation has been about our effectiveness, our ability to determine is 

it the Capital Purchase Program having the effect? Are there other 

policy programs having the effect? It has not been a lack of desire, 

it has been concern about our ability to isolate what is the effect, 

what is the cause, and is it really boiling down to the policy objectives? 

Mr. CAPUANO. Well, in that case, I think you better clarify both 

to the GAO and to the independent Congressional Oversight Board, 

because they both report that you oppose it. Now, if you have 

changed your position or it wasn’t clear, so be it. But I was under 

the impression that was what the GAO was supposed to be about, 

they make a recommendation, you tell how you feel about it. They 

reported clearly that you oppose it. They reported that the Federal 

Reserve opposes it. And the Congressional Oversight Board just 

today reported that you oppose it. And if you don’t, that is good 

news. But if you do, or you hesitate to review the use of these monVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
48 

eys by individual institutions to see if they are fulfilling the requirements of the law and the intention of the Congress and the 

President in passing this law, I would strongly suggest that you 

couldn’t be more wrong if your life depended on it, and you would 

be heading into very, very dangerous waters. 

I would personally think that it is a dereliction of duty to not look at individual uses. To give any bank, any institution $45 billion and not look at how they did it? I will tell you unequivocally 

I don’t think you will find a single Member of Congress who would 

suggest, and I voted for the package, I don’t regret it yet, but I 

would like to see a little bit more oversight on the individual institutions to see whether they are using the money individually. I understand you are looking at generic metrics, and I respect that, and 

I am willing to wait for that time, I understand that takes some 

time, I get all that. But it is not that hard to tell whether individual institutions are living up to their requirements and actually 

using this money to actually put money on the streets. Your own 

words in your own report, actually very clearly, I think very well, 

banks in turn have an obligation, an obligation, that is your words, 

not mine, to their communities to continue making credit available 

to creditworthy borrowers and to work with struggling borrowers 

to avoid preventable foreclosures. I couldn’t agree with that statement more. That is a wonderful statement. But if you don’t look 

at the individual banks and you don’t look at them hard, you will 

never be able to fulfill that requirement. And I would just encourage you to do so. And again, if it is a miscommunication, I would 

strongly urge you to communicate more directly to the gentleman 

sitting next to you and also to the people at the Congressional 

Oversight Board. 

Mr. KASHKARI. Thank you. 

Mr. CAPUANO. I yield back. 

Mr. KANJORSKI. The gentlelady from Florida, Ms. Brown-Waite. 

Ms. BROWN-WAITE. Thank you very much. Mr. Dodaro, I appreciate the report that you put together. It is very helpful. Did you 

have access to the contracts that were given when the money was 

given to the 87 banks in the 30 States? Did you see those contracts? 

Mr. DODARO. We have looked at all the individual contracts, once 

the decisions have been made, not only for the agreements that the 

banks have made—they are all signing, my understanding is, let 

me just correct that—make sure I am correct, but they are all signing a standard agreement for the 87 institutions. And we have 

looked at that standard agreement. We have also looked at the contracts that have been let to hire the financial agent, the one that 

has been hired, as well as the other contractors to support Treasury’s administrative operation. 

Ms. BROWN-WAITE. Let me just clarify. So it is a boilerplate contract that the 87 banks, 87 financial institutions who received 

funds signed. Is that correct? 

Mr. DODARO. That is correct. 

Ms. BROWN-WAITE. And in this boilerplate contract, was there 

specific language that said the purpose of this money—and remember, it is taxpayer dollars—and I am just asking you, and then I 

am going to ask Mr. Kashkari— 

49 

Mr. DODARO. Right, right. 

Ms. BROWN-WAITE. —was the purpose there specifically so that 

the financial institutions would be helping consumers and helping 

to free up money in the marketplace? 

Mr. DODARO. Yes, my understanding is the language in there, in 

the boilerplate languages, included in what is called the recitals 

there in the agreement that the money was to be used for purposes 

of the Act which would increase the flow of credit and also be used 

potentially to mitigate foreclosures. 

Ms. BROWN-WAITE. Did the contract at any point say, ‘‘Use this 

money and go forth and purchase other financial institutions?’’ 

Mr. DODARO. No. 

Ms. BROWN-WAITE. Mr. Kashkari, you have a difficult job to do. 

You really and truly do. But you have to realize that we have a 

responsibility to the taxpayers. Right now I can tell you, and I 

think members, whether they voted for it or voted against it, are 

viewing the action that was taking place with the bailout as the 

great taxpayer train robbery. Because while you made a statement, 

and I wrote it down, you said that it did not—that the public is 

not considering the fact that you did not allow the financial system 

to collapse—am I correct that was your statement? 

Mr. KASHKARI. Yes, it was not about the public, it was just a 

statement that we did not allow the financial system to collapse. 

Ms. BROWN-WAITE. But, sir, the economy is collapsing. When 

businesses do not—cannot have access to a line of credit that they 

have had with the same bank for over 20 years and become—grow 

from a small business to a medium-sized business and employ lots 

of people, the economy, sir, I don’t want to quote the quote that 

was used during one of the presidential campaigns, but it is the 

economy. And if the money is stagnantly being hoarded or used for 

these other purposes, we are going down a rat hole, sir. That is not 

what people who voted for it believed that they were getting. Individuals who called me encouraging me to vote originally for it, now 

that they know the details, are saying they were wrong. And when 

constituents and business people call you up and say they were 

wrong to try to encourage this Member of Congress to vote for it, 

you have to realize what the public thinks of the Treasury and of 

this Congress. 

Mr. KASHKARI. Congresswoman, thank you for the feedback. We 

take such feedback very seriously. And it is hard, the other Congressman to your right asked about the counterfactual and whether 

we could—Mr. Garrett—whether we could prove with evidence 

what would have happened had we not taken these actions. And 

it is very hard to demonstrate that to people. It is hard to demonstrate it—it is hard for economists to quantify it and show the 

effects. And so the actions that we are taking, all we can do is try 

to be as clear and transparent in the actions we are taking to try 

to communicate why we are taking the actions that we are taking, 

and to measure our results, and to make adjustments as we need 

to as we move forward. 

Ms. BROWN-WAITE. And let me also point out that Treasury 

notes, 4-week Treasury notes are now being sold at 0 percent. So 

it has a total effect on the economy, small businesses, and also the 

Treasury. 

50 

Mr. KASHKARI. Absolutely. And if you will permit me, please, as 

I mentioned previously, this was a plan and is a program to stabilize the financial system so that credit can flow. It is not going 

to happen overnight or as fast as we would like. But that is different than an economic growth plan or an economic stimulus plan. 

And we do face real economic challenges. 

Ms. BROWN-WAITE. I yield back. 

Mr. KANJORSKI. I thank the gentlelady from Florida. The gentleman from Texas, Mr. Hinojosa. 

Mr. HINOJOSA. Thank you, Mr. Chairman. My question is going 

to be to the honorable Secretary Kashkari. I voted in favor of this 

bill for many reasons. And I would like to focus on one, which was 

the calls that I got from the presidents of colleges and universities, 

chancellors and others who were saying that there was a lack of 

credit, and consequently banks that used to make college student 

loans were no longer making them. So I would like to know how 

Treasury’s Term Asset-Backed Securities Loan Facility, which we 

will call TALF here, will help the not-for-profit secondary markets 

for student loans return to making and purchasing student loans. 

Treasury’s plans seem to have focused solely on the for-profit sector, despite the fact that private student loan lenders have been 

the subject of investigation by State attorneys general. Tell me 

what the Treasury is going to do to help these lenders who have 

played a key role in the federally guaranteed student loan program, as well as have been providers for low-cost, consumer-friendly, non-Federal loans to fill the gaps between the cost of attendance 

and what is available through Federal financial aid? 

Mr. KASHKARI. Thank you, Congressman. We too believe that the 

issue of making student loans available at a cost-effective rate for 

our students is absolutely vital for our country short term and long 

term. So the way the TALF is structured, and it is a Federal Reserve facility that the Treasury is investing in, it is structured, 

from my understanding, to help both the private and the nonprivate providers of student loan credit. It will help both. And it will 

provide liquidity to the markets to bring down student loan rates 

so that they are available on rates that students can afford just so 

they can go to college. 

Now, we have a team at Treasury that is working with a team 

at the Federal Reserve to design the details and get the program 

up and running. They have been receiving a lot of feedback from 

market participants in the student loan space and the auto space 

and the credit card space, etc., and are incorporating that feedback 

as they design the details. We want this program to help as many 

students as possible. Right now, it is being designed as a $200 billion program with $20 billion from Treasury, but it is designed to 

be scalable so we could expand it from there over time to make 

sure we are getting help to everybody who needs it. 

Mr. HINOJOSA. But you should know that this sector is huge; 

there was over $16 billion that was lent out in college loans. And 

to have banks not offering credit, not offering these student loans 

not only for the cars and for appliances and for many things that 

you have heard from my colleagues before me, these student loan 

programs are not working right now. And you need to know and 

have people report back to you on how it is not fixing the problem. 

51 

I would like to ask Comptroller General Dodaro, the TALF program’s aim was to increase credit availability for credit cards, auto 

loans, and student loans, as I mentioned. However, private lenders 

of the non-Federal student loans already enjoy Federal protections 

that auto and credit lenders do not, making it nearly impossible for 

student borrowers to discharge private student loans in bankruptcy. How will TALF program take into consideration these differences in the treatment of consumer debt? 

Mr. DODARO. Congressman, that is something that is under consideration by the Treasury Department, so a lot will depend on how 

they decide to move forward in those programs. I mean we are 

watching what they are doing, and as they institute programs, 

evaluating whether they are going to achieve the objectives or not. 

So it will depend on how that program will be designed going forward. 

Mr. HINOJOSA. Would Comptroller General Dodaro like to address my question? 

I am sorry, I meant to say Secretary Kashkari. Forgive me. I 

apologize. 

Mr. DODARO. I am the one with the gray hair. 

Mr. HINOJOSA. There you go. 

Mr. KASHKARI. Congressman, the details, as I said, are being 

worked out right now, as the Comptroller General said. The only 

other comment I would make, sir, is that the program is being developed and it is going to take, you know, probably sometime in 

January before it is up and running. So again, none of these things 

can be turned on overnight. But we are getting a lot of positive 

market feedback from lenders of all types who are saying this is 

the right tool that they need to get credit flowing to our students 

and to our consumers. 

Mr. HINOJOSA. I yield back, Mr. Chairman. 

Mr. KANJORSKI. Thank you. Mr. Barrett? 

Mr. BARRETT. Thank you, Mr. Chairman. Gentlemen, thank you 

are being here today. 

I was reading the legislation. The explicit intent is to immediately restore liquidity and stability in the financial system in the 

United States, and I believe that. That is why I voted for it. Are 

we, Mr. Kashkari, have we passed the point where our banking 

system, our financial system is catastrophe proof? Are we past that 

point? 

Mr. KASHKARI. Congressman, I feel confident that the financial 

system is stronger than it was when the Congress acted so quickly. 

But this crisis has been unpredictable. And there have been times 

in the past when market participants breathed a sigh of relief and 

said, okay, we are through it. I don’t want to make predictions, but 

I do say that it is important that we all stay on our front foot, and 

continue to move aggressively to take action to adjust to situations 

on the ground until we are sure we are through it. That is about 

as good an answer as I can give you, Congressman. 

Mr. BARRETT. Well, that is an answer. I know it is tough. There 

seems to be a lot of fundamental inconsistencies between the claim 

the financial system was at risk because of toxic assets and the 

claims that the TARP go to healthy banks. I heard your answer, 

and I understand that. But looking in my district, and looking 

52 

across America, it seems like the smaller banks are the healthier 

banks. They are the ones that are actually doing well right now. 

Is bigger better? Is giving TARP funds to these healthy banks that 

are in turn buying other banks and becoming mega banks, and it 

seems to me that that was part of the problem that some of these 

institutions were too big and didn’t know what was going on, that 

seems a little counterproductive. Walk me through that. 

Mr. KASHKARI. Sure. That is a great question. Bigger is not necessarily better. And you are right, some of our smallest institutions 

are some of our healthiest. That is exactly why we want small 

banks to participate and to take the capital, because in many cases 

they are in the best position to extend new loans. Now to the topic 

of mergers and acquisitions, it is absolutely not our policy objective 

to encourage mergers or to consolidate the banking industry. Because as you said, bigger is not necessarily better. 

Mr. BARRETT. Right. 

Mr. KASHKARI. But if you have a bank that is weak or failing, 

and that bank is acquired by a healthy bank, that community is 

often better off, because now credit can still be extended, and 

branches will still stay open in that community, versus if that bank 

were allowed to fail and the bank would have to be shut down and 

dissolved, then that community would be worse off. So prudent 

mergers and acquisitions can be a healthy part of the financial system. We don’t want to overdo it. 

Mr. BARRETT. I agree with you 100 percent. I guess the key word 

is ‘‘prudent.’’ And as some of our banks have gotten larger, and I 

do agree, I think they are protecting some weak communities or 

some weak banks that in turn protect the community, how do we 

ensure that these bigger banks are using the prudent oversight so 

this doesn’t manifest into the same thing on down the road? 

Mr. KASHKARI. It is a very important issue. And I don’t think 

there is a perfect brightline test that anybody can apply. But ultimately, each of these mergers and acquisitions needs to be approved by their primary Federal regulator, in many cases of both 

the target bank and the acquiring bank. And the regulators who 

are there onsite are in the best position to judge is this a prudent 

acquisition or is this a risky acquisition. Treasury, as you know, is 

not a bank regulator. But they don’t have an easy job either. 

Mr. BARRETT. Have we, Congress, in this legislation hamstrung 

you guys with specific mandates or specific directions we are telling 

you to go in that have decreased the program’s effectiveness? I 

mean I know it seems like when Congress gets involved every time, 

you know, we try to mandate something, and too many times every 

time we do that we screw it up. Is that the case? If so, can you 

be specific? 

Mr. KASHKARI. Broadly speaking, I don’t believe so. I think we 

worked very hard and constructively with the Congress to build in 

a lot of flexibility. It is interesting, sitting through those midnight 

negotiations sometimes what seemed like an obvious good idea at 

the time, when you actually go to implement it, it turns out to be 

a lot more complicated. We found those cases, but I this we also 

found ways of implementing the intent and the spirit of what was 

in the legislation in a manner that can be executed as quickly as 

we need. We are not done. There are things that we still have to 

53 

do to follow up, to make sure banks are complying on a go-forward 

basis. So we are learning as we go, but we are making a lot of 

progress. 

Mr. BARRETT. Thank you, gentlemen. Thank you, Mr. Chairman. 

Mr. KANJORSKI. Thank you very much. We have a little bit of a 

problem. We are trying to accommodate Mr. Hensarling, who has 

a conflict meeting at 1:15, so at this time, we would ask the indulgence of Panel One to step aside, remain here of course, because 

we are going to recall you to continue examination. But we will ask 

Mr. Hensarling to make his presentation. At the table, or do you 

want to do it from there, Mr. Hensarling? 

Mr. HENSARLING. If it would help accommodate the panel and 

the committee, I am happy to issue the testimony here. 

Mr. KANJORSKI. We want to accommodate our friends on the 

other side of the aisle. Any way you wish to do it. 

Mr. HENSARLING. Why don’t we allow our panelists to keep their 

seats, Mr. Chairman? 

Mr. KANJORSKI. Very good. You are recognized then to make your 

presentation, Mr. Hensarling. 

STATEMENT OF THE HONORABLE JEB HENSARLING (TX-05), 

CONGRESSIONAL OVERSIGHT PANEL UNDER THE EMERGENCY ECONOMIC STABILIZATION ACT 

Mr. HENSARLING. Thank you, Mr. Chairman, and I appreciate 

the accommodation, since earlier we were scheduled for the first 

panel. So Mr. Chairman, Ranking Member Bachus, and fellow 

members of the committee, I want to thank you for inviting me to 

testify in this oversight hearing on the Troubled Asset Relief Program and to address the role of the Congressional Oversight Panel, 

after which I look forward to reclaiming again my role as inquisitor 

as opposed to inquisitee. 

Before I begin my testimony, I do want to recognize the work of 

the Congressional Oversight Panel Chairwoman, Elizabeth Warren. 

Faced with a number of challenges and time constraints not of her 

making, she was able to first, produce an initial report and, second, 

produce one that raises legitimate issues and questions for which 

Treasury must account, and about which this committee should 

care. Although I cannot in good conscience support the report at 

this time for reasons I will discuss later, I commend her nonetheless on her work. 

Mr. Chairman, it is clear that many Members of Congress are 

only now awaking to the fact that Congress has granted unprecedented discretionary powers to the Treasury Secretary, and has simultaneously created unprecedented taxpayer exposure. I, along 

with many of my colleagues on both sides of the aisle, supported 

alternative plans, and opposed the enactment of EESA. We were 

not, as one of my colleagues put it earlier today, bamboozled. I believe many of the criticisms that we are hearing today of Treasury 

are better directed at Congress for passing the misguided law in 

the first place. Be that as it may, EESA is now the law of the land, 

and I intend to do whatever I can to help ensure its success. 

In that regard, Mr. Chairman, I believe that effective oversight 

should have three main goals: 

54 

One, ensure the program actually works. In other words, ensure 

that Treasury actually exercises its broad authority commensurate 

with the act, and that its actions are effective. 

Two, ensure the decision-making process is transparent and 

based on meritorious considerations of what helps the entire American economy, not an opaque political process picking winners and 

losers. 

Last, but certainly not least, ensuring that the often forgotten 

taxpayer is protected in this program. Even by Washington standards, $700 billion is a great deal of money. It translates into roughly $9,400 per American family, 

when they are struggling to keep their jobs, send their kids to college, and pay their mortgages. Mr. Chairman, they need the $9,400 

paid back. 

First, we must again ask, is TARP working? After listening to 

the testimony, it is: (a) probably too early to tell; and (b), certainly 

most challenging to tell with respect to cause and effect. One, 

again, can argue in the short run that Congress has given Treasury 

a number of competing goals without guidance on how to weigh 

them. 

Furthermore, as we know, and as the panel’s report has indicated, Treasury under EESA does not operate in a bailout vacuum. 

Treasury’s efforts over EESA are dwarfed by the actions of the Fed. 

Since the inception of the financial crisis, the Fed has committed 

over $5 trillion through its facilities, windows, and other actions, 

compared to $335 billion for Treasury under TARP, a factor of 

roughly 15 to 1. 

Mr. Chairman, we in Congress will be negligent if we only focus 

upon Treasury and TARP and ignore the actions of the Federal Reserve. 

Second, with regard to transparency and the meritorious decision-making process, even after the testimony we have received, 

many questions remain: How will the activities of those participating in CPP be monitored; why AIG; why Citigroup; why are 

some Capital Purchase Program applicants encouraged to withdraw their applications? 

Finally, is the American taxpayer truly protected? We have an 

unprecedented level of Federal intervention, and every Treasury 

action will be paid for by congressionally mandated drawdown on 

future generations, compromising their freedom, their opportunity, 

and their standards of living. 

Mr. Chairman, I believe the Congressional Oversight Panel has 

a unique role to play in the accountability of EESA. Time will tell 

whether or not the panel will prove effective in that role. For a 

number of reasons, panelists were appointed late in the process, 

with a report looming large for submission today. Due to these and 

other exigent circumstances, the panel has operated rather informally and has held no hearings. Issues of panel rules, panel process, resource allocation, minority rights, and the panel’s hearing 

agenda remain unresolved. 

In order to be an effective advocate for the American taxpayer, 

I have to ensure that every panel member has the resources and 

rights necessary to conduct effective oversight. And I wish to ensure that the panel officially adopts a serious hearing agenda that 

55 

brings transparency and accountability to the process. I have 

raised these concerns, but I assume due to the urgency and exigency of the circumstances, they have yet to be addressed. 

The report today, Mr. Chairman, and I will conclude briefly, has 

many good points and questions that I agree need to be asked of 

Treasury. I, however, remain concerned about language that I believe can be interpreted as a panel expectation that Treasury adopt 

policies that could make credit more expensive and less available 

and policies that could delay the recovery of our housing market at 

exactly the wrong time. 

Mr. Chairman, I hope that soon I can conclude that taxpayers’ 

voices are effectively represented on the panel. The panel represents a serious attempt at bipartisan oversight. Until such time 

as I can conclude that, I cannot and will not in good conscience approve any panel reports. Regardless of the panel’s future or my future, I remain committed to bringing the highest level of accountability and transparency to the process. 

With that, I appreciate the chairman’s indulgence and his accommodation to my schedule. I yield back. 

Mr. KANJORSKI. [presiding] Thank you very much, Mr. 

Hensarling. Since Mr. Hensarling is technically a member of Panel 

Number 2, the committee members would have a right to exercise 

an examination of Mr. Hensarling. But because of his other commitment, what I would suggest, unless there is some pressing question that has to be immediately answered, that any questions either side of the committee has for Mr. Hensarling be submitted in 

writing. I am sure he will accommodate the committee by answering the same in writing. Is there any objection to that? 

The Chair, hearing none, Mr. Hensarling, thank you very much 

for your testimony. 

Now we will resume with our Panel Number 1. The gentleman 

from California. 

Mr. SHERMAN. Thank you, Mr. Chairman. I will have a number 

of questions for the record because 5 minutes is not enough to ask 

all the questions I have. 

Let me first start with a question that affects the travel plans 

of all of my colleagues. Mr. Kashkari, how certain are you or confident are you that Treasury will not be asking for the final $350 

billion in a formal submission to Congress this month? 

Mr. KASHKARI. Congressman, I am not certain of the timing of 

any such submission. Ultimately, the Secretary would make the determination, likely in consultation with— 

Mr. SHERMAN. I look forward to singing Christmas carols with 

my colleagues on the steps. But can you at least assure me that 

we are not going to get such a request in the next day or two? 

Mr. KASHKARI. Again, Congressman, honestly, I don’t want to 

make promises. It is the Secretary’s determination. 

Mr. SHERMAN. Has the Secretary clued you in that he is planning 

to ask for the money in the next day or two? Wouldn’t he tell you? 

You are running the program. 

Mr. KASHKARI. We talk about that topic quite often, and ultimately it is the Secretary’s decision to be made. 

Mr. SHERMAN. I am asking you whether he has indicated to you 

that he is going to ask for the money in the next day or two. 

56 

Mr. KASHKARI. He has not indicated that. 

Mr. SHERMAN. Thank you. 

Now, one of the most fun things, especially at this time of year, 

is to play Santa Claus, particularly when you can be generous and 

it doesn’t cost you anything. One thing that the Treasury has done 

is to buy preferred stock in these banks and get warrants that are 

supposed to compensate the taxpayer for the risks we are taking. 

But, of course, Treasury accepted one-sixth the warrants that Warren Buffet got in a similar transaction, and took the same number 

of warrants from every institution, whether it was a high-risk institution or a low-risk institution, indicating that we are being generous to the shareholders and executives of the high-risk institutions. 

But I want to focus first on another act of generosity. Section 111 

of TARP says: ‘‘The Secretary shall require that the financial institution in which you invest meet appropriate standards for executive compensation.’’ 

The law then lists three particular items that you need to put 

into the stew. But the mandate is clear; not just deal with these 

three particulars involving like golden parachute-type contracts, 

but devise appropriate standards, enforce appropriate standards on 

executive compensation. 

Now, after AIG got TARP money, they announced and are in the process of paying bonuses as high as $3 million or $4 million. Sir, 

have you met your responsibility to require that appropriate standards of executive compensation be imposed on AIG and the other 

recipients of TARP funds? 

Mr. KASHKARI. Congressman, this is an important issue in which 

we must not lump all the institutions together. 

Mr. SHERMAN. I am not. I am asking about AIG. Is a $3 million 

bonus an appropriate standard of executive compensation, or has 

the law been violated? 

Mr. KASHKARI. Congressman, I don’t have the details of what the 

bonus levels are at AIG. 

Mr. SHERMAN. You are the one who is supposed to impose appropriate levels of executive compensation. Have you done that? Are 

they making payments of executive compensation that are not appropriate, or are you just blind to whether they are appropriate or 

not? 

Mr. KASHKARI. Congressman, we have imposed on AIG new corporate governance standards, executive compensation standards. 

Mr. SHERMAN. Do your standards prevent the payment of a $3 

million bonus? 

Mr. KASHKARI. I do not believe that they specifically prevent a 

payment of $3 million. 

Mr. SHERMAN. So have you imposed appropriate standards for 

executive compensation? Are you here to tell this committee that 

appropriate standards of executive compensation would allow a $3 

million bonus? How about a $30 million bonus; would that be appropriate executive compensation, or would that be prohibited by 

any standards that met the statutory requirement imposed on by 

Treasury? 

Mr. KASHKARI. Congressman, in the case of AIG we were 

placed—please permit me to finish. This is a very important issue. 

57 

Mr. SHERMAN. Sir, I didn’t ask you about corporate governance, 

I didn’t ask you about the makeup of the executives. I asked 

whether a $3 million bonus or a $30 million bonus is consistent 

with a statutory requirement that we have appropriate standards 

on executive compensation. Let me ask it specifically: As to $30 million, is that appropriate 

or inappropriate, or you have no opinion? 

Mr. KASHKARI. I am not in a position to opine on a specific number, if it is appropriate or not. 

Mr. SHERMAN. Well, when Congress tells Treasury to limit things 

to appropriate compensation, I would hope that you would devise 

such standards. And so the standards that you have written so far 

do allow $30 million bonuses to be paid. There is nothing that 

Treasury has done that would prevent a $30 million bonus, correct? 

Mr. KASHKARI. Ultimately, I believe, and I need to check, the 

Treasury and Federal Reserve, the U.S.— 

Mr. SHERMAN. Sir, you wrote the regulations. What is in them? 

Mr. KASHKARI. Congress, ultimately the Treasury and the Federal Reserve, because now the taxpayers own 80 percent of AIG, 

are in a position to approve specific compensation standards. My 

point in talking about the executives—we want to get the taxpayers’ money back, in the case of AIG. And so we needed to put 

in place a management team, hire quality managers. For me to 

come in here and say, well, $100,000 is the right number or 

$500,000; I don’t know the right number. 

Mr. SHERMAN. Sir, these bonuses were paid to executives that 

had been there for a while and a part of the team that ran the company into the ground, and your level of generosity is in stark contrast to the suffering of the people in my district. 

I yield back. 

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

May I add something? That is the one question that I hear more 

of as I travel across this country, the absolute frustration of the 

American people in this Administration not imposing some standard or rule. I have to just make the point because we just finished 

the examination with the auto industry. We have a successful CEO 

running Toyota in the United States, getting $1 million a year as 

compensation, and we have a very unsuccessful CEO in the United 

States, running one of the major car companies called GM, getting 

$23 million a year. The American people are just wondering what 

is wrong with this Administration that they can’t establish a standard of compensation. 

Mr. Kashkari, are you saying you don’t have the capacity to 

make those standards down there? Do you want us to do it? Is that 

what you are recommending, that we legislate that? 

Mr. KASHKARI. Congressman, I am suggesting respectfully that 

we were implementing the letter and spirit of the law. Very specific 

executive compensation provisions were spelled out in the legislation. We have met every single one of those in every case we have 

made an investment. We took those very seriously. 

Mr. KANJORSKI. So it is your opinion that the Congress, in regard 

to compensation, inadequately structured the law. 

Mr. KASHKARI. I don’t believe the Congress specified that you 

want to set a specific cap on what an appropriate payment level is. 

58 

Mr. SHERMAN. Mr. Chairman, if I can just quote the statute, subdivision (b) of section 111 includes the words: ‘‘The Secretary shall 

require the financial institution meet appropriate standards of executive compensation.’’ It requires Treasury to decide what that 

means. And apparently it means $30 million is just fine, since the 

regulations they wrote do not prohibit a $30 million bonus, nor is 

Mr. Kashkari willing to say here and now that he would not allow 

$30 billion bonuses in the future. 

I yield back. 

Mr. KANJORSKI. Thank you very much. While I have you, Mr. 

Kashkari, I heard you defend the right of some of these entities to 

pay dividends. There is a difference. I served on boards of directors 

in my past, and there is a way of paying cash dividends and paying 

stock dividends. There is no reason in the world, if you want to encourage people to participate and therefore they need a dividend, 

give them a cash dividend. If they want to go out in the marketplace at the rate the market pays for their shares of stock, let them 

sell that interest. But there is no reason to be handing out millions 

and millions of dollars of taxpayers’ money as a dividend to some 

existing companies and say it is perfectly justified because it encourages people to invest or make a contribution of equities. There 

are other ways of getting equity to people and to encourage them 

to participate. 

I think it is just sloppy management, if you want my honest 

opinion. And I think I am hearing from you today that we should 

reinstigate some of these rules and regulations and start laying 

down a congressionally mandated standard. Set it out. 

I think one of them we are all talking about now is, by God, if 

the CEO of Toyota, running one of the most successful auto manufacturing companies in the world can do it on $1 million a year, it 

just seems to me it is not a bad standard if the taxpayers of the 

United States are paying for the operation of a motor company in 

this country, that we accept that standard; and if somebody doesn’t 

want to work for $1 million a year, maybe we could entice the 

President to give up his $400,000 salary and come to work for $1 

million a year for running that company, or any Members of Congress for that case, or some of the professors at our universities 

and law schools. We may be able to find somebody in this country 

who is willing to take that. 

Anyway, I have rambled on enough. 

Our next participant is Mr. Roskam. 

Mr. ROSKAM. Thank you, Mr. Chairman. I just would point out, 

my predecessor, Henry Hyde, had a way of describing this conundrum, and he observed that there is one thing worse than gridlock, 

and the worse thing than gridlock is the greased chute of government. It is exactly what we are dealing with today, a greased chute 

that created this TARP program and now, seriously, there are 

Members of Congress who are looking at the Administration, and 

the Administration is looking at Members of Congress, saying, oh, 

is this what you meant? It is really shocking. So here we are, several hundred billion dollars into this. 

I want to shift gears a little bit and really go toward part of the 

conversation during the deliberation of TARP that really didn’t get 

a lot of discussion and that was revisiting mark-to-market. As you 

59 

know, mark-to-market is a good idea sort of in theory and in a 

post-Enron environment where there were manipulations in the 

past that had to be dealt with. But my question is: There has been 

all this energy and capital that has been injected into the marketplace, either originally in the purchase of toxic assets or now ultimately in direct capital injection, and that is bringing capital in 

one way; but are we adequately making sure that there are not 

regulations in place that are draining the market of the very capital that we are trying to create? 

Could you comment, because basically when the mark-to-market 

conversation came up during the TARP deliberations, there was 

sort of this pat you on the head, tap you on the backside, and kind 

of a feeling of it is really interesting, but off with you, be lively, 

we are not really interested in that, because the orthodoxy that 

had developed was we are going to pump capital in, and that is the 

way we are going to do it. 

Now that we can be a little bit more reflective, is there an interest or is there a recognition that mark-to-market and some of the 

changes need to be in play and need to be more than sort of the 

dalliance that we have seen from the Securities and Exchange 

Commission so far, but there has to be a real safe harbor here? 

Mr. KASHKARI. Congressman, I remember the discussions that 

you reference from the negotiations. Mark-to-market is a very important issue. You are right to raise it. A lot of people have raised 

it. First, as you know, I believe the legislation called for the FCC 

to undertake a thorough study of mark-to-market, and I believe 

they are well underway and their report is due, I believe, on January 2nd. So they are consulting both internally with government 

experts and with outside experts to look at mark-to-market. There 

is no question that mark-to-market is procyclical and it is exacerbating the swings. 

At the same time, we have not seen a better alternative. There 

are cases in history where countries have pretended that their assets were worth a lot more than they ultimately were worth, and 

they prolonged their economic downturn and their economic crisis. 

So we clearly need to find the right balance. 

What we have right now where there is no bid in the market also 

does not appear to be optimal, clearly; but just also pretending 

these loans are worth more than they are does not also seem to be 

a good solution. So I will respectfully defer to the FCC and their 

ongoing work to study this issue. It clearly needs to be studied very 

carefully. 

Mr. ROSKAM. We are not going to settle this in the couple of minutes that we have this afternoon, but it seems to me that the urgency with which the original TARP deliberation took place, we 

would have been well-served had that same urgency and that same 

clarity been brought about to require or to provoke—use any verb 

you want to—but to get a fundamental change in mark-to-market. 

It would seem to me there were things that were on the table that 

would have been substantive and very helpful, and we may have 

been in a very different situation right now. 

Let me just turn quickly, Mr. Dodaro, could you comment on that 

element of things? In other words, as the GAO evaluates TARP, 

can—or is part of your deliberation and your evaluation, regulatory 

60 

burdens that may be in place, impediments to progress that Congress itself can remove, or the Securities and Exchange Commission or FASB or others? Is that part of your portfolio, so to speak? 

Mr. DODARO. It is not part of the specific requirements under 

TARP for us to take a look at it. It is more program implementation, whether it is meeting the performance and expectation of 

goals of the legislation. But we do have other authorities and other 

work that we have underway to look at the regulatory structure 

which we think needs to be reexamined in light of current events, 

and we will have a report to the Congress with some criteria and 

characteristics that we think should be guiding principles in reexamining the regulatory structure. 

We also have an effort underway to look at, similarly, criteria 

that could be considered in making a determination as to the ultimate character of the entities for Fannie Mae and Freddie Mac 

once they emerge from conservatorship. We are also following the 

mark-to-market situation closely at the SEC, and we will be in a 

position to comment on that as well. 

Mr. ROSKAM. Thank you. I yield back. 

Mr. KANJORSKI. The gentleman from Missouri, Mr. Clay. 

Mr. CLAY. Thank you, Mr. Chairman, and I thank the witnesses 

for their amazing testimony today. We have witnessed an amazing 

set of events since we originally passed TARP—I guess while we 

passed TARP. The Administration was able to influence a majority 

of the members of this legislature to go along with the plan that 

they said they were sure would rescue the U.S. economy. Several 

weeks later, you dumped the entire plan and said, oh, that probably won’t work. I didn’t think it would work then, and I don’t 

think you all know what you are doing now. 

Let me ask you, Mr. Secretary, we own 80 percent of AIG. What 

benefits do the taxpayers of this country—what have we derived in 

benefits from owning 80 percent of AIG, lending them a total of 

$125 billion? Did we buy the assets or were the assets sold? If so, 

to whom? And how is AIG managing those assets now if they didn’t 

sell them? 

Mr. KASHKARI. Congressman, let me start by saying we didn’t 

want to own 80 percent of AIG. We didn’t want to intervene in 

AIG. AIG was on the verge of collapse, which jeopardized the financial system as a whole. So we had to take this action. 

Mr. CLAY. Jeopardized what? 

Mr. KASHKARI. The financial system as a whole. 

Mr. CLAY. Look, I am from Missouri. We speak plainly. People 

of Missouri want to know. What if they had failed? So what? What 

if they had failed? What would have happened? 

Mr. KASHKARI. It is hard to know for sure. It is conceivable that 

the financial and banking system would not function. Imagine if 

you went to your ATM and couldn’t get money out of your checking 

account, or your money just wasn’t available, or your 401(k) was 

worth half as much as it was the day before. It is hard to know. 

Mr. CLAY. Based on AIG failing. 

Mr. KASHKARI. AIG is a trillion-dollar institution with transactions and counterparties around the United States. We took this 

action to make sure that a collapse did not happen because the consequences were grave. And now, because we had to step in to staVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
61 

bilize them, we have tried to provide as much protection for the 

taxpayers as possible. So now the taxpayers own 80 percent of the 

company. The new management’s job is to do an orderly disposition 

of some of the businesses, to generate cash to pay back the taxpayers so that we are made whole. 

Mr. CLAY. Today, Mr. Secretary, what is the company worth? 

Mr. KASHKARI. I don’t know the answer to that. I will try to find 

out. I don’t know the answer to that. 

Mr. CLAY. Thank you. Let me ask you about GAO’s recommendations. There are nine recommendations. One of them, my friend 

from California brought up. What measures have CPP taken to ensure that institutions comply with executive compensation, dividend payments, and repurchase of stock; and have you all taken 

the recommendations of GAO and instituted them? 

Mr. KASHKARI. Yes, Congressman. We agree with GAO’s recommendations and we are already instituting them. That is why 

we felt good about the report, because it verified the directions that 

we felt we were already going. These are not going to happen overnight. We are instituting the programs now. 

Now, most importantly, executive compensation, dividend restrictions, these are contractual agreements between the United States 

Government and these institutions. If they violate our contracts, 

we have many legal recourses to go after them, including going to 

the Justice Department and going after them. So I think banks will 

be very hesitant to sign a contract with the U.S. Government and 

then not fulfill their obligations. We are going to go after them. The 

regulators are already supervising, and we are looking at other 

measures to make sure that they continue to comply. 

Mr. CLAY. Thank you for that response. We understand the 

TARP program continues for credit card, auto loan and student 

loans. However, private lenders for non-Federal student loans enjoy 

Federal protections that auto and credit lenders do not; namely, 

private student loans are exempted from bankruptcy, except under 

extreme circumstances. 

How will the TARP program take into consideration these differences in consumer debt? 

Mr. KASHKARI. Congressman, I don’t know the answer to that. I 

would have to talk to my colleagues at Treasury who are implementing it with the Federal Reserve. It will help all classes of the 

consumer credit, but I don’t know how it will take into account the 

bankruptcy difference. 

Mr. CLAY. Mr. Secretary, would you please get back to us on 

what AIG is worth on this day? 

Mr. KASHKARI. Yes, sir. 

Mr. CLAY. Thank you. 

Mr. KANJORSKI. Thank you, Mr. Clay. 

We will now hear from Mr. McCotter. 

Mr. MCCOTTER. Thank you. Mr. Kashkari, you have a very difficult job. I know you work under Mr. Paulson, who works under 

the President, and sometimes things roll downhill. Yet they roll inevitably anyway. 

With that said, I heard your testimony, read through it, and it 

gave me great insight for the next time I take a weekend trip with 

my wife. I am generally loath to ask for directions or assistance, 

62 

which greatly annoys my wife, but the next time that she claims 

we are lost, I am simply going to say, ‘‘We are taking many steps 

to adapt to events on the ground. And we have made remarkable 

progress in only 68 days, Dear. We cannot be lost, because I am 

sure that I know what I am doing.’’ 

So in that spirit of disconcertion, I would like to ask you a couple 

of questions. The first thing that I found very interesting as this 

began was the concept of stigma—the stigma of having to receive 

taxpayer assistance for a problem that you may have caused. Now 

we have seen individuals, average working people who are down on 

their luck and have had to go through things such as drug testing 

to receive Federal assistance or State assistance, because the stigma that attaches to seeking government benefits is a protection of 

the taxpayer because it prevents other people from coming forward 

and seeking assistance when they do not really need it. And yet, 

in the instance of the bailout, we have heard that we cannot stigmatize financial institutions that come forward for taxpayer money; 

that would be wrong. And we hear reports of healthy financial institutions being asked to take taxpayer money they don’t necessarily want so that the stigma does not attach to the people who 

have helped cause this problem, unlike individuals. 

So I would like to ask the logic behind that, because it seems to 

me that if you hand out taxpayer money to avoid a stigma, that 

you will then stigmatize those who do not unnecessarily take taxpayer money. It seems counterintuitive to me. 

Secondly, we have heard discussion from the gentleman from 

California, Mr. Sherman, that there is a prospect that the second 

round of billions of dollars will be asked for because, as you know, 

we have only appropriated directly $350 billion—‘‘only’’ $350 billion. And yet as I read through the testimony, the GAO has identified several instances where, shall we say, oversight has to continue to occur. And this—if I am wrong, correct me—but we have 

already spent $200 billion. I think with AIG at $40 billion, we are 

over $200 billion. 

Mr. KASHKARI. I think that is approximately correct. 

Mr. MCCOTTER. Let me see what we haven’t done. We have already spent $200 billion and these things have not been done completely yet. We have not developed a comprehensive system of internal controls, we have not issued final regulations on conflicts of 

interest, we have not instituted a system to manage and monitor 

the mitigation of conflicts of interest. And I could go into the other 

six items. This is after $200 billion of taxpayer money has been 

spent in a program that has had more twists and turns than an 

Agatha Christie plot. 

So my question is: How can there be consideration of asking for 

another $350 billion in taxpayer money for this program when 

these controls are not in place for accountability and oversight and 

$200 billion has already been spent? 

Mr. KASHKARI. Well, Congressman, again, as indicated in my testimony, it has been 68 days since the President signed the law. We 

have teams of people working around the clock to build the operation, design the programs, and implement them all at the same 

time. We would love it if the financial markets just healed themVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
63 

selves and we could go at a much slower pace and just implement 

this thing as a normal government program would be implemented. 

We haven’t had that luxury. We have had to move quickly, we 

have had to adapt to events on the ground, and we are going to 

continue to move aggressively as long as we are here. 

Mr. MCCOTTER. As I remember, when we met with Mr. 

Bernanke, some of the House Republican leadership, and—I think 

it was Bear Stearns—there was an indication that the entire financial system could melt down because of the interconnectivity due 

to the credit market and the stakes that have been made. I also 

remember reports that potential scenarios for legislation such as 

this and a program such as this had been prepared by potentially 

Treasury and the Federal Reserve for just such a potentiality occurring. 

So I am aware of the 68 days because I was voting against it. 

And I have been counting the days until we actually have someone 

from the CEOs come in, and I thank Chairman Frank for that. But 

this isn’t as if you are telling me that the Republican Administration of President Bush was sitting there and Secretary Paulson and 

his predecessor were sitting there with absolutely no indication 

whatsoever that this could be potentially a problem down the road 

that might need some type of foresight and forethought put into a 

potential plan. 

You make it sound as if it was an economic Pearl Harbor that 

came without warning. I think the facts preceding the 68 days tend 

to disprove that. But that is my opinion. 

Mr. KASHKARI. Well, Congressman, over the course of the the 

winter and the spring—I think I mentioned earlier—we thought 

there may come a time when the government would have to step 

in to provide capital because the private sector was unwilling to, 

and began planning for such a contingency. It is very different to 

lay out the broad strokes of a plan and to work through the very 

detailed internal control procedures. We hired PWC, who is working with us. You can’t do that in advance. 

Mr. MCCOTTER. If I can, because my time is up, I welcome your 

response in writing. Let’s just be clear: The broad stroke that you 

outlined was a TARP program of toxic assets, and that proved to 

be wrong. 

Mr. KASHKARI. It proved that the credit crisis intensified deeply 

in the 2 weeks between when Secretary Paulson first came to the 

Congress and the Congress acted. I can show you lots of data that 

substantiates that. And I would be happy to, Congressman. 

Mr. KANJORSKI. I thank the gentleman. 

The gentleman from Massachusetts, Mr. Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. Let me pick up right 

where Mr. McCotter left off. And I appreciate both witnesses hanging in, and your help with the committee’s work today. 

One of the central factors within this current crisis has been the 

lack of reliable information in the credit markets with respect to 

counterparty risk. That has been a huge part of this. I think what 

Mr. McCotter—part of what he was saying, not to put words in his 

mouth—was some of the things that Treasury has done in this 

whole process has really hurt confidence. Getting us all in line here 

for this toxic asset purchase program and getting enough votes and 

64 

then, a few days later, just completely changing, without any explanation or any real debate here, changing the whole program here 

so now the Troubled Asset Relief Program doesn’t purchase any 

troubled assets. That all goes away. That itself is very upsetting to 

the markets when you say you are going in one direction and all 

of a sudden you go in the other. 

A couple of other things: The dramatic infusions of cash into a 

lot of these banks. And we heard the reports about how several of 

them actually said they didn’t want the money, they didn’t need 

the money. That doesn’t instill a lot of confidence in folks either, 

especially when there are so many people in other industries begging for help. I don’t think that really pumping up the capitalization 1 or 3 percent in these banks is going to address the underlying fear of a lot of banks that they are not sure that their 

counterparty or other lenders, other banks, are not going to go 

belly-up at some point because of some CDOs that they hold, or 

that there may be something that would lead them to be unable 

to repay their loans. 

So for me, really a lot of what needs to be done here deals with 

transparency. Again, this TARP program, when you think about it, 

is really operated in the dark, with the exception of the work that 

Mr. Dodaro has been trying to do. The bill called for a Special Inspector General. And I am not blaming you, Mr. Kashkari, but 

under the bill, the new Inspector General is supposed to inform 

Congress within 60 days of his swearing-in over at the Senate. He 

is never going to file a report. He is going to be gone. By the time 

he is required to report to us, he will have been gone. There will 

be a new guy in his place with the new President, I suspect. It is 

reasonable to assume. 

The new guy won’t have to report until the 3rd week of March. So we are going to have, very likely, $700 billion out the door without having had anyone, other than the good work of Mr. Dodaro, 

telling us where the money is, what it has been used for. 

With these new plans that have been going out there, now we 

are going to start to, as I understand, purchase some asset-backed 

securities; but there will be no information for Congress or the people whom I represent, who keep asking me, ‘‘What are we buying, 

who is getting the money, where is it going?’’ There is a disconnect 

here. Believe it or not, at some point I will stop talking. 

What are we doing? What are we doing to address that piece of 

it, the lack of transparency? We have to get this thing going again. 

As long as people don’t trust each other, as long as there is no 

transparency here, folks are going to be afraid to lend. And I am 

afraid that some of those flaws, some of those frailties, are reflected 

in your own organization, this TARP program, because there is a 

lack of transparency there. We can’t understand what is going on 

and we don’t have a regular flow of information back and forth. 

How do you help that situation? 

Mr. KASHKARI. Thank you, Congressman. It is something I am 

personally very focused on. I give a lot of updates to the country 

in the form of speeches and hearings such as this so that people 

can see in granular detail what we are doing. 

But let me also comment on reporting. The legislation calls for 

many levels of reporting: Transaction reports within 2 days of 

65 

every investment; traunch reports every time we obligate $50 billion; and a report to Congress within the first 6 days of our first 

commitment, and then monthly thereafter. 

We have met every single one of our reporting requirements, 

every single one, on time. All of this information—there is a wealth 

of information on the Treasury Web site, and I am having a heck 

of a time getting people to go there and look at it. People say, ‘‘We 

don’t have the data.’’ And I say, ‘‘Well, have you looked at the 

Treasury Web site? It’s all there.’’ They say, ‘‘No, I hadn’t looked 

there.’’ 

So we need help getting the message out because we are putting 

so much data out there, I am afraid we are overwhelming people 

with too much information and too much data. 

Mr. LYNCH. Mr. Dodaro, what do you think Mr. Kashkari can do 

to help that transparency issue, in addition to what he has just 

commented on? 

Mr. DODARO. First of all, our first couple of recommendations, 

particularly the one that focuses on tracking what the individual 

institutions are doing with the money and providing reporting back 

as to what is happening at that level, I think would do wonders 

for transparency. I do agree with Mr. Kashkari, they are posting 

a lot of information. But the bottom line is, what are people doing 

with the money? That is what people want to know. 

Mr. LYNCH. I agree. Thank you for your forebearance, Mr. Chairman. I yield back. 

Mr. KANJORSKI. Thank you, Mr. Lynch. Now, Mr. Heller. 

Mr. HELLER. Thank you very much, Mr. Chairman. I appreciate 

the patience of those at the desk today. By the time you get to me, 

you have had to have been very patient, so I do appreciate spending a few minutes. 

Mr. Chairman, thanks for the hearing and the opportunity to ask 

a few questions. The specific question I have is if you are a nonsystemically significant institution, i.e., a State-chartered bank, an 

independent community bank, or perhaps a credit union, is it a 

waste of your time to apply for TARP funds? 

Mr. KASHKARI. Congressman, we want all of our healthy banks 

across the country to apply and participate in the program. We put 

out term sheets, as I am sure you are aware, for public banks as 

well as for private C Corp banks. There are other categories of 

banks such as the mutuals, subchapter S, which we are working 

to come up with term sheets so they can access the funds on the 

same terms as everybody else. There are some real legal complexities with doing that, and we are working to make this as broad 

a program as possible, because we want the healthy banks around 

the country to participate. 

Mr. HELLER. I am looking at the list of 87 banks that are currently participating in this program. I see in here one bank from 

South Carolina, the First Community Corporation. I don’t know 

how large that is. There is one bank in Nevada that is a regional 

bank, so it is in Nevada, Arizona, and California. They may very 

well be State-chartered banks or independent community banks. 

Mr. KASHKARI. I don’t know. I can find out. In each case, the 

bank must have a primary Federal regulator. So if there is no Federal regulator, it would not be in the program because we are relyVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
66 

ing on the primary Federal regulators to do the initial screen to the 

applications and then make recommendations to us. It has been essential for us. Because we want to use taxpayer resources efficiently and protect the taxpayers, we don’t want to invest in banks 

that are nonviable or unhealthy banks in the Capital Purchase Program so we are relying on the Federal regulators to make an initial 

screen. And if there is a bank that does not have Federal regulation, then they would not be in the program. 

Mr. HELLER. I guess the definition of nonviable or a healthy 

bank would be very helpful in this process because we have numerous bankers, as I mentioned in my opening statement, that have 

called me and asked me, ‘‘What are the criteria? We go to your Web 

site, we take a look at the Web site, we fill out the application, and 

we wait.’’ 

Is there something out there that can determine the viability of 

a financial institution, some of the criteria that you just mentioned 

that I can share or spread with these other bankers so that they 

are aware of what the criteria is to become a healthy bank or 

unhealthy bank, a viable bank or nonviable bank? 

Mr. KASHKARI. Let me just start with, if you will permit me, 

there are many applications in the system. So the applications go 

through the regulators. There are literally hundreds and hundreds 

of applications that the regulators are processing, and then they 

are submitted to Treasury for review and approval. 

The Treasury process is actually very efficient. When it comes to 

funding these deals, oftentimes it is the banks who need more time 

than Treasury. So my first response is, I would recommend, respectfully, that you go back to your banks and say, ‘‘It’s probably 

being looked at by the regulator right now on its way to Treasury.’’ 

So don’t interpret the fact that it is taking some time to be reviewed as the fact that they are not going to be eligible for the program, number one. 

Number two, the viability judgment. There is no one measurement you can look at. The regulators and Treasury look at capital 

positions, look at exposure to real estate, look at how many nonperforming loans, look at different ratings that the regulators look at. 

Because each bank is unique, we can’t point to one measurement 

and say, this is the one test. The regulators look at a wealth of information in coming up with an overall assessment that we then 

review and make the decision on. 

Mr. HELLER. You can understand the frustration where I am 

coming from with these independent bankers calling me and saying, ‘‘Hey, we have done what we have been asked to do. In fact, 

we have invested in GSEs as we were asked to do, either by this 

Congress or through the Administration, and yet we have these applications out there and we are getting no feedback. We continue 

to ask, we continue to write letters, and there is just no information coming back as to whether or not we are considered a healthy 

bank, whether we are considered a viable bank.’’ 

And what they want to know is, is there any way—and I understand it is a clouded question because it is very difficult to pinpoint 

specific viability or not—but there has to be some criteria out there 

that they can use in order to determine whether or not they can 

actually apply or should be applying for these TARP dollars. 

67 

Mr. KASHKARI. It is a very good question. Most banks that apply, 

the vast majority are ultimately going to be approved, just having 

gone through the investment committee so many times now, watching the process. There are some banks that in the regulators’ judgment are not viable, in which case they will go to the bank and say, 

maybe you shouldn’t apply, or you should withdraw your application. 

If that hasn’t happened, they should feel pretty good. But ultimately, it needs to work through Treasury to make the final decision. 

Mr. HELLER. Thank you. I yield back. Thank you, Mr. Chairman. 

Mr. KANJORSKI. Thank you very much, Mr. Heller. 

Mr. Miller. 

Mr. MILLER OF NORTH CAROLINA. I agree with those members 

who have said that we have to get a handle on the foreclosure 

problem. Credit Suisse, I think just this week, said we are probably 

going to experience 8.1 million foreclosures or perhaps 10.2 million 

foreclosures, which is almost one mortgage in five, in the next 4 

years. If we don’t get control of that, nothing else we do is going 

to work. 

But my questions are about due diligence. You have said that 

you are trying—you are working carefully to make sure we are putting money in viable institutions and we are relying principally on 

the principal regulators to assess viability for that determination. 

There was a sentence in the Congressional Oversight Panel’s report that was striking: ‘‘The Citigroup experience, the AIG experience, raise questions about assessment of institutional health and 

need by Treasury and by bank regulators.’’ No kidding. 

AIG, I understand, got into trouble not because of anything the 

subsidiaries are doing, which are very closely regulated by State insurance commissioners, but by the parent, the holding company, 

which is, as I understand it, almost entirely unregulated, and because of the business derivatives and credit defaults were almost 

entirely unregulated. What regulator did you depend upon to assess the viability of AIG? 

Mr. KASHKARI. Congressman, when we talk about the regulators 

assessing viability, I am speaking about the Capital Purchase Program. It is $250 billion for a healthy bank. AIG was a separate program. That is the systemically significant failing institution program, where the regulators were not assessing viability, the regulators were assessing what would happen if we had allowed them 

to collapse. 

Mr. MILLER OF NORTH CAROLINA. That was my impression as 

well, that it had nothing to do with viability. And that was the gist 

of your answers to Mr. Clay’s questions a couple of minutes ago. 

There was a story in The New York Times on November 11th 

that talked about the systemic risk and about making good on derivative contracts by AIG. The usual rule in the economy is when 

you do business with somebody and you can’t perform the contracts, you lose. But those who were in derivative contracts with 

AIG aren’t losing; that the money that we put into AIG is being 

used to pay them in full. 

Lynn Turner was quoted as saying, ‘‘We are funding someone on 

the other side.’’ And the article said that neither AIG nor the 

68 

Treasury was identifying who the significant counterparties were 

for AIG. Did The New York Times just not look on your Web site? 

Have you identified who those counterparties are? And if you have 

not, why have you not? 

Mr. KASHKARI. We have not—to my knowledge, we do not have 

a list of all of AIG’s counterparties. We now have examiners, especially with the Federal Reserve, onsite at AIG, going through all 

of their books and records to try to understand their businesses 

and sell off assets over time in an orderly manner to pay back the 

taxpayers. So we have examiners onsite now and can look into 

that. But the reporting requirements that I spoke about were all 

of the requirements under the law for all the investments we make. 

Mr. MILLER OF NORTH CAROLINA. Are you going to tell us, ever, 

who got the money that we paid under AIG’s derivatives contracts? 

And if not, why not? 

Mr. KASHKARI. It is hard to know—Congressman, it is a tough 

question because it is hard to know with a dollar in a company, did 

this dollar of the taxpayers go to this use, did it go to paying expenses? 

Mr. MILLER OF NORTH CAROLINA. That is really not a credible response. 

Who were we paying off? Who are all of the counterparties in 

AIG’s derivative contracts? 

Now, with respect to other people who are getting money from 

us, we are getting something. We are getting warrants, we are getting preferred stock, we are getting senior debt. But with respect 

to AIG, the money we are paying to their counterparties, in the 

words of Rob Blagojevich, ‘‘We are not getting anything except appreciation.’’ 

Mr. KASHKARI. Congressman, look at another example. When we 

put in money in Fannie Mae and Freddie Mac—when you put 

money into a business, that goes to sustaining the business. So all 

of the customers, all of the contractors, all of the counterparties 

benefit from having put the money in to stabilize that business. I 

am just trying to understand how you isolate the derivative 

counterparties versus all of the customers of AIG who have benefited from the action as well. 

Mr. MILLER OF NORTH CAROLINA. The subsidiaries, the folks who 

had boring old commercial lines and personal lines, they are getting paid. Those subsidiaries are fine. State regulators make sure 

they are solvent. The entity that is not is the parent, is the holding 

company. My understanding, and maybe I need to go on your Web 

site, my understanding was that those were always almost exclusively because of derivatives, credit default swaps, etc. 

Mr. KASHKARI. Forgive me. If we didn’t put in the money to stabilize AIG, would all of those insurance customers still be getting 

paid? 

Mr. MILLER OF NORTH CAROLINA. My understanding is that the 

subsidiaries were closely regulated. They are all solvent, fine. The 

problems with AIG are all the parent, the holding company, which 

is completely unregulated. Is that wrong? 

Mr. KASHKARI. I believe a lot of the problems were at the parent. 

Again, even if the parent ran into trouble, that doesn’t mean the 

subs would necessarily be fine. Again, when we try to stabilize it, 

69 

we are trying to stabilize the entity as a whole and ultimately 

allow them to sell off the subsidiaries so we can pay back the taxpayers. It is very hard to isolate one business and say the money 

went for this, and not that. That is what I am struggling with. 

Mr. MILLER OF NORTH CAROLINA. With respect to Citigroup, was 

there anything about the panicked additional $25 billion in guaranteeing $306 billion in troubled assets without really saying much 

about what the assets were or why they were troubled, was there 

anything about that that undermined your faith in the principal 

regulator for Citigroup? 

Mr. KASHKARI. I think these are very large, very complex institutions, and the actions that we took for Citigroup were to strengthen 

the institution and improve confidence in the system as a whole. 

These institutions are not just there in isolation. A lot of times the 

market looks at these institutions in combination or in the aggregate. So we had to make sure confidence was there for the system 

as a whole. 

Mr. KANJORSKI. Thank you, Mr. Miller. 

Mr. Feeney. 

Mr. FEENEY. Thank you, Mr. Chairman. Mr. Kashkari, you have 

an economics background, I understand. 

Mr. KASHKARI. I have a finance background, sir. 

Mr. FEENEY. A finance background. The severity of the credit crisis today is reminiscent, certainly not as severe, as what happened 

after the October 29th stock market crash in America. At the time, 

it was a contraction in the monetary supply by some 33 percent 

over 4 years. Today, the Fed is easing significantly. Interest rates 

are next to zero, we have TARP trying to pour money into financial 

institutions, and yet there is more than anecdotal evidence that 

there is a credit seizure. Even banks often refusing to lend to 

banks, let alone small business borrowers, etc. 

If you are not an economist by background, you are familiar with 

the term ‘‘paradox of thrift.’’ If each of us or any particular institution saves, that is probably a good thing at a micro level; but if everybody decides to save and not lend. Yet, that is exactly what is 

happening as banks and financial institutions put this money in 

their balance sheets to firm up their own creditworthiness. But 

they are, for a variety of reasons, not lending to others, including 

a crackdown by Federal Reserve regulations on existing loans to 

businesses and others. There is a severe credit contraction that 

continues today regardless of what you are trying to do with interest rates or with TARP. 

Are you familiar with what Mr. Isaac at the FDIC did during the 

1980’s savings and loan crisis to save the credit crunch in the 

United States? 

Mr. KASHKARI. I know several actions were taken, and we have 

studied many of them. 

Mr. FEENEY. Well, it was successful. By the way, what they essentially did was take notes from banks over a 5- or 6-year window, 

and the Treasury gave, effectively, a note back. They were called 

network certificates. The importance of that trade was that for 

every million dollars, number one, the taxpayers got virtually all 

their money back. It was beautiful. 

70 

Number two, it created $10 million worth of lending capability for every $1 million trade. Why we haven’t used that as a model 

to save homeowners, to save small businesses and individuals, is 

beyond me. By the way, it is beyond Mr. Isaac, who actually saved 

us from severe credit problems at the time. I suggest that model 

to you. 

Since we sold this most recent bailout—by the way, I have been 

against all the bailouts. I believe this is not your fault or the Treasury Secretary’s. I believe that you have been in charge of a fool’s 

errand. Trying to micromanage something as complicated and centrally plan something as complicated as the American economy can 

never work, in my view. It never has worked. Are you familiar with 

the Nobel Prize winning economist, Mr. Hayek? 

Mr. KASHKARI. With the name, but not his research. 

Mr. FEENEY. Well, he wrote a book, and the title should be sufficient. He said that centralized planning, no matter how well intended, led to what he called—and this is the name of the book in 

quotes—‘‘The Road to Serfdom.’’ And bit by bit, that seems to be, 

in my view, where we are going. 

So I don’t blame you. I think you have been instructed to lead 

a fool’s errand. I do not think it is good for America, but I don’t 

think it is because of anything particularly that you have done. 

I will say trying to micromanage the American economy with tinkering and bailing out individual institutions, and now going we 

are going on to the auto industry, apparently this afternoon, is a 

little bit like trying to manage the circus from the middle of the 

monkey cage. It may be fun, it is enjoyable to watch, but it is just 

not going to work, and I don’t think it has ever worked for any 

economy on the planet in history. It never creates prosperity. And 

yet, we seem to be committed. 

We were told by the same people, both in the Administration and 

the leaders in Congress, that if we passed the stimulus package of 

$600 per taxpayer, including many nontaxpayers, that would fix 

the problem with the American economy. That was 8 months ago. 

We bailed out Bear Stearns and AIG. We were told that bailing out 

Fannie and Freddie this summer would do the trick. 

By the way, Mr. Dodaro, the GAO at the time estimated that the likely cost of the bailout of Fannie and Freddie would be $20 billion. Do you know what the current likely estimate is? 

Mr. DODARO. No, but I can do some research and provide that 

for the record. 

Mr. FEENEY. I bet it is many multiples of the $20 billion. So, 

again, this is not GAO’s fault. I think Congress and the Administration have led Americans in a direction that may be very difficult 

long term to recover from. 

There are things that we can do like managing a monetary supply not to create bubbles. There are things that we simply cannot 

do. Micromanaging the decisions of 300 million Americans and 

businesses and institutions is not something that Washington will 

ever do successfully, in my view. God bless you on your mission. 

I don’t think it will work. I hope it does. It never has in history. 

With that, I yield back. 

Mr. KANJORSKI. Thank you very much, Mr. Feeney. 

Mr. Scott. 

71 

Mr. SCOTT. Thank you very much, Mr. Chairman. Mr. Kashkari, 

first of all, the great concern we have is—the fundamental need 

right now are two things for us to get out of this doldrum that we 

have in our economy. One is we have to lend the money—the banks 

have to lend the money. We have to get consumers to spend the 

money. 

As you well know from finance—and you are a man of finance— 

the banking system is sort of like the heart of our economy. Like 

our own heart and our own bodies, the primary function is to pump 

the blood to get throughout the body. That is what the banks are 

there for. But they are not pumping the blood, the money, out to 

the system. It is not getting out to the fingers, and out to the toes. 

It is not getting out there. It is not getting out to the homeowners 

who are hanging on by their fingernails, and not getting out to 

those people who need to keep their jobs. That is what we have to 

break through with. 

I want to deal with a couple of specific points, and I think that 

we can give you an example, and I want to get your answers as 

to how you might be able to help us to do this. For example, here 

is one example. In Atlanta, Georgia, we have the Hartsfield International Airport which, I am sure, if you have been around, everybody has gone through. It is the world’s busiest airport. We have 

a great need now. We are building a second terminal, the Maynard 

H. Jackson International Terminal. However, without access to the 

short-term credit market, construction will stop. We need that access. 

The question is: Can Treasury make sure that the reserves and 

money and resources that are going to the banks be directed to 

unfreeze the market for State and local debt so that projects like 

this can go forward? That is nearly over 3,000 jobs that will stop. 

Now, can we do that? 

Mr. KASHKARI. Congressman, we are very aware of the challenges of State and local finance in the municipal bond market and 

we are designing programs and plans. Right now, some of my colleagues are trying to directly address that so we can get credit 

flowing to State and local governments for the exact same reason 

that you are saying. 

So we have ideas on how to go about that and we are designing 

our plans and getting feedback from experts in the market and in 

the industry to make sure that they will work. 

Mr. SCOTT. But can we not use the banking system to do that, 

for example? And you are saying, yes, we can. 

Mr. KASHKARI. Well, I think that the banks have an important 

role to play. But I think that the non-bank financial sector is also 

really important, and we need to try to get both working. 

Mr. SCOTT. Let me give you an example. Right now, today, a 

bank, the major bank in Atlanta, Georgia, where the airport is, 

SunTrust Bank, is coming and asking you for an additional $1.4 

billion. Cannot you use that direction to put that marriage together, and cannot we use that as a pattern, that, as we go about 

getting moneys into these banks, that we systematically have an 

identification plan of which we can assist these banks, say, ‘‘Okay, 

you want this money?’’—these are taxpayers’ dollars. They are not 

the bank’s dollars. These are the taxpayers’ dollars. We are the 

72 

stewards of the taxpayers’ dollars. The taxpayers want this money 

to get out into the system so they can stay in their homes, they 

can keep their car dealerships, they can keep their jobs, and we 

can build the expansion for the Maynard Jackson terminal airport. 

Or, for example, another example, at the same time in my district, in Clayton County, for example, we are on the verge of losing 

a hospital, because the hospital is $40 billion in debt to their creditors. Well, it seems to me that we ought to be able to—if the bank 

is down there—that is what I am saying. They are hoarding this. 

The communities around them are suffering. It is not just the 

homeowners who are not getting money; the businesses are not either. 

Can we do this? 

Mr. KASHKARI. I think we can continue to encourage banks to increase credit. And that is what we are working on with the regulators, to measure that now, so we have the data to know what is 

really happening. 

But I will say I am very cautious about getting into the business 

where the Treasury Department is telling an individual bank, ‘‘You 

should make this individual loan.’’ I think that is a bridge too far. 

I don’t think the Treasury Department or Washington is the best 

place to make those individual decisions. But we think the system 

as a whole should get the credit out to the people who need it. 

Mr. SCOTT. Right. 

Let me go to you, Mr. Dodaro—we have pumped $290 billion into 

these banks. Do we know how they are spending it? Do we have 

a record of where this money has gone? 

Because we have another $350 billion that we are going to put 

some halt on. I am going to do everything, I am here to stop any 

more, not another dime, going out to these banks until we get an 

accounting for how they have spent this $290 billion that is there. 

And hopefully, we can maintain a hold on this remaining $60 billion, since we are not using it. Or, hopefully, we can use it to get 

to Ms. Bair to help with the home foreclosure program. 

But could you answer that for me? 

Mr. DODARO. Right now, there is not a systematic reporting process in place to report back how this money is being used by the individual institutions. This was our recommendation. 

Mr. SCOTT. And let me ask you, your primary need to do this, 

is it not that you want to use your bank regulators to facilitate 

this? 

Mr. DODARO. We believe that structure is already in place. It is 

something to build off of. In this case, you know, you have a new 

program, you don’t want to create a whole new mechanism. You 

can build off the existing structure with the regulators who are already involved. 

Remember, they are the ones reviewing the applications in the 

first place from the bank and making the decision as to whether 

or not the institution is financially viable and sound. So they have 

knowledge about these institutions. They collect information on a 

quarterly basis. And what we are suggesting is they modify their 

normal collection process to get more information back, in a more 

timely manner than quarterly, but they get the information, and it 

73 

gets fed in, and there is a systematic roll-up of this information, 

as best it could be determined. 

Mr. SCOTT. Are you concerned that there may be too cozy a relationship that exists right now that should be re-examined between 

the bank regulators who are right there in the bank and the bank? 

Is that too close? 

Mr. DODARO. You know, I am focused on getting the data, and 

I think that is what people want to be focused on, is getting the 

data. We trust the regulators to provide proper oversight of the 

system, and I am not questioning that. 

Mr. SCOTT. All right. 

Mr. DODARO. But I do think they need to be part of the solution 

here to get better feedback on how this money is being used. I 

mean, that is what everybody wants to know. They can help in accomplishing that. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. KANJORSKI. Thank you very much, Mr. Scott. 

Mrs. Bachmann? 

Mrs. BACHMANN. Mr. Chairman, thank you. 

And thank you gentlemen for being here for this long period of 

time. I appreciate it. 

I, too, voted against the bailout, and I must say that, in the time 

that we were away from this body after that vote, every day I was 

happier and happier that I had made that vote against the bailout. 

I can tell you most assuredly that my constituents are not happy 

with the bailout. 

And you are not responsible for all of them, but if you go back 

to January of 2008 and begin with the initial stimulus package, 

that was expected to be about $150 billion; it ended up being $168 

billion. And then if you go forward from there and you go through 

the litany of all—the $29 billion for Bear Stearns, and then you go 

to the hundreds of billions for the Federal Home Loan Association, 

hundreds of billions of dollars for Freddie and Fannie. Each one of 

these initiatives, this is just the spring. We were told each one of 

these initiatives would help to bring about the turnaround in the 

economy. 

And it seemed what happened is, with each intervention, whether it was through the Federal Reserve or whether it was through 

Treasury or whether it was through the Federal Home Loan Association, each one of those measures seemed to only roil the stock 

market. So we would see increasing nosedives on Wall Street just 

as the American taxpayer was being asked to continually open up 

his or her wallet yet one more time and put more greenbacks on 

the table for troubled industries. 

After a while, as Members of Congress—and this, I think, is a 

bipartisan feel—we felt as though we were not being given the entire story. And that is what I think this GAO report said to me. 

When the GAO report came forward this month, I thought that the 

title said it all, ‘‘Additional Actions Needed to Better Ensure Integrity, Accountability and Transparency.’’ Literally what we saw in 

this report, then, was a litany of the shortcomings related to Treasury’s lack of oversight of the TARP program. 

And that is something that I think that people in the United 

States right now are feeling: a real lack of security about what 

74 

Treasury is doing. They feel there has been a lack of communication with this Congress. That has been itemized in this report that 

came out, that not only does the report feel that you have failed 

to communicate with this body, with the Members of Congress, but, 

in turn, with the American people. So they really don’t know who 

to believe anymore. 

And that is the beauty of our country. The beauty of our system 

of government is that we govern by the consent of the people. I 

don’t really believe that we have the consent of the people right 

now. And it seems to me that part of that responsibility must lie 

with Treasury, in that you have failed to adequately assure the 

public that the work that you are doing on the TARP program is 

work that is getting our country on the right side of the economy. 

And I don’t say that in any personal way, but just that I believe 

that this report also gives backing to what I am hearing from my 

constituents. As a matter of fact, it refers to this as ‘‘information 

gaps and surprises.’’ And this communication, I think, is more than 

just irksome. I think that it has actually led to real market instability, where literally we can go 700 points up and then we can go 

600 points down, then 200 up, then 800 down. People don’t know 

what to do, and they are very frightened. And you see that even 

in the retail market for this important Christmas season. 

I, too, had members of the automobile dealers in my office yesterday. And they are telling me that people can’t get loans unless they 

are at a 15 percent interest rate. That is keeping people out of 

their showrooms, and they are not being able to make these purchases. 

Now, I know that you are attempting, through your work, to try 

to bring those interest rates down. You are attempting to unthaw 

the credit freeze. But what it appears like to many of us is that 

what we are seeing over and over by government intervention is 

moving further and further away way from a free-market economy, 

not only in financial markets but also now in the auto industry. 

And there is a very real concern that we will not find an answer 

that comes with a free-market answer. 

I am wondering, will we get to that point when we return to a 

free-market economy? Or will we stay with a deep philosophy of 

government intervention at every turn? 

And so, finally, here is my question, and if we don’t have enough 

time, I would ask that you respond in writing. How will you determine whether the capital that the government has injected into a 

specific institution is being used for lending purposes? 

This was one of the very concerns that I had with the fundamental principles behind TARP and the Capital Purchase Program. 

On one hand, government should not micromanage, and I believe 

that, the entire private banking industry. But on the other hand, 

how will you ensure that your plan achieves its goals so that we 

can actually unthaw this credit freeze? 

Mr. KASHKARI. Congresswoman, thank you for the comment. I 

will say three things. 

First, remember, when we started in this hearing, the overall objective of our actions has been to stabilize the financial system and 

to prevent a collapse, number one. 

75 

Number two, we are working with the regulators to design the 

right measurements to look at loan levels, to see if increasing in 

lending is taking place relative to those who did not take the capital over time, to judge the merits of the Capital Purchase Program 

by themselves. 

And third, Mr. Chairman, if you will indulge me for just 30 seconds, to get some sense of the severity of this crisis, think about 

this: Bear Stearns; Washington Mutual; IndyMac; Fannie Mae; 

Freddie Mac; AIG; Wachovia; Lehman Brothers—all major U.S. financial institutions that have collapsed in the last 9 or 10 months. 

This is not a joke. 

Mr. KANJORSKI. Thank you very much. 

Mrs. BACHMANN. Mr. Chairman, thank you. 

And if I could just respond, my remarks were not that this is a 

joke. I think we all understand and take this very seriously, as do 

the American people. 

My remarks are that the American people no longer have confidence over how the program is being run. And the question again 

is, how will we have adequate oversight, as GAO has suggested 

Treasury needs to have, to make sure there is adequate communication with this body? 

Thank you. 

And, Mr. Chairman, thank you for your indulgence. 

Mr. KANJORSKI. Thank you, Mrs. Bachmann. 

Now, we will hear from Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the witnesses for being so patient. I know it has 

been a long day for at least one of you. 

Mr. Kashkari, you just indicated that the overriding aim—and I 

am paraphrasing—of the program was to stabilize financial systems or financial institutions. I think that may be a part of departure with reference to your position or the position of the Treasury 

juxtaposed to the position of the Congress. Because, in Congress, 

we passed the Emergency Economic Stabilization Act of 2008. And 

when we passed it, we included therein the opportunity for the Secretary of the Treasury to establish TARP, the Troubled Asset Relief 

Program. It appears to us that the CPP, which is what you established, the Capital Purchase Program, is a little bit antithetical, 

not that it is of no good, serves no purpose, but it is a little bit antithetical to where we thought we were going to go from our perch. 

Our perch gave us one vista, and yours apparently accorded another vista. 

The question becomes this, given that we have these two different propositions before us. Focusing on the concern with reference to toxic mortgage-backed securities, I believe you concur and 

agree that they are a part of the problem that we are trying to confront. True? 

Mr. KASHKARI. Yes. 

Mr. GREEN. Okay. If they are—and we have at least one chairwoman, Chairwoman Bair, who has suggested that her plan will 

deal with, not in toto, but will deal with to a great extent toxic 

mortgage-backed securities. Do you concur that her plan does that, 

that it deals with toxic mortgage-backed securities? 

76 

Mr. KASHKARI. It certainly attempts to deal with and reduce foreclosures, which would help toxic mortgage-backed securities. 

Mr. GREEN. Exactly. So my question to you, and this is, to a limited extent, a follow-up on what Chairwoman Waters introduced to 

us earlier, and I think she was quite eloquent, but I do want to follow up. The question is, what are the deficiencies in the Bair program? 

And I ask this because, clearly, you have moved $20 billion from 

the TARP over to the Fed for the Fed to use with TALF. So you 

can move the money. There is no question about whether it can be 

moved, in my opinion, because you have demonstrated you can do 

it. It is a $200 billion program, but you are using $20 billion just 

as a sort of a backstop for some of the losses. 

So the question becomes, what is the problem with the Bair program, if there is a problem? 

Mr. KASHKARI. Sure. Thank you, Congressman. 

One of the other Members of Congress talked about competing 

interest and tensions. We have an interest to avoid preventable 

foreclosures. We also have an interest to protect the taxpayers. 

And one of the concerns that we have to look at very carefully 

are redefaults and what happens if borrowers redefault. If a borrower redefaults, that borrower is out of luck, because they are 

going to be out on the street, so that borrower has not been helped. 

If the borrower redefaults and then, at the same time, the costs to 

the taxpayer go through the roof, what have we accomplished? 

Comptroller Dugan, the head of the OCC, on Monday released 

data showing very high redefault rates for some types of loan modifications. And so one of the things we have to look very carefully 

at is, how do we make sure that the loan modifications are sustainable, that they are not going to lead to a lot of redefaults? And if 

there are redefaults, we don’t want to reward the banks because 

the borrowers have lost a house. So we have to construct the right 

incentives so that the borrowers who need help are helped without 

creating the wrong incentives and rewarding the banks if the borrower redefaults. 

So there are some—Congressman, this is an issue that I have 

studied for 18 months, and it is probably the most difficult policy 

issue I have come across, is how do you find a program that helps 

the borrowers who need help without rewarding everybody who 

doesn’t? 

You know, the legislation that this body, this committee championed, the HOPE for Homeowners legislation, was a very thoughtful attempt at this problem. By putting in place the taxpayer protections, not as many borrowers as we would like are getting the 

help that they need. 

And so, there are real tensions here that we are trying to work 

through to try to find the right solution. 

Mr. GREEN. Permit me to ask this. The Bair program contemplates, I believe, 31 percent of income as the markdown in 

terms of monthly payments, trying to get persons at that point, because it is perceived that if you are at that point, you can afford 

the property. So it is a restructuring program. 

77 

That formula apparently has attracted the attention of a number 

of economists who think that it can work. What do you see as a 

problem with that formula? 

Mr. KASHKARI. Well, it is not whether it is a 38 debt-to-income 

or 34 or 31; different people have different views. We have adopted 

a similar approach with Fannie and Freddie, where they are moving people down. 

The key is, if you are putting insurance on an asset, that is a 

payout if the borrower redefaults. Think about that. The bank only 

gets a payout if the borrower redefaults. Does that create an incentive for the bank to encourage a default and foreclosure? 

So we just have to look very carefully at these incentives to make 

sure that they are aligned so that the taxpayer dollars are really 

going to help the homeowners. That is our objective. 

Mr. GREEN. Thank you. 

Mr. KANJORSKI. Thank you, Mr. Green. 

Mr. Manzullo? 

Mr. MANZULLO. Thank you, Mr. Chairman. 

Mr. Kashkari, you were asked the question about whether or not you thought a $3 million bonus to an executive at AIG was excessive. And from my understanding of the answer that you gave to 

Mr. Sherman, your answer was no. Is that correct? 

Mr. KASHKARI. Congressman, my answer was I don’t have a 

number in my head that says, this is an appropriate bonus level, 

and that is— 

Mr. MANZULLO. Well, does anybody have a number in their head when we spend $125 billion of the taxpayers’ money on AIG? Is a 

$3 million bonus too much to give to a person who was there and 

responsible when that company went under? Yes or no? 

Mr. KASHKARI. Congressman, our track record is clear— 

Mr. MANZULLO. Your track record is clear here. I want a yes or 

no. 

Mr. KASHKARI. Congressman— 

Mr. MANZULLO. I represent—no, let me tell you something. I represent a city—the largest city in my district has 11.3 percent unemployment, $41,000 a year median income. In 1980, Rockford, Illinois, led the Nation in unemployment, at 25 percent. 

I am asking you right now, and I want an answer, and there is 

a reason for it: Is a $3 million a year bonus excessive to a company 

owned 80 percent by the United States Government and into which 

over $125 billion of taxpayers’ money has been invested? 

Mr. KASHKARI. It is excessive for a failing institution, yes. 

Mr. MANZULLO. All right. So are you going to ask for the money 

back, yes or no? 

Mr. KASHKARI. Forgive me, Congressman. Which money back? 

Mr. MANZULLO. The $3 million bonus that just went to the AIG 

executive. Are you going to ask for it back? 

Mr. KASHKARI. Again, Congressman, I don’t know the details of 

the bonus that— 

Mr. MANZULLO. That is the bonus. If he got a bonus of $3 million, are you going to ask for it back? 

Mr. KASHKARI. Again, Congressman, I don’t know the detail of 

the bonuses. 

Mr. MANZULLO. Mr. Kashkari. 

78 

Mr. KASHKARI. Yes, sir. 

Mr. MANZULLO. An executive at AIG just got a bonus of $3 million. The three executives from the Big Three said they would work 

for a dollar a year. I am asking you, if that is the case, is TARP 

going to ask for the money back, if they got the $3 million bonus? 

Mr. KASHKARI. Again, Congressman, I am going have to look into 

it and get back to you. 

Mr. MANZULLO. Mr. Kashkari, I want to suggest something here. 

And it is not because of—maybe it is because of the people I represent. We can’t relate to you in your world. I don’t know where 

you come from or the people with whom you deal on a day-to-day 

basis, but when you sit there and cannot take a position as to 

whether or not a $3 million bonus to a failed company and into 

which the taxpayers have put $125 billion in assets, perhaps you 

are not the right person for the job. Perhaps you don’t understand 

the situation at all. Perhaps we should put somebody in your position who is one of my community bankers, who understands people. What would you think if you earned $41,000 a year and the city 

in which you live has 11.3 percent unemployment, yes, and five of 

the last governors in the State of Illinois have been indicted, and 

you sit here in charge of all this money, and you can’t tell them 

whether or not a $3 million bonus to an executive at that failed institution is excessive? 

Mr. KASHKARI. May I answer? 

Mr. MANZULLO. Of course. 

Mr. KASHKARI. There have been some press reports—and, again, 

I don’t know the details of the specific case you are referring to— 

there have been some press reports about AIG that have referred 

to bonus schemes. When I have looked into it and had our people 

look into it, there have been some cases where they had deferred 

compensation that was already earned by people, not the CEOs— 

Mr. MANZULLO. Well, deferred compensation of $3 million? 

Mr. KASHKARI. Remember, Congressman, we got rid of the management team of AIG. 

Mr. MANZULLO. Well, who are these new clowns getting that 

money? Why can’t you just give a simple answer so the people I 

represent can have confidence in you? We don’t have confidence in 

your answer; how can we have confidence in your decisions? 

Mr. KASHKARI. Because I am trying to be precise in my answer, 

Congressman. 

Mr. MANZULLO. Your answer is imprecise. I don’t think you understand. I don’t think you understand at all the pain and the 

hurting that is going on in this country, of the people who are on 

the verge of losing their jobs. And you can sit there and not come 

to a decision as to whether or not a $3 million bonus is too much? 

If you even have to ask that question, whether it is too much, 

Mr. Kashkari, you are not the man for the job. We need somebody 

else in that position. We need somebody with the long-term experience, somebody who has dealt with loans of ordinary, common people, somebody who understands the hurt that this country is going 

through, somebody that can feel their pain and the anxiety which 

they express to me on a daily basis. On the basis of your answer, 

sir, I think you should step aside. 

Mr. KANJORSKI. Thank you, Mr. Manzullo. 

79 

The gentleman from Missouri, Mr. Cleaver. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Mr. Kashkari, I actually feel sorry for you. And the reason is that 

it is Mr. Paulson who needs to be in that chair. 

Do you have staff members with you? 

Mr. KASHKARI. A few. 

Mr. CLEAVER. Because I have been watching—I left for 20 minutes to meet with someone. By my count, there were four members 

who asked for information to be sent back to them. And I watched 

to see if anybody on the front row was writing down their names 

and what they asked for, and I didn’t see it. If I overlooked, if you 

have it, if you could raise your hands? 

You wrote it down? Okay, I just looked at the front row, so I 

didn’t see you back there on the second row. 

The reason I went there is because my concern is that—and 

maybe you can answer the question—do you know why we were 

not asked to come back as a committee to hear Secretary Paulson’s 

reason for diverting the money to banks? I mean, the name of the 

program is ‘‘Toxic Assets,’’ and nothing went there. So I have been 

curious as to why we weren’t called. You know, there was an emergency need for us to gather. Do you know? 

Mr. KASHKARI. Congressman, in the negotiations as we worked 

with the Congress to design the legislation, we worked very heard 

to build in flexibility because we knew the credit crisis is unpredictable. And so, as the crisis deteriorated in just the 2 weeks before when we first came to the Congress and when the Congress 

acted and then the 2 weeks that followed, we made rapid adjustments as facts changed on the ground. And the legislation provided 

us the flexibility that we needed to be nimble and adjust our strategy. 

Mr. CLEAVER. Yes, sir. I was here. I try to—I have never missed 

any of our committee hearings, and I try to get here on time—I do 

get here on time. 

You are absolutely right. But understanding that this was a dramatic turn from what Congress approved—I was listening to Lou 

Dobbs, which is self-prosecutorial, but I am listening to it, and he 

is starting the news off by saying, ‘‘The government has switched.’’ 

Now, I went to a town hall meeting in Belton, Missouri, just outside of Kansas City. There were about 125 people there, and they 

were furious because they think that I voted to switch. And I would 

dare say that the overwhelming majority of the people in this country believe that we voted to switch from what we initially said. 

And so, given the delicate nature of this, don’t you think that we 

should have publicly said, ‘‘This is the direction we need to go?’’ I 

don’t disagree with the direction you went. I mean, this is the European model. 

But can’t you see—I mean, some of my colleagues, we have nothing in common except life, but I find myself agreeing with them because of the fact that we are the ones being politically bludgeoned. 

And it would have taken a call to Barney Frank. The Treasury did 

call Barney Frank. I had dinner with him the night that they did, 

the evening of the notification. But he didn’t ask for any meeting; 

he told him what he was going to do. 

80 

Mr. KASHKARI. Congressman, I appreciate the feedback. And, 

clearly, we have heard the message, and we understand the concerns that have been raised by us adjusting our strategy as we 

move forward. 

At the same time, we have had to move very quickly, as I have 

said, and market conditions have changed so quickly. I feel good 

about the actions that we have taken, that they were the right actions to take to try to stabilize the system. 

Mr. CLEAVER. But don’t you know that we would have gotten on 

airplanes and come right back to Washington? 

Mr. KASHKARI. I believe that, Congressman. And the actions that 

the Congress took in passing the legislation in just 2 weeks is truly 

remarkable. The crisis was intensifying at such a rate that even 2 

weeks may not have been fast enough. 

Mr. CLEAVER. It wouldn’t have been 2 weeks to get on a plane 

to come back. I don’t want to argue with you about plane travel. 

But I would like to switch now—I have to say this because I am 

hoping the people in my district will get a chance to understand 

that we had nothing to do with this, that this was not a bait-andswitch on the part of Congress. 

And I want—and maybe I am wanting too much—I just want 

some understanding of why people are angry up here. And the reason I ask about the notes is because I didn’t want it to appear as 

if we don’t matter, we just do things. 

And I didn’t even get into the fact that we need a de-icer with 

credit. And if we are not giving money to Chrysler financing and 

GMAC, it doesn’t matter how much money we put into the automakers, people won’t be able to buy cars, because right now, the 

credit score required to get a car is between 700 and 725. There 

are people in this room who don’t have that kind of credit score, 

and there is no money going into the entities that finance automobiles. 

I think I have run over, Mr. Chairman. I thank you for indulging 

me. 

Mr. KANJORSKI. Thank you, Mr. Cleaver. 

Mr. Perlmutter? 

Mr. PERLMUTTER. I have a number of things, but first—and I 

didn’t expect to be an apologist for the Treasury Department, but 

I do want to say that things have been moving at a clip that nobody could imagine. And I have been attending all of our hearings 

and hearing from different economists, from the left and the right 

and the center, who do appreciate the fact that the Congress acted 

quickly and that the Treasury is acting quickly to deal with some 

unprecedented twists and turns in an economy. So I do want to 

thank you for that. 

Now, I am going to chew you out. And the reason is—and I think 

part of Mr. Manzullo’s criticisms, Mr. McCotter’s criticisms, and 

Mr. Sherman’s criticisms are that you have a massive undertaking 

here. You have 48 people that you have hired. That isn’t enough. 

The Department of Defense, for $700 billion, has hundreds of people monitoring how that money is being used. 

And so the GAO, in its report, really had, in my opinion, two 

very serious critiques. One was you don’t have the staff, and you 

are having to deal with this stuff on the run. We need more people 

81 

to be able to monitor properly how it is happening. And, two, there 

does need to be a reporting system back to you from the banks as 

to where this money is going, if they are just recapitalizing themselves or they are purchasing another bank or whatever. 

So I sent you a letter last week signed by many of the members 

of this committee. How do you respond to the staffing question and 

getting the banks to report to you how they are using the money? 

Mr. KASHKARI. Right, both very important issues. 

On the staffing front, let me just offer a minor correction. When 

we talk about 48 or 50 people, those are full-time TARP staff. We 

have well over 100 when you combine the Treasury personnel who 

are spending almost all of their time working on it, as well. And, 

as we are ramping up, we are hiring actively so we can replace the 

Treasury staff with more and more full-time TARP staff. 

So I don’t want to leave the impression that we have half the 

staff that we need. That is just not correct. We have the staff. We 

want more and more of the full-time. And this is one of our highest 

priorities. The people who report directly to me are sick of me 

bringing up hiring, hiring, hiring. It is just so important, and so 

I am spending a lot of my time on that, number one. 

Number two, on the data, in terms of what the banks are doing, 

again, this is the very point that we are working on with the regulators, to be able to collect the data and monitor what is happening 

at the system level and at the individual institution level, so that 

we can see, are our programs having their desired results? 

Mr. PERLMUTTER. I disagree with a number of my colleagues who 

said that you were only authorized—and Secretary Paulson turned 

quickly—you were only authorized to buy the troubled assets. I 

think you were authorized under our legislation to do three things: 

One, buy troubled assets, these big portfolios. You were going down 

that path; you chose not to do it. Two, to recapitalize the banks. 

That seems to be about the thing that has been focused on. And 

then the third, which is a much broader kind of authority within 

the bill, was to use some of the other agencies of the government— 

the Small Business Administration, the Federal Home Loan Bank 

boards, the Farm Credit Administration—to get money down to 

Main Street. 

You have used the middle one, the recapitalizing, but not the 

other two. So a lot of our questions and a lot of the complaints that 

I hear in Colorado are, you know, homeowners—one of the things 

you have talked about is maybe using Fannie Mae, Freddie Mac, 

or some other agency to help with purchases at a 4 or 4.5 percent 

rate. What is happening with that? 

Mr. KASHKARI. Congressman, that is a program that we are looking at very carefully, talking to Fannie and Freddie about to understand how we would do it. No decision has been made yet, but we 

understand the merits of such a program to get people buying 

homes again. 

And if you will permit me—I am in no rush, I am happy to stay 

here as long as you would like—if you will permit me to just give 

a thorough answer, that leads to a broader point: We want to use 

the right tool for the right job. And the TARP is the only tool in 

the Federal Government, the only tool—Federal Reserve, Treasury, 

others—that can purchase equity. And so we want to use the TARP 

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now, given the severity of the crisis, for what it is uniquely capable 

of doing and complement that with other tools. Fannie and Freddie 

are a great example—outside of the TARP, but potentially some 

powerful tools that we can bring to bear on this problem. 

Mr. PERLMUTTER. Okay. 

Next question, the Treasury and the Federal Reserve turned 

Goldman Sachs and Morgan Stanley into banks over a weekend. 

We have heard now in this committee that GMAC, Chrysler Credit—I don’t know about Ford Credit, but at least GMAC and Chrysler Credit have sought bank holding status so that they could receive TARP funds. 

Where are you on that? 

Mr. KASHKARI. First, the Treasury does not make determinations 

about who becomes a bank holding company and who does not. It 

is the Federal Reserve who does; just a minor clarification. 

Second, I have heard similar things, that some of these entities 

are converting to bank holding companies to try to get access to the 

TARP. They would have to go through that process, get confirmed 

by the Federal Reserve, and still meet the application deadlines 

and be recommended by their regulator. 

So I can’t speak to the individual applications that you spoke of. 

I am aware of the issue. We have a process and procedures in place 

to deal with it. But, ultimately, the regulators are making many of 

the decisions about who can become a bank holding company and 

who can’t, and I just don’t know where they stand in terms of those 

individual applications. 

Mr. PERLMUTTER. Thank you, Madam Chairwoman. 

Mrs. MALONEY. [presiding] Thank you. 

The Chair recognizes Mr. Price for 5 minutes. 

Mr. PRICE. Thank you, Madam Chairwoman. I appreciate that. 

I want to apologize for being out of the room for a period of time. 

I had another conflict. I know that you all are getting tired. I appreciate your forbearance in sticking around. 

I want to echo the comments of my colleague from Georgia, Mr. 

Scott, who talked about Hartsfield-Jackson International Airport 

having difficulty gaining access to credit and an expansion of terminal facilities that have been on the books for a long time. Everything was rolling along well until recently, and many of the institutions that they are attempting to get resources through are ones 

that have gotten funds through the TARP. So it is a huge question 

that we have about who is getting this money, where is this money 

going. 

To that end, anecdotally, a constituent of mine owns a company 

that sells water utility software to governments and municipalities 

to help them comply with EPA regulations. This company has created 10 new jobs in the last year; it is growing about 50 percent 

each year. Recently told me about, in their next move to expand, 

he has gone to eight different banks to attempt to obtain credit. 

Three of these have received in excess of $30 billion through the 

TARP. At every turn, he has been told no. 

Where is this money going? 

Mr. KASHKARI. Congressman, it is not surprising to see that, 

with confidence still low, both fears of the credit crisis and the economic downturn, that banks are cautious about extending credit. 

83 

And I hear the same anecdotes you do. Many people call us, saying, 

‘‘We need credit, we need help.’’ And so the best we can do is to 

work with the regulators to make sure the banks are making prudent lending decisions. 

It is a delicate balance, because we don’t want to go to a bank 

and say, ‘‘You must make more loans even if you don’t think those 

are good loans.’’ We don’t want to return to the bad lending practices that got us here in the first place. And so, how do we strike 

the right balance of encouraging the banks and pushing them to 

make prudent loans without taking on undue risk? And the regulators are looking at this. They put out a joint statement of how 

they are going to be supervising all banks. 

You know, all banks in America have benefited from the actions 

that we have taken, not just those that we have invested in. And 

they all have an obligation to extend credit in their communities. 

We are very focused on this, but I don’t think it is going to happen as fast as you or I would like. But it is going to happen faster 

than had we not taken this action. 

Mr. PRICE. I am not certain of that. But do you have a list, of 

the money that has been let, of the credit that has been provided? 

Mr. KASHKARI. Of the investments that we have made, we have. 

Mr. PRICE. Not of the investments you have made; of the next 

step. That money is going out to whom? 

Mr. KASHKARI. Not yet. That is part of what we are working on 

with the regulators for the data that they collect, to try to aggregate, you know, the banks that are receiving the capital, are they 

loaning versus the ones that aren’t. I don’t know if we are ever 

going to get to the point of, you know, ‘‘These 10 loans were made 

to these parties.’’ That may be one layer too deep. 

Mr. PRICE. Has any credit been extended out of the TARP funds? 

Mr. KASHKARI. You mean have any of the banks that have received TARP capital made loans? Sure. 

Mr. PRICE. How do you know? 

Mr. KASHKARI. I hear from firms who are getting new loans. I 

hear from banks that are making credit. It is not that banks aren’t 

making any loans; they are just not making as many loans as they 

used to make. 

Mr. PRICE. Is that information that you are able to provide for 

us? 

This fellow has a perfect credit score; his partners have a perfect 

credit score. Six months ago, he would have signed for a loan with 

his own signature. Now he has gone to eight banks and can’t get 

any money. How is he supposed to expand his business? How are 

we supposed to move the economy? 

Mr. KASHKARI. Congressman, that is exactly why we are working 

as hard as we are, to try to get credit flowing again. We agree with 

what you are saying and why this is so vitally important to get 

credit out to the businesses and the consumers around the country 

that need it. 

Mr. PRICE. Let me respectfully suggest that this whole process, frankly, is absolutely predictable. To put $350 billion on the table 

and have the Federal Government be in charge of keeping track of 

that $350 billion, which it has a difficult time doing, which continues to extend the time when private capital gets into the mix, 

84 

because they are not certain how much more Federal capital is 

coming, that respectfully I would suggest that we are deepening 

the hole and lengthening the time before recovery. 

This fellow’s example is all across this Nation, of private individuals who had no difficulty getting capital before. And, because of 

the, at least in some instances, the infusion of the rules and regulation morass that has gone on, he now cannot obtain any money at 

all. 

Mr. KASHKARI. But forgive me, Congressman. We may just have 

a different view on this. Do you believe that, absent the actions 

that we have taken, he would have been able to get a loan? 

Mr. PRICE. I think that, with the control of the Federal Government at the pursestrings of this process, that we have deepened 

the hole and lengthened the process to recovery. I have no doubt 

about that. I think that has been demonstrated in previous actions, 

and I think it has been demonstrated in other countries. 

Mrs. MALONEY. The gentleman’s time has expired. But, Mr. 

Kashkari, if you would like to respond, it would be appropriate. 

Mr. KASHKARI. I am okay. Thank you. 

Mrs. MALONEY. Okay. 

Congressman Donnelly? 

Mr. DONNELLY. Thank you, Madam Chairwoman. 

And thank you, Mr. Kashkari. 

Thank you so much, Mr. Dodaro. 

We had sitting in those seats a week ago the CEOs of the auto 

companies, just as was being mentioned. And they said to us, ‘‘Our 

financial companies have applied for TARP funds; we cannot get an 

answer.’’ And, as you well know, we have a crisis in this country 

with these companies. 

And I was with dealers last week who said, ‘‘I can’t get these 

auto financial companies to provide us with funds for loans.’’ And 

so, they can’t get an answer, and it appears that we don’t know 

where their application is in the process. 

Now, I would suggest that this is a matter of utmost urgency, 

that we try to make a decision on this. And so, who would know 

where their applications are in the process? 

Mr. KASHKARI. Congressman, as the gentleman behind you 

raised, I think in these cases it is a two-step process. One is becoming a bank holding company— 

Mr. DONNELLY. Right. And I am trying to find out who would 

know, in the two steps, which step they are at today. 

Mr. KASHKARI. That would be the Federal Reserve would be 

making determinations for firms who are becoming bank holding 

companies, number one. And then, second, the Federal Reserve 

would then receive their application for the Capital Purchase Program and submit it to Treasury. And so, you know, we can call the 

Federal Reserve— 

Mr. DONNELLY. So are you saying it is still at the Federal Reserve level right now? 

Mr. KASHKARI. To the best of my knowledge, Congressman, but 

I can go back to our shop and— 

Mr. DONNELLY. Is there someone in your shop who could get that 

information to us by tomorrow at this time? Because this truly is 

a matter of national urgency. 

85 

Mr. KASHKARI. Yes. We agree with you. And that is why something we spoke about earlier, the TALF program, is targeted specifically at consumer credit, such as auto loans, to bring rates down 

for borrowers. 

Mr. DONNELLY. And that is a great number-two hitter. Now, the 

number-three hitter is getting these approvals done for TARP 

funds. And so, we are thrilled to have that coming along; we want 

to have that done. Now we have to get this done. And it seems to 

me what we have to do, more than anything, is find out where in 

the process it is. So somebody knows, and— 

Mr. KASHKARI. Sure. We will find out and get back to you tomorrow. 

Mr. DONNELLY. If you could call me back tomorrow to let me 

know. 

Mr. KASHKARI. I will. 

Mr. DONNELLY. So we can give those three folks who were sitting 

here an answer, and all the car dealers around this country an answer, so we can find out when will these applications be approved. 

And the sooner, the better, because we are in a crisis situation on 

that. 

I also have the privilege of representing a number of recreational 

vehicle companies, who came to me in the last few weeks and said, 

‘‘Our funding has completely dried up.’’ The people who were providing them credit for floor planning and other purposes called and 

said, ‘‘We just don’t have the funds anymore. There is no credit 

that is going to be available.’’ And they said, ‘‘Without that, how 

do we operate a business?’’ 

So the next set of funds that comes along, the $350 billion, can 

it be put into anybody you give those funds to that they have to 

sign to agree to put, for every dollar they receive, at least $1 out 

in lending? Can that be made part of your program? 

Mr. KASHKARI. We have looked at rules such as that. And, in 

fact, by going with capital, if you will permit me for just a moment, 

many of these banks are leveraged, you know, say, 10 to one. So 

you put in a dollar of capital, you could get many more than a dollar of loans out the door. 

Mr. DONNELLY. Absolutely, but we can’t even get the first dollar. 

Mr. KASHKARI. Well, I think it is too soon to say that, Congressman, again, because we have an economic downturn at the same 

time. And so it is hard to judge how many loans would be made 

today had we not taken these actions. 

Mr. DONNELLY. I understand that. 

Mr. KASHKARI. So, going forward, we are going to continue to 

look at the best way to get credit flowing in our economy. 

You know, if you will just indulge me for a second, my phone 

rings off the hook. People around the country are calling me, businesses, municipalities, saying, we need help, we need help. If we 

took the $700 billion and went out to everybody individually, every 

business and every family who needs help, it wouldn’t go very far. 

We are focusing the $700 billion on the financial system as a 

whole, so, by stabilizing the system, we can then get credit flowing 

out to everybody who needs it. 

Mr. DONNELLY. But with $350 billion sitting there, isn’t there 

something that can be done where we say, ‘‘If you want these 

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funds, you have to show us that at least an equal or more significant amount due to leverage has been loaned out?’’ 

Mr. KASHKARI. I think that is something that we can look very 

hard at. I don’t want to overcommit, just because we haven’t seen 

the details. But I think it is something that we can and are looking 

very hard at. 

Mr. DONNELLY. Well, thank you. 

And thank you both for your time and for hanging in there with 

us today. 

Mrs. MALONEY. Congressman Foster? 

Mr. FOSTER. Thank you again for your time. I really appreciate 

it. 

Let’s see. I would also like to say that I think some of these 

claims that there is some sort of bait-and-switch or bamboozling 

going on on your part, I think, are really unwarranted. You know, 

the option of recapitalizing institutions was explicitly discussed 

during the debate. I know in my testimony in front of this committee, in my debate on the Floor before the thing was voted on, 

you know, this was an explicitly discussed option. And the Members who have said that somehow you have sprung this on them 

I think were either not paying attention to the debate or maybe not 

reading what was actually passed. So that is just a comment. 

One related thing, though, is that we made the decision in the 

legislation to specify preferred shares rather than real equity with 

voting rights. And I was wondering, in retrospect, given the problems that have arisen in trying to get the banks to directly loan 

out the money that we have injected into them, whether in retrospect we would have been better off following more exactly the 

Sweden model that this is, basically, and taking real equity stakes. 

Mr. KASHKARI. It is a tough question. I don’t think—in my judgement, there is not a clear answer. There are some advantages of 

common stock versus preferred shares, clearly. At the same time, 

as I spoke about earlier in the hearing, you know, we want healthy 

banks to volunteer for this. And if the price tag of volunteering to 

take more capital was more control from Washington, it is unclear 

that we would have thousands of banks across the country volunteering to take the capital. So there is a tension. 

Mr. FOSTER. Okay. 

And the second thing, I guess for both of you, you had mentioned 

two metrics, the TED spread and the LIBOR–OIS spread, as ways 

to tell that you have really unlocked at least the interbank lending 

part of this thing. And there are problems with both of these as 

metrics. You know, the Treasury rate is being depressed by this 

flight to safety and so on. 

And I was wondering, is there really some combination of metrics 

that will give us a better feeling than these sort of simple things 

that we are talking about now? 

Mr. DODARO. Yes, Congressman. I mean, actually, what we are 

developing is sort of a set of metrics where you can look at a number of them to draw some overall conclusions. And in addition to 

the ones that you mentioned, we are looking at foreclosure rates, 

for example, mortgage origination rates to see if there is new lending in the mortgage area. So we are going to be continuing to deVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00090 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
87 

velop those sets of indicators. In our future 60-day reports, we expect to flesh those out more. 

Mr. FOSTER. Okay. 

And then my final question is about the municipal bond market. One of the most painful aspects of the shutdown is that this is $2.7 

trillion of the whole size of the market, and hundreds of billions of 

dollars of what would be called stimulus projects—you know, these 

are things that municipalities want to spend money on—are being 

held up by the lock-up in the municipal bond market. 

And I was wondering if you have any specific ideas in mind 

about how you might go about helping to unlock this market? 

Mr. KASHKARI. We have a team of folks who are looking at that 

market specifically, everything from looking at the insurance companies that provide reinsurance on these or insurance for these— 

Mr. FOSTER. Have you considered recapitalizing them, for example, or allowing them to sell insurance that has a government backing of some kind? 

Mr. KASHKARI. There are proposals out there that we looked at 

in terms of recapitalizing them, proposals in terms of setting up 

new firms that don’t have all of the tainted legacy business. There 

are some proposals out there on government guarantees. 

You know, the guarantee portion of the Troubled Asset Relief 

Program is we have an insurance program now. I am not sure that 

that would be the right vehicle to solve this problem. I think that 

there are a few ways you could go at it, and we do have people 

looking at it, because we hear the same thing you hear. It is a very 

important issue. 

Mr. FOSTER. Well, it strikes me as a very high-leverage application of your funds, because these things—you know, the frustrating 

thing is these things have a near-zero historical default rate, and 

there is no reason for these not to be trading. And it is very frustrating, and it seems like there is some hope that a very limited 

application of recapitalization might have a huge effect. 

Mr. KASHKARI. It is a fair point. I think we share some of those 

views and are just trying to look at the details, and also in light 

of the available TARP capacity and the other projects that we are 

working on. We are putting together a suite of options. But we 

have people who are on it. 

Mr. FOSTER. Okay. 

And I just thought I would say I am tremendously impressed by 

both of your organizations. It is a heck of a situation we are in. 

And best of luck to you. 

Mr. KASHKARI. Thank you. 

Mrs. MALONEY. The gentleman’s time has expired. 

I would like to be associated with the remarks of my colleague 

that underscores that, from the beginning, many members of this 

committee and in the Joint Economic Committee called upon Treasury to recapitalize the financial system, to protect the equity of taxpayers’ funds with preferred stock, and that this was an alternative 

or the goal of many European countries during this crisis. 

The number-one question that I am asked—and I would like to 

conclude the hearing with this. I voted for the bailout because the 

Secretary of the Treasury and the Chairman of the Federal Reserve 

said that, if we did not vote for this bailout, or this rescue plan, 

88 

that we would not stabilize our markets, that we confronted a possible failure of our financial institutions, and, really, the alternative was unacceptable, and the pain and suffering of taxpayers, 

our constituents, and the American public would be far greater. 

Yet the questions that are raised at this hearing today, that are 

continually raised by the press, or some of the press, and by the 

general public is that the rescue plan was not needed. 

Given the advantage of your position and what you continue to 

do and the startling fact that one weekend we had four investment 

banks, at the end of the weekend there were none remaining, and 

the fact that some of our major and most respected banks have 

failed or been forced into merger, I would like to ask the most often 

asked question I receive, whether it is in the grocery store, on the 

street, or from major media. 

What would have happened to our great country if this Congress 

had not supported the President of the United States and the Secretary of the Treasury, who called upon us to react with assistance 

to our financial institutions? 

I would like both of you to respond, starting with you, Mr. 

Kashkari. 

Mr. KASHKARI. Congresswoman, it is a great question and very 

hard to answer. The best I can do is to try to give examples of what 

might have happened, examples I mentioned earlier. 

Imagine if your constituents couldn’t get access to their 401(k) 

plans, or they couldn’t get money out of their checking accounts. It 

is possible, if their banks were failing. Their life savings could go 

way down, and just a complete freezing of the basic money flow in 

our economy. It could grind to a halt. 

I mean, the downside was enormous. It is easy to make hard decisions when the consequences of inaction are so great. And I don’t 

know what else to say other than that. 

Mrs. MALONEY. Mr. Dodaro? 

Mr. DODARO. The focus of our efforts has been on how the TARP 

program has been implemented. We haven’t looked at, as I mentioned earlier, the Federal Reserve’s activities, because we are really not statutorily allowed to provide that oversight. So I am really 

not in a position to offer an informed view in that regard. 

Clearly, there were risks. Clearly, there were actions taken. 

Clearly, there were unanticipated events. And it is just not possible 

for me, at this point, to analytically provide an informed view. 

Mrs. MALONEY. Well, I want to thank both of you for your testimony today and for your public service. I am deeply grateful, and 

I believe the American public is. So thank you very much. 

And, certainly, confronting the economic challenges of our country is a bipartisan—really the most critical issue that we confront 

in our country. I am proud of my colleagues on both sides of the 

aisle that supported President Bush, Secretary Paulson, the Chairman of the Federal Reserve, Mr. Bernanke, and many others who 

said, if we did not support this infusion of taxpayers’ money, the 

consequences would have been unimaginable. 

Thank you for your service. Thank you for your testimony today. 

Our next panel consists of Elizabeth Warren, who is the Gottlieb 

Professor of Law, Harvard University, and Chair of the Congressional Oversight Panel under the Emergency Economic StabilizaVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00092 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
89 

tion Act. We welcome you today, and I have been told you were 

voted Chair of that oversight board. We look forward to your testimony. 

STATEMENT OF ELIZABETH WARREN, LEO GOTTLIEB PROFESSOR OF LAW, HARVARD UNIVERSITY, AND CHAIR, CONGRESSIONAL OVERSIGHT PANEL UNDER THE EMERGENCY 

ECONOMIC STABILIZATION ACT 

Ms. WARREN. Thank you, Congresswoman. Chairwoman 

Maloney, Members of Congress, my name is Elizabeth Warren. In 

my real life, I am the Leo Gottlieb Professor of Law at Harvard. 

Two weeks ago, I became the Chair of the Congressional Oversight 

Panel. Mr. Damon Silvers from the panel was here earlier, but he 

was called away on panel business. Mr. Neiman, who is State 

banking regulator for the State of New York, couldn’t be with us 

because he is off regulating banks. And Congressman Hensarling 

you have heard from, and I believe he has been called away. So I 

am your panel for now. 

You know the statutory history of this panel. It is yours. The 

panel was given power to hold hearings, to review official data, to 

write reports, to review the TARP program, and to provide regulations for regulatory reform. I just want to make clear as we start, 

we had our first meeting literally 2 weeks ago today. So we are a 

committee that is now 14 days old. I don’t know if that is a special 

anniversary, but I at least want to make sure we are clear where 

we are on this timeline. At this moment, we are struggling even 

to get temporary office space and computers, phones, and fax machines up and running. But we have met with the representatives 

of the Treasury Department, the Treasury Inspector General, the 

Federal Reserve Bank, and the GAO. We have read documents, we 

have requested information, and we now have two things. We have 

our first report to Congress, trying to meet our statutory obligations to you, and we have a Web site. We have a Web site so that 

we can give American people a chance to participate in our investigation and our oversight activities. 

In the report, which all of you now have copies of, we ask a series of questions about the TARP program. These questions are not 

abstract. They are not complex. They are questions much like the 

questions you have been asking today. We asked them publicly. We 

lay them out there. We publish them. They are tough questions. 

The questions are our best effort to capture the very real concerns 

and skepticisms of the American people. I will tell you just the 

highlights. We have 10 questions. What is Treasury’s overall strategy? Is the strategy working? How are taxpayer dollars being used? 

Are the banks actually lending or are they holding onto this money 

or buying things with it? Is the public receiving a fair deal? What 

is the Treasury Department doing to help the American family and 

small businesses, thinking about the connection between, as you 

described it, the real economy and what is happening with banks? 

Is Treasury imposing reforms on financial institutions that are taking taxpayer dollars? How is Treasury deciding which institutions 

get these dollars? What is the scope of Treasury’s statutory authority? A lawyer’s question. 

90 

And the final one, is Treasury looking ahead, making any effort 

to prepare for the next economic difficulties over the timeline of 

days, weeks, or months? These questions drive our first report, and 

they also drive our work on behalf of families, workers, small businesses, and, most importantly, taxpayers. To that end, our first priority, along with issuing this report and trying to give another 

frame to the questions you have been so carefully asking, is this 

opening a line of communication for all Americans. 

Today is the day our Web site goes live. It is COP, which is C– 

O–P for the Congressional Oversight Panel, COP.Senate.gov. It is 

a rudimentary site. We haven’t had time to put all the bells and 

whistles on it. So I ask people to bear with us. But it be will a 

place where we can post our reports and the data that we are able 

to collect. More importantly, it will be a place where people can 

talk back. They can explain how they are experiencing the current 

economy, what experiences they have when they are trying to borrow money. They can discuss the questions that we pose in the report. And they can pose their own questions, telling us what answers we should seek when we ask questions in their name. We expect our oversight to be stronger and more meaningful because of 

the input of people across the country. 

As we gather more information, we will issue two more reports 

in January. On January 9th, the oversight panel will release its 

next report on the administration of the TARP program. On January 20th, the oversight panel will release a report providing recommendations for reforms to the financial regulatory structure. In 

other words, we will be running very hard over the next 40 days, 

but this is your will under the statute. 

As you know, recent headlines show a grim economic picture. 

The recession has now visited every household in this country. The 

unemployment rate is the highest it has been in 14 years. One in 

10 homeowners is now in default or foreclosure. Retail sales continue to fall. Credit card defaults are rising. And the savings rate 

is hovering near zero for individual families. More than 100,000 

families last month headed into the bankruptcy courts. 

Over the past 2 months, Congress and the Administration have 

proposed and enacted a series of measures in an ongoing attempt 

to turn the tide in this crisis. Americans are watching Washington’s every move with a mixture of great hope and great concern. 

We hope in this time of great crisis that your Congressional Oversight Panel can be helpful. I will take your questions in any way 

I can. 

Mrs. MALONEY. First of all, I want to thank you for your testimony and your hard work, and for assuming this critically important oversight position. As you could tell, and I noticed you were 

here for the entire hearing— 

Ms. WARREN. Yes, ma’am. 

Mrs. MALONEY. —many of my colleagues, including myself, were 

very concerned about getting credit out into the community. We appear to have stabilized our financial markets. I would like your 

comments on whether or not you agree that we have accomplished 

that goal. And could you comment on programs or ways we can get 

credit out into Main Street? We have helped Wall Street. What are 

we doing to help people buy cars, and purchase homes? I like the 

91 

proposal from Treasury that they are studying of a 4.5 percent interest rate over 30 years to start moving our housing program. I 

would like to hear your comments on that and any other ideas 

about getting credit into Main Street. They testified, and we need 

to work on really an accounting system so that we can understand 

where the money is going. We have put out $7.8 trillion, and still 

people say that interest rates for cars are at 14 percent, which is 

unaffordable for most Americans, and many people cannot get 

mortgages for their homes with a 30-year mortgage. 

Could you comment on steps we need to take now? 

Ms. WARREN. It would be premature for me to make specific recommendations, but I would turn to page 19 of our report. We actually had a little bit to say about this. The reminder that our friends 

in Great Britain faced a similar problem, and they were quite explicit up front. The money was given to financial institutions in return for the financial institutions to lend to small- and mediumsized enterprises. It was an explicit quid pro quo from the beginning. There have been measurements of what was your lending a 

year ago at this point and what is your lending now. Recapitalized 

banks, as part of their obligation in receiving funds, have to turn 

around and put those funds back into the economy. 

I mention this by way of saying that is not an entirely novel idea. 

It is one that has been tested somewhere else and seems to be 

working at least with some success. So there are ways to measure 

this. It is not impossible to measure what is happening to lending 

volume and to put metrics in to compare lending volume now with 

lending volume by the same bank or per dollar capitalized in the 

past. And this may be something that it will be appropriate to at 

least continue to question Treasury vigorously about. 

Mrs. MALONEY. Thank you. Debated before this committee was 

the wisdom of buying toxic assets. Many people believe that following the model in Great Britain of saving our financial institutions and recapitalizing was a better way to go, with preferred 

stock to protect taxpayers. One of the problems with buying the 

toxic assets is no one knows the value of them. And if no one wants 

to buy them, why in the world should the American taxpayer buy 

them? It appears to me that it would be wiser with this money to 

try to infuse lending and help the economy with lower car loan 

rates, with lower interest rates to refinance homes and to purchase 

homes. In other words, getting the money into the community, as 

opposed to buying toxic assets, that was by all accounts a mismanagement, in some cases abusive, scandalous practice that some 

of our financial institutions engaged in, creating and selling these 

assets. 

So could you comment on the policy of buying toxic assets? Are 

any of our European allies buying toxic assets during this global 

economic crisis? 

Ms. WARREN. No, Congresswoman, but I want to actually seize 

on a central point that you make there. It is not possible to save 

banks if families and small businesses fail. The banks don’t exist 

independently. There is no such creature. And so the idea that we 

focus exclusively on banks, without making this part of a more 

comprehensive plan to look at what is happening in the mortgage 

market, obviously, with foreclosures and how foreclosures are dragVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00095 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
92 

ging down the whole economy, and what is happening in all other 

forms of the economic health of the American family. 

I recognize that Treasury has a limited portfolio. It has a limited 

number of dollars it can spend in targeted areas where it is authorized to spend it. Nonetheless, that is not a reason not to think 

through a more comprehensive way of thinking about the question 

of how we will make sure not just that credit flows to the American 

family and to small businesses, but that they are healthy, that they 

actually have an opportunity to borrow at reasonable rates, but 

that they also have manageable economic lives. If they do not, we 

cannot save banks without saving these families and businesses. 

I really want to emphasize that tie-in. I heard that in your question. 

Mrs. MALONEY. Well, thank you very much. My time has expired. 

Congressman Mel Watt. 

Mr. WATT. Thank you, Madam Chairwoman. Thank you for being 

here, Professor Warren. Let me just ask a couple of technical questions first. I noticed that Representative Hensarling is on this oversight committee. I assume he is not going to be working at this 

full-time. Are any of the members of this oversight committee planning to do this full-time or is this a part-time job? 

Ms. WARREN. Congressman Watt, I was told explicitly that this 

is a part-time job. And I believe that was the case for the other 

members of the committee. 

Mr. WATT. Then that raises the second question I have, is the extent to which this can be really taken seriously. So let me ask the 

question this way. We didn’t seem to get many concrete responses 

to our inquiries as Members of Congress today. Have you all discussed what I anticipate will be a problem, what you will do if you 

don’t get concrete answers to the questions that you have posed 

about this program? 

Ms. WARREN. Well, Congressman, as I see it, this panel is—we 

work for you, and if we don’t get the answers we need— 

Mr. WATT. Statutorily, what authority do you have to insist on 

being taken seriously and on getting the kinds of answers to the 

questions that you have raised? 

Ms. WARREN. Statutorily we can hold hearings and we can make 

requests. Otherwise, we can only come and talk to you. 

Mr. WATT. Subpoena power? 

Ms. WARREN. I don’t believe so. 

Mr. WATT. Okay. All right. On page 35 of your report you talk 

about some things, future oversight activities, and the final one of 

those is public participation and comment process. Let me ask 

whether you open the possibility there of this being simply a popularity contest, a public opinion poll, or, again in the context of 

being taken seriously as a serious oversight body, I hope we are not 

setting up a structure where basically people have the opportunity 

to vent about their pet peeves about the program as opposed to 

making a concrete effort to make the program work. What did you 

have in mind when you proposed this public participation and comment process? 

Ms. WARREN. It is my understanding that Treasury said the one 

thing we need is more confidence. We need confidence so that the 

American people can believe we are back on the right track, that 

93 

money is being spent in a responsible way, and that we can all get 

out there and do our jobs and borrow and buy and pay debt off and 

try to stabilize ourselves financially. 

Mr. WATT. That is all very good, but if the bulk of the oversight 

board’s responsibility is to take and assess public comments, I can 

tell you I love public comments, I have an open phone policy in my 

office, so I probably get more of them than most people do, but it 

is very time-consuming and not always as substantive as—you 

know, people like to vent, and they will use this as an opportunity. 

So I want to make sure that the bulk of the oversight board’s time 

is not being spent doing public relations as opposed to serious evaluation and analysis of what the Treasury and this Administration 

and the next Administration are doing with these funds as opposed 

to, you know, just kind of making people feel good, which serves 

an important purpose, but I would like—I think Congress viewed 

this as more a substantive role than a public opinion outreach process. 

So I will just leave you with that. That is not a criticism. I am 

just giving you a real concern that I have. And it probably doesn’t 

even require a comment, but my time has expired and I will yield 

back. 

Mrs. MALONEY. The Chair recognizes Congressman Miller from 

North Carolina. 

Mr. MILLER OF NORTH CAROLINA. Thank you. Professor Warren, 

I earlier asked Mr. Kashkari about AIG, and to a lesser extent 

about Citigroup, but my questions have to go more broadly to 

transparency and accountability, the whole program, whether the 

American people really know how their money is being spent and 

whether it is being spent for a proper purpose. Mr. Kashkari said 

several times in his testimony that he believed that AIG would return—was viable, would return to profitability or solvency at least, 

and that we would get all of our money back. But when I asked 

about what kind of due diligence there had been, what we knew 

about the financial condition of the parent, the holding company, 

which seems to be where all the problems were, there wasn’t a regulator to provide us any information at all. And he said there were 

two reasons for the companies that got the TARP funds. One was 

that they were viable, that they were healthy, that they could use 

the money to lend and encourage other economic activity; and then 

second is systemic risk. And it appears that AIG is all about systemic risk. That if they disappeared as a counterparty in derivative 

contracts and credit default swaps, which is a derivative contract, 

that there were lots of other financial institutions that would be 

out a lot. And it was really about helping them, not maintaining 

AIG as a viable business, that we intervened in AIG. I asked him 

about the financial institutions that were the counterparties. And 

he said essentially that we didn’t know exactly who they were. Is 

that credible? Do you know who they were? And do you think we 

should know? 

Ms. WARREN. I do think we should know. AIG must have records 

on to whom this money was paid, who the counterparties were. 

Now, I want to be fair, sometimes they are held in street names. 

It is not always entirely, entirely clear, but one can certainly make 

an inquiry in the initial transaction. 

94 

Mr. MILLER OF NORTH CAROLINA. Can you make that inquiry? 

Have you made that inquiry? 

Ms. WARREN. Yes, sir. 

Mr. MILLER OF NORTH CAROLINA. Will you make that inquiry? 

Ms. WARREN. We will make that inquiry. 

Mr. MILLER OF NORTH CAROLINA. Okay. The money that we have 

distributed, the capital infusion we have gotten something from. 

We were told, Congress was told, and we told the American people 

this was not a giveaway, this was a reluctant loan, it was an investment, and we meant to get our money back. If AIG is not realistically viable, if they are never going to return to solvency, if the 

real reason we are doing it is to pay off these credit default swaps, 

these derivatives, that feels like a giveaway. Should we be getting 

something from the businesses that are getting paid on derivative 

contracts? 

Ms. WARREN. They certainly are profiting from our money, and 

I think it is an appropriate inquiry. 

Mr. MILLER OF NORTH CAROLINA. As to Citigroup, I know that 

there was a regulator that we could rely upon for Citigroup, but 

the regulator initially urged $25 billion, and then 2 weeks after 

Secretary Paulson said that all the major financial institutions 

were now okay, there would be no others that would collapse, we 

had another one of those fevered weekends where we tried to strike 

a deal before the Asian markets opened and put another $20 billion 

into Citigroup and guaranteed $306 billion in troubled assets. Do 

you know what the assets were and why were they troubled? 

Ms. WARREN. No, I do not. We will be asking. 

Mr. MILLER OF NORTH CAROLINA. Okay. I yield back the balance 

of my time. 

Ms. WARREN. Thank you. 

Mrs. MALONEY. I thank the gentleman, and would like to note as 

to his question at the last hearing Chairman Bernanke said he 

would submit to this committee the counterparties for the AIG 

money. He also testified that in the swaps there are two types, one 

with assets, one that is basically just gambling, and that we should 

not in any way be, in my opinion, rewarding gambling. But he said 

there was no way for a distinction between those two—yes. 

Mr. MILLER OF NORTH CAROLINA. Actually, I do have one more 

question. I know that I yielded back, but I would unyield. Do we 

know if AIG has stopped the business of writing derivative contracts or credit default swaps where no party to the transaction has 

an interest in the underlying asset? 

Ms. WARREN. No, Congressman, we don’t know that. 

Mr. MILLER OF NORTH CAROLINA. There is no readily apparent 

social utility for that practice, at least to me. One of the tasks of 

your oversight panel is to look at reforming business. Do you see 

any value in their writing credit default swaps or other derivative 

contracts on— 

Mrs. MALONEY. The gentleman’s time has expired, but please respond, Professor Warren. 

Ms. WARREN. I have a great deal of difficulty understanding the 

social utility of a credit default swap when there is no underlying 

transaction for which either party has any connection, any finanVerDate Aug 31 2005 15:54 Mar 18, 2009 Jkt 046596 PO 00000 Frm 00098 Fmt 6633 Sfmt 6633 K:\DOCS\46596.TXT TERRIE
95 

cial connection. I want to be educated in this area, but I confess 

to deep skepticism. 

Mr. MILLER OF NORTH CAROLINA. Okay. Can you find out if they 

are still doing it? 

Ms. WARREN. We certainly will. I will put it on the list. 

Mr. MILLER OF NORTH CAROLINA. Thank you. 

Ms. WARREN. Thank you, Congressman. 

Mrs. MALONEY. And a further follow up is should taxpayers’ 

money be spent for basically gambling on something that has no 

underlying asset? 

The Chair recognizes Mr. Cleaver for 5 minutes. 

Mr. CLEAVER. Thank you, Madam Chairwoman. Thank you, Professor, for being here. And it has been a long day for you. 

Ms. WARREN. It has. 

Mr. CLEAVER. When we designed the Emergency Economic Stabilization Act, we expanded the scope of the definition for financial 

institutions, and it was my interpretation of that expansion that 

we went beyond traditional banks, beyond credit unions. And I believed at the time that the bill had been drafted to include the 

automobile financing arms. In my district, I have two automobile 

manufacturing plants. It makes no difference if they have capital 

to continue to operate if no one is buying the cars. I know in your 

role, and I am thankful, as I hope all Americans are, for your service and your willingness to serve in this capacity at a time like 

this, but I am somewhat disappointed, and hopefully as you look 

at this through the Oversight Committee that you would seek to 

determine whether or not, in providing oversight, that attention is 

being given to what I think is rather explicit in the language of the 

legislation. Is it your understanding about the expansion of the definition, the scope of the definition? 

Ms. WARREN. I have to say at this moment, Congressman, that 

this is one of the questions we have addressed. I think members 

of the panel may have very different views on this. But it is certainly a question we will be exploring. And that is the best I can 

do at this moment. We have only been here 14 days. 

Mr. CLEAVER. No, I understand. I appreciate it. 

Ms. WARREN. But I very much hear your point. 

Mr. CLEAVER. Yes. 

Ms. WARREN. I want you to know I am hearing. 

Mr. CLEAVER. Thank you. I don’t want to overstate it. 

Ms. WARREN. No. 

Mr. CLEAVER. I am just very, very concerned about what is going 

on with regard to the financing arms. 

Ms. WARREN. I understand. 

Mr. CLEAVER. If they don’t finance the purchase of a car, we are 

in trouble. And most people right now can’t get it. I have a friend 

who sells cars. He has been told, don’t even submit an application 

of a score under 700. 

Ms. WARREN. Wow. That is a very high number. 

Mr. CLEAVER. And GMAC admitted to me that is exactly where 

they are. 

Ms. WARREN. Yes, Congressman. I certainly hear the point. 

Mr. CLEAVER. Thank you. 

Ms. WARREN. Thank you. 

96 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

Mrs. MALONEY. Thank you. We have been called for a vote. So 

the last question will be Congressman Foster. 

Mr. FOSTER. Thank you for hanging around for this. And I would 

like to say these are spectacular questions. You know, if the quality 

of the questions coming from this committee were a fifth the quality of these, I would be proud to be a Congressman. And let’s see, 

one question, is the staffing situation and the support you are getting adequate for your job? 

Ms. WARREN. Wonderful. We have received terrific support from 

the people here in Congress. It is literally just a problem of we 

were trying to write the report at the same time we were trying 

to buy the fax machine. You know, I feel like I am flying an airplane and trying to screw the wings on at the same moment. 

Mr. FOSTER. No complaints there. And you anticipate sunsetting 

this when the actual—when everything gets done, right? And so 

this will be the same time scale of the savings and loan bailout, 

it will be a decade if we are lucky? 

Ms. WARREN. No, Congressman, I have not committed to a decade of this. As I understand it, by statute we expire, our panel expires in June of 2010. So we have about a year-and-a-half with you. 

Mr. FOSTER. Okay. And are you going to get into the business of 

unwinding the securitization of the mortgage-backed securities? Because I see you have a lot of volunteer labor from Harvard law students. And if there was ever a need for bright new ideas, it seems 

like that is an issue that, you know, ideas would be appreciated in. 

And I guess that is just a comment. 

And then finally, your last question was the future and are they 

actually looking forward. I understand that they are still putting 

out fires right now. But you know, one of the things that occurs to 

me is that there is a significant downside risk that people don’t like 

to talk about. You know, it is quite possible that real estate values 

are going to fall another factor of two. That is not inconsistent with 

historical values. And so I understand why Treasury would not be 

talking about this publicly, but I would be interested in some assurance that you can give us, either privately or publicly, that 

Treasury is actually looking at and planning for scenarios of how 

they might look at a significant downturn if really things, you 

know, things like the bottom drops out of the real estate market 

or other things. That at least—I would feel good to know that there 

are smart people thinking about that, even if they are not talking 

about it publicly. In the same sense you would like to see, you 

know, defense against terrorists thought about in great detail by 

smart people. And so that is one of the things I would appreciate 

your looking into. 

Ms. WARREN. Yes, Congressman, we will be. 

Mr. FOSTER. I yield back. 

Mrs. MALONEY. In line with the gentleman’s question, would you 

comment on the proposal that Treasury is considering of 30-year 

long-term loans at 4.5 percent interest rate for first-time home buyers to shore up the housing market, housing values as a response 

to the concerns that the gentleman raised? 

Ms. WARREN. Congresswoman, I just want to make this point 

about it. This looks like a very promising idea. But we cannot keep 

97 

taking slices of approaches here. This, for example, will do nothing 

to help people who are losing their homes in foreclosure. And so 

you cannot refinance a house that is now at 130 percent of loanto-value ratio. You just can’t do it. And so— 

Mrs. MALONEY. Reclaiming my time— 

Ms. WARREN. Of course. 

Mrs. MALONEY. —as you heard in the hearing, a number of us 

are legislating that TARP money be used to support activities such 

as Sheila Bair, who is the Commissioner of the FDIC. She successfully saved many homeowners in the IndyMac situation. Citibank 

also is adopting her policies. So in conjunction, obviously, you 

heard we are going to legislate, requiring them to move with TARP 

money to help renegotiate these loans into long-term lower interest 

loans, as proposed by FDIC Chairwoman Sheila Bair. 

Ms. WARREN. Yes. I should add, I understand that there is also 

at least on the table the possibility of amending the bankruptcy 

laws to provide for strip-down of these mortgages that are badly 

underwater. It is going to take a comprehensive solution and that 

no one—it is not even appropriate, in my view, to think about this 

as a one-piece. We have to think about the housing market together. Foreclosures and accelerating foreclosures are obviously, in 

my view, the huge driving problem right now. Then we have to 

think about the housing market in the context of the declining economic health of the American family. And until we think in a more 

comprehensive way we can’t create solutions that will really make 

a difference. We end up pushing a little here, and then it squeezes 

out over there or it creates a different kind of problem. 

So I don’t mean to be resistant on the news about supporting 4.5 

percent mortgages, but I think we have to be very careful about 

thinking about where we want to spend our money and who will 

be the primary beneficiaries of being able to refinance their current 

mortgages or to buy new houses at 4.5 percent versus the resources 

we may need to spend to deal with foreclosures. So it is only to 

make the point of the importance of a comprehensive solution. 

Mrs. MALONEY. Well, I agree completely. Sheila Bair has asked for $25 billion. Many of us have supported her request. She believes she can keep 1.5 million people in their homes. But then 

there are many more that we must address. 

98 

We are called to a vote. We have 5 minutes to vote. So I will be 

thanking you very much for your testimony today, and I would like 

to note that some members may have additional questions for the 

panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members 

to submit written questions to Professor Warren and to place her 

responses in the record. 

The hearing is adjourned. 

[Whereupon, at 3:32 p.m., the hearing was adjourned.] 

(99) 

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