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50–333 2009

TROUBLED ASSET RELIEF PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 19, 2009 

Serial No. 111–8 

Printed for the use of the Committee on Ways and Means 

( 

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COMMITTEE ON WAYS AND MEANS 

JOHN LEWIS, Georgia, Chairman 

XAVIER BECERRA, California 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOHN B. LARSON, Connecticut 

ARTUR DAVIS, Alabama 

DANNY K. DAVIS, Illinois 

BOB ETHERIDGE, North Carolina 

BRIAN HIGGINS, New York 

CHARLES W. BOUSTANY, JR., Louisiana, 

Ranking Member 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

PAUL RYAN, Wisconsin 

JOHN LINDER, Georgia 

JANICE MAYS, Chief Counsel and Staff Director 

JON TRAUB, Minority Staff Director 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to prepare 

both printed and electronic versions of the hearing record, the process of converting between 

various electronic formats may introduce unintentional errors or omissions. Such occurrences 

are inherent in the current publication process and should diminish as the process is further 

refined. 

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C O N T E N T S 

Page 

Advisory of March 12, 2009, announcing the hearing .......................................... 2 

WITNESSES 

Hon. Neil Barofsky, Special Inspector General, Office of the Special Inspector 

General, Troubled Asset Relief Program ............................................................ 9 

Gene Dodaro, Acting Comptroller General of the United States, U.S. Government Accountability Office .................................................................................. 20 

SUBMISSIONS FOR THE RECORD 

Elizabeth Warren, Statement ................................................................................. 68 

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(1) 

TROUBLED ASSET RELIEF PROGRAM 

THURSDAY, MARCH 19, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:10 a.m. in 1100 

Longworth House Office Building, Hon. John Lewis (Chairman of 

the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON OVERSIGHT 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–5522 

March 12, 2009 

OV–2 

Lewis Announces a Hearing on the Troubled Asset 

Relief Program: Oversight of Federal Borrowing 

and the Use of Federal Monies 

House Ways and Means Oversight Subcommittee Chairman John Lewis (D–GA) 

today announced that the Subcommittee on Oversight will hold a hearing on the 

Troubled Asset Relief Program (TARP) and oversight of Federal borrowing and the 

use of Federal monies. The hearing will take place on Thursday, March 19, 

2009, at 10:00 a.m. in the main Committee hearing room, 1100 Longworth 

House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. The Special Inspector General for 

TARP, the Honorable Neil Barofsky, and the Acting Comptroller General of the 

United States, Mr. Gene Dodaro, have been invited to testify. Any individual or organization not scheduled for an oral appearance may submit a written statement 

for consideration by the Subcommittee and for inclusion in the printed record of the 

hearing. 

BACKGROUND: 

Public Law 110–343, the ‘‘Emergency Economic Stabilization Act of 2008’’ (the 

Act), was enacted to provide authorities and facilities that the Secretary of Treasury 

(Secretary) can use to restore liquidity and stability to the financial system of the 

United States. The Act authorizes the Secretary to establish TARP to purchase, and 

to make and fund commitments to purchase, troubled assets from any financial institution. The Act provides that the Secretary shall establish a program to guarantee certain troubled assets. The Act authorizes the Secretary to purchase and hold 

up to $700 billion in troubled assets at a time. Further, the Act increased the statutory limit on the public debt to $11.3 trillion (which is now $12.1 trillion). 

The Act included numerous provisions with respect to TARP oversight. The Act 

established the Office of the Special Inspector General for the TARP (SIGTARP) to 

conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets under the program. The Act created the Congressional 

Oversight Panel. The Act mandated that the Comptroller General of the United 

States conduct ongoing oversight of the activities and performance of TARP. Further, the Secretary is required under the Act to provide reports to the appropriate 

committees of the Congress, including the Committee on Ways and Means, detailing 

monthly activities and each $50 billion in commitments to purchase troubled assets. 

The first oversight reports to the Congress by SIGTARP and the Comptroller General both noted that Treasury has utilized TARP funds differently than had been 

envisioned at inception of the Act. TARP’s primary focus was expected to be the purchase of troubled assets, such as mortgages and mortgage-backed securities. However, within two weeks of enactment, then-Secretary Henry M. Paulson changed the 

strategy and decided to make capital investments of approximately $290 billion directly in financial institutions and other eligible recipients. This changed strategy 

resulted in an extraordinary use of public monies. 

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In announcing the hearing, Chairman Lewis said, ‘‘In the face of this economic 

crisis, we must restore public confidence in the use of Federal funds. As a 

starting point, taxpayers need to be certain that TARP funds are being 

spent for their intended purposes. The questions are simple. How much has 

been spent, and what have the recipients done with the money? We need 

answers.’’ 

FOCUS OF THE HEARING: 

The focus of the hearing is to review TARP, its operations, and oversight. Specifically, the Subcommittee will focus on the role of Federal borrowing, the impact on 

the national debt, and the protection of public monies. The Subcommittee also will 

consider the role of Federal tax compliance under this program. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Committee Hearings’’. Select the hearing for 

which you would like to submit, and click on the link entitled, ‘‘Click here to provide 

a submission for the record.’’ Once you have followed the online instructions, complete all informational forms and click ‘‘submit’’ on the final page. ATTACH your 

submission as a Word or WordPerfect document, in compliance with the formatting 

requirements listed below, by close of business Thursday, April 2, 2009. Finally, 

please note that due to the change in House mail policy, the U.S. Capitol Police will 

refuse sealed-package deliveries to all House Office Buildings. For questions, or if 

you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

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Chairman LEWIS. Good morning. The hearing is now called to 

order. This is a hearing of the Subcommittee on Oversight of the 

Committee on Ways and Means. 

Before we begin, I would like to express my condolences to our 

Ranking Member, Dr. Boustany, on the passing of his father. 

I would like to thank Mr. Reichert and his colleagues for agreeing to hold this hearing with us this morning. 

I would like for us to take a brief moment to remember Dr. 

Boustany and his father. 

[Pause.] 

Chairman LEWIS. Thank you. To date, the Troubled Asset Relief Program has given more than $300 billion to private companies, 

and there are plans to give billions more. 

Taxpayers have no sense that there is any control over this 

money. They have no idea what, if anything, they will get in return. This entire program is based on trust, trust in the givers and 

trust in the takers. At this point, there is no trust. 

To get money from Treasury, banks and others must sign a contract that states they have no material unpaid Federal taxes. 

Treasury did not ask these banks and companies to turn over their 

tax receipts. 

Treasury relied on the signed statements when it agreed to invest billions of taxpayer dollars. When you or I go out to the bank 

to take out a mortgage to buy a house, we are asked for our tax 

returns. They are not going to just take our word for it, and we are 

not asking for millions of dollars. 

The Subcommittee looked at the top 23 TARP recipients. We found that 13 of them owed more than $220 million in unpaid Federal taxes. Two companies owe over $100 million each. 

How can this be? If we looked at all 470 recipients, how much 

would they owe? 

Are they signing contracts knowing that they owe taxes but 

thinking they will not get caught? Did then Secretary Paulson turn 

a blind eye? 

Either way, this is shameful. It is a disgrace. The American people are fed up, and they are fired up, and they are not going to 

take it any more. As Members of Congress, we should not take it 

any more either. 

We want to get to the bottom of what is going on here. The taxpayers deserve nothing less than the truth. The oversight work 

that our witnesses are doing is so important. 

I look forward to hearing from our witnesses on their oversight 

efforts and more importantly, what Treasury needs to do to restore 

the public trust in TARP. 

Thank you, Members, all of the Members, for being here today. 

Without objection, I would like to enter the report from the IRS 

to the Subcommittee into the record. 

[The information referred to follows:] 

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Chairman LEWIS. I am pleased to recognize Congressman 

Reichert for his opening statement. 

Mr. REICHERT. Thank you, Mr. Chairman. Also, thank you so 

much and I appreciate your recognizing, taking a moment of silence for the Boustany family in their loss. His father passed away 

this week, as you know. Our thoughts and prayers are with him 

and all of his family members. 

The Troubled Asset Relief Program or TARP was intended to 

open up credit for families and businesses but it was also supposed 

to restore confidence in the market. 

Yet every week brings new questions and new concerns about 

how these tax dollars are spent, from the millions of AIG bonuses 

and spa retreats to the billions that simply went missing. 

Worse, TARP continues to change and multiply before our very 

eyes, from buying toxic assets to buying stakes in banks. There is 

no clear plan and no consistent application of the program. 

Those involved have no idea if, how, or when TARP will change 

or change again. 

One particularly troubling change is the apparent transfer of authority from Treasury to the Federal Reserve, without any new 

Congressional oversight. The complete lack of transparency in 

TARP has produced a credibility crisis that undermines the very 

confidence it was meant to restore. 

Without transparency, investors have little reason to participate 

in a program that changes faster than the Dow. 

Without transparency, we are left with outrageous abuses, like 

bailout bonuses for companies surviving on the backs of taxpayers 

alone. 

To restore confidence, two things must be made very clear. One, 

exactly how TARP money is being spent, and two, what specific 

metric or metrics are used by Treasury that will measure the effectiveness of this program. 

Taxpayers have every right to be angry, as the Chairman said, that the results of the $700 billion bailout are as blank as the 

check that authorized it. 

We have an obligation to them to find answers, to collect facts 

and data, and to hold accountable the policies and people that led 

to the abuses, like those at AIG. 

We can all agree that TARP money has been misspent. Our options are to stay mad at wrongdoers or to identify how the wrongdoing occurred and find solutions so that it never happens again. 

We must also remember that the lack of transparency and accountability in TARP happened in the first place because Congress 

acted out of raw emotion before looking at all the facts. We acted 

too fast. That is one of the many reasons why I opposed that bill. 

We must be careful not to let our collective outrage prevail over 

good judgment and common sense. After all, we all know the mistakes that can happen when Government panics and rushes to act 

rather than working to get the action right. 

This is not the time to again shoot first and ask questions later. 

I hope that we can all work together, Democrats and Republicans, to get to the bottom of this, to get to the real answers, and 

to stop the abuses. The American taxpayer deserves no less. 

Mr. Chairman, I yield back the balance of my time. 

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Chairman LEWIS. Thank you very much for your statement. 

Now, we will hear from our witnesses. I ask that you limit your 

testimony to 5 minutes. Without objection, your entire statement 

will be included in the record. 

It is now my pleasure to introduce the Special Inspector General 

for his testimony. Welcome. 

STATEMENT OF NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL, OFFICE OF THE SPECIAL INSPECTOR GENERAL, 

TROUBLED ASSET RELIEF PROGRAM 

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

Members of the Subcommittee, I am honored to appear before you 

today as the Special Inspector General for the Troubled Asset Relief Program or as we call it, SIGTARP. Originally described as a plan to buy $700 billion in toxic assets, 

the TARP has changed significantly. Treasury has announced nine 

different programs through which TARP will cover $2.9 trillion, 

and this does not include the $750 billion the administration has 

put aside in its budget and noted that it may seek later this year. 

To accomplish the TARP’s mission to oversee this vast amount 

of money for the American taxpayer, I focused on three different 

areas: transparency, oversight and enforcement. 

Transparency has been an area of focus for my office since day 

one. In late December, I recommended that Treasury put all TARP 

agreements up on its website. In late January, Treasury agreed, 

and earlier this morning, they finally posted the top 20 TARP 

agreements on its website. 

I have also used my audit division to advance transparency 

where necessary. For example, after Treasury made clear to me 

that they would not require the banks to report on how they are 

using TARP money, I sent letter requests to each TARP recipient 

asking them to report on how they have used the money that they 

received, how they plan on using unspent money, and how they 

plan to comply with the executive compensation requirements. 

I am pleased to report that as of today, we have had 100 percent 

compliance with our survey requests. 

As to coordinated oversight, it has been and will continue to be 

my privilege and pleasure to share oversight responsibility with my 

co-panelist, Gene Dodaro. He and his team at GAO and us have 

been working together for more than 3 months now to ensure maximum coverage and to reduce any unnecessary duplication of effort. 

I have also founded and chair the TARP IG Council, which includes as its members GAO, as well as the other Inspector Generals or agencies who are also touched by the TARP and responsible for its oversight. 

In conducting oversight, one focus of SIGTARP has been to attempt to have a positive impact on TARPs before the money goes 

out the door, by making recommendations to limit fraud and to increase oversight. 

Because I did not take office until mid-December, I was not able 

to offer advice with respect to early TARP agreements, such as the 

AIG agreement. However, we have been active in providing recommendations concerning the programs and the contracts ever 

since. 

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We are also focused on enforcement. Of the four primary oversight bodies referenced in the Stabilization Act, SIGTARP stands 

alone as the TARP oversight body charged with criminal law enforcement authority, as the cop on the beat. 

This is one of our most important functions and we are meeting 

this unprecedented challenge head on. 

We are leveraging our resources with other agencies, exploring 

taskforce and similar regional relationships throughout the country. 

For example, last week, we formed a multi-agency law enforce- ment taskforce focused on the $1 trillion TALF Program. We believe that this taskforce has already served as a powerful deterrent, 

and when we detect fraud, rest assured we will investigate the 

matter and bring any fraudster to justice. 

Additionally, we have begun our outreach to potential whistleblowers and those who may have tips about ongoing fraud in 

TARPs. The SIGTARP hotline is operational to be accessed through 

our website, www.sigtarp.gov, or through our telephone hotline, 

877–SIG-2009. 

The hotline has already yielded results and we have recently 

opened a criminal investigation based on a whistleblower complaint. 

Finally, we have been active in our response to the recent bonus 

payments to AIG. Both in my role as Special Inspector General and 

as an individual taxpayer, I too am frustrated with these very substantial bonuses which appear to have been made to those responsible for AIG’s meltdown. 

First, we are launching an audit that is part of a larger review 

of executive compensation practices, and will include a thorough review of the process to which Treasury decided to authorize and approve such payments, including who knew what, how, when and 

why, both at the time Treasury entered into its agreement with 

AIG last November, which included specific reference to contemplated retention payments, all the way up and through the 

events of this week. 

Second, we are working closely with the New York State Attorney General’s investigation into these payments. 

Third, we are initiating our own investigation, and finally, we 

are coordinating with the Department of Justice in its examination 

of options that may be available to recover taxpayer money. 

Mr. Chairman, Ranking Member, Members of the Subcommittee, 

I thank you and commend you for your efforts to help oversee the 

trillions of dollars that are being expended under TARP, and I look 

forward to answering any questions that you may have. 

[The prepared statement of Neil Barofsky follows:] 

Statement of The Honorable Neil Barofsky, Special Inspector General, 

Office of the Special Inspector General, Troubled Asset Relief Program 

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Chairman LEWIS. Thank you very much, Mr. Inspector General. 

It is now my pleasure to introduce the Acting Comptroller for his 

testimony. 

Welcome. 

STATEMENT OF 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, Ranking Member Reichert, and Members of the Subcommittee. 

I am very pleased to be here today to assist in your deliberations 

and oversight over the Troubled Asset Relief Program. 

When the program was first created in the Economic Stabilization Act back on October 3, GAO was charged with providing oversight over Treasury’s implementation and reporting every 60 days 

to the Congress, and we are also charged with providing an annual 

financial audit of the Troubled Asset Relief Program that is being 

managed by the Office of Financial Stability in the Treasury Department. 

Faithful to the mandates in the legislation, we issued our first 

60 day report on December 2, and our second 60 day report toward 

the end of January. 

In both of those reports, we made a series of recommendations 

that were very important to increasing the accountability and 

transparency of this very important program. 

Those recommendations fell into three categories. First, monitoring and tracking the use of the money and making sure Treasury had an oversight process in place to monitor compliance with 

the legislative provisions. These were among our top recommendations. 

At that time in December, Treasury did not have plans to obtain 

any information back from the organizations receiving money 

under the Capital Purchase Program. 

Our recommendation was they needed to do so, and as a result 

of that, they initially started collecting monthly survey information 

on the aggregate lending activity of the top 20 institutions receiving the TARP money. 

In January, we said that is not enough. We believe you ought to 

have data collected on a monthly basis for any institution receiving 

Troubled Asset Relief Programs, and they are beginning to now recently move in that direction. 

We are pleased with that but they still need to stand up fully 

their oversight monitoring program to ensure compliance with the 

Act’s provisions. 

The second category of our recommendations dealt with a communications strategy. This is a program that has been plagued 

with communication problems from day one, in making the shift 

between purchasing the troubled assets to the capital injections in 

the program. 

In December, we recommended that their communication strategy be improved, both with the Congress and other stakeholders, 

and in January, we added to that recommendation by stating that 

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tire TARP, and it needs to be coherent and understandable so that 

people have confidence that they understand how the different 

parts are working together. 

They have made some headway in that area with the announcement in the last month of the financial stability plan and the 

homeowner affordability plan, but there is a lot of details that need 

to be worked out yet. 

I think the stress test concept was a good one, but it remains to 

be seen what the results of that will be and what actions Treasury 

will take through their capital acquisition program to provide assistance in the future. The plan needs to be worked out. 

The last category of recommendations were how the program is 

being managed. They needed to have additional people on board, 

to be hired, to be trained, to make sure they had the right complement of people to do the program, to make sure they had 

enough people to oversee the contracts that were being let, to make 

sure there were no conflicts of interest in the programs, and they 

had the proper internal controls in place to adequately manage the 

program. 

We had a series of recommendations in that regard. Those recommendations have not yet all been fully implemented. 

We are staying on top of Treasury’s efforts to move forward in 

those areas, and we believe it is very important for them to fully 

implement our recommendations to ensure that they strengthen accountability and transparency for this program going forward. 

Last, Mr. Chairman, in closing, I was asked also to provide some 

information about the amount of lending that has been required, 

broadly speaking. 

From the end of fiscal 2007 to February 2009, the amount of pay- ments in terms of debt held by the public has increased $1.4 trillion. 

One of the big challenges going forward is based upon our review 

of Treasury’s records, and this year, they are going to have to roll 

over about $2.5 trillion in debt as well. That will be a challenge. 

We have an ongoing monitoring activity looking at Treasury’s 

process, and we will be happy to keep the Committee apprised of 

our efforts. 

Thank you very much again for being here and we look forward 

to assisting this Committee in its oversight. 

[The prepared statement of Gene L. Dodaro follows:] 

Statement of Gene Dodaro, Acting Comptroller General of the United 

States, U.S. Government Accountability Office 

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Chairman LEWIS. Thank you very much, Mr. Comptroller. 

At this time, I will open the hearing for questions. I ask that 

each Member follow the 5 minute rule. If the witnesses will respond with short answers, all Members should have an opportunity 

to ask questions. 

Mr. Inspector General, tell the Members of the Committee, are 

you familiar with the extended contracts that are used to give 

money under this program and the term of those contracts? 

Mr. BAROFSKY. I am generally aware of those contracts and 

terms. 

Chairman LEWIS. Do you care to elaborate on the contents of 

those contracts? 

Mr. BAROFSKY. Sure. The contracts contain various provisions, 

a lot of legal standard representations and warranties, and as you 

mentioned in your opening statement, provisions regarding tax 

compliance. 

Chairman LEWIS. That is what I want to get to, Mr. Inspector 

General. Do the contracts state that the recipients are not aware 

of any material unpaid taxes? 

If the contracts contain this clause, why are there recipients with 

outstanding Federal taxes? What can be done to collect unpaid 

taxes? 

Mr. BAROFSKY. I think, Mr. Chairman, yes, the agreements 

state that in Section 2.20 of the Standard Capital Purchase Program. The agreement does have that provision. As you correctly 

noted, they represent and warrant that at the time they sign this 

contract, there are no material outstanding tax obligations. 

I think it falls primarily on the Office of Financial Stability’s 

Compliance Department to be monitoring their compliance with 

these provisions of this agreement. 

I am aware today, thanks to the Subcommittee, that there are 

several recipients who do appear to have large unpaid tax amounts, 

and I certainly plan on discussing this with OFS Compliance to 

remedy this situation. It is obviously a very serious one. 

Chairman LEWIS. Mr. Comptroller, what are the options for recovering unpaid taxes? 

Mr. DODARO. IRS has various tools available to it, such as liens 

on property, levies on bank accounts or other assets that might be 

available. They can also levy penalties on the organizations, and 

also charge the individuals that are accountable at the bank individually with some of these penalties. 

The IRS has ample tools available to it to enforce compliance 

under current law. 

Chairman LEWIS. Are either of you prepared to make recommendations to the IRS and Treasury as to what they should do? 

Who can the Government collect from when a company has unpaid 

payroll taxes? 

Mr. DODARO. They can collect from the company itself and the 

officers or the responsible officials in the company. That is pretty 

much standard practice at the IRS. 

We have noted over time that their enforcement efforts, particularly for unpaid payroll taxes, are not very timely. It will take 

many weeks for them to move toward a decision and then to levy 

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the penalties and then to proceed toward collection, and their collection record is not that terrific in a number of these areas. 

We do an annual financial audit of the IRS, so we look at this 

every year when we do that. We have made some recommendations 

to them to increase their activities to move forward in these areas 

and to collect more funds. 

I would be happy to provide our recommendations that we have 

made to the IRS for the record, Mr. Chairman. 

I would also be happy to—for GAO to get access to taxpayer data 

requires the consent of this Committee or the Joint Committee on 

Taxation or Senate Finance Committee, and if we received that approval from the Committee to get the data, we could go behind the 

information and take a closer look at what you are revealing today. 

Chairman LEWIS. How do we recover unpaid taxes from Federal 

contractors? 

Mr. DODARO. There are a number of ways. If the dispersing system for the contractors can be run through a system over at the 

Treasury Department and they can screen against whether that 

contractor has any unpaid Federal taxes, and the payment stream 

to the contractors can be offset to recoup the amount of money that 

is available there. 

Also, back on your other question, one other tool IRS has, they 

can also offset refunds that are made to individuals on the corporations that might be charged with particular problems as well. 

We made recommendations that more dispersing systems in the 

Federal Government be coordinated with this Treasury program to 

provide additional safeguards in that process, so there is more ability to collect the money. 

Chairman LEWIS. Thank you very much, the two of you. I yield 

to Mr. Reichert for his questions. 

Mr. REICHERT Thank you, Mr. Chairman. Thank you both for 

being here. I do not envy your jobs at this time. I am happy to have 

you here and the American people certainly are looking forward to 

your answers, and glad that you are watching out for their tax dollars. 

I just want to congratulate you both first of all for talking about 

transparency and oversight and enforcement, monitoring, tracking, 

all of those things that you both mentioned in your opening statements. 

I kind of want to go over some of the things that you have already mentioned, just to highlight them. 

The people are real concerned. They have heard a lot of figures 

tossed around, $700 billion is the authorized amount, but the total 

taxpayer exposure, as you mentioned in your opening statements, 

is quite a bit more. 

Just how much really are the taxpayers on the hook for? Either 

one of you can answer that question. 

Mr. BAROFSKY. I think with the TARP related programs as 

they have been described and announced by the Secretary, when 

you add up all the commitments, when leveraged with money from 

the Federal Reserve, the TARP related programs are approximately 

$2.9 trillion. 

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Mr. REICHERT Just so the American people understand, we are not talking about $700 billion. We are talking about almost $3 trillion. 

Mr. DODARO. There are a couple of different aspects, and I 

think what Mr. Barofsky is saying is absolutely accurate in the aggregate, but some of the different programs have different characteristics. 

The Capital Purchase Program, for example, companies are re- quired to pay dividends back. So, far, there has been about $2.4 billion, and I think with the recent information I received, about $2.8 

billion in dividend payments that have been paid back on the preferred stock. 

There is some ability to recoup some of this money, but you are 

exactly right, the potential risk long term on some of these other 

programs is very significant. 

Mr. REICHERT. We are spending a lot of taxpayer dollars. We are talking about $3 trillion potentially on the hook here for the 

taxpayers. 

How can Treasury establish meaningful metrics to determine 

whether or not TARP is really providing any sort of access to credit, improving access to credit? Are you able to answer that question? 

Mr. DODARO. Yes. That is one of our first recommendations, to 

collect information from the institutions receiving assistance about 

their lending activities, to be able to determine whether or not they 

are actually increasing their lending activities or mortgage mitigation efforts, to help homeowners that needed to readjust their mortgages. 

Mr. REICHERT. What did you find out? 

Mr. DODARO. We found out first of all that Treasury had not 

planned to do that, and as a result of our recommendation, they 

started collecting that information, and the top 20 banks that reported, the aggregate lending activity for their first report through 

the end of the year had decreased a bit in November and had gone 

back up in the aggregate in December, but not back up to the October date. 

This money was distributed through a period of time, so they 

need to continue to collect that data. We are in the process of analyzing the most recent information, and we will be providing assistance. 

We also have developed in our reports a series of indicators to 

determine in the aggregate whether lending is going up, like for example, the inner-bank lending rates. 

Mr. REICHERT The troubling part in this is that we knew we 

were spending a lot of taxpayer dollars and there was no plan in 

the beginning. 

Mr. DODARO. That concerned us, and that is why we made our 

recommendations in our very first report, Congressman. 

Mr. REICHERT. Next topic here, I am an original cosponsor of 

a bill that a number of Members have supported that would force 

Treasury to reveal certain records of its dealings with AIG. 

Some of the questions that we want answered, of course, as you 

probably have already heard, did the Treasury Secretary, Mr. 

Geithner, know or should he have known, about these bonuses 

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prior to offering AIG an additional $30 billion earlier this month. 

Did he know or should he have known? 

Mr. BAROFSKY. The audit that I announced in my opening 

statement will have the answer to that question, whether or not he 

knew. Not just him, of course, but throughout the Treasury Department, who knew what, when, how and why, and we will answer 

that question in our audit. 

Mr. REICHERT. When is that due? 

Mr. BAROFSKY. We are just getting it off the ground right now. 

I cannot give you a precise answer. 

Mr. REICHERT. Neither of you can answer that question today? 

Mr. DODARO. No. 

Mr. BAROFSKY. I cannot answer that question. 

Mr. REICHERT. Thank you, Mr. Chairman. My time is up, I 

yield back. 

Chairman LEWIS. Thank you, sir. Now, I will turn to Mr. Becerra for questions. 

Mr. BECERRA. Thank you, Mr. Chairman. Thank you for holding this hearing, which I suspect is the first of several hearings to 

conduct the oversight responsibility that this Committee has over 

these issues involving the TARP funding. 

I want to thank the two gentlemen that are before us for their 

overall work they have done for the people of this country in trying 

to help us provide the information and oversight that is important 

for us to conduct our business. 

First question, you have mentioned, gentlemen, that you have 

had conversations with obviously the folks at Treasury, probably 

the Fed, and some of the recipients of the TARP money directly as 

well. 

Are you receiving all of the support and cooperation that you 

need to conduct your oversight responsibilities and enforcement responsibilities from the Department of Treasury and its personnel? 

Mr. BAROFSKY. So, far we have. 

Mr. DODARO. We have been given a great deal of cooperation 

from the Treasury Department. One thing I do want to mention 

since you mentioned the Federal Reserve, GAO is statutorily prohibited from reviewing certain activities of the Federal Reserve, 

and discount window operations, open market Committee transactions. 

I am becoming very concerned as TARP money is being used to 

leverage Federal Reserve activities that we will have—currently, 

that we will have a problem in reviewing that in the future. 

I think that the Congress should consider removing those restrictions for the GAO to provide additional oversight. I wanted to 

make that point clear this morning. Thank you. 

Mr. BECERRA. Thank you, Mr. Dodaro. I hope, Mr. Chairman, 

we are able to continue conversation with Mr. Dodaro and his staff 

to find out if there is some ways we can help make sure that the 

transparency and accountability that you are charged to help us 

obtain is something we end up securing. Thank you for that information. 

On the issue of unpaid income taxes by some of these TARP recipients, my understanding is there are more than one TARP retjames on PRODPC75 with HEARING

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cipient that has unpaid income taxes totaling over $100 million to 

the Federal Treasury; is that correct? 

Mr. BAROFSKY. Based on the information provided to us by the 

Subcommittee, it does indicate that. 

Mr. BECERRA. There are ways for Treasury to collect this 

money from those TARP recipients, specifically the contracts these 

recipients signed with the Government in order to obtain taxpayer 

funded TARP dollars; is that correct? 

Mr. BAROFSKY. That is correct. 

Mr. DODARO. That is correct. 

Mr. BECERRA. Does the Treasury have the tools in place today 

to be able to secure those uncollected income taxes from these 

TARP recipients? 

Mr. DODARO. IRS has the tools available to do it. This goes to 

the recommendation we had made about Treasury really monitoring compliance with this Act, and they really have not had their 

program up and running yet. 

Mr. BECERRA. Are you aware if IRS is taking steps to collect 

those uncollected income taxes from those recipients of billions of 

dollars of TARP/taxpayer money? 

Mr. DODARO. I do not know that today but we can find out. 

Mr. BECERRA. Would you please find out? I suspect we will try 

to find out as well. If you can report back to us if IRS is taking 

steps to collect money that is owed by banks and financial institutions that have received billions of dollars from the taxpayers. 

It just seems anomalous that given that they signed a contract 

that said they will be up to date on their taxes that they owe, to 

get this taxpayer bail out money, they would pay their taxes. 

I hope that you will help us quickly determine what is being 

done to make sure that these companies are up to date the way we 

expect every other working American to be up to date in his or her 

taxes. 

Mr. BAROFSKY. Yes, sir. To be clear, if an executive knowingly 

signed this agreement knowing that a representation in that was 

false, that would also potentially be a crime. 

We are going to look very heavily into this issue as part of our 

responsibility for enforcement to see if any such crime was committed. 

Mr. BECERRA. Please let us know if we can be helpful to you 

as you conduct that examination. 

Mr. DODARO. The one thing we will need, Congressman, is approval from this Committee to get access to the taxpayer information. 

Mr. BECERRA. To the degree that we can help, I am certain, 

Mr. Chairman, we will do everything we can at the Congressional 

level to try to help you have that information at your disposal. 

A question regarding Treasury’s authority over TARP. Can 

Treasury limit executive compensation based on these TARP agreements that were signed by these financial institutions that requested taxpayer bail out money? 

Mr. BAROFSKY. Yes, it can do so through regulation. 

Mr. BECERRA. Can it require recipients of TARP money to get 

Treasury approval before paying out bonuses? 

Mr. BAROFSKY. It does have the ability to do so. 

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Mr. BECERRA. Can the Treasury limit recipients of taxpayer 

money, TARP money, from using TARP moneys in particular ways? 

Mr. BAROFSKY. It can and has put some restrictions already in 

its agreements. 

Mr. BECERRA. Yes, we can place restrictions on how recipients 

use TARP money? 

Mr. BAROFSKY. Yes. 

Mr. BECERRA. Thank you, Mr. Chairman. Maybe if we have a 

second round of questions, I will have an opportunity to continue, 

but thank you very much. I yield back. 

Chairman LEWIS. Thank you. Mr. Roskam is recognized for 

questions. 

Mr. ROSKAM. Thank you, Mr. Chairman. 

I just want to take a step back and go back to the Fall when this 

whole adventure began, and essentially, I think there was not a serious person in Congress that did not realize that the credit markets were ceasing up and there was near unanimity that Congress 

needed to act. 

The question is how does Congress act, and there was a drum 

beat that started, and it became more and more intense over the 

course of several days to the point that it almost had a panic feel 

to it around here. 

As a result, there was a proposal that was put forth by the administration at the time, and the communication was essentially 

sign this, vote for this, do not ask too many questions, and if you 

are asking questions, you are either naive, uninformed or you are 

an obstructionist. That was the subtext. 

The Monday that the first TARP vote failed, I personally heard 

an open outcry on the Floor of the House of Representatives where 

a Member shouted out the market has dropped 600 points, as if 

that was the driving factor in Congress making its determination. 

You know how the adventure went on. On Friday, it comes back 

and it is passed into law. 

It seems to me ironic that here we are, this Congress, we gave 

away tremendous authority in the TARP legislation, did not do the 

due diligence in my view at the time, and now, we are in a position 

where yes, this is changing and it is very, very difficult. 

I have analogized this. I think it was the financial equivalent of 

the Gulf of Tonkin resolution, where Congress basically gets rolled 

and gives away tremendous authority. 

It started out badly and it got worse because the administration 

came out of the huddle, so to speak, and they were going to do 

their call, and looked at the line of scrimmage in a football analogy 

and said you know what, we came out and we were going to do 

toxic assets, no, no, new play, capital injections. 

It has been one adventure after another. I think getting to your 

testimony, there is a lack of predictability on how this is playing 

out. What is the metric? How are decisions being made? 

I think that while you are hearing from wound up Members of 

Congress, who are rightfully wound up about this, our opportunity 

was to cast this well when the bill was originally passed, and now 

reluctantly, we are dealing with a situation—my predecessor was 

Henry Hyde, and Henry Hyde had a great expression. 

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He said there is one thing worse than gridlock, the worse thing 

than gridlock is the greased shoot of Government. That is exactly 

what we are dealing with right now. 

Mr. Barofsky, you mentioned something that I found interesting, 

and that is the recommendations that you are making as it relates 

to this whole program, are those recommendations—are you memorializing those? 

In other words, are those recommendations in writing that we 

can get the benefit of in future oversight hearings and future conversations, or they just sort of not memorialized and just sort of 

conversational recommendations? 

Could you speak to that? 

Mr. BAROFSKY. We memorialized our recommendations. They 

are included in—the first round of recommendations were gathered 

and included in our first report to Congress on February 6. Since 

then, we have made a series of recommendations. We do those in 

writing. We will be including those in our next report, which I believe will be delivered to Congress on April 20. 

Mr. ROSKAM. You mentioned the on line aspect of the disclosure 

of the TARP agreements. Would those online disclosures, as they 

are currently exercised by Treasury, have revealed the AIG problem? 

Mr. BAROFSKY. It would have revealed that in any AIG agreement with Treasury, retention payments were explicitly contemplated. It did not list the contracts. It did not list the amounts. 

In the executive compensation provisions, there is an explicit reference to retention payments and calculating the total amount of 

payment a senior executive could receive. 

That issue was in fact in those agreements. 

Mr. ROSKAM. Is it fair to say that if they had been online, that 

issue would have been red flagged and certainly drawn attention 

in advance of the problem? 

Mr. BAROFSKY. Potentially. I am not sure of the exact date that 

the AIG agreement did go up on the Internet. Our recommendation 

was sort of adopted in waves after it was made in late December. 

It is now being fully complied with. I am not sure of the exact date 

the AIG agreement went up. 

Mr. ROSKAM. I understand. Thank you. I yield back. 

Chairman LEWIS. Thank you. Now, I will turn to Mr. Kind for 

his questions. 

Mr. KIND. Thank you, Mr. Chairman. Thank you for holding 

this very, very important and timely hearing. I want to thank our 

witnesses for your testimony and your access to us as we have ongoing questions about the oversight and implementation of TARP. 

Let me just quickly ask you both whether or not you feel that 

your respective agencies have the resources, the tools, the personnel that you need to effectively conduct oversight with the implementation of TARP. 

Mr. Barofsky? 

Mr. BAROFSKY. We are building. We do not have the necessary 

resources yet. Pending right now in the House is H.R. 1341, which 

would give us some expanded hiring authority, which will help us. 

Right now, we are about 30 strong. We are building to about 120 

to 125. We have had some serious challenges. We have had the 

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same challenges that TARP has, as Mr. Dodaro has indicated in his 

report. 

I am hopeful with the passage of this vitally important bill for 

us that we will be on the road to getting the necessary resources. 

Mr. KIND. Thank you. Mr. Dodaro? 

Mr. DODARO. I believe we have the necessary expertise in GAO 

since we are a preexisting organization. We have collectively pooled 

the resources and we are augmenting those resources with some 

hires. 

I have two concerns. My biggest concern is what I mentioned before about our limitations at the Federal Reserve. I think unless 

that is dealt with, we are not going to be able to provide the type 

of oversight that the Congress would expect, and I believe deserves, 

during these extraordinary times. That needs to be dealt with. 

There is also a potential safeguard that could be put in place to 

give us access to the books and records of any recipient of TARP 

money. We currently do not have that. 

There has been a bill introduced in the Senate, which I can provide to this Committee, by Senators Baucus and Grassley, to do 

that. 

Right now, it is not a problem, but given the unpredictability of 

how this process is going to unfold, I think it would be a good safeguard. 

Mr. KIND. I appreciate your concern about the Fed oversight. 

We have had conversation previously about that. It gets a little 

tricky, and I think we are going to have to engage you in further 

exploration of what type of statutory authority you need. 

Obviously, the Fed has always been set up as an independent entity, so it is not subjected to the political whims of Congress or any 

other outside influence. 

If there is a way we can massage that authority that you need, 

I think we need to. It is an unprecedented intervention by the Fed 

with the capitalization that has taken place there. I think more 

oversight is certainly necessary. 

Mr. DODARO. Congressman, I am very respectful of the need for 

the Fed’s independence. I believe whatever legislation is passed 

could be carefully crafted and even temporary in nature. I am not 

trying to seek any permanent authority here. 

Mr. KIND. Let me ask you both about the coordinated oversight 

functions. Just from my quick calculations here, we have the IG Office and the GAO obviously involved in oversight. We have the Financial Stability Oversight Board that was created with the passage of TARP. We have Treasury involvement, Fed involvement 

with oversight. Our involvement in oversight. Might as well throw 

in the national media’s involvement in oversight. 

Do you feel there is sufficient coordination so that we do not have 

overlap and redundancy and duplication occurring with oversight? 

Mr. BAROFSKY. I do. I think that is one of our most important 

roles, making sure that is the case. TARP is such a vast terrain 

and it is growing and changing every day. 

If Gene and I and our organizations were not to work closely, as 

well with the Congressional oversight panel, I have my own council 

of the various Inspector Generals that includes representatives 

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from GAO, if we were not coordinating, one, we would not have a 

shot at covering this whole terrain. 

Second, we would be wasting our time by duplication of resources. We have worked really hard—— 

Mr. KIND. Let me ask you both this, the first line of defense is 

responsible behavior of the banks that are receiving these funds 

right now. Unfortunately, the track record has not been very good 

so far, especially with the AIG story this week and the anger it has 

engendered. 

Do the banks themselves have internal control systems being established in the appropriate use of the TARP funds from what you 

have been able to see? 

Mr. BAROFSKY. One of our recommendations that we made to 

Treasury was that Treasury require in its agreement the establishment of internal controls, at least with respect to those conditions 

that are imposed upon them. 

They have adopted that with respect to some of their agreements 

such as Citigroup and Bank of America, as well as the auto industries, and we hope they continue to impose those internal controls. 

We think they are vital. 

Mr. DODARO. I think a real important point here for the Congress, too, is as these next set of programs are authorized, there 

is a real opportunity here to build in some better controls up front 

than were originally built into the program. 

I would encourage the Congress to have oversight hearings with 

the Treasury Department to really focus on what their plans are. 

Mr. KIND. I see my time is expiring, but I would like to follow 

up with you two gentlemen in regard to what type of additional 

oversight we need to provide through statute, what type of questions we need as a body to be asking Treasury in regard to their 

oversight function as well. 

There is still a lot of work to be done. I thank you two and your 

agencies for the job that you are performing on behalf of the American taxpayer. Thank you. 

Mr. DODARO. Thank you. 

Mr. BAROFSKY. Thank you. 

Chairman LEWIS. Thank you very much. Now, I will turn to Mr. 

Linder for his questions. 

Mr. LINDER. Thank you, Mr. Chairman. 

Mr. Barofsky, of the companies that are owing taxes to the Government who signed those contracts, are any of those companies 

delinquent today? 

Mr. BAROFSKY. I do not know the names of the companies. The 

information that was provided to me today has the companies identified by number or letter. I cannot answer your question. 

Mr. LINDER. You cannot also answer whether those companies 

signed contracts before or after January? 

Mr. BAROFSKY. Because I do not know the identity, I am sorry, 

Congressman, but I hope to work with the Subcommittee and find 

out and be able to answer that question. 

Mr. LINDER. Mr. Dodaro, are the limitations on the Fed statutory? 

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Mr. DODARO. Yes, they are, Congressman. It is in the Bank Auditing Act. It is one of the few instances where GAO is statutorily 

prohibited. 

Mr. LINDER. Do either of your organizations have any anticipatory examination powers? Could you have gone into the TARP 

when it was just being anticipated and looked at it and made recommendations? 

Mr. BAROFSKY. I am sorry. We did not exist when the TARP 

was being formed. I was sworn in on December 15. I would not 

have been able to do that. 

Mr. LINDER. Could you do it with respect to TALF? 

Mr. BAROFSKY. With TALF, what we have been attempting to 

do is make a series of recommendations and continue to make recommendations on the formation of that program. 

We are very concerned about the fraud vulnerabilities in the 

TALF. We made recommendations in our February report. We continue to engage in a dialog with the Federal Reserve as well as 

Treasury. We are trying to do our best to make the necessary recommendations to protect taxpayer money. 

We have also formed a TALF taskforce to try to send a powerful 

deterrent message to those who would abuse the program, and I 

think that deterrent effect is beginning to have some traction. 

Mr. LINDER. Does that mean people are going to refuse to participate in it? 

Mr. BAROFSKY. I hope that anyone who is planning on stealing 

from the program refuses to participate. I hope we deter them. 

Mr. LINDER. Do you know more details about TALF than we 

do? 

Mr. BAROFSKY. I know a lot of details about TALF. 

Mr. LINDER. Can you share them with us? I have no idea what 

they are finally going to do. 

Mr. BAROFSKY. It is an extremely complicated program and it 

changes. That has been one of our great concerns. 

Just last week, a lot of the conditions that gave us some greater 

comfort about the fraud prevention in the program were changed. 

It continues to change. 

In our report, we detail some information on the TALF as it existed at that time. The Federal Reserve does have information, 

questions and answers on its website. 

It is complicated. We are going to in our next report give a comprehensive description of the program, like we did in our last report, and in easy to understand terms. 

Mr. LINDER. Do you have any idea what their timeframe is? 

Mr. BAROFSKY. The first disbursements on TALF are supposed 

to occur next week. 

Mr. LINDER. Do you know how much they are looking at? 

Mr. BAROFSKY. I do not think the numbers have been disclosed. The total TALF program as it currently exists is a potential 

$200 billion worth of lending. I am not sure what they expect. I do 

not think they know until the applications come in what the 

amounts will be. 

Mr. LINDER. What do you know about the Fed’s insinuation in 

commercial paper markets? 

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Mr. BAROFSKY. That is not really part of the TARP related program, so I really would not feel qualified. 

Mr. LINDER. Do you know, Mr. Dodaro? 

Mr. DODARO. No. 

Mr. LINDER. Could you look into that? 

Mr. DODARO. That is one of the areas we would not be able to 

look into because of this limitation, Congressman. 

Mr. LINDER. In the last couple of days, you may have noticed 

a lot of interest in the bonuses that AIG paid out. That language 

was put into the bill, stimulation package, was it not? When did 

you first know the language was there? 

Mr. BAROFSKY. I first saw the language—I think the bill 

passed on a Friday and I think I saw it later that day. 

Mr. LINDER. The language was in the bill then? 

Mr. BAROFSKY. When I saw the bill, it was after it had been 

passed and it had language that exempted—— 

Mr. LINDER. Prior to February 11? 

Mr. BAROFSKY. Yes. 

Mr. LINDER. Which is about a month ago. 

Mr. BAROFSKY. Yes. 

Mr. LINDER. Did you raise that issue then? Did you raise any 

issues about the bonuses, retention bonuses going to AIG? 

Mr. BAROFSKY. I became aware of these particular set of bonuses after they had already been paid. That is when Treasury notified me of them. 

Mr. LINDER. Thank you both. Mr. Chairman, I yield back. 

Chairman LEWIS. Thank you very much. Mr. Pascrell is recognized for questions. 

Mr. PASCRELL. Mr. Chairman, let me start with my conclusion. 

The Treasury does not want financial institutions to fail. None of 

us do. Those institutions will fail if the Treasury puts everything 

on the table, so let us not put everything on the table. 

There are some things the public and the Congress need not 

know. If they know, the public will further lose confidence. That is 

my conclusion. 

I understand that this administration is trying to dig itself out 

of the deep hole that it found itself in. I understand that very clearly in early October of 2008, Congress passed and President Bush 

signed the Emergency Economic Stabilization Act of 2008, creating 

the Troubled Asset Relief Program. 

At that time, the TARP’s primary focus was expected to be the 

purchase of troubled assets, such as mortgages and mortgage 

backed securities. 

However, we know what happened two weeks after the enactment, someone changed their minds, not the Congress. 

The past Administration and specifically former Secretary 

Paulson implemented TARP in ways that have been radically different than what was widely envisioned when Congress passed the 

Emergency Economic Stabilization Act. 

I consider this a fraud perpetuated by the last Administration 

when it promised one course of action and delivered another, but 

I am deeply disappointed that the Treasury Secretary right now, 

Mr. Geithner, has not taken a more aggressive approach to remedy 

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the mismanagement of these TARP funds by the last Administration. 

I am stunned by the current Treasury, and I am offended by 

their obstinacy and the fact that they are not here today when they 

were requested to be here three times. 

Three different Treasury offices, the Office of Financial Stability, 

the Office of Tax Policy, the Office of Public Debt and Borrowing, 

were contacted about testifying at the hearing, all three refused. 

The Treasury, regardless of the administration, must be accountable for their actions or their mismanagement, and the mismanagement of the TARP funds specifically. 

Mr. Dodaro, it has been nearly six months since AIG received its 

first Government bail out. By the way, the interim final rule still 

includes limits on executive compensation. That is still there, as I 

understand it. 

Mr. DODARO. Until they revise it to make it consistent with the 

new legislation. 

Mr. PASCRELL. Thank you. They have given a total of $170 billion, one thousand times the cost of these executive bonuses, yet no 

progress has been made in consolidating AIG and no progress has 

been made in selling off its assets. 

My question is this—I wish the Treasury was present because 

they are the folks I should be asking the question to, so you will 

have to substitute for them, as you have been doing, but you have 

done a fantastic job, both of you. 

Specifically, what the plan is for consolidating AIG, and can any 

of you here today give some insight into the matter? Then I have 

a follow up question. 

Mr. Dodaro? 

Mr. DODARO. If I might, Congressman Pascrell, I have the person that is doing this work for us here, Ms. Orice Williams, and 

she could give you—— 

Mr. PASCRELL. With your permission, Mr. Chairman. 

Chairman LEWIS. Yes. Thank you for being here. 

Ms. WILLIAMS. No problem. In terms of AIG, the Fed initially 

provided assistance to AIG. Treasury through TARP provided assistance through the systemically significant failing institution program. That money was paid directly to the Fed to pay down the 

original credit revolving facility. 

The Fed has been responsible for the day to day oversight of AIG 

and its plan to unwind the institution. 

I testified yesterday that in terms of where they are in the process, it is still very much ongoing, they have been unable to sell 

major assets out of the organization, so they have not had great 

success in unwinding the organization to this point. 

They have been able to terminate their securities lending facility 

that had created a lot of problems for AIG, and they also have been 

able to move off a significant amount of their most complicated 

CDS portfolio. 

Mr. PASCRELL. If I may, Mr. Chairman, in the last 6 months, 

with our infusion of a lot of capital, if there has been no progress 

in addressing the larger problems at AIG, do you still believe AIG 

should receive more TARP money in the future? 

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Ms. WILLIAMS. This goes to kind of the Fed’s goal in assisting 

AIG, and that had to do with preventing systemic risk to the system, from either a credit downgrade of AIG or a rapid bankruptcy 

of the organization. 

The two areas that were creating the largest problems for AIG 

were addressed, and that is the securities lending program and 

dealing with their CDS portfolio, and these were moved into two 

vehicles created by the Fed, Maiden Lane II and Maiden Lane III, 

to purchase the securities that AIG had invested in. 

Mr. PASCRELL. Thank you very much. Thank you. I yield back. 

Chairman LEWIS. Thank you. Mr. Davis of Kentucky is recognized for his questions. 

Mr. DAVIS OF KENTUCKY. Thank you, Mr. Chairman. 

I would like to go off on something that Mr. Pascrell had mentioned, really a follow up to the joint discussion that we had in the 

library earlier in the week. 

One point that I think is important to clarify on the way the 

record came out, it was not just Members of the past Administration who were party to framing this problem. 

I sat in the hearings in the Financial Services Committee and actually watched the Majority Chairman, the Democratic Chairman 

of the House Financial Services Committee and then the Chairman 

of the Senate Banking Committee agree and in fact ignore the 

warnings of many Members on both sides of the aisle who were attempting to prescribe the use of these funds, because the very 

thing that has happened is really no surprise. 

I find it a little disingenuous that the Secretary in fact is reacting to this based on the fact that he was Governor of the New York 

Fed that was intimately involved in setting up the contractual relationships of how this went. 

I want to come back to a bigger picture, I think, this was the 

thrust of my question before. Not so much a party issue, and I 

truly believe at the root of problems like this, it is not a Democrat 

or Republican issue, but we have a flawed process issue in how the 

agencies are functioning. 

First of all, we have this unprecedented transfer of unaccountable power to the executive to place taxpayer money into the private sector. 

I may over simplify this and where we go with it, but I guess 

the concern I have is we have had this change take place, is there 

a bigger Constitutional question here? 

Do you believe that we need to have the ability to dive in and 

see what was done with those assets specifically? 

Where I would go into a parallel before I follow along with a couple of subparts to the question, if I owned 80 percent of a corporation, I know for a fact that I could see every aspect of the books 

of that corporation if I so desired by simply calling an emergency 

board meeting and determining I would be given that access. 

Why cannot we not do that here and see this? I suspect there 

will be more culpability in the details when we get down there, if 

you were to have access, and especially the Chairman and Ranking 

Member. 

Mr. BAROFSKY. Certainly, the Fed and Treasury do have that 

degree of access. 

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Mr. DAVIS OF KENTUCKY. They are obviously not sharing this 

information. 

Mr. DODARO. Right. The only thing we have been given from 

the Federal Reserve is information that is available to the public. 

Unless the law is changed removing our restrictions, we are not 

going to be able to do what you are suggesting. I do think it needs 

to be done. 

Mr. DAVIS OF KENTUCKY. Following on that, do you believe 

the way that the original law was structured out of the Congress 

was flawed? 

Mr. DODARO. I guess my view would be given the original explanation of what it was to be used for, I am just speaking from 

GAO’s standpoint, in terms of what our authority would have been, 

I think we would have been fine if they would have purchased the 

toxic assets. 

Since they shifted the plans, first, to the capital purchase program, that created a little bit of a dilemma for us, but when they 

started using TARP money to leverage Federal Reserve activities, 

that created a bigger problem. 

As the program has evolved, we have not been able to adapt, because of these restrictions, the type of accountability and transparency that the Congress expects of us. 

Mr. DAVIS OF KENTUCKY. I think this goes back to the cautions that many of us were raising in the run up to the legislation 

last year, the way the title was originally put into the housing bail 

out bill that would have been oriented in that direction was a simple blank statement that the Secretary was basically being given 

unlimited authority. 

The only real question last Fall was raising the debt ceiling rather than actually the mechanisms of how it would be done. 

Seeing that Secretary Geithner seems to be carrying on the same 

responsibilities that Paulson had asked for in the previous Administration, I would really question the competence of how this is 

being carried out. 

You agree that we have to have some type of an audit mechanism to see that and hopefully we will work from this Committee 

to bring that forward. 

Just as an aside, the President made a comment this past week 

that Secretary Geithner was making all the right moves. Do you 

agree with that statement, just from a forensics audit standpoint? 

You do not have the information that is available. We have numbers instead of names for people. 

This would be an outrage in the private sector as the owners of 

a business and certainly we as taxpayers own it now. 

How do you feel about that? 

Mr. DODARO. Basically, I would say it relates to the recommendations that GAO has made about how to improve the program, that they are making progress but they are not there yet. 

From the standpoint of fully implementing our recommendations, 

I would say they need to take additional steps in order to do that. 

Mr. BAROFSKY. I would say the exact same with our recommendations. 

Mr. DAVIS OF KENTUCKY. Thank you. We will try to work 

closely with you and follow on from the discussion earlier in the 

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week and with the Chairman of the Committee to address that 

blank spot. 

Thank you very much. I yield back. 

Chairman LEWIS. Thank you very much. Mr. Etheridge is now 

recognized. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me thank you 

for holding this hearing. 

We have a lot of hearings going on the Hill right now. All of 

them are important in this area because the American people are 

concerned, and it did not just start with the bonuses paid for AIG, 

as all of us know. 

This started last year when they had serious concerns about the 

economy and then the funds moving in that area. I think it has 

sort of culminated and erupted with what has happened over the 

last several days. 

I think all of us are concerned, so let me ask you a couple of 

questions. I appreciate your service. I appreciate the job you are 

doing, both of you, and GAO has a rich history. 

As we look at these and as we deal with the focal points of where 

we are, I think we have to acknowledge that, too many people talk 

around it, people are just furious, and certainly in my district in 

North Carolina where people are about to lose their homes, we 

have farmers who are in jeopardy of losing their farms, and then 

they see their tax money rolling to Wall Street. I think that is what 

is bubbling over the top. 

The very people that got us in this problem are the very folks 

that they feel we are rewarding. As we move to fix the problem, 

my question is as we deal with that, in your testimony, you mention the following ‘‘Plans to launch an audit examining Federal 

monitoring and enforcement of executive compensation restrictions 

imposed as a condition of Federal financial assistance.’’ 

Can you tell me and those of us in this panel about this audit, 

what it will entail, and what can be done in the future to prevent 

these kinds of excesses? 

I think that is what the American people want to do. The American people want things fixed, but they want them to be done right, 

and they are just tired of gaps being put in place that people slip 

through. 

Mr. BAROFSKY. I think there are several aspects of this audit. 

First and foremost, it is to make sure or to report on what the status of Treasury’s responsibility is in its compliance, to set up the 

right procedures, to ensure that the recipients of TARP funds are 

complying with the executive compensation requirements. 

This is something that GAO has identified, I think, in its very 

first report. We are picking up on that to have a comprehensive 

audit of what is going on. 

Second, it is looking very specifically at the AIG process, the 

process for this particular example of executive compensation, how 

it came to be that these payments were made, when Treasury 

knew about it, who at Treasury knew about it, what legal analysis 

was done, to provide that type of transparency. 

Ultimately, that type of transparency in reporting on what the 

efforts have been and making recommendations on how to fix it are 

how, I think, we are best able to address these problems. 

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Mr. ETHERIDGE. You covered this a little bit earlier, and I 

think it is important enough to be touched on again. We keep talking about transparency. We talk about time lines. 

If you would, repeat again when do we expect to have the transparency up so the American people can see it on line. Number two, 

when the audit will be completed, and I assume that will be on 

line. 

Mr. BAROFSKY. Yes. 

Mr. ETHERIDGE. These are the kinds of things that people 

hear. They expect to see it. All of a sudden, they see more hearings, 

nothing is happening, and they are absolutely frustrated and confused. 

Can you cover that one more time? 

Mr. BAROFSKY. Sure. On our overall audit on use of funds, we 

have just received our last response yesterday, late yesterday. We 

are now in the process of gathering that information. I think that 

within the next 30 days, we are going to release some preliminary 

information. 

We are shooting for—— 

Mr. ETHERIDGE. You are saying by April 15? 

Mr. BAROFSKY. Yes, summary of responses, some anecdotal descriptions of the responses. We are looking for late Spring to have 

the first wave of the report. 

Mr. ETHERIDGE. When is late Spring? 

Mr. BAROFSKY. May/June is the timeframe. 

One of the problems we have, Congressman, is we are starting 

up. We have actually hired a contractor to help us with this. 

Mr. ETHERIDGE. You cannot fault me for trying to tie you down 

to a date. 

Mr. BAROFSKY. Right. We want to get it out as soon as possible, and that is why we actually hired a contractor and are not 

doing it entirely in-house, to speed this up, which will be an intermediate report. 

Ultimately, if H.R. 1341 does pass, that requires us by September 1 to get a comprehensive report on how TARP funds have 

been spent, so we will certainly have a final, final, final by that 

date, but we plan to release the information and provide transparency in stages, making sure that we have a complete yellow 

book standard audit report when we provide our final product to 

the Congress and the American people. 

Mr. ETHERIDGE. I think that will be great and important. 

Thank you. Thank you, Mr. Chairman. I yield back. 

Chairman LEWIS. I just want to announce to the Members, we 

are going to have a series of votes coming up, and we are going to 

try to rush to get everyone in. 

Mr. Higgins is now recognized for questions. 

Mr. HIGGINS. Thank you, Mr. Chairman. 

I just want to stay on this issue of executive compensation and 

the problem with AIG. Unfortunately, this Troubled Asset Relief 

Program will always be synonymous with the mess that has been 

created with respect to AIG. 

AIG should not be paying out bonuses. They should be paying 

restitution. They should be fined. 

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This is a gross breach of their responsibility. AIG was essentially 

running an unregulated hedge fund within the context of an AAA 

insurance company. AIG was selling a product that did not exist, 

issuing phony insurance policies against the default of bundled 

subprime mortgages, insurance that did not have any capital behind it. It was like a hedge fund without the hedge. 

When you get into this whole issue of bonuses, call them performance bonuses or retention bonuses, the bottom line is a bonus 

is a form of compensation for rewarding good work. 

I do not think anybody agrees that AIG was doing good work. In 

fact, I think they were corrupt in what it is they were doing, which 

is undermine the confidence of the American people relative to the 

financial markets and the overall economy. 

Let us call them retention bonuses as AIG has called them. The 

problem is they paid this out to 54 people who are no longer with 

AIG. 

When this whole thing started, people were suggesting that these 

financial institutions were too big to fail because they were highly 

integrated, they were associated with banks and governments, and 

those institutions, those secondary institutions would fail if we allowed these big companies to fail. 

They are failing. We were rolled, as somebody else said, by approving the Troubled Asset Relief Program, which is no longer a 

troubled asset relief program, and we continue to call it a troubled 

asset relief program. 

The Chairman earlier talked about trust and the fact that no 

trust exists, and once you lose trust, it is very difficult to get it 

back. 

The Congressional response and the administrative response to 

a massive financial problem has morphed into another massive financial problem. 

I am concerned that whatever audits are done are not going to 

give us the kind of conclusions that are necessary to fix this thing 

in time. 

You are both talking about staffing up, starting up, getting your 

personnel numbers and expertise in order, in order to properly 

monitor these programs, and the program continues with the dispersement of funds, and it seems as though there is very, very little oversight. 

I am not suggesting that anybody is doing this deliberately. I 

cannot see how it could be much worse than what it is today. 

The American people are very, very angry. Members of Congress 

are very, very angry for good reason. I think the frustration is 

fueled by a lack of clear, concise answers to a problem that is contributing to the continual contraction of this economy. 

Just your thoughts on that. 

Mr. BAROFSKY. Let me give you an example of how much worse 

it could be. The original TALF program, which is now projected to 

be $1 trillion of Government money, the original fraud protections 

when we were briefed on the program was they were going to rely 

on two things. 

They were going to rely on AAA rating by credit agencies and the 

due diligence of investors. That, of course, was the exact same protjames on PRODPC75 with HEARING

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tections that got us into the entire mortgage meltdown, mortgage 

backed securities meltdown. 

We came out strong. We came out with strong recommendations, 

and the fraud prevention in that program is better. They have not 

adopted all of our recommendations. It is not perfect, but third 

party attestations and launching of our taskforce is going to reduce 

the amount of fraud. 

It is not going to reduce it to zero, but that is an example of 

where we provided oversight, we provided recommendations, so 

that it may not be as bad as it may have been. 

Mr. HIGGINS. Credit rating agencies were bought off. Credit 

rating agencies were not doing objective analysis of the creditworthiness of these instruments. They were extracting huge fees 

for giving phony high credit rating agencies which bamboozled the 

American people and investors and clients. 

Mr. BAROFSKY. That is why we came out with a strong recommendation that would not be sufficient. 

Mr. DODARO. I would just make three quick points. One, if it 

was not for our recommendations, you would not have any information available on how the lending practices have changed for the 

institutions receiving the money. 

Number two, we are staffed up but we are hampered by access 

to certain information, which I pointed out. 

Number three, we have issued a report and designated it as a 

high risk area and the need to modernize the financial regulatory 

system to close some of these gaps. 

Basically, the regulators struggled and were unable to mitigate 

the systemic risk of some of these large financial conglomerates. 

Unless Congress revamps that whole financial regulatory system 

going forward, that is really as important in my opinion as fixing 

some of these intermediate activities. 

Mr. HIGGINS. Thank you, Mr. Chairman. I yield back. 

Chairman LEWIS. Thank you very much. Mr. Comptroller, if you 

are going to be able to do your job as an official of GAO, you need 

the capacity, you need the ability to get all of the information. 

I think this Committee should get serious and careful consideration to making a recommendation to the Full Committee that we 

change the law. It does not make sense. 

Mr. DODARO. It makes sense and in a carefully crafted manner, 

I would be happy to have our counsel work with your counsel to 

see if we can develop some legislation that respects the independence and some of the issues of the Federal Reserve, but gives us 

the authority we need to provide Congress with proper oversight. 

Chairman LEWIS. We should do just that. 

Mr. BAROFSKY. For what it is worth, as GAO being such an important oversight partner for us, giving them this type of access 

would only enhance the overall oversight of this program. 

Chairman LEWIS. Thank you. We are prepared and ready to 

work with you. On that note, we will recognize Mr. Davis of Alabama for his questions. 

Mr. DAVIS OF ALABAMA. Thank you, Mr. Chairman. 

Let me react, if I can, Mr. Dodaro and Mr. Barofsky, to several 

things that struck me about your testimony in this hearing today. 

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I remember an exchange between you and one of the Republican 

Members about the various privacy provisions, I suppose, that prevent us from identifying these 13 companies that owe massive 

amounts of money to the Federal Government, in terms of their 

taxes, but signed the contracts saying they had no tax liability. 

I was thinking about the fact that in my hometown of Montgomery, Alabama, if you write a large number of bad checks, they 

stick your picture on a big billboard and they put it on the most 

well traveled interstate in town, and whatever privacy you thought 

you had kind of goes out the window. 

I am wondering how many people listening to this hearing or sitting here wondering why there seems to be one set of rules for 

them and their families and there seems to be another set of rules 

for these enormously large companies that employ all these socalled geniuses who were so smart that they figured out how to 

ruin a company in a way that almost ruined an economy. 

As I was listening to the testimony, for example, I heard you talk 

about the requirement that they had to make a signed statement 

that they did not owe any tax liability, and I thought about Sarbanes-Oxley, which requires chief financial officers to sign a statement attesting that when they sign a financial statement, that signature is an attestation that all the contents are accurate, and people get prosecuted and go to jail if they knowingly sign a false Sarbanes-Oxley statement. 

I was a prosecutor for a little while at the Federal level, and I 

prosecuted people who got loans from the SBA and represented to 

the Federal Government that they did not owe any outstanding 

taxes, and it turned out they did, and they went to jail. 

There are prosecutors all over the country who are going to have 

to bring cases like that. 

I am wondering what those prosecutors will say to juries when 

they are sitting here wondering why are we being asked to find 

this person criminally liable when I am turning on my t.v. in the 

middle of the day and hearing about large companies getting taxpayer dollars making false representations and we cannot even 

name them, much less make them pay the money back, much less 

prosecute them. 

Finally, I am thinking about people in my state who have invested in an affordable college plan get a letter from the State 

Treasurer a few weeks ago that tells them the plan is about to run 

out of money, their hard earned investments may go for naught, 

may have to tell their kids to lay off a semester to go to college, 

and then they pick up the newspaper and hear this week about 

again these geniuses who worked for AIG who were so smart that 

they figured out how to wreck an economy and not just a company, 

but yet it is so important to retain them and keep them doing what 

they are doing, and we have to pay them millions and millions of 

dollars. 

I just wonder, we are eroding confidence in the way our legal system works. We are eroding confidence in the way taxpayer dollars 

are managed and spent and the cost of that, it is going to make 

it harder than ever for us to do the things that must be done to 

get this economy moving forward. 

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This is a massive breach of accountability and public trust. It 

goes way across party lines. It is damaging and imperiling everything we think about in public trust and about Government. 

Now, I would like a brief response from you all. 

Mr. BAROFSKY. To be very clear, I have not invoked or set forth 

any type of privacy claims with respect to this information. I just 

received this list today indicated by number. 

I look forward to finding out who those financial institutions are. 

Mr. DAVIS OF ALABAMA. So, they will get their day on the billboard, hopefully. 

Mr. BAROFSKY. Absolutely. With regard to Sarbanes-Oxley, I 

was a Federal prosecutor for 8 years before I took this job. One of 

the things I have done is bring in Sarbanes-Oxley’s certifications 

into the TARP. It is part of my standard recommendation for every 

condition that is imposed, that a senior executive officer has to certify under 1001 with criminal penalty that their company is in 

compliance with each of the TARP conditions. 

On my survey that I sent out to each of the financial institutions 

requiring them to report on how they used the funds, it included 

1001 Sarbanes-Oxley type—— 

Mr. DAVIS OF ALABAMA. Do you agree that some of these people need to be prosecuted for lying to the Federal Government 

about their tax liability? 

Mr. BAROFSKY. One of my core responsibilities is to investigate 

anyone who lies, makes a material lie to the TARP to get money, 

and that would include this. If it is a material lie, absolutely, they 

need to be prosecuted. 

Chairman LEWIS. Thank you very much. Now, I recognize Mr. 

Larson for his questions. 

Mr. LARSON. Thank you very much, Mr. Chairman. I thank our 

witnesses as well. especially for your testimony today but also your 

ongoing work. 

I am interested in that in the testimony you were talking about 

that you go back to September in terms of taking a look at how 

this whole thing came to be with respect to TARP. 

Are either of you familiar with the Becora Commission? 

Mr. DODARO. No. 

Mr. BAROFSKY. No, sir. 

Mr. LARSON. Becora in 1929 was called upon by the Banking 

Committee to come forward and take a look at how this whole 

thing came to be. It seems to me we have had three major economic 

bubbles and then bursts. I realize that is not your specific oversight 

responsibility. 

I am interested in both of you who are getting to take a look at 

this about the need for us to do a systemic long term look, not unlike Becora did, who probably was a then modern day inspector 

general. 

With respect to inspector generals, you have independent oversight; correct? You are not the employee of the Treasury Department, you have independent responsibility? 

Mr. BAROFSKY. I am within the Treasury Department but I 

have complete independence. 

Mr. LARSON. Do you think that inspector generals should have 

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dent, approved by the Senate, and have complete independent oversight? 

Mr. BAROFSKY. It is the only thing I know, since I am new to 

the inspector general community, and I certainly fell in all of those 

categories. 

Mr. LARSON. Should the CFTC and the SEC have independent 

oversight? 

Mr. BAROFSKY. It certainly seems to work on the TARP. 

Mr. LARSON. I would conclude from that you would say they 

should. It surprises me to know that they do not. 

It surprises me to know that where there is independent inspector generals, there are 435 investigations and audits, and where 

there are not independent, meaning they are not nominated by the 

President and ratified by the Senate, there are 11 independent audits and investigations that go on. 

Does it seem to you, Mr. Dodaro, that we should have a long 

term look back, in fact, something like the Becora Commission, to 

take a look systematically at what is happening, not just since September, but what has happened in a lot of legislation over a long 

period of time has transpired, not just the last 8 years or the last 

16 years, but perhaps the last 20 or 28 years. 

I think there is a real need for that. I would be interested in your 

response, either of you. 

Mr. DODARO. I not only agree with you, I initiated such an effort at the GAO. We issued a report in January where we traced 

the evolution of the financial regulatory structure over the last 150 

years. 

We talked about the last major market developments in the last 

20/25 years that have out paced the ability of the regulatory system to manage it, and we outlined a list of characteristics, nine 

characteristics, that we think Congress can use in crafting and 

evaluating legislative proposals to modernize the system. 

The system we have now is outdated. It is fragmented and ill 

suited to meet our needs going forward. We have designated it a 

high risk area. 

I do not admit we have done all the research comprehensively, 

and it could be added to, but I felt very strongly about that, and 

that is why I initiated it. 

Mr. LARSON. Of those nine characteristics, what would be the 

top three things that the Congress should be doing immediately 

that would assist in this area? 

Mr. DODARO. Number one is there is no systemic regulators, no 

one regulator charged with monitoring systemic risk across the system. That is a big problem. It needs to be fixed. There are a lot 

of gaps in institutions that are not covered or products that are not 

covered. They need to closed. 

The taxpayers need to be protected. The system has to be revamped in a way that not only gives additional protections to investors and the public, but also gives some of the regulators more 

independence as well. 

Those are the key things. I would be happy to provide a report 

to you. 

Mr. LARSON. I would be glad to receive that and sit down with 

your staff and work with you on that. 

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You mentioned, I think, to a question with regard to Ron Kind, 

do you have the appropriate moneys. You said you were in the 

process of still building up and gearing up, but it seems to me that 

especially given these times, and as was pointed out by Mr. Davis, 

the special need to restore confidence in the American public, if you 

could tell us to the extent that you need more money or additional 

tools, et cetera, or elaborate on that, we would be interested to 

know as well. 

Mr. BAROFSKY. Absolutely. The Stabilization Act carved out 

$50 million for my office. We will come back to Congress when we 

see that we need additional funds. Right now, that is more than 

covering our expenses, but we certainly will let you know. 

Mr. LARSON. I thank Chairman Lewis. I would love to pursue 

talking with you about inspector generals and the kind of authority 

and independent nature of the authority they should have given 

your vast experience. 

Mr. DODARO. We have also studied that issue across the Federal Government. I would be happy to provide some of our reports 

and talk to you about that as well. 

Mr. LARSON. Thank you very much. 

Chairman LEWIS. Thank you. Mr. Meek is recognized for his 

questions. 

Mr. MEEK. Thank you so very much, Mr. Chairman. I am glad 

the Inspector General and the Comptroller are here. 

Inspector General, I know that it was several weeks after we 

passed TARP when you were appointed; am I correct? 

Mr. BAROFSKY. A couple of months, actually. 

Mr. MEEK. I remember because it was right before a Senate 

hearing asking about TARP that you were appointed almost a day 

before the hearing. 

I want to make sure that the members are fully aware of that 

and the American people are aware of that because Mr. Chairman 

and Ranking Member, we were in a very precarious situation when 

it came down to passing this TARP legislation. 

It is almost like putting the dollars out there and not having the 

overseer or the police officer out there to enforce our original intent 

to be able to bring the price of money down. 

I just want to point the Committee to what happened on January 

22, 2008. The Federal Reserve cut rates by 3.5 percent, the largest 

cut in 25 years. On March 7, the Federal Reserve makes $200 billion in funds available to banks and other institutions. 

This is without Congressional intervention. 

Then we turn around and find that Freddie and Fannie have 

problems or go into problems and enter into an agreement with the 

Federal Government on September 7. 

I skipped over a lot, Mr. Chairman. We kept moving down, kept 

moving down. As I look at this chart here, and this is a CBO report 

showing the price of money and how it was spiking, and how small 

businesses were closing because they could not meet payroll. 

I am saying all that to say that I think in a time such as this, 

we do know that we could not afford for our financial institutions 

to fall, at that time, because it would have been a bigger problem 

than what we are facing now. 

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Now we know we had to act under pressure. We do know that 

there are some issues that are unaddressed that should be addressed immediately. 

Just a couple of days ago, the President shared with the American people—this is on March 18, yesterday—time is flying here— 

he is saying he is asking for the same authority that FDIC has 

over banks to be able to consolidate some sort of oversight of 

TARP. 

This is something that he said yesterday. I think it is important, 

he identifies AIG as an insurance company but has a hedge fund 

over it. I think it is important that we look at how the administration can move. 

You mentioned earlier, I believe, and if I am misquoting you, Inspector General, let me know, you mentioned a bill, 1341? 

Mr. BAROFSKY. I believe that is H.R. 1341. 

Mr. MEEK. That is to give you additional authority or staff or 

oversight to be able to follow up on many of these leads that you 

are getting over the hotline and that your staff is uncovering? 

Mr. BAROFSKY. There are a number of different provisions. The 

ones I was referring to would give me some greater hiring flexibility. There are also portions of the bill that clarify my overall authority as well. 

Mr. MEEK. Can this be achieved through an Executive Order or 

some sort of flexibility that the President and Treasury has now? 

I know you are kind of the overseer. 

Can that be accomplished through administrative actions since 

the administration has a great deal of flexibility that the Congress 

has given it to carry out this program? 

Mr. BAROFSKY. I think some of the hiring flexibility, they 

could. Some of it, they could not. I think the expansion of authority, although I think it is more of a clarification of our authority, 

is something that Congress would need to do since we are ultimately a creation of Congress. 

Mr. MEEK. For what the administration can do, I would love to 

talk to the appropriate staff person—we are going to have to run 

out here for votes very shortly—of being able to follow up. 

I want to write a letter to the Administration. I am hoping we 

can do it as a Committee, saying these are the things that you 

need right now, yesterday, so we can be able to follow up on it. 

I think the American people know that we had to respond, which 

we did, under President Bush, and now under President Barack 

Obama. 

I think it is important that we do not allow the same situation 

to continue because no one is paying attention day by day of the 

details. 

I think when we look at this whole AIG situation, the details— 

I do not think $30 billion would have gone out the door. I do not 

think Mr. Geithner would have been able to sit where you are sitting right now just a week ago if we had any idea of what was 

going on as it relates to this bonus situation. 

We know we are a country of laws and also contracts, and we 

realize that. When you have the American people around here, 

their hours are being reduced, they are losing their jobs, and businesses are closing, meanwhile, back in New York or where have 

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you, you have individuals that are pulling down $1 million and we 

are saying we need them. 

We are all outraged. Where do we stop the bleeding? I think we 

have to stop it by doing things that we can do through the executive power and also this Committee pushing legislation as though 

it was imperative, which it is, to get it done ASAP. 

I commend you both. I am glad you all are doing what you are 

doing. You are shedding light on this. You are looking at the details, as we try to govern. 

Mr. Chairman, all of us are public servants. We all signed up to 

serve the people of the United States of America. I do not think 

anyone set out to be able to waste taxpayer dollars, but we must 

make sure that the Comptroller and the Inspector General have 

time to catch up on what we did in a very fast way to make sure 

that we shore up the financial institutions so that small businesses 

do not have to close and we will not see the job loss that we would 

have seen if we did not respond to the crisis. 

Thank you, Mr. Chairman. I look forward to working with the 

Subcommittee. 

Chairman LEWIS. Mr. Pomeroy is recognized for questions. 

Mr. POMEROY. Mr. Chairman, I know we have to vote so I will 

be very quick. Actually, you can submit answers in writing to me 

later. 

I am concerned that the closer you look at the AIG situation, the 

uglier it gets, especially the prospect that there has been very little 

effort made by people in the Financial Products Division to get the 

best deals possible as they unwind the many commitments of that 

division. 

Obviously, under the circumstances, I believe it would only be a 

responsible business proposition to demand a haircut in settling of 

the many obligations that were entered into by the company. 

Indeed, today’s Washington Post reported that instead there has 

been subtle pressure from the government to settle liberally because the receiving firms probably need the money. 

This is not good stewardship of taxpayer dollars. 

Is this a matter you are looking at? 

Mr. DODARO. Basically, since the Federal Reserve is managing 

this area, this is one reason I cite that we have statutory prohibitions in looking at this issue. 

Mr. POMEROY. It is important information for us to consider, 

Mr. Chairman. I thank you and I yield back my time. 

Chairman LEWIS. Thank you. Let me take the opportunity on 

behalf of the Ranking Member and all of the members to thank you 

two for being here, thank you for your testimony. 

I am sure we will be calling on you again as we move down this 

road, and it is a very long road. 

Thank you so much. You have been very helpful. 

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

Mr. BAROFSKY. Thank you, Mr. Chairman. 

Chairman LEWIS. The hearing is adjourned. Thank you. 

[Whereupon, at 11:46 a.m., the hearing was adjourned.] 

[Submission for the Record follows:] 

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Statement of Elizabeth Warren, Congressional Oversight Panel 

Thank you, Chairman Lewis, Ranking Member Boustany and members of the 

Oversight Subcommittee, for allowing the Congressional Oversight Panel to submit 

written testimony for your hearing on the Troubled Asset Relief Program: Oversight 

of Federal Borrowing and the Use of Federal Monies. 

I regret that I am unable to testify in person, however, the Oversight Panel is 

holding a hearing at the same time. Certainly, we share a desire to bring accountability and transparency to the TARP program, and I am pleased to assist your efforts in any way that I can. 

The Oversight Panel was created as part of the TARP in last year’s Emergency 

Economic Stabilization Act. The job of the Panel is to ‘‘review the current state of 

the financial markets and the financial regulatory system’’ and report to Congress 

every 30 days. The Panel has submitted reports to Congress on December 10, January 9, February 6, and March 6, and it is preparing its fifth TARP oversight report 

for submission in early April. The Panel also submitted a special report on regulatory reform to Congress, as required by the legislation, at the end of January. 

The Oversight Panel is one of three organizations to which the TARP legislation 

gives oversight responsibilities. In my capacity as Panel chair, I have been pleased 

to work alongside my colleagues Gene Dodaro, the Acting Comptroller General of 

the United States, and Neil Barofsky, the Special Inspector General for the Troubled Assets Relief Program. Together we are charged with ensuring that the tax dollars of the American people are used prudently and effectively to ameliorate and ultimately reverse the deepening financial crisis in which our country—and much of 

the world—now finds itself. 

The Special Inspector General for the TARP has a broad responsibility, and 

matching authority, to audit and investigate any part of the Program. GAO is given 

an even more detailed set of instructions for ‘‘ongoing oversight of the activities and 

performance of the TARP,’’ as well as responsibility for an annual audit of the 

TARP’s financial statements. Between the Oversight Panel’s obligation to report to 

Congress every 30 days, the GAO’s obligation to report every 60 days, and the obligation of the Special Inspector General to report every 90 days, Congress will receive an average of two TARP oversight reports every month. 

The three oversight organizations are working to complement, not duplicate, one 

another. We hold regular meetings with the office of the Special Inspector General 

and with GAO senior staff responsible for TARP oversight. We share information 

and discuss possible lines of inquiry. We have also discussed sharing, where possible, preliminary work product. If GAO or the SIGTARP identify questions for the 

Oversight Panel, they will pass them to us and give us access to data that we can 

synthesize to inform our work; similarly, when our analysis or information indicates 

a significant instance of non-compliance with the terms or spirit of the TARP legislation, we will inform GAO, the SIGTARP, or both. We all want to make the whole 

of our work greater than the sum of its parts. 

The Oversight Panel is the smallest of the three organizations. We see our contribution as fact-based analysis designed to raise issues about the operation and direction of the TARP and about the broader effort to restore stability to the financial 

system. In the Emergency Economic Stabilization Act, Congress specifically asked 

that the Oversight Panel conduct oversight on: the use of Treasury authority under 

the TARP; the Program’s effect on the financial markets, financial institutions, and 

market transparency; the effectiveness of foreclosure mitigation efforts; and the 

TARP’s effectiveness in minimizing long-term costs and maximizing long-term benefits for the nation’s taxpayers. Our ultimate question is whether the TARP is operating to benefit the American family and the American economy. If we believe the 

answer is no, we will ask ‘‘why not,’’ and try to suggest alternatives. 

Several facets of our work are related to your question of the use of federal monies. The Panel’s February 6 report asked whether the public was receiving a ‘‘fair 

deal’’ when Treasury used TARP funds to make capital infusions into financial institutions last year. We worked with recognized independent experts to develop multiple valuation models to determine whether the securities Treasury received had 

a fair market value equal to the dollar amount of the infusions. With minimal variation, the models all demonstrated that Treasury made its infusions at a substantial 

discount. Treasury received securities that were worth substantially less than the 

amounts it had paid in return, given the financial institutions involved. In all, the 

Panel’s report found that Treasury had overpaid by an estimated $78 billion. For 

each $100 Treasury invested in these financial institutions, it received on average 

stock and warrants worth only about $66. We believe this is an important issue. 

Our report does not draw a conclusion about whether such discounts may—or may 

not—have been appropriate as a matter of policy. The Panel continues to examine 

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the matter, and Congress may decide to keep it in mind as well. Thus far, Treasury 

has not given the public an explanation, so that the appropriateness of the overpayment remains, at best, unresolved. 

The most important lesson we draw from our analysis is that without a clearer 

explanation from Treasury about its overall plan for each capital infusion, and without more transparency and accountability for how that plan was carried out, it is 

not possible to exercise meaningful oversight over Treasury’s actions. Congress has 

given Treasury substantial discretion, as befits this fast-moving crisis. But that discretion carries with it an equivalent obligation to explain, in real time, why the discretion is exercised as it is. Congress and the American people need to understand 

Treasury’s conception of the problems in the financial system and its comprehensive 

strategy to address those problems. Our collective financial security is on the line, 

and we all have a stake in the outcome. 

The Oversight Panel has also focused on mortgage foreclosure mitigation, with 

particular regard to impediments to mitigation efforts. The March report offers a 

checklist of items to evaluate the likely effectiveness of any proposal to halt the cascade of mortgage foreclosures. 

• Will the plan result in modifications that create affordable monthly payments? • Does the plan deal with negative equity? • Does the plan address junior mortgages? • Does the plan overcome obstacles in existing pooling and servicing agreements that may prevent modifications? • Does the plan counteract mortgage servicer incentives not to engage in modifications? • Does the plan provide adequate outreach to homeowners? • Can the plan be scaled up quickly to deal with millions of mortgages? • Will the plan have widespread participation by lenders and servicers? 

President Obama’s announcement of the Administration’s Homeowner Affordability and Stability Plan last month addressed many of these issues. The Plan focuses on payment affordability through an expanded refinancing program involving 

Fannie Mae and Freddie Mac and a modification program targeting a wide range 

of borrowers at risk. The Plan also includes financial incentives to encourage both 

lenders and borrowers to strive for sustainable outcomes. It also encourages 

servicers to modify mortgages for at risk homeowners before they are delinquent. 

There are additional incentives available to extinguish junior mortgages. The Administration estimates that the Plan’s expanded refinancing opportunities could assist four to five million responsible homeowners, some of whom otherwise would 

likely have ended up in foreclosure. 

While these projections are encouraging, the Panel noted areas of concern that are 

not addressed in the plan. In particular, the Plan does not include a safe harbor 

for servicers operating under pooling and servicing agreements to address the potential litigation risk that may be an impediment to voluntary modifications. It is also 

important that the Plan more fully address the contributory role of second mortgages in the foreclosure process, both as it affects affordability and as it increases 

the amount of negative equity. And while the modification aspects of the Plan will 

be mandatory for banks receiving TARP funds going forward, it is unclear how the 

federal regulators will enforce these new standards industry-wide to reach the needed level of participation. 

The Plan also supports permitting bankruptcy judges to restructure underwater 

mortgages in certain situations. Such statutory changes would expand the impact 

of the Plan. Without the bankruptcy piece, however, the Plan does not deal with 

mortgages that substantially exceed the value of the home. Such a failure could 

sharply limit the relief it provides in parts of the country that have experienced the 

greatest price declines. 

It is also critical for the federal government to collect and analyze loan performance and loss mitigation data. Without adequate data, measuring the success or failure of mitigation efforts is, at best, a hit-or-miss proposition. Data are the clearest 

way to demonstrate whether TARP funds used for foreclosure mitigation efforts are 

achieving their intended purpose. 

The TARP legislation is now more than five months old, and Treasury has spent 

or committed more than $350 billion under its terms. Both the Oversight Panel and 

GAO have called on Treasury to articulate a clear strategy for its use of TARP 

funds; the absence of such a vision hampers effective oversight. In fact, the absence 

of a clearly articulated strategy was one of the very first points raised by the Oversight Panel. In our first report the Panel outlined a series of ten basic questions, 

starting with the question, ‘‘What is Treasury’s strategy?’’ Unfortunately, Congress 

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and the American public still do not have a clear answer to that question. The ongoing uncertainty has hindered recovery efforts. 

I have sent two letters to Treasury Secretary Geithner asking for clarification on 

this point, among others. I am disappointed to report that the Oversight Panel has 

not received a substantive response. Although the initiatives announced over recent 

weeks describe a commitment to transparency and accountability, the general 

frameworks do not provide an adequate foundation to oversee Treasury’s activities 

or to measure the success of the TARP or the Stability Plan. As part of its April 

report, the Oversight Panel will further analyze the evolving strategy of Treasury, 

including the lessons that can be learned from previous financial crises, both foreign 

and domestic. 

What have we learned thus far? Even in a crisis such as we are experiencing, 

transparency, accountability and a strategy with clearly delineated goals are necessary to maintain public confidence and the confidence of the capital markets. Sophisticated metrics to measure the success and failure of program initiatives are 

also essential. Assuring that the TARP reflects these elements underlies all of our 

oversight efforts. 

Thank you again for the opportunity to explain the work of the Congressional 

Oversight Panel. 

Æ 

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