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52–883 PDF 2009

PEELING BACK THE TARP: EXPOSING TREASURY’S

FAILURE TO MONITOR THE WAYS FINANCIAL

INSTITUTIONS ARE USING TAXPAYER FUNDS

PROVIDED UNDER THE TROUBLED ASSETS RELIEF PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

MARCH 11, 2009

Serial No. 111–18

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

(

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

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERRY E. CONNOLLY, Virginia

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

——— ———

——— ———

——— ———

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

JOHN F. TIERNEY, Massachusetts

DIANE E. WATSON, California

JIM COOPER, Tennessee

PATRICK J. KENNEDY, Rhode Island

PETER WELCH, Vermont

BILL FOSTER, Illinois

JIM JORDAN, Ohio

MARK E. SOUDER, Indiana

DAN BURTON, Indiana

MICHAEL R. TURNER, Ohio

JEFF FORTENBERRY, Nebraska

AARON SCHOCK, Illinois

JARON R. BOURKE, Staff Director

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C O N T E N T S

Page

Hearing held on March 11, 2009 ............................................................................ 1

Statement of:

Kashkari, Neel, Acting Interim Assistant Secretary for Financial Stabilization, Department of Treasury ............................................................. 38

Sanders, Anthony B., professor, W.P. Carey School of Business, Arizona

State University; Stephen Horne, vice president, Master Data Management and Integration Services, Dow Jones and Co.; Mark Bolgiano,

president and CEO, XBRL US Inc.; Neil Barofsky, special inspector

general, Troubled Asset Relief Program; and Richard J. Hillman, Managing Director, Financial Markets and Community Investment, U.S.

Government Accountability Office ............................................................... 199

Barofsky, Neil ............................................................................................ 264

Bolgiano, Mark .......................................................................................... 206

Hillman, Richard J. ................................................................................... 272

Horne, Stephen .......................................................................................... 237

Sanders, Anthony B. ................................................................................. 199

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

Barofsky, Neil, special inspector general, Troubled Asset Relief Program,

prepared statement of ................................................................................... 266

Bolgiano, Mark, president and CEO, XBRL US Inc., prepared statement

of ..................................................................................................................... 208

Hillman, Richard J., Managing Director, Financial Markets and Community Investment, U.S. Government Accountability Office, prepared

statement of ................................................................................................... 274

Horne, Stephen, vice president, Master Data Management and Integration Services, Dow Jones and Co., prepared statement of ......................... 239

Kashkari, Neel, Acting Interim Assistant Secretary for Financial Stabilization, Department of Treasury, prepared statement of ...................... 42

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Article dated March 6, 2009 ..................................................................... 148

Article dated March 10, 2009 ................................................................... 27

Memo dated March 9, 2009 ...................................................................... 174

News release dated December 14, 2008 .................................................. 31

Prepared statement of ............................................................................... 6

Press release dated November 17th ................................................................ 144

Sanders, Anthony B., professor, W.P. Carey School of Business, Arizona

State University, prepared statement of ..................................................... 202

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 17

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

of California, prepared statement of ........................................................... 34

Welch, Hon. Peter, a Representative in Congress from the State of Vermont, prepared statement of ........................................................................ 23

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PEELING BACK THE TARP: EXPOSING TREASURY’S FAILURE TO MONITOR THE WAYS FINANCIAL INSTITUTIONS ARE USING TAXPAYER FUNDS PROVIDED UNDER THE

TROUBLED ASSETS RELIEF PROGRAM

WEDNESDAY, March 11, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

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

2154, Rayburn House Office Building, Hon. Dennis Kucinich (chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Towns, Jordan, Cummings,

Tierney, Watson, Kennedy, Welch, Issa, Souder, Burton, Turner,

and Fortenberry.

Staff present: Jaron R. Bourke, staff director; Claire Coleman,

counsel; Jean Gosa, clerk; Charisma Williams, staff assistant; Ron

Stroman, staff director; Leneal Scott, information systems manager; Lawrence Brady, minority staff director; John Cuaderes, minority deputy staff director; Jennifer Safavian, minority chief counsel for oversight and investigations; Charles Phillips, minority chief

counsel for policy; Dan Blankenburg, minority director of outreach

and senior advisor; Adam Fromm, minority chief clerk and Member

liaison; Kurt Bardella, minority press secretary; Seamus Kraft, minority deputy press secretary; Christopher Hixon, minority senior

counsel; and Brien Beattie and Alex Cooper, minority professional

staff members.

Mr. KUCINICH. Good morning. This is the Domestic Policy Subcommittee of the Oversight and Government Reform Committee. I

am Congressman Dennis Kucinich, chairman of the subcommittee.

The subject of today’s committee hearing is entitled, ‘‘Peeling

Back the TARP: Exposing Treasury’s Failure to Monitor the Ways

Financial Institutions are Using Taxpayer Funds Provided Under

the Troubled Asset Relief Program.’’ Our first witness today will be

Mr. Neel Kashkari, the Acting Interim Assistant Secretary for Financial Stabilization, the Department of Treasury.

We are joined today by a number of Members of Congress, including the new ranking member, Mr. Jim Jordan of Ohio. I want

to welcome Mr. Jordan to this position on the subcommittee and I

want to let you know, sir, that I am looking forward to working

with you. It is very interesting, in this subcommittee we have an

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Ohio connection, not only Mr. Jordan but Mr. Issa is originally

from Ohio, Mr. Turner is from Ohio. Ohio is well represented.

Mr. JORDAN. And our witnesses is from Ohio.

Mr. KUCINICH. And our witness is from Ohio. So I suppose this

is Buckeye Day on Capitol Hill.

We are going to begin with an opening statement. I want to

thank Mr. Cummings for being here as well as the gentleman from

Vermont, Mr. Welch. The witness, with unanimous consent, the

witness Mr. Kashkari, when we get to his testimony, is going to be

given 10 minutes. He may not need it all, but given the gravity of

this subject, he is going to be given 10 minutes to make his opening

statement, without objection.

The Troubled Assets Relief Program has provided about $200 billion in capital injections to hundreds of banks. The money was provided with virtually no strings attached. Most of the banks didn’t

even bother to account separately for the Federal moneys. It is debatable whether the efforts of those that did amount to anything

meaningful. Treasury does not even ask TARP recipients for a detailed accounting of their use of TARP funds.

Because some of the banks are multinational banks, the kinds of

transactions they are doing include billions in loans and investments in other countries at precisely the time that a liquidity

shortage has impaired credit markets in the United States, and a

recession deeper than anything seen since the great depression is

impairing production and employment. Nevertheless, several very

large transactions conducted after these banks received billions in

a taxpayer-funded bailout include an $8 billion financing arranged

by Citigroup for public authorities in Dubai, a $7 billion investment

by Bank of America in the China Construction Co., a $1 billion investment by a J.P. Morgan subsidiary in expanding operations in

India.

Unfortunately, the legislation Congress passed creating the

TARP required very little of the recipients to receive taxpayerfunded subsidies. The Treasury regulations and contracts crafted to

implement the TARP did not require much of anything other than

someone sign for the money. It may be argued that transactions

such as these are beneficial to the balance sheets of the banks that

are making them, that they have some indirect benefit to the U.S.

financial system as a whole. Really?

If the banking system is in serious enough trouble to require

massive amounts of Federal support, shouldn’t that Federal support be directed and channeled to the domestic economy? Or are

these examples of large investments and loans to foreign entities

among the kind of transactions the American taxpayers should be

supporting with TARP moneys, when we face significant credit

problems here at home?

How does a multi-billion dollar financing deal to Dubai ease the

liquidity crisis in the United States of America? What about other

kinds of uses of funds, corporate spending on lavish parties? The

continuation of contractual agreements to pay for naming rights on

professional sports stadiums? Corporate sporting event sponsorships? Is this what the taxpayers expect our Government to do

with TARP funds?

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Is this what Congress intended? If it was the business judgment

of the very same bankers in charge that governed their decision before the financial crisis and arguably helped create the crisis, is it

tolerable to continue to defer to that judgment and allow them to

spend taxpayers’ money with no explanation, little accountability

and no questions asked? Under the precedent set by former Secretary Paulson, the Paulson TARP program makes no demand on

TARP recipients for detailed information about their spending.

Even though the statute obligates Treasury to be able to prevent

waste and abuse of TARP moneys, Mr. Paulson’s Treasury Department did not even bother to set standards for waste and abuse of

TARP funds. ‘‘Trust them’’ is essentially what seems to pass for

oversight of the capital purchase plan. Treasury has no concrete

idea of how TARP moneys are being used. They don’t ask questions

of TARP recipients about their use of funds, and don’t gather sufficiently detailed information from TARP recipients to know what to

ask about.

The problem is not a lack of authority. Under the agreements between Treasury and the TARP recipient financial institutions,

Treasury has brought contractual authority to scour company

books in search of, among other things, waste and abuse by TARP

recipients. But in practice, Treasury is not doing so. The serious

shortcomings in the creation and implementation of the Emergency

Economic Stabilization Act, namely the absence of definitions of

waste and abuse for explicit conditions for the use of TARP funds

resulted in the inescapable conclusion that Treasury’s oversight

will not find waste, fraud or abuse, because it isn’t looking for it.

Now, to read Mr. Kashkari’s testimony today, we find nothing to

contradict that conclusion, with all due respect. In fact, Mr.

Kashkari was asked to testify on the steps that Treasury has taken

to detect and prevent the waste of TARP moneys. Mr. Kashkari’s

testimony does not address that question. Rather, he describes

Treasury’s efforts to do something else, to determine the impact of

TARP moneys on the bank’s lending activity.

Treasury has submitted 90 pages, 90 pages, of intermediation

snapshots from the largest 20 TARP recipients. But what does that

prove? Perhaps very little. There are significant shortcomings to

Treasury’s reliance on the monthly intermediation snapshots. First,

only the 20 largest TARP recipients report anything at all. Obviously there can be little monitoring of the impact of TARP moneys

on the credit activities of the 297 TARP recipients which do not file

monthly intermediation snapshots.

Second, the snapshots do not provide details about any individual transaction, no matter how significant. Third, these snapshots

address the lending side, the lending side of the recipient’s business. They do not address any other investment or expenditure.

And fourth, and importantly, they address only new lending and

not the contraction of existing lending in the form of foreclosures

and elimination of credit lines.

If the amount of new lending does not more than make up for

the amount of lending contracted, and that’s through foreclosures,

decrease in credit limits, calling back loans, then the net amount

of credit in the economy is shrinking. Telling one side of the credit

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story without telling the other does not give us a fair and balanced

view of the realities small businesses and individuals know so well.

At best, the snapshots might serve the purpose of monitoring, at

the most general level, some impact TARP funds may be having on

certain new lending activities. But they don’t reflect the net impact

of contracting credit activities on existing borrowers. And they tell

us nothing about the use of TARP funds, which is the focus of this

hearing.

Unfortunately, Mr. Kashkari’s testimony is not responsive to the

purpose of this hearing outlined specifically in the letter of invitation sent to him on February 25th. And Mr. Kashkari’s silence on

the subject of this hearing speaks volumes. The inescapable conclusion is that Treasury is not conducting oversight of the TARP moneys, disbursed through the capital assets purchase program, to prevent wasteful use or abuse of hundreds of billions in taxpayers’

funds.

Perks for company management were considered sound business

judgment before the financial crisis and taxpayer bailout, and they

are considered sound business judgment now, using taxpayers’

money. Loans to foreign governmental authorities were considered

sound business judgment before the crisis and bailout, and they are

supposedly sound business judgment now, using taxpayers’ money.

Investments in foreign company operations, even if it results in

more layoffs in the United States, were sound business judgments

before and they are sound business judgments now using taxpayers’ money.

In its current form, the capital purchase program of TARP leaves

recipient companies free to use Federal funds as they would any

other source of income before the crisis and before taxpayers provided the bailout. Treasury’s development of the TARP program

generally and the capital purchase program specifically has introduced no new transparency or accountability that did not exist before taxpayers were given the bill for cleaning up the mess. It has

perpetuated business as usual. It defers to the so-called sound business judgment, judgment of the same corporate management in

many cases that led to the crisis we are embroiled in now.

TARP was developed under a previous Secretary of the Treasury.

Nearly every observation that will be made today originates on his

watch. But if the new administration is to avoid perpetuating the

approach of the past, real change is going to have to be necessary.

It should start with the collection of detailed information about

how TARP recipients are using taxpayer funds and the imposition

of conditions and standards for how they may use the moneys taxpayers have provided and may be called upon to provide in the future.

My colleagues on this committee, with news reports projecting

that at least another $2 trillion will be requested of taxpayers, it

is my hope that this hearing today will help propel the new Department of Treasury to reform the intolerable deficiencies of the TARP

program, thereby making recipients accountable to the public for

the use of taxpayer funds.

Finally, we owe it to the American taxpayers to provide a complete, comprehensive accounting of all TARP funds that have already been allocated. And after such a thorough accounting is

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made available, then let the people decide if their hard-earned tax

dollars are being spent wisely and in the best interests of the

American economy and the best interest of the United States of

America.

I yield now to the ranking member, Mr. Jordan of Ohio.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. JORDAN. I thank the chairman, and I will be brief. Our ranking member, Congressman Issa, will provide our opening statement.

I was in the Judiciary Committee yesterday and I think there

were 15 opening statements, so we don’t need two from our side.

But I did want to say to the chairman, I look forward to working

with you and this committee. Since the first time we met, I think

at an orientation session at the Ohio General Assembly in 1994, I

have always appreciated the chairman’s passion and intensity that

he brings to the legislative process.

So I do look forward to working with you this Congress and in

this committee. With that, I will turn it over to our ranking member.

Mr. Kucinich. I thank the gentleman. I just want to say that Mr.

Jordan is a champion wrestler, and I look forward to working with

you as well.

Mr. ISSA. Thank you, Mr. Jordan. Thank you, Mr. Chairman, for

holding this extremely important hearing.

Mr. Kashkari, welcome. It is not easy for us to hold a hearing

on the TARP, the Troubled Assets Relief Program, or as some people think it is called, the Toxic Asset Relief Program, because the

TARP suffers from a lack of transparency and accountability. In

our previous hearing, we asked questions such as, ‘‘how much have

you spent,’’ ‘‘where is the money,’’ ‘‘what is it worth today.’’

But as of February 6th, the Treasury Department has verified that $300 billion in taxpayers’ funds have been provided to our Nation’s financial institutions in the form of preferred shares, warrants, loans and insurances against loss. Now, that figure, of

course, is outdated today, and we hope to hear an update.

While the Treasury Department currently monitors aggregate

monthly levels of some banking activities, it does not require any

recipient of TARP funds to disclose the details of any individual

transaction that the recipient would not have entered into but for

the TARP money. In other words, we do not know if $300 billion

of taxpayers’ money has changed anyone’s behavior. As a result,

neither the Treasury Department nor Congress nor the general

public truly knows the outcome achieved by injecting taxpayers’

money.

Mr. Chairman, this lack of transparency simply is unacceptable.

We can certainly make the case that this level of transparency and

the need for it may not have been anticipated prior to September

of last year. But a government of the future must be designed for

transparency. We must ensure that all of our institutions, whether

receiving Federal funds or simply operating on an interstate basis

be in fact prepared to provide transparency. That means interoperable systems and data bases.

We must understand, however, that true transparency requires

attention not only to what information is disclosed but to how the

information is disclosed. To illustrate this principle, consider that

we receive a deluge of information from the SEC in the form of

10Ks and other documents. As a matter of fact, my understanding

is that there are about 15 million pages of text. If that is simply

text, and in order to figure out the state of the top 200 or so companies in America, you would have to go through 10 million or more

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pages of documents, then that information in fact is not information, it’s simply pages of text. Good luck sifting through it.

In this day and age, every American understands that if they

don’t do it themselves, they could download from their bank or

other financial institution a monthly statement, receive it online,

import it into Quicken, into a spreadsheet, into some other accounting system, home accounting system, so they can quickly look at

their financial statements, keep track of them from month to

month and do analyses of the trends in their own investments.

So knowing that you can do this on a personal basis, one would

ask what can we do on a national basis? The answer is, without

a promising technology such as XBRL, that can standardize all financial reporting for easy accessibility, we will not be able to do

the same on a global basis. More than 40 countries have already

adopted this standard, including China. The United States is currently requiring the disclosure of information to the FDIC in XBRL

format. However, the SEC has been slow to act, took most of last

year to consider it, and only recently has approved a final rule that

will mandate XBRL for all public company reporting, with some

companies required to comply starting in June 2009.

Continuing with XBRL technology, it is clear to the public that

when we talk about lettered technologies and call them technologies that they may ask, is this difficult. I am going to say here

today that although we will receive extensive information later

today, it is not difficult. It is simply the Federal Government requiring that financial institutions, those providing mortgages into

the public market, those operating with the public trust such as

public corporations, and those receiving TARP money provide information in a way that we do not have to re-massage it, that it is

transparent to a computer. They still have the right, using this

technology, to withhold information or to be assured that the Government will keep confidential information confidential.

But only with this sort of a common format can we in fact begin

to separate what is often called toxic assets, which in fact is good

assets mixed with bad with no ability to decide which is which.

Without it, we are back to where we were before September.

Mr. Chairman, I absolutely look forward to Mr. Kashkari’s answers on what he can see today, what he knows today, but more

importantly, for both the first and second panel, I am desperate,

and America is desperate to ensure that we do not come back to

a hearing 3, 4, 5 months from now and find out that we still don’t

know where the money went, we still cannot quickly decide what

assets are good and what assets are bad.

Last, Mr. Chairman, I believe that when we look at the problem,

and Mr. Kashkari has been looking at this in a huge way, America

had a debt level of about 300 percent of GDP, or about $45 trillion,

plus or minus, of debt. Historically, American ran 100 to 120 percent of debt to GDP, meaning $15 trillion, maybe $20 trillion of

debt. The unwinding of this debt, even with the trillions of dollars

that are either pledged or the hundreds of billions of dollars that

have been delivered, still has a long way to go.

I look forward to hearing from Mr. Kashkari how they plan to

find the stabilized level of debt that America should be. I believe

that whether it is the international institutions that have gone on

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business as usual, as the chairman said, providing dollars to foreign investors, or it is our domestic spending, that we have to come

to grips with how much of the contraction was appropriate because

of an excess, an excess that we all found interesting and valuable

but in fact didn’t realize that when it unwound was inevitably

going to give us huge problems.

For example, if in fact our 100 to 120 percent of GDP is not the

new norm, but rather 200 percent of GDP is the new norm, we still

have a $15 trillion or so contraction of debt that will be permanent.

I know that is not the subject for today, but it is a subject that I

look forward to people at Treasury and others, working with economists, to discover. Because we have to decide what portion of

America’s hard-earned money is going to be put into stimuluses,

TARPs, and others, and how much in fact is going to have to be

written off to, we can’t go back to the Roaring Twenties, and we

can’t go back to the Roaring Oughts, if you will.

Mr. Chairman, thank you for your indulgence. I look forward to

this hearing and yield back.

Mr. KUCINICH. I want to thank Mr. Issa, who is the ranking

member of the full committee, for his participation. I think that all

Members would agree that Mr. Issa’s business acumen brings a

real strength to our deliberations, not only today but always. So

thank you, sir.

It is my honor now to introduce the chairman of the full committee, who is our new chairman and under whose guidance we helped

to craft today’s hearing and under whose guidance we will go even

deeper into the workings of this TARP program, as well as the

broad range of Government oversight and reform issues facing the

U.S. Congress and America. At this time, it is my honor to introduce the distinguished gentleman from New York, Mr. Towns, the

chairman of the full committee.

Chairman TOWNS. Thank you very much, Congressman Kucinich,

the Chair of the subcommittee, and of course Ranking Member Jordan, for convening this hearing.

Oversight of the Treasury’s TARP program is an important topic

for this committee. I am pleased that Mr. Kashkari is here today

to update us on the program.

It is quite clear to me at this point that Treasury does not have

the information or personnel in place to conduct vigorous oversight

of the TARP program. That bothers me. The information we have

received about the types of data the Government is tracking are far

too vague to develop measures of the program’s effectiveness.

I am afraid we are reaching a point where Treasury just does not

know what Wall Street is doing with Government funds. In fact,

I don’t think they even know how much they don’t know.

In my view, Congress has been extraordinarily generous in allowing the Treasury Department and the Federal Reserve latitude in

dealing with the current financial crisis. However, the Federal Government’s unprecedented investment of billions of dollars demands

further scrutiny. I am particularly concerned about AIG. To date,

the Government has invested $160 billion, that is B as in boy, in

AIG, and stated last week that AIG may require further support.

It should come as no surprise that Congress has expressed the

need to know exactly how this money has been spent, on what

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basis it has been spent and exactly who are the beneficiaries of this

record Federal subsidy.

But we cannot take it on blind faith that Federal financial support of AIG or other firms is being carried out in a sensible manner. We just can’t take that. This hearing should tell us what information Treasury is collecting and what information is being shared

with the Congress and what information is completely unknown to

anyone responsible to the American taxpayers. I hope we can come

out of this hearing with a plan for obtaining the information necessary to make responsible decisions about our economy and the

burden that the American people are bearing to bail out Wall

Street.

Let me just say, this is not a one-shot deal. We are not going to

go away. We owe it to the taxpayers.

Mr. Chairman, on that note, I yield back.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. KUCINICH. I thank the chairman of the full committee, and

it is an honor to serve with you.

At this time, of course, all members of this committee, without

objection, are going to have 5 minutes for an opening statement.

Any other Member who seeks objection? Mr. Souder of Indiana, do

you desire to have any opening statement?

Mr. SOUDER. No, thank you, Mr. Chairman.

Mr. KUCINICH. Mr. Cummings of Maryland.

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

I want to thank you and I want to thank our chairman of the

full committee and ranking member for making this hearing take

place.

I was just sitting here thinking about our last hearing. And during that hearing, Mr. Kashkari presented and there were some

issues that we brought up that he did not know about. And I realize that there’s a lot to get your arms around, I understand that.

But I want us, the reason why this hearing is so important is

that we are in probably one of the worst economic circumstances

that we have been in in our lifetimes. I do believe that President

Obama is doing everything in his power, along with Treasury Secretary Geithner, to straighten up this mess, and it is just that.

The problem is that unless there is transparency and unless

there is accountability, it is going to be impossible to maintain the

trust of the public. And we need the public trust. Right now, the

people in my district are losing their savings, their homes. As a

matter of fact, I was at a town hall meeting the other day, Mr.

Chairman, and a gentleman said to me, ‘‘You know what, I stopped

looking at my statement, because I am afraid to look at it, it will

put me in a bad mood for the next month or so, so I don’t even look

at it any more.’’ And they are losing their jobs.

And at the same time, they turn around and they hear about the

AIGs of the world and they hear about the Citigroups, the abuses

of this money. And you know what they ask themselves? The question they ask is, ‘‘why is my tax dollar being used in this way?’’ But

then the thing I think that really alarms them is when they hear

the oversight panel in its recent report say, ‘‘The panel still does

not know what the banks are doing with the taxpayers’ money.’’

It is going to be very difficult for the President and for Secretary

Geithner to turn this ship around unless we have a situation where

there is that transparency and the accountability. But if you don’t

know, if you don’t know what’s going on, that’s a real problem.

So we found out just recently that AIG was given retention payments, these retention payments were supposed to be to retain people, but these were the very people that they were letting go. There

is also something else that is happening here, Mr. Chairman, and

there is an arrogance on the part of some of these company executives with regard to the American taxpayers’ dollars.

So I am hoping, in the words of Mr. Towns, that we will be able

to come up with a plan to address this. But the question also becomes, does the Treasury Secretary have enough authority to do

the things that he needs to do. And I am hoping that those questions will be answered today.

So I look forward to the testimony of Mr. Kashkari and the other

witnesses, and again, I thank you all for calling this hearing.

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Mr. KUCINICH. Thank you very much, Mr. Cummings.

The Chair recognizes Mr. Fortenberry of Nebraska.

Mr. FORTENBERRY. Just briefly, Mr. Chairman, let me thank you

for the opportunity to join you on the subcommittee. I think it is

a critical subcommittee for the well-being of overview of public policy in this country.

Also, I wanted to thank you for picking this particular topic as

the one that clearly sets a priority for the tenor and the paradigm

of this committee. Clearly, people want to know where their money

is going to. Mr. Chairman, if I could offer this, I think it is very

important to review back when the taxpayers were asked to bail

out financial institutions in the name of resetting the economy, stabilizing the economy. There was a question floating around or the

suggestion that these institutions were too big to fail. I think we

should be asking, are they too big to succeed.

One of the real problems that we have in this country is financial

consolidation, the liberalized credit system that brought about the

use of exotic financial instruments, as well as what seems to be

reckless behavior. So I am hopeful that this subcommittee and this

particular hearing delves deeply into this issue to at least answer

one question as to where the money is going, and then second, if

this is an appropriate investment.

Mr. KUCINICH. I want to thank our new committee member, Mr.

Fortenberry of Nebraska, for his presence on the subcommittee and

also for his observation. The question that you pose about whether

or not a company is too big to fail, and your further question about

the issue of consolidation and the economy and its effect on the

economy is something that is a proper subject for this Domestic

Policy Subcommittee.

So with the cooperation of our chairman, Mr. Towns, we would

look forward to delving deeply into that issue.

Mr. FORTENBERRY. I appreciate your comment, sir, thank you.

Mr. KUCINICH. I thank the gentleman.

The Chair now recognizes Mr. Welch of Vermont for his opening

statement.

Mr. WELCH. Thank you, Mr. Chairman.

There does seem to be clear unanimity here about the absolute

requirement that there be full accountability. I want to focus attention on one specific area.

We have used a lot of money from TARP and other programs for AIG. And there is going to be another $30 billion that already has

been authorized with no additional requirement that AIG disclose

to us how specifically that money is used. And this new use of

TARP funds is a significant departure from previous TARP assistance to AIG. As long as it continues to be given without requiring

AIG to fully disclose how that money is being spent, it is going to

thwart our efforts to provide answers to the American taxpayer.

AIG has been unwilling so far to provide significant information

on what financial institutions, either domestic or foreign, are

counter-parties, the counter-parties to its outstanding credit default

swaps. That is why, for example, we still don’t know who received

much of the money that the Federal Reserve gave to AIG.

I think we are all in agreement the taxpayers are entitled to

know how their money is being spent. And what I would like to

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know, on behalf of the American taxpayer, is basically this: One,

does Treasury agree that AIG can use this money to fulfill credit

default swap obligations with taxpayer money from TARP? Two, if

so, does Treasury have a specific plan to track each and every dollar that AIG uses to pay counter-parties? And three, what plans

does Treasury have to compel AIG to release information to Treasury and the American taxpayer on what counter-parties are paid?

Keep in mind, AIG is 80 percent taxpayer-owned. So in a way,

AIG is us.

Now, the justification, of course, for giving any aid to AIG is the

systemic risk that Treasury and the Fed have concluded exist if we

let it go under. It is one thing, however, if that systemic risk and

the funds that are transferred are used to protect average Americans who have annuities and insurance policies with AIG. It is

quite another if that money is being used basically to hedge the

bets and reward speculators, investment banks, hedge funds that

simply bet wrong on some of these credit default swaps.

So Mr. Chairman, my question really goes to getting specific information on how money is being used to pay counter-parties, and

what counter-parties are on the receiving end of this benefit. I yield

back.

[The prepared statement of Hon. Peter Welch follows:]

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Mr. KUCINICH. I want to thank the gentleman for his opening

statement, and to complement it, to introduce into the record an

article in yesterday’s Washington Post by David M. Smick called

Tim Geithner’s Black Hole, which discusses directly the point you

raise about AIG and the credit default swaps. So I thank the gentleman.

[The information referred to follows:]

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Mr. KUCINICH. The Chair recognizes a former chair of the Government Oversight Committee, Mr. Burton of Indiana. Thank you

for being here, Mr. Burton.

Mr. BURTON. Thank you, Mr. Chairman. Thank you for having

this hearing.

You look the same in person as you do on TV. [Laughter.]

I will tell you, Mr. Kashkari, I don’t think there is a Member of

Congress that really knows where all this money has gone. And I

think that is one of the biggest problems we have, is we go back

to our constituents and they say, ‘‘Well, where are you spending all

this money?’’ And we can’t give them an answer. And we say,

‘‘Well, you just have to trust Mr. Kashkari and the Secretary of the

Treasury and it will get done.’’ Today I see here that $8 billion of the TARP money that was

given to Citigroup went to Dubai, a billion by J.P. Morgan Treasury Services was used in development of cash management and

trade finance solutions in India, $7 billion investment by Bank of

America in China Construction Bank Corp. We need to have a complete run-down, or as complete as possible, so we can explain to our

constituents why we are doing this and what the end result is

going to be. We can’t do that right now. And we are supposed to

grant you and other members of the administration the funds that

are necessary to get this economy moving. For us to be able to do

that, we need to be able to convince our constituents that it is the

right thing to do.

And we can’t do that right now. The people back home are madder than hell about what is going on, and they need to have the

facts.

The other thing is currently only the largest 20 recipients of

TARP CP fund are required to file reports of any type with TARP

overseers. The other 297 financial institutions do not. I think that

should be much broader. I think there should be a report that goes

to the TARP overseers, but also to the Congress of the United

States. You are going to have a much easier time when you come

up here, Mr. Kashkari, if we have the facts so we can go back home

and at least make the case that this Government is doing the right

thing.

Every time I got home, people say, ‘‘Gosh, you spent $700 billion

on TARP, you spent $787 billion on the stimulus package, you

spent $408 billion or $10 billion yesterday, I mean, we are talking

about trillions of dollars.’’ And then Geithner over at Treasury says

he’s going to have to put $2 trillion or $3 trillion into the financial

institutions to get them up and running the way they should.

And we all want the economy to flourish. But we have to have

the facts. I really hope you will take this to heart. I know that you

hear all this stuff, and you say, ‘‘Oh, my gosh, I wish these guys

would shut up.’’ But if you want to have the American people to

be supportive, we have to have the facts.

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

Mr. KUCINICH. I want to thank the gentleman from Indiana. I

just want to say in support of your statement I have here a news

release from Citigroup with a headline, Citi arranges more than $8

billion for Dubai. They received $25 billion in bailout funds on, I

believe it was October 26th. And this news release is dated DecemVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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ber 14, 2008. Without objection, this will be submitted to the

record.

[The information referred to follows:]

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Mr. KUCINICH. The Chair recognizes, I think Mr. Kennedy is

next, Mr. Kennedy from Rhode Island. Thank you for being here.

You may proceed.

Mr. KENNEDY. Thank you, Mr. Chairman.

Following up the former chairman from Indiana about Dubai, Bank of America sent $7 billion to China Construction Bank Corp.

after it received funds from U.S. tax dollars, Mr. Chairman.

I think the frustration that we all have here, and I heard it from

my constituents last week, was that they are prepared, as one of

my constituents said, ‘‘We are prepared to take our medicine. But

we want to make sure we take it the same as everybody else.’’ They

don’t see themselves as taking their medicine the same as everybody else. They see us aggregating the profits of the very wealthy

in this country, and socializing the loss of the middle class in this

mess that we have here.

They see their tax dollars going to pay off those who have savings, those who have dividends, those who have made out the best

in the 1980’s and 1990’s during this great wealth that has been

made and accrued over the last several decades, while they, the

people who are the wage earners in this country, the people who

don’t have savings, the people who are paying payroll taxes, are

bailing out the very wealthiest in this country.

There is something inherently wrong in this picture. And they

are not about to have the wealthiest in this country be the only

ones with a voice down here. What’s inherently wrong here is that

we’re aggregating the profits and socializing the losses, and we’re

not making sure that the medicine is shared equally amongst all

the American people in terms of how we’re making sure that we’re

all getting back on track evenly here. That, I think, Mr. Chairman,

is what we need to get about doing, so that we’re not making sure

that just a few of the people, the American people are the ones who

are left paying the bill here, and left letting all these others get off

scot-free.

Mr. KUCINICH. I want to thank the gentleman from Rhode Island

and thank him for being on the subcommittee.

The Chair now recognizes the gentlelady from California, Ms.

Watson.

Ms. WATSON. I want to join with my colleagues in thanking you

for holding today’s hearing.

The Emergency Economic Stabilization Act of 2008 authorized the TARP program for the disbursal of $700 billion of taxpayers’

money in two tranches to attempt to restore liquidity and stability

to the financial system. To date, the Treasury Department has

committed approximately $299.6 billion to the TARP funds to participating financial institutions.

With nearly half of the allocated TARP money drawn down, and

an economy which continues to shed jobs and capital daily, it is

crucial that today’s hearing gives us an honest perspective on the

Treasury Department’s efforts to regulate the use of TARP funds

and insight into how to guarantee that these funds are effectively

spent in a manner that maximizes the eventual returns to taxpayers.

While increasing liquidity to our banking system is a key consideration for the Treasury Department in orchestrating and distribVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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uting the TARP funds, it is also a legally mandated responsibility

of the Treasury Department to maintain internal control of these

funds to prevent waste and abuse of the taxpayers’ money. The current global economy crisis is a result of a systemic unwillingness

on behalf of institutions and individuals at all levels to routinely

self-examine their financial practices to verify that they are responsible and sustainable in the long run. Now, as we continue to implement an unprecedented reorientation of the relationship between business and government, it is critical that we apply this lesson to the actions of the Treasury Department and to all of the

TARP recipient institutions.

Mr. Chairman, I would particularly like to thank each of today’s

panelists for cooperating with this committee. I sincerely hope that

the testimony we hear today will provide us with a detailed assessment of the ways institutions have utilized their TARP funds and

the ability of the Treasury Department to oversee the transactions.

When we go home to our districts, as other Members have described, we get inundated with telephone calls and personal visits,

‘‘what is going on?’’ ‘‘When can I lower my mortgage payment?’’

‘‘When can I have the interest lowered?’’ ‘‘What are you doing?’’

And these angry calls are constant. So I would like to take back

information when I go back to the district tomorrow based on what

we hear from the witnesses that will address their concerns.

So I thank you very much, Mr. Chairman, for this very significant hearing today. I yield back.

[The prepared statement of Hon. Diane E. Watson follows:]

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Mr. KUCINICH. I thank the gentlelady for her constant participation in these subcommittee meetings.

The Chair recognizes Mr. Tierney of Massachusetts.

Mr. TIERNEY. Mr. Chairman, I am prepared to go to the witness

when we can. Thank you.

Mr. KUCINICH. I thank the gentleman for his presence here.

If there is no other Member of Congress or of this committee who

is ready to proceed, we are going to now move to introducing our

first panel. Mr. Neel Kashkari was designated as the Acting Interim Assistant Secretary of the Treasury for Financial Stability on

October 6, 2008. He was asked by the new administration, the

Obama administration, to stay on for the sake of continuity and

continues to serve in a difficult role during this transition. In this

capacity, Mr. Kashkari heads the Office of Financial Stability,

which oversees the Troubled Asset Relief Program.

He is also the Assistant Secretary of the Treasury for International Economics and Development. Mr. Kashkari joined the

Treasury Department in July 2006 as senior advisor to U.S. Treasury Secretary Henry Paulson, Jr. In that role, he was responsible

for developing and executing the Department’s response to the

housing crisis, including the formation of the Hope Now Alliance,

the development of the Sub-prime Fast Track Load Modification

plan, and the Treasury’s initiative to kick-start a covered bond

market in the United States.

Prior to joining the Treasury Department, Mr. Kashkari was a

vice president at Goldman Sachs & Co. in San Francisco.

Mr. Kashkari, I want to thank you for being before this subcommittee today. I know I speak for all the Members in saying

that. And we are looking forward to your testimony.

As you know, it is the policy of the Committee on Oversight and

Government Reform to swear in all witnesses before they testify.

I would ask that you please rise and raise your right hand.

[Witness sworn.]

Mr. KUCINICH. Thank you.

Let the record reflect that the gentleman answered in the affirmative.

We have already, at the beginning of this hearing, I had a unanimous consent for Mr. Kashkari to have 10 minutes if he needs it,

10 minutes, if you need it, sir, so that you will have sufficient time

to make your statement.

STATEMENT OF NEEL KASHKARI, ACTING INTERIM ASSISTANT SECRETARY FOR FINANCIAL STABILIZATION, DEPARTMENT OF TREASURY

Mr. KASHKARI. Thank you, Mr. Chairman, good morning. Thank

you, Chairman Towns, Ranking Member Jordan, Ranking Member

Issa and members of the subcommittee. I appreciate the opportunity to appear before you today.

As you know, I was appointed by the prior administration, and

the Obama administration asked me to remain at Treasury for a

brief period to help with the transition. I am honored to provide

whatever help I can to the new administration.

The American people provided Treasury with broad authorities

under the Emergency Economic Stabilization Act to stabilize the fiVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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nancial system. And it is essential we communicate our actions in

a clear and transparent manner to maintain their trust. Today I

will briefly review the actions Treasury has taken to stabilize the

financial system and describe the steps we are taking to monitor

the activities of recipients of Government capital.

Many years in the making, the credit crisis erupted during the

summer of 2007. Last year, the crisis intensified and our major financial institutions came under severe pressure from deteriorating

market conditions and the loss of confidence. In a short period of

time, several of our largest financial institutions failed. In March,

Bear Stearns. In July, Indy Mac. In September, we witnessed the

conservatorship of Fannie Mae and Freddie Mac, the rescue of AIG,

the bankruptcy of Lehman Brothers, the distress sale of Wachovia

and the failure of Washington Mutual. Eight major U.S. financial

institutions effectively failed in 6 months, six of them in September

alone.

This stress was reflected in something called the LIBOR-OIS

spread. It is a key measure of risk in the financial system. Typically, 5 to 10 basis points. On September 1st, the 1-month spread

was 47 basis points. By the 18th, when Treasury and the Fed went

to the Congress, the spread had climbed to 135 basis points. By the

time the bill passed, just 2 weeks later, the spread had nearly doubled again to 263 basis points. Credit markets continued to deteriorate and the spread, just 1 week later, spiked to 338 basis points,

almost 50 times normal levels. Our Nation was faced with the potential imminent collapse of our financial system.

So many people asked me, what if the financial system had collapsed? Businesses of all sizes might not have been able to access

funds to pay their employees, who then wouldn’t have money to

pay their bills. Families might not have been able to access their

retirement funds. Basic financial services might have been disrupted. The severe economic contraction and large job losses we are

now experiencing were triggered by the credit crisis. However, had

the financial system collapsed, this recession, including terrible job

losses and numerous foreclosures, could have been far, far more severe.

Now, a program as large and complex as the TARP would normally take many months or even years to establish. But we didn’t

have months or years. We moved as quickly as possible to implement programs to rapidly stabilize the system and prevent collapse. In the 159 days since Congress passed the law, we have successfully implemented the capital purchase program, having now

invested in 489 institutions in 47 States and Puerto Rico, 478

banks in 47 States. With approximately 30 new investments each

week, the median investment is $16 million. The vast majority of

these institutions are banks in our communities.

Treasury also helped the Federal Reserve establish a lending

program to reduce borrowing costs for consumers, including auto

loans, student loans, credit cards, and small business loans. And

that will begin funding this month. We are planning to expand this

lending initiative to include other asset classes, such as commercial

mortgage-backed securities.

Under Secretary Geithner’s new financial stability plan, Treasury also announced a new capital assistance program and launched

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a multi-part housing program to reduce borrowing costs and to encourage long-term sustainable loan modifications.

Finally, we are developing a public-private asset fund to purchase illiquid assets from banks, also to support new lending.

Now, during this time, Treasury has unfortunately had to step

in to stabilize several large institutions whose failures would pose

a systemic risk to our financial system and to our economy. We regretted having to take these actions, to put so many taxpayer dollars at risk to support firms that had made bad decisions. But our

choice was clear, when the consequences of inaction so severe, and

the potential cost to the taxpayers of inaction so much greater than

the cost of intervention.

Today, that LIBOR-OIS spread which had peaked at 338 basis

points has now fallen to 34 basis points. We believe the combined

actions of Treasury, the Federal Reserve and the FDIC have prevented a financial collapse. But we still have much more work to

do to get credit flowing to our communities.

Now, in terms of monitoring. In January, Treasury began collecting data from the 20 largest recipients of capital under the CPP,

representing almost 90 percent of the capital deployed under that

program.

Mr. KENNEDY. Mr. Chairman, could I just interrupt just for a

second here?

Mr. KUCINICH. It is not customary to interrupt a witness. So unless it is something urgent, I would prefer that Mr. Kashkari proceed with his statement.

Mr. KENNEDY. OK. Thank you, Chairman.

Mr. KUCINICH. Thank you.

Mr. KASHKARI. We published our first monthly lending survey in

February. This survey shows bank by bank the lending and intermediation activities of institutions by category, such as consumer,

commercial and real estate loans. This survey is published monthly

on Treasury’s Web site.

Now, in recessions, credit levels typically fall, as both borrowers

and lenders become more cautious. The first survey shows that

lending held up remarkably well despite one of the most severe

quarterly economic contractions in recent decades. Without capital

from Treasury, those lending levels would likely have been much

lower. And we are also developing a narrower survey for smaller

institutions that receive Government capital to monitor their lending monthly. So we will be serving all institutions.

And the new CAP program that Secretary Geithner has announced will also require institutions to indicate their expected use

of funds and to increase and track lending against a baseline so we

can monitor that.

Now, with investments in almost 500 institutions and hundreds

more in the pipeline, we must ensure that our investments are targeted at stabilizing the economy. But we must also take great care

not to try to micromanage recipient institutions. However well-intended, Government officials are not positioned to make better

commercial decisions than lenders in our communities. The Government must not attempt to force banks to make loans they are

not comfortable with, nor should we try to direct the lending from

Washington. Bad lending practices were at the root cause of this

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crisis, and returning to those practices will not help end the turmoil.

The EESA was one of several initiatives taken by the Federal

Government to stabilize the financial system, an absolutely necessary precondition to economic recovery. We believe the combined

actions of Treasury, the Federal Reserve and the FDIC have helped

prevent a financial collapse. Nonetheless, the current crisis took

years to buildup and will take time to work through. And we still

face real economic challenges.

There is no single action the Federal Government can take to

end the financial market turmoil and end the economic downturn.

But the authorities Congress provided last fall dramatically expanded the tools available to address the needs of our system.

Mr. Chairman, I would just add, I know many members of the

subcommittee have many questions. I have cleared my day, I am

happy to stay as long as you would like and answer all of your

questions in as thorough a manner as possible. Thank you, sir.

[The prepared statement of Mr. Kashkari follows:]

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Mr. KUCINICH. We all appreciate your presence here, Mr.

Kashkari. Thank you for your testimony.

We are now going to proceed with questions. Members will have

5 minutes each for the purpose of asking questions. I am going to

begin and then I will go to our ranking member, Mr. Jordan. I

would ask all Members to please, try to observe the 5-minute rule,

because as Mr. Kashkari said, he will stick around. So we are open

to having several rounds of questions.

I would like to begin, Mr. Kashkari, with questions about the foreign uses of TARP funds. When Congress created the TARP, it was

responding to a crisis in this country. U.S. businesses couldn’t get

a loan, American consumers couldn’t get a loan. TARP was supposed to restore liquidity in the functioning of the credit market for

them.

So how do you justify to the American taxpayers a bank’s decision, made after receiving tens of billions of dollars in TARP moneys, to make a $7 billion investment in a Chinese construction company?

Mr. KASHKARI. Mr. Chairman, thank you, sir. I will offer two

comments to answer your question. First, we must remember that

many of these financial institutions are global institutions, and

they take deposits from savers all around the world and they make

loans all around the world. While we may isolate and identify one

transaction here or one transaction there, it is impossible, because

money is fungible, I know you have all heard this comment before,

to track, did that money come from U.S. deposits, did that money

come from foreign deposits.

We also have to be careful that if we set hard rules, not letting

our largest institutions do business abroad, other countries may

say, ‘‘OK, they are going to reciprocate and not let foreign banks

then lend in America.’’ So I understand your concern. I absolutely

do. But we also walk a fine line, let the businesses make commercial decisions, support the system as a whole, to get lending flowing.

Mr. KUCINICH. Now, isn’t it true that this loan was made after

Citigroup received TARP funds? Isn’t that true?

Mr. KASHKARI. I don’t know the details of it, but it appears to

be the timing as such, yes, sir.

Mr. KUCINICH. Excuse me, I want to go back to that, I want to

restate the question.

Isn’t it true that this decision to make this purchase happened

after Bank of America made this purchase of stock?

Mr. KASHKARI. Sir, I do not know.

Mr. KUCINICH. And after they received the TARP funds?

Mr. KASHKARI. Congressman, Mr. Chairman, I don’t know when

Bank of America made various investment decisions. I do know the

dates of the announcements. And it appears the announcement was

after the TARP investment.

Mr. KUCINICH. Right. I have here, for the record, the Bank of

America to exercise remainder of China Construction bank option,

and it is November 17th, they received the TARP funds in October,

Mr. Kashkari. When it is hard to get a loan in this country, is it

Treasury’s opinion that a bank that received TARP money is justiVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00146 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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fied to arrange financing for an $8 billion loan to the Government

of Dubai?

[The information referred to follows:]

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Mr. KASHKARI. Sir, again, I want to provide a thorough answer

to you, Mr. Chairman. Our highest priorities are two-fold. No. 1,

stabilizing the financial system, and No. 2, making sure these

banks can pay the taxpayers back. And so we have taken great

care to not try to micromanage institutions, to encourage them to

use the capital in commercially reasonable ways. We put specific

protections in. We prohibited them from buying back stock. We prohibited them from increasing their dividends to create economic incentives for them to want to lend the money and want to earn a

return on that money.

Mr. KUCINICH. But people back home, as Mr. Cummings always

likes to ask, people back home want to know, how does arranging

an $8 billion loan to Dubai, after someone gets TARP funds, how

does that benefit the U.S. taxpayers whose money is being used?

How does helping a construction company in China get $7 billion

after this Bank of America received TARP money, how does that

help the U.S. taxpayers? Could you explain this?

Mr. KASHKARI. Sure, thank you, sir. When our global firms do

business abroad, and if they can make money and earn money

abroad, that makes those institutions stronger. It puts those institutions in a better position to pay back the taxpayers, because they

are earning money, they are raising deposits around the world.

Mr. KUCINICH. So are these investments better, are you telling

the American people that it is better to invest in another country

than it is for these banks who have TARP money to invest in our

own country?

Mr. KASHKARI. Absolutely not, Mr. Chairman. We absolutely

want our banks investing in the United States, lending in our communities.

Mr. KUCINICH. Did you know they were investing in China and

India and Dubai and God knows where else? Did you know that?

Mr. KASHKARI. Well, I know that our large global financial institutions do business around the world.

Mr. KUCINICH. But do you know specifically that companies got

TARP funds, there was a credit freeze in this country, they get the

TARP funds and then instead of investing in American businesses,

many of whom are starved for investment capital, they then export

American taxpayers’ dollars that were given under emergency circumstances? Did you know that?

Mr. KASHKARI. Again, Mr. Chairman, this comes back to one of

the hardest problems we have had, honestly, I have had in my

seat, is communicating this concept of tracking the dollars and

where did taxpayer dollars go versus other dollars they got from

deposits abroad, as an example. It is this fungibility question that

we keep coming back to.

Mr. KUCINICH. Right.

Mr. KASHKARI. So, Mr. Chairman, it has been very hard for us

to say, well, this dollar went for this purpose, the tax dollars went

for another purpose. We want our banks to be healthy, we want

them to lend in our communities. We want them to use the capital

appropriately. We want them to show judgment in light of the economic crisis that we are facing. These are tough issues, Mr. Chairman.

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Mr. KUCINICH. I thank the gentleman. My time has expired, I am

going to go now to the ranking member, Mr. Jordan. You may proceed, Mr. Jordan. We will come back, there will be another round

of questions.

Mr. JORDAN. Thank you, Mr. Chairman.

Mr. Kashkari, we appreciate your being here. I want to attempt

to, at least in my mind, cut to the chase. At the end of your final

sentence in paragraph six, you say, ‘‘Finally, we are developing a

public-private investment fund to purchase illiquid assets from

banks to support new lending.’’ I mean, that in fact, wouldn’t you

agree, was the whole motive for doing the bailout in the first place?

As I said to a group of farmers in my office this morning, I said,

the $64,000 question, or more appropriately, the $700 billion question, is when are we going to be able to go after these assets, these

mortgage-backed securities that caused the problem? That is how

it was packaged to Congress. That is why Members of both parties

voted for it and supported the plan.

And that was on October 3, 2008. To date, am I correct in saying

that not one mortgage-backed security has been purchased?

Mr. KASHKARI. Yes, sir.

Mr. JORDAN. And so I want you to take as much time as you possibly can to talk about this developing program to do exactly what

was supposed to happen 5 months ago. I think that in my mind is

the key question, the key focus, and what has to take place if this

is going to work. So take as much time as I have left on my 5 minutes and walk me through that.

Mr. KASHKARI. Absolutely, sir. This is a program that Secretary

Geithner is working on right now. We have teams at Treasury

working with the regulators to finalize the program. It will combine

private sector capital with Government capital to go after and buy

up these assets, sir.

Mr. JORDAN. If I could just interject here. And we have had Secretary Geithner in front of the Budget Committee, and he said basically the same sentences you just said right there. Can you give

us an idea how quickly that is going to happen, and, as the chairman alluded to, I believe, in his opening comments, or someone on

the panel did, is it a staffing concern that is prolonging this decision or this program getting off the ground? Talk about that as

well.

Mr. KASHKARI. I expect, I believe Secretary Geithner has said he

expects it to come out very quickly, as early as within a few weeks.

Again, people are doing a lot of work on that right now, around the

clock. It is not a staffing issue. These are complex issues that involve not just Treasury, not just the Federal Reserve, but the banking regulators. These are complex issues that we need to make sure

we get right.

Mr. JORDAN. The public-private partnership you are talking

about, what kinds of encouraging statements, comments, what

kinds of comments are you getting from the private sector side?

Are they buying into this approach that you are floating out there

and talking about right now?

Mr. KASHKARI. We believe they are. In fact, we had received inbound unsolicited proposals from people in the private sector saying, we have capital on the sidelines, we want to go after these asVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00150 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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sets. One of the key challenges right now is, there is no financing

available for the private sector investors. So by marrying Government capital, taxpayer capital, with the private sector capital and

providing financing, you can enable those investors to then go after

those assets at a price that makes sense for the investors and a

price that makes sense for the banks. Because if the private sector

capital doesn’t have any financing behind it, the returns they need

will result in prices that are too low and the banks won’t want to

sell.

So providing the financing is a key component, and it is something that Treasury has to do with the regulators. It is complex,

but the right people are focused on it.

Mr. JORDAN. OK, thank you. I yield to the gentleman from California.

Mr. ISSA. Mr. Kashkari, I wanted to followup on something that

Chairman Kucinich had gotten into. Yesterday it was widely reported that Citibank had, I understand, 2 months in a row of making positive money. If they cased overseas loans, my understanding

is, it is more than half of their total business, what would have

happened to those profits? In other words, as much as we here on

the dais want American taxpayer dollars to go to American investment, if in fact we limited them from continuing their overseas operations, what would be the effects on the profitability of companies like even Bank of America, but certainly Citibank?

Mr. KASHKARI. I expect the profits would fall dramatically, and

they may in fact then need even more taxpayer dollars to support

them.

Mr. ISSA. Thank you.

Mr. JORDAN. Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman, and we will come back on

the Republican side to Mr. Issa. I am going to ask unanimous consent, in connection with your line of questioning, to introduce an

article from the Washington Post on Friday, March 6th, relating to

this public-private partnership, ‘‘U.S. to invite the wealthy to invest in a bailout’’ by David Cho, Consumer Lending, it discusses

this very matter.

[The information referred to follows:]

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Mr. KUCINICH. Mr. Cummings, you are recognized for 5 minutes.

You may proceed.

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

Mr. Kashkari, I just want to talk about AIG for a moment. You

realize they have these what they call retention payments, are you

familiar with that?

Mr. KASHKARI. Yes, sir.

Mr. CUMMINGS. And one of the disturbing things about these retention payments was that they were supposed to, I mean, I understood it at first that they wanted to retain key people for certain

units because it added value to those units. And if they were to sell

them, they would sell for less if those people were to leave. But

then the financial products division, they were giving, they gave

over $400 million worth of bonuses. And this is the very unit that

everybody admits pretty much caused a lot of the problems for

AIG.

Then later on they talked about, in SEC filing, recent filing, they

say they were giving retention payments for people that were going

to be terminated. Now, are you familiar with that?

Mr. KASHKARI. No, actually when you mentioned it earlier, that

was the first I had heard about it.

Mr. CUMMINGS. That is shocking to the conscience, isn’t it?

Mr. KASHKARI. It sure is.

Mr. CUMMINGS. See, that is the kind of thing. And when I talked

earlier about the public being concerned, this is bigger than you.

This is bigger than the Treasury. And the reason why I say that

is because when people begin to hear these kinds of stories and

they hear about retention payments being paid for people who are

leaving, for people who brought down the company, what it does,

and they are at the same time, they see the moving van coming

up to their house, taking their stuff away. And they are afraid, like

the man said in my district the other day, to even look at their

statement. Or they are getting a pink slip. In some kind of way,

we have to get around that.

And then you said something that I hadn’t heard before, when

you talked about how, in your statement, you said we should not,

you said the Government must not attempt to force banks to make

loans whose risks they are not comfortable with or attempt to direct lending from Washington. Bad lending practices were the root

cause. And I understand all that.

But there has to be, No. 1, transparency. And the American people have to see that they are getting something out of the deal.

That is the problem. And they are upset about that. They don’t understand it. I know the President is doing a lot of great things, and

I believe that we are going to, I know we are going to get through

this, we have to get through it.

But the question then becomes, while the President and all of

you all are going in one direction trying to uplift the American people and get this economy right, is it that, I mean, it is already like

going uphill. But I am wondering if you don’t see the problem that

the transparency has, the lack of transparency and accountability,

what it does is it puts ice on that hill that you are trying to get

up. And what does that mean? It means that it is going to take a

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longer time and it is going to mean that a lot of people are not

going to have the trust.

We need to get out of this mess as fast as we can. I just don’t

think a slippery slope helps it. You got me?

Mr. KASHKARI. I do, Congressman. I couldn’t agree more that the

communication challenge that we faced has been enormous. If you

look at what the President has done and what Secretary Geithner

has done around some of the new programs, they have put in place

requirements that the banks specify, here is exactly how we are

going to use the new funds, we are going to track that, we are

going to measure and increase our lending relative to a baseline of

what it would have been otherwise.

And so there will be increased transparency. As the President

said before the Joint Address to Congress, he gets it. The challenge

that we all face is how do we get these programs to work, make

sure we provide the right transparency, strike the right balance.

Mr. CUMMINGS. Listen to my question. At what point do we say

to the banks, ‘‘We are giving you a billion, bank, why don’t you

loan back a fourth of that or do something to help?’’ In other words,

you act like we have to sit by and say, ‘‘Oh, bank, here is our

money, stay afloat,’’ and while our people can’t get the kinds of

loans that they want, and I know you are doing some things with

regard to loans, but I am just saying, these are the banks that are

getting the big bucks.

Mr. KASHKARI. Well, Mr. Cummings, I am glad you raised this.

This is a really fundamental point that I think we don’t talk about

enough, which is, the banks are a big part of the story. Banks typically provide 60 percent of credit in our economy. The non-banks,

the securitization market provides the other 40 percent. The banks

are lending, not as much as we would all like, but they are lending.

The securitization market is gone right now. It is completely frozen.

So we have now launched this new consumer business lending

initiative with the Federal Reserve specifically to get loans to people buying cars, small businesses, credit cards, etc., to get the lending going again. So part of it is the banks, part of it is transparency

for the banks. But a big part of it is the non-bank market. And we

have now launched a whole separate program to get at that problem.

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

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

Mr. Kashkari, there are so many questions, and I appreciate

your willingness to stay for a very long day. First of all, you don’t

know a lot about me, and people come in my office, they see a

bunch of patents and they think that means technology. Long before I was fortunate enough to be in electronics, the Army paid for

me to go to deck school, as it was called back then in Massachusetts. And I got to see early on how computers were not interoperable but how they could be, and how, when you needed to do big

projects, you made them interoperable.

When we look at XBRL, you are very familiar with that technology. In a nutshell, if everyone were reporting in an XBRL-comVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00157 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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plaint fashion, so that various companies that are developing software to read and to analyze were able to see with that common set

of, if you were reporting, would your transparency that you don’t

have enough of today be virtually absolute? This is assuming that

mortgages were put in that format, that credit cards were in that

format, obviously that 10Ks and 10Qs were all in that format,

something that is coming. And of course, the FDIC, all the material

that is already in that format, in addition to the 40 countries or

more that are already reporting. If you had all that today here in

Washington, would you have the transparency you need to do your

job and do it well?

Mr. KASHKARI. Congressman, I think it would definitely help to

provide common data formats and a seamless way to flow all that

data up to one interface that the American people could look at

easily. The only caution I will offer is, as a businessman, you know,

you are hesitant, business people are hesitant to provide some of

their details to their competitors. So it may still not answer, well,

how many individual loans or to whom did this individual loan get.

But it would certainly help the transparency.

Mr. ISSA. Assuming for a moment that where information goes

is separate from whether or not it is in that format, if every one

that you had or were willing to loan money to or were part of the

stabilization already had the data in that format and could deliver

it on your request, would you then have the transparency you

want?

Mr. KASHKARI. I believe it would help. I don’t know enough about

it to know if it would be perfect, but I believe it would help.

Mr. ISSA. Can I have your commitment today, you know, the second panel, which we may not get to if we keep you all day, includes

the president of that organization.

Mr. KUCINICH. If the gentleman will yield, we will get to them.

Mr. ISSA. OK. I am willing to stay into the night, too.

But the second panel includes the president of that non-profit organization. And I am not touting any one format for data, but I am

concerned that unless we both go forward with a common interface

that you can at least avail yourself of, and obviously find out, and

I think we are going to hear that retrospectively, they can in fact

analyze many of the things you are not analyzing, if we don’t do

both of those, you are going to be back here in 2 or 3 months, not

having yet skied, and we are going to be asking you some of these

same questions about transparency.

Mr. KASHKARI. I would be very happy to look into it, sir.

Mr. ISSA. Thank you.

For the record, because I know it is not a fair question to hit you

with today, I would appreciate this committee getting an understanding of where Treasury believes that if the figure is correct

that I have read, that we are at about 300 percent of GDP in debt,

historically, long-term historically, 100 to 120, where you believe

we are going to settle out in sort of the post-euphoria period, so

that this committee could begin understanding how much contraction you are not trying to fight and how much contraction you are

trying to fight in the loan market.

Mr. KASHKARI. Absolutely. I will work with our economist to look

at that. You are completely correct, de-leveraging is taking place,

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it is necessary. We don’t want it to over-correct, and we don’t want

the adjustment to be too rapid or disorderly.

Mr. ISSA. I have one tough question, and I want to be fair, I hope

we are not blind-siding you, but you are familiar with the Wall

Street Journal report of the January 22, 2009 that talked about political influence?

Mr. KASHKARI. I am.

Mr. ISSA. You are. I would like to give you a full opportunity to

talk in terms of the pressures that you or others have been under,

what effect they are having, whether they provide guidance or

whether that pressure is undue, coming from Congress. The Journal talked both about Ohio, potential influence, and it talked about

Massachusetts influence. But I would like you to talk more broadly,

not necessarily just that article, tell me what it is like when, for

you, with various groups, including perhaps some of us on the dais,

being concerned about our individual banks off of the dais.

Mr. KASHKARI. Thank you very much for asking me that, because

that is a very important topic and I appreciate the chance to set

the record straight.

We have built a very robust process at Treasury for the banks

that are applying for TARP funds. They send an application to the

regulator, the regulatory submits a recommendation to Treasury.

We have a formal process of reviewing that, getting more data if

we need it, and then making decisions.

I have certified, part of the Obama administration’s transparency

initiative has begun, having the head of the office, so I have certified to Congress now in January and at the end of February, that

all of our investment decisions from the beginning October 3rd,

through the current period, have been made purely on the merits

of the case, the economic merits, and not due to any undue influence. And I feel completely confident that we have a great track

record of that.

Now, we do get calls from Members, we do get calls from Governors who are concerned about their districts or their businesses,

etc. It is important for us to get that feedback of what is happening

around the country. Most of the time we just refer people who call

to the regulators, because the bank regulators regulate these institutions. So I feel very confident in saying there is no undue influence at Treasury. I am the person who signs each of these, and I

am positive of that.

Having said that, I am concerned that these stories have been

out there because they serve to undermine confidence. So if you

would like to ask further questions about that, I would love to go

into it in more detail.

Mr. ISSA. Perhaps on the second round. Thank you, Mr. Chairman.

Mr. KUCINICH. The gentleman’s time has expired. I appreciate

his questioning.

The Chair recognizes Mr. Tierney from Massachusetts.

Mr. TIERNEY. Thank you, Mr. Chairman. Thank you for having

this hearing, as well.

Mr. Kashkari, thank you for being with us here today. May I ask

you a question that I think our constituents have raised? We have

extensive taxpayer money invested into these banks now. Their

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feeling is that we are investing in banks that are operated by individuals who were complicit in getting us into this financial situation. Why are we not using the leverage of our investment to

change some of the boards of directors and some of the principal

officers of these corporations to get them out and get other people

in?

Mr. KASHKARI. Thank you. Sir, we must segment our broadly

available programs. I mentioned we have 489 banks we have invested in. The vast majority of those are healthy banks, lending in

their communities. There is no reason for us to go in there and try

to make any management changes there.

We also have these one-off institutions where we have had to intervene to stabilize them. In the case of AIG, as an example, we

fired the management, brought in new management. And we are

trying to help them have enough time to pay back the taxpayers.

In the case of Citigroup, our recent agreement with Citigroup,

they have agreed to change their board of directors so that a majority of the board is made up of independent outside directors. So we

hear you, we agree with that perspective. When we have to take

extraordinary action, we are coming in to make sure that these

businesses are well managed and that we do not reward failure.

Mr. TIERNEY. Is there an action that the Treasury can take to

amend the agreements, to define waste, fraud and abuse, and then

to put a provision in there that when we see it, and I assume at

some point you are going to send people out to these banks as well

as the surveys and things, when we see it, we can take action,

whether it is to reverse that expenditure or not? People look, and

they hear stories of money being invested in conferences and sporting events and endorsements, things of that nature, and perks and

bonuses to people that ought not to be getting them.

When we are going to have the position as investors here to be

able to just take those out, set them aside and recapture that

money, if it is happening?

Mr. KASHKARI. Congressman, in the new program that the administration has announced, we are going to make sure that boards

of directors adopt very clear and published expense policies on

things like airplane flights and conferences and perks, etc., and

then certify that they are meeting their standards. The standards

will be public for the world to see and for the world to judge. We

can offer our opinion on what those standards look like, as well,

when we see them, No. 1. No. 2, remember in terms of fraud, there

are very strong laws in place for fraud already. And if anybody

tries to defraud the Treasury or the taxpayer, we are going to bring

the full arsenal of tools we have available to us to go after them.

Then third, Congress has provided four bodies of oversight for

the TARP: special inspector general, GAO, congressional oversight

panel, financial stability oversight board. Later this afternoon, you

are going to hear from the special inspector general whose very

mission is to go after waste, fraud and abuse. So we are looking

at it and there are independent oversight bodies looking at it as

well.

Mr. TIERNEY. And I think people do think that some of those conferences, jets, perks and bonuses get to be waste, fraud and abuse.

As the definition of them is something, whether we will term them

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in those words of not, that money can be prohibited from being

spent in that way during this interim period, or at least reclaimed

if it was. It would be very important for people, I think Patrick

made some good comments on that, about the way people are feeling.

Let me ask you this as well. On the asset purchase program that

you are planning to do, Secretary Geithner is planning to do, what

will be the taxpayer assurance or protection for their money on

this? Will they form a partnership with these hedge fund or other

investment groups? How will they get their money back? What will

be the collateral in the interim? Because the general impression of

that now is going to be, here are these people, the hedge fund people or like that benefited most from a broken system that people

think they are complicit in breaking. And now they are going to be

partners, using taxpayer money to come in and get a tremendous

profit, potentially, on the other end. How do we tell people that is

a good concept, if you think it is? And tell people why that is being

done, as opposed to some alternative method, and what is their

protection that they will get their tax money back?

Mr. KASHKARI. Congressman, as I indicated earlier, the details

are being finalized now. But one way of doing that, because I don’t

want to commit to this, but one way of doing that is if the taxpayer

dollars are side by side, meaning exact economic terms with the

private sector dollars. So if the private sector wins, the taxpayer

wins. If the taxpayer loses, the private sector loses. By perfectly

aligning our interests, we think that may be the best way to protect taxpayers.

At the end of the day, there is an aversion to taking risk right

now, because the markets are nervous. So we as the U.S. Government, as the taxpayers, have to now step in and be willing to take

some risks.

Mr. TIERNEY. They are no less nervous. They are more nervous,

particularly playing what they think is a cast of characters, if I can

use that loosely, that may or may not even be applicable or fair,

but they perceive these people as being part of the problem who are

now going to benefit. Would you just comment to that? And in the

remaining time, what should you tell people, that these are the

people we are dealing with now, they profited during the time that

this was all being driven into crisis, and they may have been responsible for some of that, and now they are going to be our partners going forward, and they are going to benefit greatly from that.

Mr. KUCINICH. The gentleman’s time has expired, but Mr.

Kashkari, please answer the question.

Mr. TIERNEY. Thank you, Mr. Chairman.

Mr. KASHKARI. Thank you, Mr. Chairman.

We do not yet know which investors will come to the partnership.

But my expectation is you will see pension plans coming, you will

see people’s retirement funds through mutual fund type organizations that will be investing. So there may be some well-known investors that people recognize. My assumption is that most of the

capital is going to come from the savings of the American people.

Mr. KUCINICH. I thank the gentleman, and we are going to get

more into that in the next round.

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Mr. Souder of Indiana, you may proceed with your questioning.

Thank you.

Mr. SOUDER. Thank you, Mr. Chairman.

Mr. Kashkari, my district needs credit. It is the No. 1 manufacturing district in the United States. Elkhart County has the RVs,

we are at 18.3 percent unemployment there, LaGrange is at 18.

Typically 13 to 17 percent throughout all my 8 counties.

I have a couple of fundamental questions. It was a tremendous

insight, not very understood in Congress, that only 60 percent of

the credit comes from banks. You said the securitization group is

40 percent, that it has zero right now. In the banks, do you know

how much of that is going to refinancing in the loans, as opposed

to actual new purchases?

Mr. KASHKARI. Congressman, I don’t have that at my fingertips.

I believe some of that is included in our survey. I can go back and

find those numbers and get them to you.

Mr. SOUDER. As a fundamental question, because Congress and

the general public wants more transparency. Do you feel your problem is transparency right now?

Mr. KASHKARI. Forgive me, sir, which problem?

Mr. SOUDER. We are talking about us being able to see, and

transparency as we do oversight, building trust in the American

people. Do you feel that you don’t know what is going on? In other

words, do you need more transparency?

Mr. KASHKARI. I don’t believe so. I think the challenges that we

are facing, this credit crisis has been unpredictable, and it has gotten deeper along the way. So the challenges we have are striking

the right balance of taking aggressive action that we know is going

to work, but also protecting the taxpayers.

It would be easy, if we were willing to just throw money out the

window and not care about protecting the taxpayers, we could

probably clean this up. But it would cost the taxpayers a lot of

money. Striking that balance is hard.

Mr. SOUDER. Following up with that, as you have heard several

times, we were told from the beginning that we were going to get

the toxic mortgages. Yet every person who comes in, every angle

that comes in, different Presidents say they are going to do toxic

mortgages and they didn’t. When you got into this, how much of

this was actually toxic mortgages as opposed to toxic credit cards,

toxic student loans, toxic car loans? And in the Troubled Asset, if

you purchase this, is that really going to fix the problem?

Mr. KASHKARI. That is a good question. There is no question the

start of this was about mortgages. But the crisis in the mortgage

market, residential plus commercial mortgages is a $14 trillion

market. So the crisis in the mortgage market put a huge burden

on the financial system, which made the financial system pull back

from all of these other markets.

So when we’re doing things on student loans or credit cards or

auto loans, that is not to try to solve the root cause of the problem.

That is frankly dealing with the symptom to help the American

people get through this while we stabilize the root cause, the mortgage market, the financial system. Does that make sense?

Mr. SOUDER. Yes, because it would be much harder to take an

L.L. Bean sweater back as an asset that has been securitized

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through a credit card than a mortgage. And that is why it is important to know what is in what, that many of us believe that, well,

I want to ask the question about mark to market. Because that is

partly under your assumption that you needed to get into the banking to provide capital when part of, at least in the banking sector,

it is not clear in the securitization sector, that having a declining

economy is turning things toxic that weren’t toxic. And the banks

don’t know where their bottom is.

In my area, where the unemployment is accelerating, where

among the people who are employed are still the biggest GM pickup plant in the world, 50 percent of the GM suppliers are in my

district, so if you are a lender right now, you don’t know where the

bottom is. You don’t know whose house is where. And the mark to

market has exacerbated that problem.

Now, it also started some of the problem by not having real market values. And I understand that. But isn’t there some way that

in today’s accounting era, and computers, that there could be some

kind of a blending? Because a lot of these assets aren’t going to be

sold. In Indiana, many people don’t move all that much. Yet the

housing has just gone to nothing. So the bank assets are declining.

What is going to happen to agricultural land if we don’t support

the ethanol as that market changes? And the assets don’t have any

value, so they don’t know how to make a loan for a pickup or an

RV or the various things that we make. Until we get that credit

market, they don’t even know how to do a credit evaluation on an

individual.

So why aren’t we looking at some of this mark to market to stabilize their asset valuation? Because how can they make a loan

when they don’t know what their assets are?

Mr. KASHKARI. Congressman, this is a very important point. A

lot of people have asked us about it. The challenge is, and there

is no question, mark to market is what we call pro-cyclical. So it

exaggerates the swings in both directions.

The challenge is right now, investors don’t have confidence in the

statements that they are seeing, even with the mark to market. So

they are cautious. For us to go, in the middle of a crisis and to

change the accounting rules, it is not going to increase confidence.

Mr. SOUDER. Let me interrupt you for just a second here, because

I have run out of time. Mr. Chairman, since I didn’t do an opening

statement, can I have just a followup to this?

Mr. KUCINICH. The gentleman’s time has expired, but if you have

a quick question, you can respond.

Mr. SOUDER. In this challenge, it has been clearly documented

even from the transference that there is, that there is really a

small number of counties that got inflated from where these toxic

mortgages are, that when you have only had 2 percent inflation in

your assets, the argument that they don’t know what the value is

is just not there. That is why, 80/20 rule, 20 does 80 percent of

your sales, that is clearly true here in these mortgages. Why can’t

that be applied in some way to these assets? It is not like there

isn’t a historical tracking, that these things aren’t computerized. I

don’t understand why there is lack of confidence in everything all

over the United States, when in fact it tends to be localized inflated

markets.

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Mr. KUCINICH. If you could respond briefly.

Mr. KASHKARI. Thank you. There is no question the housing market is very regional. There are regions where the maximum runup and now the maximum run-down. But the crisis is so large and

so severe, it has affected the confidence of the American people and

investors. So they are all nervous right now. So again, it is hard

for us in the Government to say, you shouldn’t be nervous, go

ahead and make that loan. What we need to do is attack the root

cause of the problem, get credit flowing until confidence can return

and then the system can start functioning as it should.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes the gentlelady from California, Ms. Watson.

Ms. WATSON. Thank you so much.

Mr. Kashkari, you might have answered this, but I am still confused. And to quote your words again, you are saying to us that

we should not be involved in micromanaging recipient institutions,

you know, where did the money go. And you said, however wellintended, Government officials are not positioned to make better

commercial decisions than lenders in their community. Bad lending

practices were at the root of the cause of this crisis.

What would be your definitions of waste, fraud and abuse? How

do you determine that there were bad practices? How did we get

into this mess? And what are you going to do about it? Would you

try to clarify for me what you define as abuse and fraud?

Mr. KASHKARI. Absolutely. What got us into this mess were

banks making loans to borrowers who could not afford to pay. Also,

homeowners have responsibility as well, for taking on loans that

they couldn’t afford to pay. Regulators had a role to play, because

they are the supervisors of these institutions, allowing the banks

to make bad loans.

And so those are the bad lending practices that I was talking

about. In a time when people are nervous, ordering a bank to make

a loan that they think is too risky is a dangerous place to go.

Now, in terms of waste, fraud and abuse, I think fraud is clear,

especially when it relates to either banks lying to borrowers or borrowers lying to banks, or banks lying to Treasury and the U.S.

Government. Again, we are going to come down on them very, very

hard.

In terms of waste, the administration has put out some specifications around when we have our new capital program up and running. The banks are going to have to define a very clear expense

policy on what they think is appropriate and what is not appropriate. They are going to have to certify that they are meeting that

policy, and that policy will be available for the American people to

see.

Ms. WATSON. If I write you a letter in regard to what I just inquired about, would you respond, and can I put that up on my Web

site for my constituents to refer to?

Mr. KASHKARI. Absolutely.

Ms. WATSON. We are trying to get to the bottom of this risky

business. I am going to now give some of my time to my colleague,

because there was a question that he had.

Mr. TIERNEY. Thank you for yielding on that.

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Just to followup on that, you talked about this is what you are

going to do on the next program. What about the money that is already out there? That is a substantial amount of money. How are

we going to track that money and stop that practice from either

continuing or being started with the funds that are already out

there?

Mr. KASHKARI. Congressman, again, we have to, I segment those

firms receiving exceptional assistance from the broadly available

programs. We have, and we can debate this, we have a view that

when we are lending to a small community bank that wasn’t part

of the problem.

Mr. TIERNEY. Well, let’s take them out of this.

Mr. KASHKARI. OK, I’ll take them out.

Mr. TIERNEY. Let’s talk about the ones that are in the news

every day that grate at you and me and our constituents on that.

They are large firms, they have a big chunk of dough, they continue to have a conference in a very fancy place, they continue to

fly like they are zillionaires, they continue to sponsor sporting

events in these big boxes, corporate boxes or whatever. What about

them?

Mr. KASHKARI. Absolutely. And we have been pretty vocal that

we want the institutions to take prudent action and reflect on the

kind of economic environment we are in and the help that they

have already received.

Mr. TIERNEY. But other than reflection, is there any enforcement

mechanism? That’s precatory language. I wish you would do better.

And that would be great, we all wish that. Can we enforce them

into doing better or has that train left the station?

Mr. KASHKARI. Well, I think we can. We have in many cases, for

the exceptional cases, we have asked banks to put together expense

policies that we are able to review, and that if they want to make

any changes to their expense policies, they have to get Treasury’s

approval.

Mr. TIERNEY. That is all going forward, that is policy.

Mr. KASHKARI. Some of that is going back as well.

Mr. TIERNEY. So you are telling me that we can’t do anything

about the money that is out the door, that it can’t be recaptured

and that people cannot be—if those are the people that made those

decisions and they have our money, maybe we should have some

impact on having that money invested and get rid of them. These

aren’t the small community bankers, they are not the problem. We

are all comfortable with that. But these fat cats that are running

around and still wasting money in that sense, and not listening to

the precatory language about what we wish they would do, why not

use some leverage of us being the investors to just off with those

people, and in with people that understand the gravity of the situation?

Mr. KASHKARI. I will say that when we have seen things that we

thought were over the top and just really grated on us the way it

is grating on you and grating on your constituents, we have let the

banks know. And whether we have a legal ability to force them to

do something, they generally get the message and say, ‘‘we got it,

sorry, it is not going to happen again.’’

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Now, the fine line we all have to walk, I mentioned two objectives. There are many objectives, but our two biggest objectives are

stabilizing the system and having the taxpayers paid back. So

banks do need to market themselves. They unfortunately do need

to have sales conferences, so people want to come in, learn their

products, sell their products. Some of the press stories that have

really inflamed people, when we have looked into them, they have

been more ordinary core sales conferences that actually didn’t cost

the banks much money.

I am not defending it. I am just saying, we have to walk a fine

line and allow the banks to run their business and compete so that

they can pay the taxpayers back.

Mr. KUCINICH. I don’t believe we disagree with that, sir. I think

we are talking about the ones that don’t, the ones that go over the

line and getting back the money that they wasted on that, and

leaning on them legally or not to say, show good faith, and to get

any future assistance from us, you had better find a way to get

that money back into the till that the taxpayers have invested.

The time is expired. I thank the gentlelady and the gentleman.

The Chair recognizes Mr. Burton of Indiana. You may proceed.

Mr. BURTON. Thank you, Mr. Chairman.

When you first started dispensing the TARP funds, did you have

oversight procedures, definitions and allowable and prohibited uses

of TARP funds, and uniform disclosure and reporting standards

when you first started dispensing those? Or did you just start saying, ‘‘oh, my gosh, we have to get money to this bank or this institution because it is about to go under?’’ I just wonder how prepared

you were to start loaning that money or putting that money out

there?

Mr. KASHKARI. Congressman, we, as you remember, when we

started out with asset purchases, then as the data that I reflected

in my testimony, conditions deteriorated very rapidly, much more

quickly than we had expected. So we moved as fast as possible to

put capital into the system.

One minor comment there is, remember, we are buying shares in

these companies, preferred stock, getting warrants. So it is not literally giving cash, we are getting securities back, and the banks

are paying dividends. We have received over $2 billion in dividends

in the first quarter.

Mr. BURTON. If you bought Citigroup, so far you have lost a ton.

But the point I am trying to make is, did you have the time or the

inclination to put these procedures in place before you started putting that money out there?

Mr. KASHKARI. We did not put specific tracking procedures in

places in terms of——

Mr. BURTON. So you were trying to find out as quickly as possible and flying by the seat of your pants, so to speak?

Mr. KASHKARI. Moving as quickly as possible.

Mr. BURTON. Well, that is an old Hoosierism, flying by the seat

of your pants.

You were hesitant when Mr. Souder asked you the question

about did you know really what is going on. And my question is,

do you have the manpower over there? I have been told that Mr.

Geithner, Secretary of the Treasury Geithner doesn’t have an awful

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lot of the staff people in place or assistance in place so that he can

really start completing his task as quickly as possible, because he

doesn’t have adequate staff. Do you have adequate staff and does

Mr. Geithner have adequate staff? And if not, how long is it going

to take?

Mr. KASHKARI. Congressman, I do. The Office of Financial Stability had zero people on October 2nd. We have more than 100 fulltime employees and we are growing every day. The staff is fully

operational. It was one of our highest priorities, to make sure that

the program could run well and we would have a smooth transition.

In terms of Secretary Geithner, he has a very strong team of political appointees around him. And the Senate-confirmed appointees, the White House is moving as fast as possible and are

making real progress, from what I understand.

Mr. BURTON. Well, it was reported in, I think the Wall Street

Journal, that several of those slots that were very important had

not been filled, and with the seriousness of the situation, I was

wondering if you were up to speed. And you say you are?

Mr. KASHKARI. I am. Especially I can speak in great detail to my

office, the Office of Financial Stability. We have a wonderful career

staff of people who are passionate about these issues and are working around the clock.

Mr. BURTON. I have one last question. We have dispensed total,

I don’t know how much of that you have already put into the system, but $700 billion in TARP funds. How much more are you

going to need? This is very important.

Mr. KASHKARI. I know it is.

Mr. BURTON. Because every time we talk to anybody about what

is going on, we get kind of an ambiguous answer. When Secretary

Geithner was testifying on how much in funds he was going to

need to prop up the financial institutions, he said, well, $1 trillion

or $2 trillion, maybe $3 trillion. I mean, you know, we are not talking about dollars here, we are talking about trillions.

So what is the formula for letting us know how much more you

are going to need, and can you give us that?

Mr. KASHKARI. We have enough. My staff just said that we have deployed about $325 billion cash dollars out the door, more than

that has been obligated at this point.

Mr. BURTON. Is that the second tranche or the first?

Mr. KASHKARI. No, that is within the first tranche still. Actual

cash dollars that have left Treasury. Again, more than that has

been allocated to various programs. We have enough to get Secretary Geithner’s new programs up and running and working. And

as we get them up and running, we get them working, when the

banks capital, they are under this capital assessment right now

where the regulators are analyzing the bank’s capital positions

under various economic scenarios, that will give us a lot more information about how much more is needed. And as we see our programs get up and running, we are going to learn a lot. So Congressman, I cannot give you a number today, nor can I give you

a date. But we will let you know.

Mr. BURTON. As soon as you can get that, we would like to have

it.

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One more question. Do you think if we had across the board tax

cuts plus capital gains tax cuts it would assist in stimulating the

economy and helping you out?

Mr. KASHKARI. Congressman, I must respectfully defer to my colleagues who focus on tax and budget issues. I am solely focused on

financial stability, sir.

Mr. KUCINICH. The Chair thanks Mr. Burton. Mr. Burton, I just

want to let you know that at the beginning of the hearing, we introduced into the record an article from the Washington Post dated

Tuesday, March 10, 2009, by David Smick that predicts that the

bailouts will run another, as much as another $2 trillion. Here is

a marked-up copy of it. We can go back to that in the next round.

The Chair recognizes the gentleman from Rhode Island, Mr. Kennedy. Thank you for being here, sir.

Mr. KENNEDY. Thank you, Mr. Chairman. I appreciate your holding these hearings.

Just to followup with my colleague from Indiana about the staffing issues, if I could, could you answer for me what the staff is at

the Inspector General’s office for rooting out fraud and waste at the

IG’s office or Treasury’s office for this TARP program?

Mr. KASHKARI. You will hear from Mr. Barofsky, I believe his

staff is on the order of 20 people or so right now. I’m sorry, could

you hear me? Mr. Barofsky, the Special Inspector General, you will

hear from him later today. He can give you an updated number.

My understanding is he has about 20 people in his office right now,

and is growing quickly as well.

Mr. KUCINICH. If the gentleman would yield briefly, Mr. Barofsky

is on the third panel.

Mr. KENNEDY. So 20 people for 8,000 banks in this country, or

how many banks have——

Mr. KASHKARI. We have invested in 489 institutions through the

capital program.

Mr. KENNEDY. And how many more banks are——

Mr. KASHKARI. Several hundred, maybe 500 to 1,000 more are in

the pipeline.

Mr. KENNEDY. But we are talking about banks also, top several

banks with assets, 75 percent of our Nation’s assets are in the top

several banks, and we have 20 people? Twenty people doing the audits of those things?

Mr. KASHKARI. Well, again, sir, I will respectfully defer to Mr.

Barofsky. I know that he is growing his staff quickly and is

leveraging the resources of the other law enforcement agencies.

Mr. KENNEDY. See, I think that is where concerns come in, because before we are going to be able to pass another nickel in this

Congress, we are going to have to get the due diligence on these

things. Because our constituents are going to demand it.

The foreign entities that have received dollars, I asked my first

question, my Bank of America in Rhode Island received $45 billion

from the capital purchasing program. And Ken Lewis, the CEO of

Bank of America, said taxpayers want to see how this money is

used to restart the economy. And then they went around and laid

off 121 employees at a facility in my district in Rhode Island. Then after they received $7 billion in TARP funds, they went

ahead and loaned it overseas to China. So we have questions. And

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we want to know, where are these dollars going? Are they going

to foreign entities? What dividends are they paying and to whom?

I mean, are they going to paying little old grandmas’ annuities?

Are they going to be paying those bondholders? And what are the

salaries that are being paid?

There is a lot of the culture on Wall Street, people have gotten

so accustomed to saying, they are worth $2 million a year. And I

don’t know, but when people are earning on average $40,000 a year

in my district, and that is median wage, they just don’t get people

in Wall Street asking for hundreds of thousands of dollars, let

alone millions. Yet that is the culture in Wall Street, to just ask

for these sums of money.

So I can tell you, we have to have a new kind of salary type compensation system. I know some firms have put new executive compensation systems in place. But that has to be done, because, and

we need to insist on it in terms of our conditions in loaning these

dollars, for no other reason than, they are not going to receive any

more dollars. Because once our constituents learn that any one of

these folks are earning these kinds of salaries in the wake of our

constituents earning just what they are earning, they are just not

going to be satisfied with the way this is going.

So I might ask you to comment on that.

Mr. KASHKARI. Thank you, Congressman. This is an area we

have done a lot of work on, beginning with imposing the executive

compensation requirements that were specified in the EESA. We

imposed those from day 1 in the program.

The Obama administration has now, in early February the

Treasury Department came out with new, tighter executive compensation policies. And then in the stimulus bill, there is an

amendment that also has executive compensation policies. So we

have taken this issue very seriously. There is a team right now at

Treasury working on the stimulus, the new law, putting that together with the administration’s new policy to come out with a robust set of new regulations that are going to govern the banks that

are taking the TARP funds and covering many of their top executives on how much they can earn and what form that compensation

is.

So we heard it, we got the message, we are working hard on it.

Mr. KENNEDY. I understand it is a lot of mid-level management,

too. We are not just talking to be talking.

Mr. KUCINICH. The gentleman’s time is expired. I thank the gentleman.

The Chair recognizes Mr. Turner of Ohio.

Mr. TURNER. Thank you, Mr. Chairman.

Thank you, Mr. Kashkari. Appreciate your being here.

I will tell you up front, I voted against this program. I voted

against this program because of basically four reasons. One, I

didn’t believe there was a very good definition or focus on what the

program was to do. We were first told it was toxic assets, now it

has not been. Two, I think there was a lack of understanding of

the process, what happens after the moneys are made available,

that process. Third, I didn’t think it addressed the practices that

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curring. And four, it was unclear as to where the money was needed and how much was needed.

Now, you have been very forthcoming. I want to congratulate

you, you are doing a very good job in answering our questions. But

no one can still answer those four questions. We are now several

billion dollars, hundreds of billions of dollars into this. And we are

still where we don’t have a clear focus of what we are going to be

doing with these funds, we are not certain as to what the process

is going to be. We have not addressed at all any of the practices

that got us in this place. And still, you are unable to tell us how

much money this is going to take.

Now, I wanted to comment on one thing that you had said. You

had said, when someone asked you how did we get in this situation, you said that banks loaned borrowers money that they

couldn’t pay, homeowners have responsibility and regulators have

responsibility. I want to tell you that I come from Ohio. Montgomery County, OH, is the place where I live, it is in the center of my

district. And we have the foreclosure crisis, and we have had it for

over a decade.

About 27,000 foreclosures have occurred in my county since the

61⁄2 years that I have been here in Congress, of a county that has

a population of around 500,000. Unbelievable numbers of foreclosure. I believe that it is not just that banks loaned money to people who couldn’t pay. I believe, from the experience that we have

seen in our county of people who have tried to address this issue

that it is an actual structural issue, it is a leverage ratio that predatory lenders and sub-prime lenders were actually targeting homeowners and loaning them money that was in excess of the value of

the home, which of course results structurally in a situation where,

when there is financial stress, that you have to go to foreclosure.

If you have no equity, you have no option other than to go to foreclosure.

And the big banks initially would say, well, we are not really

part of that. But they were. Because what was happening is, I believe, the structural aspect of loaning greater than the value of the

property, people didn’t care because they were selling these things

as securities on down the stream. So they didn’t care if it was a

workable loan or if the asset was over-valued, because in the end,

they weren’t going to get stuck in the musical chairs of these assets.

I think in the end, when we get these evaluated, we are going

to find that this is somewhat the largest theft in history that has

occurred, of people who over-valued assets, sold them down the

stream and the American taxpayers are stepping in, unfortunately,

with their own dollars to try to make up the gap.

Here is my concern specifically about an issue that was alluded

to in the beginning of this discussion. Some of the moneys that are

being provided appear to assist in transactions where the money is

leaving the country. Now, I think everybody up here understands

that there are international practices of the flows of capital, and

that needs to happen for our economy to be successful also. But the

Fed chairman yesterday, Bernanke stated this, asking about the

crisis itself. He said, ‘‘In my view, however, it is impossible to unVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00170 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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derstand this crisis without reference to the global imbalance in

trade and capital flows that began in the latter half of the 1990’s.’’

Well, back to my concern about the practices haven’t changed.

One of my concerns is that the manner in which this is occurring

does not have any protections or requirements that the dollars address the issues of our economy and that large portions of these

dollars are leaving our economy. That would put us on the wrong

side of a ledger, and in the same types of practices that Bernanke

just said are underlining this.

We know that you can’t, in providing dollars, stop international

flows of capital. We don’t want that. But I am concerned that what

you are doing might facilitate or incent additional dollars leaving

our economy that are specifically intended to prop up our economy.

Could you please comment?

Mr. KASHKARI. Sure, Congressman. Thank you. I didn’t catch all

of Chairman Bernanke’s remarks, but I believe he is referring to,

many economists think that there has been a glut of savings

around the world in developing countries that has been coming into

our capital markets. So the cash has actually been flowing the opposite, it has been flowing to America, which has given us very low

borrowing rates and encouraged us, some would say, to take on

more debt, maybe more debt than we can afford.

So I think we have to be careful, especially right now. We want

all the capital we can get to get through this crisis. And we need

to let the global economy restabilize to a new equilibrium, where

savings and all of these things are balanced.

So I take your point, I hear it, and I agree with the spirit of it.

I am just offering a word of caution about saying, let’s stop money

flowing in this one direction, because it will end up stopping it coming back the way that we want it.

Mr. KUCINICH. The gentleman’s time has expired, but I do want

to say, we are going, I have two more Members to ask questions,

and then we will take a brief recess.

I also want to tell the gentleman from Ohio that since you raised

the question about Montgomery County, and of course Dayton, and

since my own community in Cleveland was the subject of a New

York Times Magazine article this past week, we are going to go

back to Ohio and we will come to your community as well. Maybe

we can get the hearings on the same day in Cleveland and in Dayton.

So I just wanted to let you know that this committee is going to

be going deeply into these affected areas. I thank the gentleman for

raising the question, and the Chair recognizes Mr. Welch.

Mr. WELCH. Thank you, Mr. Chairman, thank you, Mr.

Kashkari.

Just a few things to establish where we agree. You would agree,

obviously, that the taxpayer is entitled to know how taxpayer

money is spent.

Mr. KASHKARI. Yes.

Mr. WELCH. And I assume you would agree that shareholders

would be entitled to know how shareholder money is spent.

Mr. KASHKARI. Yes.

Mr. WELCH. And of course, the biggest recipient of taxpayer

money to date, or one of the biggest, is AIG. And that is where the

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taxpayer is fronting money and the taxpayer, in fact, is an 80 percent owner, correct?

Mr. KASHKARI. Yes.

Mr. WELCH. And we are providing that money in order to avert

a conclusion that has been reached at Treasury and the Fed that

to let AIG go down would cause systemic failure, correct?

Mr. KASHKARI. Yes.

Mr. WELCH. Donald Kohn, who is the Vice Chair, as you know,

of the Federal Reserve, says that AIG has no obligation to name

the counter-parties who have been paid via taxpayer money that

has been transferred to AIG. Correct?

Mr. KASHKARI. I read Vice Chair Kohn’s testimony, but I don’t

remember that exact quote. But I defer to you, sir.

Mr. WELCH. Do you agree with him?

Mr. KASHKARI. I believe institutions such as AIG that receive extraordinary assistance have a moral obligation to disclose as much

as possible to the American people. If you will permit me to give

you a thorough answer, the challenge here is as I indicated earlier,

we want to prevent a financial collapse, to stabilize the system, and

we want to pay back the taxpayers. So we have to be careful that,

just as any business, if you put, if you force businesses to expose

all of their business decisions, all of who their customers are, all

of who their counter-parties are, that may actually put them at a

competitive disadvantage and it makes it harder to pay back the

taxpayers.

Mr. WELCH. I get it. So then you agree with Governor Kohn, we

will leave it to AIG to decide what information they will disclose

and they won’t disclose, with them making the final decision on

whether that is a business interest or not, correct?

Mr. KASHKARI. No, I believe we can work with the Fed to work

with AIG and figure out, take a look from Treasury’s perspective

and see what is appropriate to disclose.

Mr. WELCH. Let me ask you this. Some of that AIG money that

is to avert the systemic failure is to make certain that average

Americans who have AIG insurance policies, AIG annuities and

AIG financial products in pensions don’t get hammered, correct?

Mr. KASHKARI. Yes, correct.

Mr. WELCH. But some of the counter-parties are eyes wide open

investors, some of the largest investment banks that we used to

have in this country, hedge funds and speculators who made bets

that turned out sour. Do you believe that it would be of interest

to the American taxpayer to know whether their money is being

used to protect those annuity holders, those insurance policy holders, those pensioners on the one hand versus the hedge fund speculators, investment banks on the other? Just yes or no.

Mr. KASHKARI. Congressman, I would like to provide you a thorough answer, because it is important.

Mr. WELCH. No, the question is a simple one. In your opinion,

do you think it would be of interest to taxpayers to know whether

it is the hedge funds, investment banks, speculators, being assisted

with their money, or annuity holders, pensioners and insurance

contract holders?

169

Mr. KASHKARI. And the answer is, they are all being benefited.

Because unfortunately, there is no way we can go in to stabilize an

institution and say, just the policy holders are stabilized.

Mr. WELCH. Why not?

Mr. KASHKARI. Because if we did that, the other counter-parties

would put the firm into bankruptcy and that would cause the

whole firm to fail. That is the unfortunate choice we don’t have. If

we step in to support a systemic institution, all of their customers,

all of their counter-parties benefit, whether we like it or not.

Mr. WELCH. So if the taxpayer, it is their taxpayer money, it is

the shareholder money, and you believe they have a right to know

how taxpayer and shareholder money is being used. Nevertheless,

you are accepting allowing AIG to decide what we will know, when

we will know it, and under what terms?

Mr. KASHKARI. Forgive me, sir, as I mentioned, I think that

Treasury can work with the Federal Reserve, work with the company.

Mr. WELCH. Well, why haven’t they done it? There is a lot of

money out the door, a lot of time has passed. If they are going to

do it, why wouldn’t they have done it before the money is out the

door, rather than after the fact?

Mr. KASHKARI. Congressman, it is a good question. I think that

we are fighting a lot of fires at the same time and this is a very

important issue and I hear the feedback.

Mr. WELCH. With all due respect, there is unanimous agreement,

I think, on both sides of the aisle that we want to know how the

money is being spent. There is an acknowledgement on your part

that will give the taxpayer some basis to have confidence that we

are doing something that really is a pretty bitter pill to swallow,

but we are doing it for a good reason.

Mr. KUCINICH. The gentleman’s time is expired.

Mr. WELCH. I yield back, thank you.

Mr. KUCINICH. Mr. Kashkari, if you want to respond briefly, then

we are going to go to Mr. Fortenberry.

Mr. KASHKARI. Again, Congressman, thank you for the comment.

We got the message. We will look into it, sir.

Mr. KUCINICH. Let me say to Mr. Welch, we are going to, on the

second panel, we are going to get into some specifics about how the

money has actually been spent. So just keep that in mind.

We will go to Mr. Fortenberry for his 5 minutes and then we will

recess.

Mr. FORTENBERRY. Thank you, Mr. Secretary for appearing

today. I am sure there are other ways and easier ways you can

make a living. So I do want to say from the outset, I appreciate

your professionalism and dedication to public service during these

difficult times, and in spite of the tensions around these policies.

Mr. KASHKARI. Thank you.

Mr. FORTENBERRY. There is an article in today’s Omaha World

Herald, it is basically the headline, it says ‘‘Banks Remain Strong,’’

referring to our local banks, ‘‘Despite Profit Decline.’’ And the director of our banking system in Nebraska says on average, they are

very soundly operated. Now, these are fundamentally local banks,

not the outside banks that are there.

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But an editorial comment before I start the questioning, I believe

it is these local institutions mainly owned by local families that

have proximity to their portfolio obligations which by their very nature then are more transparent as well as accountable. I think that

is a lesson that we need to think through as we look at the entire

systemic crises, difficulty, however you want to term it.

In that regard, as I said in my earlier statement, and I appreciate the chairman’s intent to unpack this further, perhaps later,

and maybe we will see you again, is our financial system, are our

financial institutions too consolidated? You have nine banks now

with approximately 50 percent of all deposited assets in this country. Five banks, if I recall correctly hold about 37 percent. Are we

vulnerable because of that reason?

Mr. KASHKARI. I think we clearly are. Look where we are today.

Look at the action we have had to take to support systemic institutions.

There is no question that we must undergo as a country very

thoughtful regulatory reform to look at what our financial system

should look like in the future, to make sure that we are not here

again.

There is no question. There are benefits to scale. But when the

costs, because these institutions get to be so big, are then going to

be borne by the taxpayers, that is a real problem.

Mr. FORTENBERRY. I appreciate that insight. Now let me move to

a second, more specific question. It is my understanding that Goldman Sachs, the recipient of about $10 billion in TARP funds, actually repurchased their own stock to the tune of $2 billion last December. Now, earlier you had said this is a prohibited activity. Can

you explain?

Mr. KASHKARI. Sure. I don’t have the details of the Goldman

transaction. My understanding of it, because I think the chairman

put out some data on this in the last few days, is that in the case

of Goldman, my understanding is those were stocks that were repurchased over the course of a year, but reported at the end of the

year, is my understanding. We have put in place restrictions, they

cannot buy back their stock.

The only way they can buy back their stock is if it is part of a

normal, ongoing share plan for their employees. So if they want to

incentivize, some of these banks incentivize their employees with,

let’s say, restricted stock, and they want to maintain their share

account, we enabled that one carve-out. So if you want to

incentivize your employees over the long term, then you can buy

back the shares that are, only those shares that are associated with

the long-term compensation agreements. That is the only place

where firms under the capital purchase program are able to buy

back their stock.

Mr. FORTENBERRY. Is that exception consistent with what happened with Goldman Sachs?

Mr. KASHKARI. In that case, I don’t know. Because my understanding of that, and I haven’t looked at it in detail, but I can, my

understanding is the bulk of those share repurchases were done before Treasury became an investor in Goldman Sachs. And so because it happened before we went in, it would not be subject to our

agreements.

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Mr. KUCINICH. If the gentleman would yield, that is my understanding, too.

Mr. FORTENBERRY. Is that right? OK, thank you.

The third question is related to Mr. Welch’s question as well.

Please explain how extensively you actually review the books of

these companies receiving TARP funds.

Mr. KASHKARI. We review applications as they apply to the

TARP. So they have an application that they submit to their regulator. The regulator in many cases has been regulating these institutions for many years. For the large institutions, the regulators

are physically onsite. The regulators look at all of the data they

have on these institutions and prepare a recommendation to Treasury. We then review that recommendation from the regulator and

the data they provide us and we review the application in making

our decision on whether or not to invest.

I can walk you through that decision process if you are interested.

Mr. FORTENBERRY. Ongoing review.

Mr. KASHKARI. For the vast majority of banks, I mentioned we

have invested in 489 banks so far, 30 more or 40 more each week.

We do not go in and do ongoing, going through their books. Again,

we have taken a policy perspective that the vast majority of these

are healthy, well-run institutions. We just want them to make good

commercial decisions and extend loans in their communities.

It is the one-off cases that we have had to go in and look at a

lot of detailed analytics around their financial position, their balance sheet, etc., when determining, are they systemic, do we need

to step in, how much do we need to step in.

Mr. FORTENBERRY. Can you name those institutions and then

how frequently you are doing this review?

Mr. KASHKARI. Well, in the one-off cases, it has been the auto

companies, the auto finance companies, AIG, Citigroup, Bank of

America are the one-off cases that we have done something extraordinary. In each case, we have gone in in a lot of detail, remember, with the regulators, the regulators are onsite. They are

the ones sending us regular updates on what is happening at the

banks, what is happening with their portfolios, etc.

Mr. FORTENBERRY. So they are embedded. Thank you, Mr. Chairman.

Mr. TIERNEY. Mr. Chairman, may I ask unanimous consent to

ask Mr. Kashkari just two questions, not to be answered right now,

but since you have the whole day, can Mr. Kashkari come back?

Mr. KUCINICH. Mr. Kashkari has agreed to come back. The Chair

is declaring a recess for one half hour. I would remind you, we

have two more panels [remarks off microphone].

In the next panel, we are going to hear from some specifics on

the use of TARP funds. And we are going to hear, on the third

panel, from the Inspector General for the Troubled Assets Relief

Program. So stay tuned. Recess for one half hour. Thank you.

[Recess.]

Mr. KUCINICH. The committee will come to order. We will begin

a second round of questioning of Mr. Kashkari. Thank you for remaining here. If necessary, we will have a third round.

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We will soon be going to the second and third panels, and I appreciate the patience of all of the witnesses. And I appreciate the

continued presence of all Members. The House is just finishing up

on votes, I expect we will have some more questions.

I would like to begin, Mr. Kashkari, and point out that you are

familiar that GAO has testified and will testify today that they are

still concerned about the TARP’s inability to track the use of TARP

funds and that the challenges are going to grow as the TARP programs grow. The Special Inspector General will testify today that,

‘‘If by percentage terms some of the estimates of fraud in recent

Government programs apply to the TARP programs, we are looking

at the potential exposure of hundreds of billions of dollars of taxpayer money lost to fraud.’’ That is a direct quote.

Can you, Mr. Kashkari, point to anything Treasury is currently

doing to prevent waste, fraud and abuse of funds from the CPP

program?

Mr. KASHKARI. Thank you, Mr. Chairman. First, as I mentioned

previously, we rely very heavily on the regulators when assessing

banks who have applied to invest for funds. So the banks apply to

the regulators, the regulators make a recommendation to Treasury.

The regulators have been regulating these institutions in most

cases for years, in some cases they have people onsite.

Mr. KUCINICH. Isn’t it true that regulators look for fraud, they

don’t look for waste and abuse?

Mr. KASHKARI. I think the regulators look at the entire business

operations, to look at how well managed the banks are.

Mr. KUCINICH. But you are saying TARP doesn’t look at it, you

defer to the regulators?

Mr. KASHKARI. We work closely with the regulators, sir.

Mr. KUCINICH. You work closely with it, but your mission as you

see it isn’t to look for this, is that right?

Mr. KASHKARI. Our mission is to look for waste, fraud and abuse.

We want to use the taxpayers’ dollars efficiently and protect the

taxpayers. And so we do it a number of different ways. In part, we

do it in concert with the regulators, in part we put contractual provisions in governing what banks can do and cannot do.

Mr. KUCINICH. But you don’t look at uses. That is what I am trying to get to. I really am looking at the function of the TARP here.

We understand that you have taken this responsibility on and that

you have agreed to stay to help with the transition. I understand

that. We are trying to understand the systemic situation here, because if we don’t know that Treasury is currently doing something

to prevent waste, fraud and abuse from funds from the CPP program and we don’t know for sure that your operation is looking at

it, then the question comes, how can you find fraud if you don’t

know how they are using the money? Is that a fair question?

Mr. KASHKARI. Of course it is a fair question, Mr. Chairman. Let

me just give an example of some of the compliance procedures we

have built in. We have procedures that we are putting in place

where CEOs must certify to Treasury that the statements they

make to Treasury are correct, that they are meeting——

Mr. KUCINICH. I got the procedures. And excuse me for interrupting you, but I have 2 minutes left. I understand that Treasury is

doing its best to understand impact. And I am sure you are aware

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of GAO’s skepticism whether or not you are going to be able to do

it. But as you know, promoting financial stabilization is only one

of two goals of the Emergency Economic Stabilization Act. The

other is public accountability.

I would like to read from a legal memo prepared by the Congressional Research Service for this hearing. I call my colleagues’ attention to this. And I move to put the entire memorandum in the

record of this hearing.

According to this memorandum from the Congressional Research

Service, ‘‘Given the objective of ensuring that the authorities and

facilities provided to the secretary of Treasury, that is the TARP

funds, are used in a manner that ‘maximizes overall returns to taxpayer’ and provides ‘public accountability’ the internal control system that TARP is required to establish arguably should include

monitoring how those funds are being used by recipients.’’

It goes on to say, ‘‘Therefore, it appears that TARP overseers will

need to gather information on at least those recipients’ major financial transactions, particularly in those areas that have been the

primary areas of concern, executive compensation, payment of dividends, purchase of other banks and certain types of marketing promotions.’’ This of course means naming rights, for instance, which

is mentioned in a memo. At this time, does Treasury at least gather information on recipients’ major financial transactions on an individually identifiable basis?

[The information referred to follows:]

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Mr. KASHKARI. Chairman, may I provide a thorough answer, sir?

Mr. KUCINICH. Can you give me a yes or no, though?

Mr. KASHKARI. We do not ask for transaction by transaction

data.

Mr. KUCINICH. OK, so the answer is no.

Mr. KASHKARI. But if I may, sir, I would like to provide a thorough response.

Mr. KUCINICH. OK, you can respond, and my time has expired,

and then we will go to Mr. Jordan. But we are going to come back

on this question.

Mr. KASHKARI. Thank you, sir.

The internal control provision that you are referring to in the

law, I have it in front of me, specifies that Treasury shall establish

an effective system of internal controls. We have Price Waterhouse

Coopers working with us developing the internal controls within

Treasury. We have spoken with both the GAO, the Special IG and

Treasury’s own analysis. This provision about the use of TARP resources is about Treasury’s use of TARP resources. The law does

not direct us to impose internal controls over the 500 banks that

we have invested in, just to be precise.

Mr. KUCINICH. OK, thank you. I will come back to that in the

next round of questioning.

We are going to go to Mr. Jordan. Mr. Jordan, you are recognized

for 5 minutes.

Mr. JORDAN. Mr. Kashkari, I want to go back to where I was

about an hour and a half ago with this whole concept. And again,

I was one of the individuals who did not vote for the TARP program back last fall. But here is what I am trying to understand.

You are a sharp guy. Tim Geithner is a sharp guy. Hank Paulson

is a sharp guy. Ben Bernanke is a smart guy.

How was it that back in October, October 3rd, that all of you

were convinced, and the package was sold to the Congress that you

were going to be able to, what did you think then that was going

to allow you to go after the toxic assets, the troubled assets, that

since then you haven’t been able to do? It was this assurance that

Members got, the public got, taxpayers got, that you could in fact

clear the bad stuff out and things would get moving back toward

normal. And yet now, 5 months later, still not there.

So tell me what you thought you knew but yet found out you

didn’t really know. Walk me through that if you can.

Mr. KASHKARI. Thank you. I would be happy to.

When we went to the Congress, you are right, we talked about,

and the plan was to purchase mortgage-related assets in large volumes to get those markets moving again. The crisis intensified so

much just in the 2-weeks we were negotiating with Congress and

the 1 or 2 weeks that followed, that we had to move even faster.

Dollar for dollar of putting a dollar of capital in goes much further,

as I am sure you understand, with leverage, than just buying a dollar of assets. So we had to take the most aggressive action we could

to stabilize the system. So that is why we ended up leading with

capital.

Now, for an asset purchase program to work, it must be done in

very, very large scale. Once we concluded in the fall that we had

to allocate almost half the money for a capital program, and we

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had these one-off contingencies that we had to deal with, we were

left with fewer resources. And the question was, if we only spent

half the money on asset purchases, would it be big enough in light

of the $14 trillion residential and commercial mortgage market.

What Secretary Geithner has done is say, look, let’s take the

available resources, let’s combine it with the private sector and leverage it up so we can increase our purchasing power and go make

a big dent on a very big market. So it is about speed of implementation, it is about impact, and it is about scale with which to go

at the problem.

Mr. JORDAN. Let me ask you another question. In talking with

some folks, reading about this phenomenon, would you agree that

the mark to market concept is good in the framework of disclosure,

but not so good in the context of, in the regulatory context? And

if so, are there some reforms we can do that kind of fit that statement that are going to help us as we move forward?

Mr. KASHKARI. I think the mark to market issue has a lot of benefits. And I think it is good in terms of disclosure for investors. But

keep in mind, right now we have an environment where investors

are questioning the value and the meaning of regulatory capital

standards. So if we said, well, there is going to be one set of standards for the books that the investors get to see, but don’t worry,

there is a different set of standards for regulators to use, that may

not support more confidence for investors as they look at the institutions.

I think mark to market is a very important issue. I know the

SEC has recently done a study on it. And I think we need to look

at it as we go after regulatory reform.

Mr. JORDAN. You personally, what do you think, if any, changes

can be made to that, to the market to market rule that can be positive? Do you agree that there is some potential with what I just

described, mark to market in a disclosure sense but some amending in the regulatory context?

Mr. KASHKARI. I think that is something that is worth looking at.

I will tell you, I am probably not the best, there are better experts

than me on the accounting treatment of mark to market versus accrual accounting, for example, and in the regulatory context. I

think that these are things that we should look at. But especially

in the middle of the crisis that we are in, I think we should be cautious about making changes that seem like a good idea at the time.

I think we need to get through this crisis, we need to have a

thoughtful discussion, analyze these issues and then make the

long-term changes that we need to make.

Mr. JORDAN. OK. Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes Mr. Tierney.

Mr. TIERNEY. Thank you.

Thanks for coming back, Mr. Kashkari. We appreciate it.

Earlier we talked about the fact that you are going to have these

partnerships that are going to be partly with taxpayer money and

partly with other investors going out and getting the bad assets.

I mentioned that some of them might be hedge fund people, that

taxpayers might think we are getting benefited after already doing

things that caused part of the problem.

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You said that you thought instead that most of the money would

come from pensions or other investors. So given the fiduciary responsibilities of people that run these pension funds, and given the

stressed nature of these troubled assets, what is the sales pitch

that you are going to make to them to think that they can invest

in them and still meet their fiduciary responsibility? Because now

I know there are a lot of people that have an interest in those pensions, because they are sitting out there going, ‘‘oh, my God, that

is where our money is going to go?’’

Mr. KASHKARI. Thanks for providing me the opportunity to followup. If you look at pension plans, big pension plans and retirement programs for teachers or Government workers or employees,

they allocate different parts of that money to different classes of investments. They will allocate some to Government securities, some

to equities, some to alternative asset classes, such as private equity

or even hedge funds. Those are typically much smaller asset classes, much smaller segments.

So it would not surprise me to see major pension funds saying,

OK, we are going to put a small slice of this toward real estate assets, or mortgage-related assets, because we think the prices for

the long term are attractive. So I don’t want to give anybody the

impression that huge pockets of people’s pension plans are going to

be put at this. But I think if you look at the amount of savings we

have as a country, retirement savings, small slices can add up to

big dollars.

Mr. TIERNEY. So you are basically saying then that it will be a

good investment for that small slice to go in and buy these toxic

assets, so that with your other investments, one little slice of it

ought to go toward really troubled assets?

Mr. KASHKARI. I think that is a reasonable position that portfolio

managers are going to be looking at and analyzing as they make

their decisions.

Mr. TIERNEY. I would think that you might get some of the hedge

funds to do it, but I think people, unless they can see a bigger up

side on that, it is going to be a stretch for them to do that.

Just following up on another question you were asked earlier

about AIG, Mr. Welch had asked about, can we favor those people

that AIG is dealing with as co-partners or whatever over certain

other group that maybe ought not to be favored as much. You said,

if we do that, if we discriminate with one set of people against another, then the remaining people can bring the company into bankruptcy.

Can you explain to us how it is that they are able to do that, and

second, what would be the consequences of AIG’s bankruptcy?

Mr. KASHKARI. Thank you. If I have a contract with a financial

institution and that financial institution just decides not to honor

my contract, I have recourse. I can sue them, as a creditor, I don’t

know the different legal requirements, a group of creditors could

come together and say, ‘‘OK, you haven’t honored your obligation

to me. You may have paid off your policy holders, but you haven’t

honored your commitments to me. I am going to go to the courts

to try to get my money,’’ which may end up pushing the company

into bankruptcy.

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So again, this is something that, as I indicated earlier, nobody

wanted to do. But the unfortunate consequence of bailing out an

institution is you help everybody in the institution. You really don’t

get to pick or choose.

Now, if we had allowed AIG to go into bankruptcy, not only

would potentially, AIG has 30 million policy holders in the United

States; 30 million. Not only could those policy holders be put at

risk, but all of the businesses that AIG provides insurance for, all

of their business customers around the world, I think they operate

in more than 100 countries, could all be exposed to some type of

financial risk. There could be various collateral calls from other institutions.

So the judgment was not, we like AIG or we want to help AIG,

it was, the system as a whole could be put at risk if this were allowed to go into bankruptcy, especially at a time when the financial

markets are still in a state of low confidence.

Mr. TIERNEY. Your feeling is that all 30 million of those people

would lose their policies and the businesses would all go under?

That this whole thing would be such a tragedy you couldn’t risk it?

Or did you just have an uncertainty that nobody wants to risk?

Mr. KASHKARI. I think that there is a large uncertainty. And the

down side, the risks of the down side are much larger than even

the large dollars that we are having to spend to support the institution. I don’t want to suggest that everybody’s policies would be

gone. I think that is an overstatement. But I think that is a lot of

risk for everybody, that is a customer or a counter-party or a partner of AIG in any respect.

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

Mr. KUCINICH. I thank the gentleman.

Mr. Souder, you may proceed for 5 minutes.

Mr. SOUDER. I wanted to followup again on some credit questions. I have 58 percent of the RV market in the country in my district. I have the Silverado and Sierra, biggest GM pickup plant.

And I need the credit opened up. And I wanted to illustrate a couple of different things. Congressmen Donnelly, DeFazio and I had

an amendment to the Car, Truck, Motorcycle that included RVs, on

retail floor plan financing. Because part of the problem in retail

floor plan financing, and let me deal with the RV, the auto has a

similar, is that there were basically three major companies that did

it, Textron, GE Capital. They pulled out. You can’t sell anything

if you can’t get it to the dealer. These are fairly large purchases,

particularly for motor homes, and nobody would take the market.

So we tried to get a trans-set, it didn’t pass the Senate, it was

a House advisory. And the similar, one of the problems there is is

that in American manufacturing, because of legacy class, because

of health and pension and our wage rate, we make bigger vehicles.

The smaller stuff tends not to be American-made. So they require

bigger and longer term investments.

Let me give you one illustration. In one lot in a major city in the

south, they tried to clear their lot of some of the RVs and motor

homes. They sold eight, which was not a good sale day. On those

eight, two were in the $350,000 to $500,000 range, four were in the

$100,000 to $250,000 range, and two were used towables under

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$25,000. All had credit scores, the buyers, of over 700. Only one

was actually financed, and it was a $15,000 used towable. The reason is that nobody wants to take a 15-year, $500,000

mortgage right now, partly going back to the mark to market question, which I need to point out, assumes that you are going to liquidate, the premise underneath it. So the combination of the retail

floor financing and the lack for bigger purchases is hammering the

car, auto, truck, RV markets. Unless we can figure out how to get

some liquidity into that system, Fleetwood declared bankruptcy

this morning. They are going all over the place, it is spilling into

manufactured housing. And we tried to address a little of the housing, with housing credits.

But this is a huge double problem, compounded by, and one other

thing I wanted to raise to you as you look at how to handle this

is that there are buybacks, which the auto companies are starting

to get into, but the RV industry, that aren’t on the books. They

have never had a problem before, because when one dealer can’t

sell it, they move it to another dealer. But if they can’t get retail

floor plan, all of a sudden this stuff is coming back. Out they go,

thousands of people being laid off when in fact, there appears to

be some market.

How do we open that credit market up if they don’t know in the

lending institutions what their assets are? That is why we keep

bringing up a variation of mark to market.

Mr. KASHKARI. Congressman, thank you. This is a huge issue. It

is a huge issue that we have teams of people working on. This goes

back to the new facility under the consumer and business lending

initiative, it is called the TALF program that the Federal Reserve

has set up. It is going to start funding in a couple of weeks, it is

ready now, it is finally launched. It is going to specifically bring

down costs of borrowing for auto loans, for credit cards, for student

loans, for small business loans.

Right now as a starting point, it is a $200 billion facility. We

have a plan to increase it to a trillion dollar facility and to add

other asset classes. So we are looking at all different sorts of asset

classes to see what else we can put in there to get liquidity to the

markets so that people can buy motor homes and RVs and cars and

trucks, etc., until we get through this crisis.

So I assure you, Congressman, we are focused on this too. We get

the same calls that you get. Not as many as you get, because it is

your district. But we get the same calls you get. We know it is a

real problem, and we think we are on the right track to bring down

these borrowing costs. Because who can afford today to go and buy

a car and pay a 14 or 15 percent loan? No one is going to do it.

We need to bring these rates down so that our businesses can continue to do business.

Mr. JORDAN. And there needs to be some kind of addressing of

this. Size, volume of loan and length of loan question, some of the

RV people had talked to me initially about, could they pool with

a fee such to help share if some went bad. There has to be some

kind of risk-sharing on the longer term and sizable loans, or that

market will not free up. Those tend to be our American manufacturers, because we are skewed to the higher value ends. And those

big areas, construction and auto truck, I believe, are close to 50

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percent of much of our American economy. Retail sales, if you take

a manufacturing job, or value-added, which could be software or

whatever, is going to circulate at a different rate in a productivity

multiplier effect than a service job or a labor-intensive job. And

that sector is overwhelmingly tied to construction and auto. And it

tends to go boom-bust.

The way the financial markets have collapsed so deeply, it is not

clear how we get it restarted, especially if the debt that the Government is taking on starts to crowd out private borrowing and private equity, and mark to market is chewing them up, which was

a change, it is not, when you say it is a problem changing back,

it was a change to it that partly triggered this, that it is not clear

how we reopen the credit market. Because capital is going to be so

tight.

Mr. KASHKARI. Congressman, we think the new facility that the

Fed has set up is going to help restart not just the market and get

rates down, but bring private capital back. Because the way it is

designed, it is designed that the private sector puts in capital, the

Government lends to it, gets the markets going again. And then

our hope is, as the credit markets heal themselves that the private

sector will be able to go back and then the Government can step

away. So we are focused on this.

The other thing I would add, don’t forget the administration has

an auto task force, a whole team of people focused just on the

autos, to try to get them to a place of long-term viability. And so

there is a team working there, Treasury, it is an inter-agency program, looking at autos, looking at auto suppliers, looking at some

of their financing constraints as well. So we are coming at it from

both directions.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes Mr. Cummings.

Mr. CUMMINGS. Mr. Kashkari, there are a lot of banks that are

returning their money, is that right, they want to return the

money?

Mr. KASHKARI. Yes.

Mr. CUMMINGS. And they apparently want to return this TARP

money because of restrictions and the things that you talked about

a little bit earlier that the Obama administration is demanding,

and the public is demanding. How do you feel about that? I am just

curious, just in a few words, because I have some other things I

want to ask you.

Mr. KASHKARI. I am concerned, because in many cases the banks

that want to return the money, well, we have 200 banks that we

have approved that have said, ‘‘no, thank you.’’ And in most cases,

the ones who are saying, ‘‘no, thank you,’’ or who expressed an interest to return are the strongest, healthiest of our institutions.

Those are the very ones we want to take more capital, because they

are in the best position to extend credit.

So I understand, well, in any case——

Mr. CUMMINGS. Well, that leads me to something else, then. So

they are the stronger banks, they want to give the money back, because they don’t want to abide by the Obama rules, President

Obama’s rules. And it seems like then they should be in a better

position, particularly if they had the money, to make the loans. So

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it sounds like they are more, they might be more interested in continuing to operate as usual, as opposed to seeing our economy come

out of this great slump that we are in. I am just curious.

Mr. KASHKARI. It is a tough problem to answer with precision,

because as I indicated earlier, 60 percent of our credit is from

banks, 40 percent is non-banks. I know the 40 percent is not working right now. We are trying to get that going. If you look at the

lending survey that we did do, which covers the majority of the

banks in the country in terms of dollars, lending has held up remarkably well.

A lot of banks, especially the smaller banks, will say they are

just scared, because they are hearing so much noise out of Washington, they are saying, ‘‘do I really need the headache of taking

this additional money? I know if I took additional money, I could

put it to work.’’ But there is so much coming out of Washington

right now, they are calling us and saying, ‘‘you know what? No,

thank you. I don’t know what is coming, so no, thank you.’’ We are

disappointed by that, because we want the strongest banks to take

more money, because they can turn around and extend credit.

Mr. CUMMINGS. So you already said in your statement that you

didn’t feel that public officials like you have any business telling

banks how to lend, because they are in a better position to do it,

to make those determinations. And I don’t know how you can say

that with a straight face. After all, a lot of these banks did some

poor decisionmaking and got us into this mess.

So I am just wondering, and I know about that latitude that you

talked about. But I am wondering, the new program that you are

talking about with regard to the auto loans and freeing up the

money, how does that work? And how might that have an affect on

banks, negatively or positively?

Mr. KASHKARI. This program is a Federal Reserve, we call it a

facility, where the Fed says they will lend money to people who buy

securities. So new securities, a bunch of auto loans are packaged

together, they meet certain standards, an investor wants to buy

those securities, they can get a loan from the Federal Reserve to

buy those securities. The investor has to put in some of their own

money. And then they will have that for up to 3 years.

So it enables private capital to come off the sideline to get money

into these markets with the Federal Government providing some of

the lending to those investors. So it is complicated. But the market,

the investors have said they really want it. The car companies and

the student loan companies and the small business companies have

all said, this should really help them by bringing down rates for

borrowers.

At the end of the day, this program is all about bringing down

rates for our consumers.

Mr. CUMMINGS. And how does that affect the banks?

Mr. KASHKARI. Well, the banks, in this case——

Mr. CUMMINGS. What is your hope?

Mr. KASHKARI. The banks in this case, it is not the main priority

of this program. This program is about getting lending to consumers. The banks have a role to play, because they are the ones who

buy all these auto loans, package them up and then sell them to

investors. So the banks have a role, but this is not about the banks

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extending credit. This is about getting credit going from the nonbanking market to the consumers and to the car buyers.

Mr. CUMMINGS. I got you. But I was just wondering if this then

establishes some kind of competition. In other words, these are people who are borrowing money from a non-bank?

Mr. KASHKARI. Correct.

Mr. CUMMINGS. So I was just wondering how much competition

that gives to the banks and whether that spurs any activity?

Mr. KASHKARI. I think it a good thing.

Mr. KUCINICH. You may respond, and then the gentleman’s time

is expired, but please respond.

Mr. CUMMINGS. Thank you, Mr. Chairman.

Mr. KASHKARI. Thank you, Chairman. I think the more diverse

sources we have of credit in our economy, the better we are going

to be. So we need to get the non-banking market going. We need

the banks to do more. But we really need to get the non-banking

market going. That is where the big hole is right now. We need all

of it.

Mr. KUCINICH. Thank you.

We are going to go to round three. Mr. Kashkari, picking up

where we left off, you said that Treasury’s internal controls need

apply only to Treasury and not to the banks that have sold equity

to Treasury.

Mr. KASHKARI. Yes, Congressman. I am referring to the internal

control provision in the EESA.

Mr. KUCINICH. I understand, but I would gently remind you that

view is somewhat extreme, that is at odds with legal analysis of

our duties to monitor the use of TARP funds by the banks that got

them. CRS has spoken to this directly. And it is not alone. The

GAO is also of the opinion that your legal duty is to monitor the

use of TARP funds by the banks which receive them. It seems to

me that you may be alone in the view that Congress didn’t mean

what it said in Section 116 of the EESA. We told you in there that

we wanted Treasury to safeguard the TARP moneys from waste

and abuse. That is the meaning of the incorporation of the Federal

Managers Financial Integrity Act, Title 31, Section 3512(c).

I think that you are taking a position that is not tenable and one

that is pointedly lacking in responsibility for the office that you

hold. And that is that you just say it is not your job. Now, granted,

you have come in under extraordinary circumstances. But we have

a new administration coming in. And I am hopeful they are going

to take a fresh look at this law. If you want to comment on what

I said, feel free to, and then I have some followup.

Mr. KASHKARI. Thank you, Mr. Chairman.

We take protecting taxpayers’ money extraordinarily seriously.

Extraordinarily seriously. What I was referring to was the section

you are referring to, the internal control provision of the EESA. I

personally spoke with the GAO and the Special Inspector General

about their interpretation of this. And they agreed with me, you

will hear from them on the third panel, they agreed with our assessment that this internal control provision is talking about

Treasury’s own internal controls, within Treasury, and we are

working, we have made a lot of progress on our own internal controls.

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Mr. KUCINICH. You are saying that you publicly acknowledge

that you have a responsibility for the internal controls of the TARP

funds once they go to the banks.

Mr. KASHKARI. No, I am saying we have a responsibility for internal controls within the Treasury organization and we have responsibilities to the taxpayers to make sure the money is used appropriately and in the best policy interests of the control. The internal control provision is very narrowly focused. That doesn’t mean

we don’t have to protect the taxpayers. We have other mechanisms

for protecting the taxpayers.

Mr. KUCINICH. Are you saying Congress was not specific enough

in its charge to you?

Mr. KASHKARI. I have been advised, Mr. Chairman, forgive me,

I am not an attorney, I have been advised by our lawyers at Treasury that Section 3512(c) of Title 31, United States Code, is specifically about internal procedures within Federal Government agencies. And that is what we are referring to. That is what the law

refers to right here on line 16.

Mr. KUCINICH. We are going to hear more about this point in the

third panel. We don’t think it is arcane, we think it relates directly

to your responsibilities. When we began this day talking about how

banks who got TARP funds are moving the money out of the country, it is my opinion, and apparently the opinion of some members

of this panel, that there should be accountability from the Treasury

Department as to U.S. taxpayers’ funds being spent by TARP recipients in other countries, especially when we have such dire

straits here.

Now, in the time that I have remaining on this particular round,

I want to talk about the impact of the TARP funds. Congress has

heard repeatedly the representations of large TARP recipients

about the billions of dollars of new credit they are creating. They

are eager to tell the side of the story you repeated today. You stated on page 10 of your testimony that all loan amounts appear to

be going up.

But the lending is much reduced compared to the period before

the crisis. Isn’t that so?

Mr. KASHKARI. Yes, as I indicated.

Mr. KUCINICH. But then what about the other side of the picture?

Are you collecting data from the banks on the contraction of existing credit that is occurring? Now, this goes to some of the questions

Mr. Souder has raised. Where have you shown the decline in credit

due to foreclosures and the suspension of credit lines that our constituents are experiencing? How do those numbers compare to past

periods? And Mr. Kashkari, if the new credit doesn’t more than offset the extinction of existing credit, does the economy experience a

net positive effect from credit activities, or a net negative effect? If

you can respond to that, and my time is expired.

Mr. KASHKARI. Thank you, Mr. Chairman. There is no question

that in recessions, credit levels fall. Because both lenders and borrowers are nervous about taking on new obligations and extending

credit. There is no question about that. When we look at the lending levels that we are seeing, we know that they are higher than

they would have been absent the TARP funds. We think they have

held up remarkably well in light of the severe economic contraction

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we had in Q4. But again, as I look at the broader credit problem,

the banking sector is part of it. A much bigger problem at this

point is the securitization market, the non-banking sector.

So banking is not as high as we would like it to be, securitization

is zero. And it was 40 percent before this started. So we need to

get that going, too.

Mr. KUCINICH. My time is expired, I just want to comment that

at no time in the history of this country have we ever had a period

where we were in a recession and there is massive amounts of Federal dollars, by the time this thing is through, maybe trillions of

Federal dollars going in to prop up the economy, and where is the

money going in terms of a net new credit to report to us?

Mr. Souder.

Mr. SOUDER. I want to continue along this a little bit. Clearly,

because of Enron, we had to look at what I guess is called fair

value measurements, which is mark to market. The challenge here

that we have, because that went in in November 2007.

So to talk about a change, it appears to be one of the changes

that helped trigger the credit crisis, with all due respect. Because

it exposed those who were not fair marketed value and then caused

a panic beyond that, because it was a broad swipe at everybody’s

valuation, when in fact, in areas of the country like mine, we had

been having 2, 3 percent growth, not 100 percent growth in housing. The national went up 200 percent while the economy was

growing at about 3. It doesn’t take a rocket scientist, it takes Business 101 to see you have a mismatch.

But that mismatch was not universal. So we did a universal solution that in particular, and I am fascinated, because the more you

read, the more you study about this, there has been a major changing in finances in the country in securitization and moving outside

the Fed regulated and into this 40 percent other sector that you

are talking about. Yet the banks are tightly regulated and we slam

fair market measurements on them.

Now, if we fund the securitization group, getting to Mr.

Cummings’ question, are they going to have to play by the same

rules as banks, and then if they have to do fair market measurements, we are right back to where we were. There has to be some

kind of addressing an underlying concern.

But let me first ask, in this trying to get the 40 percent

securitization, that was where the biggest problem was, if they are

going to compete on loans, are they going to come in under similar

banking rules? Some of them are converting to banks.

Mr. KASHKARI. Correct.

Mr. SOUDER. Is this going to be a mandatory thing? Is there

going to be a supervisory? This is where transparency starts to become a huge deal. Because if the problem sector, really for the most

part, it was not a bank, it was a division of a bank to compete with

this 40 percent.

Mr. KASHKARI. The 40 percent part is made up of a lot of different types of institutions. So you have big banks, like CIT, nonbanks, excuse me, like CIT or GE Capital, etc. You have pension

plans, insurance companies who need to buy assets to match their

liabilities, you have various kinds of funds all around the world. So

it is hard to define them as one category, because there are all

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sorts of dogs and cats investing in the non-bank market and buying

these securities.

Most of them, to my understanding, are, in many cases, they are

marking those securities to market. And so they do see the asset

prices go up and down. So I think your points have a lot of merit.

I would say the one other point, in terms of accounting and

transparency, that has been at the root cause of this problem is it

has been almost impossible to peer into these mortgage-backed securities to figure out which loans are in there, who wrote the loans,

how are they doing. And because investors had a hard time peering

into the mortgage-backed securities, let alone the CDOs, when they

were bundled together, they didn’t know which mortgages were

good, which securities were bad. So they pulled back from all of

them. And that is an example where, like in your district, where

their home prices didn’t take off, they are suffering.

Mr. SOUDER. It doesn’t take too much time, we have had multiple

hearings here, reading about Countrywide and so on, that basically, if you were paying 6 percent, there was less risk than if you

were paying 14. When you start to see the high rates of return beyond the normal rates of return, I think it is Eric Paulson who

made the $3.7 billion.

Mr. KASHKARI. John Paulson.

Mr. SOUDER. When he was here and I asked him a similar question, he said, ‘‘how do you think I made my money?’’ He could see

this, anybody who was studying it could figure out which ones were

inflated and which ones weren’t. It wasn’t like that confused. It

was sloppiness, people wanted the high returns. You had to either

be in pharmaceutical speculation, energy speculation or housing

speculation if you are getting higher than 6 or 8 percent. And the

pension funds may have done that.

I am not very tolerant of the people who say, ‘‘oh, we couldn’t figure out was going on, we need more transparency.’’ But they

weren’t paying close enough attention.

In this non-bank financial sector, in trying to monitor how they

are doing, I have Lincoln Financial in my district, the center of annuities in the country. They bought a bank because they are now

applying for TARP funds. And we saw a number of others convert

to banks. But you suggested that the Federal Reserve is setting up

a separate fund that won’t require them to be like a bank.

Mr. KASHKARI. Correct, so that the new program that the Fed

has set up, that Treasury is supporting to get lending going, many,

many financial participants can use it.

Mr. SOUDER. And who is going to regulate them, and what guidelines are they going to have, and are there going to be similar regulations? Because while we are all in Congress obsessed about the

banking sector, you are telling us that there is a 40 percent and

the Fed is floating out $2 trillion, while we are dealing with $700

billion in your funding.

Mr. KASHKARI. The Fed and Treasury designed very important

procedures and restrictions to make sure we know the quality of

the collateral that we are going to be getting. Because when the

Fed loans in this new program, they are going to get the securities

as collateral. So it is only going to be new loans, new

securitizations in this current program. And very strict guidelines

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in terms of what is eligible to make sure that we protect the taxpayers. There is not with it, per se, going to be new regulations

that go for the people who are lending money into that system, but

we are making sure the taxpayers are protected.

Mr. SOUDER. Thank you.

Mr. KUCINICH. Mr. Kennedy.

Mr. KENNEDY. Thank you, Mr. Chairman.

You have painted for us a very stark picture in terms of what

we have in front of us, and that is, we have the uncertainty of the

markets, and yet we have the necessity to act quickly. We are

going to be confronted with the choice as to how to put an end to

this uncertainty by putting up however many more billions of dollars to stave off continued decline in the markets and continued recession that is going to lead to further dislocation of our workers

in this country. And the President spoke very clearly of the need

to act now or act later.

The question I have for you is, given the fungibility that you say

these financial institutions are involved with respect to the world

markets, how can we be certain that the dollars that are going to

be going into this public-private fund are dollars that are going to

absolutely mean the end of the uncertainty with respect to those

toxic assets, when we are part of an international world economy

now? And we want to make sure that whatever final package is the

final package and that there isn’t going to be another shoe to drop,

so to speak.

That is what my constituents want to know. We want closure

just as much as the President does. We want to be able to move

on. We don’t want this recession to drag on any further. And we

also don’t want to overpay for these toxic assets any more than

they have to be. But we understand that if we let this recession

drag on, it is going to cost us a great deal. I would ask you to comment on this, because I think this is a fundamental point that most

economists have been talking about, what is it that we have to put

the staunch to, wrap the tourniquet around? How do we wrap a

tourniquet around something that is involved in a global economy

in terms of assets?

Mr. KASHKARI. Thank you, Congressman. I will answer your

question in two parts. The first part, the global nature. We cannot

act alone. So we have our programs. We are consulting closely with

our counter-parties in other countries who are taking similar measures that are tailor-made for their system. The world leading

economies all need to act. I think that they are acting with different speeds, but they are acting, and we are going to continue to

have an active dialog to encourage all of us to move in a coordinated fashion, No. 1.

No. 2, Secretary Geithner’s financial stability plan has laid out

a broad framework to do this. There is not one piece of it that by

itself will solve everything. We have the capital program that he

has laid out to make sure our banks have enough capital, even in

a worse economic environment, that they can continue to lend.

That is very important. That is underway, the details are out

there.

No. 2 is the lending program that we talked about, scaling up

from $200 billion to $1 trillion, to make sure our consumers and

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our small businesses can get the credit that they need right now.

That is underway. It is going to start funding in a couple of weeks.

And then third is the public-private partnership that we just talked

about to go after the bad assets. Not one of these tools by itself will

be the final solution. We believe these three tools, combined with

the other tools that the Fed and other regulators have done, will

get at this.

Fundamentally, we have a credit crisis that has hurt our economy. And now the economy is looping back. It is a vicious cycle,

and it is hurting the financial system again. So we have to go at

it from the financial perspective, and then the stimulus bill that

the Congress passed and the President signed is also going to be

very important to getting the economy going. We need to go at it

from both directions.

Mr. KENNEDY. I would say that obviously, as we have heard this

morning, transparency. We need to be able to show the American

public just how this links to them. And I understand the college

loans, I understand the making payroll in businesses, I understand

people’s vested pensions and annuities. But we need to make that

even clearer to people, because right now, that case has not been

fully made. And until it is fully made, we are not going to be able

to come back to the American people and say to them, ‘‘this is in

your interest.’’ Because right now, they don’t see it as in their interest.

And there is only one person who can really make that argument, that is the President of the United States. You can’t have

535 Members of Congress out there trying to explain to the American people how getting this financial system back on track by infusing it with more dollars is going to do this for them, when all

they’re seeing is that, you know, kind of trickle down. They have

to understand that this is part of the lifeblood of the economy, and

the lifeblood of our financial system is one and the same.

Right now, that is not becoming very transparent, as you have

seen from this hearing. Until that becomes transparent, it is going

to be very hard for the people’s representatives, us, to be able to

give the President what he needs in order to infuse any more assets into this kind of recovery. So we certainly want to get out of

this situation, but we need really clear leadership and explanation

from the top, in the only way the President can deliver it.

Mr. KASHKARI. Thank you.

Mr. KUCINICH. The gentleman’s time is expired.

Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

Mr. Kashkari, you have been as good as your word, it has been

quite an afternoon, and I appreciate your time. One question I have

for you. Earlier I asked about, if you will, pushback or influence

or advocacy by Members of Congress. But now let’s switch to the

other side. Tell me about the pushback you inherently get or you

are getting or resistance you are getting from the mortgage industry, from the banking industry, on giving you the facts and figures

you might need in order to better analyze the underlying assets

that we so often call toxic.

Mr. KASHKARI. So far, Congressman, every time we have asked

for data from any recipient banks, they have all complied with us,

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because they know they need to. It is in the country’s interest and

their interest to comply. And that is really focused on lending levels, which many people ask us about. As I said, we are going out

to all the institutions to collect the data, not just the top 20. We

have not gone out and done a survey of so-called toxic assets per

se. I think if we asked them for the data, they would provide it to

us.

Again, we work closely with the regulators who have a lot of this

data already. I know that the OCC, the OTS and the FDIC, for example, collect loan level data from all of their banks and roll that

out to look at what is happening in mortgages around the country.

So we get the data from different places, partly from the banks,

partly from the regulators. As yet, we haven’t had any pushback

to the data that we have asked for.

Mr. ISSA. Earlier today, there was some talk about loans going

to Dubai and China and other places. Isn’t it true that the United

States is a net debtor around the world?

Mr. KASHKARI. Yes.

Mr. ISSA. So if we wanted back all the money that, if you will,

we have loaned and invested in other places, and the rest of the

world did the same in return, wouldn’t we suddenly have trillions

of dollars of shortfall far beyond what we are putting in with

TARP?

Mr. KASHKARI. I believe so, yes.

Mr. ISSA. I had that impression, from a little CNBC and Fox

Business News, it seemed it was that way.

Congressman Kennedy has left, but he talked about certainty,

one-time, etc. From your standpoint, having lived with multiple

tranches of different solutions, TARP being one of them, do you

think we are well-served by having one more, this is it, it encompasses everything, we will never come back, or should we look at

smaller steps with more congressional oversight? In other words,

do what you think is right, come back to us and tell us what you

have done, rather than the $700 billion which, by your own admission, really never got used in the original way and will be probably

gone before we begin buying those assets in any great numbers.

So I don’t want to say that he was wrong, but wouldn’t you say

that the opposite is true, that we should ask for careful and deliberate actions, even if they are not complete, agree to those, authorize you and then have you come back when you learn more?

Mr. KASHKARI. I think that there is merit in that. But I am cautions, because sometimes we have to take action that is so unpleasant, but it is so urgent, we just have to move.

Mr. ISSA. Sure. And I am not suggesting little teeny sizes. But

the $700 billion which was $350, $350, represented by your own

statement, at least 489 different transactions. So going forward,

you don’t need a trillion all at once next time, that in fact, although

we may authorize and anticipate a trillion, the periodic reporting

that we could expect in a TARP II, the updates and the increments

could in fact be more manageable, because we are not dealing with

an overnight crisis in which you don’t know how much you need

to put out, but you might need to put it all out in 1 day, so to

speak?

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Mr. KASHKARI. I think it could be, and I think that this is consistent with the way Secretary Geithner is thinking about it. Because of his new programs, we can get going with the available

capital we have. We can assess that they are having the desired

effect and then come back and ask, if and when he decides to ask

for more, do so then.

Mr. ISSA. Now, I have kind of a long-arm question for you, and

it is a big one. It is a little outside yours, so if you feel uncomfortable completely answering it today, I hope you would come back

with your thoughts. Up until now, Members of Congress have been

saying, we have to put, and the administration, too, saying we have

to put money in in order to free up mortgages. And I am not dissuading anyone today from that view.

But another scenario, if we hadn’t put a penny into the back end,

the banks, and instead, we put a hypothetically sufficient amount,

whatever it was, into the refinancing of new mortgages, so that if

a bank said, ‘‘look, I am calling the loan, here is the foreclosure,’’

because you know, they are not doing foreclosures right now in

many cases, people are staying in their homes months and months

and months, waiting to see what happens.

If they had done all the foreclosures and people who could make

a monthly payment on a future mortgage had available mortgages,

if we facilitated the front end of the new mortgage with trillions

of dollars of capability, wouldn’t we in some ways have mark to

market, refinanced, found the good people, renegotiated in much

less time than now we are putting money in, the chairman and others have made the point that it doesn’t necessarily seem to be

trickling down. We are pushing it on this end, asking it to end up

here, rather than saying, do what you think is right and we will

take care of people who are creditworthy, whether they are existing

homeowners or future for homeowners on those foreclosed properties.

Mr. KUCINICH. The gentleman’s time is expired, but I would ask

if you would answer his question.

Mr. KASHKARI. Thank you.

Congressman, I think we are doing both. So I think the actions

taken to stabilize Fannie and Freddie, to make sure that mortgages

were still available in FHA is very important. I don’t think we

could just say, forget the banks, we are just going to startup all

new lending programs, because we would have no way of administering that. The banks, for all our frustrations, they have thousands of branch offices in all of our communities. And they are the

tentacles out into getting credit out there.

So I think we need to do both, providing the Government support

for the lending like the new program that I talked about, as well

as helping the banks get through this time.

Mr. ISSA. Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman.

We are going to go to a fourth round with Mr. Kashkari. One of

the things that I am concerned about, the Washington Post reports

on a public-private partnership, they say last week, the Government is seeking to resuscitate the Nation’s crippled financial system by forging an alliance with the very outfits that most benefited

from the bonanza preceding the collapse of the credit markets,

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hedge funds and private equity firms. The article goes on to say

that they would be invited to buy up recently issued highly rated

securities. These securities finance consumer lending, such as credit cards and student and auto loans. The program would involve

the Government lending nearly $1 trillion.

Is this the public-private partnership you are talking about?

Mr. KASHKARI. Yes.

Mr. KUCINICH. OK. So in this graph that the, some art work that

the Post puts out, they say that with Government assistance to

stimulate purchases of the securities investors borrow from the

Fed, for $10 million worth an investor might put up $1 million and

borrow $9 million. Then it says, the second part, the public part,

the Government offers to cover losses if consumers default and the

asset-backed security declines in value. Then it goes on to say that

if the asset-backed security’s value falls, an investor may lose only

his original $1 million and the Treasury and the Fed would absorb

additional losses, which means that the exposure under this, according to this report, the exposure of the Treasury and the Fed

could be as much as 90 percent.

Now, here is my question. The Obama budget says that he has put a marker, placeholder of $250 billion anticipating that would

be the losses if the Government goes forward with this $750 billion

TARP II. We see that there is a discussion among more money

going to the FDIC. We know that the amount of losses, according

to the President’s new budget, is 33 percent, estimate. We know

that the amount of loss that you had before is around 30 percent,

that is the number that is being thrown about.

Is it possible that if we go forward with a total of what could be about $3 trillion in TARP funds, rough figure, if the estimated loss

would be 30 to 33 percent, we are looking at taxpayers being stuck

with $900 billion to $1 trillion. Now, think about this. Every, you

know, if you use $3 trillion and somebody else can do the math

here, but you have 300 million Americans, is that like $10,000 per

capita? Is that like $30,000 or more a family that we are into this

already?

And then you get to this, check this out. Today’s headline, Washington Post, Rays of Hope for Big Banks Spur Rally on Wall Street.

Citigroup apparently is doing some recovery. And the article says,

and this goes to what Mr. Kennedy raised and what I want to laser

focus on right now. Investors were being dealt more signs yesterday that corporations were shedding more jobs. Seen by many as

a way for companies to steady themselves during a deepening recession, United Technologies, a large industrial company, said it

expects to lay off 11,600 employees. AOL said it is executing a second major round of layoffs, shedding 10 percent of its work force.

I am from Cleveland. Our economy has been falling apart. We

have foreclosures everywhere. The sub-prime loan bandits have

capitalized in my city and crushed neighborhoods in my city. Our

steel mills are in trouble, we have auto plants that are in trouble.

And the banks are doing, are starting to come back, according to

this. But we don’t see any evidence that we are going to come back.

What can you tell the people in neighborhoods across this country, that they should go ahead and put trillions of dollars of their

money at risk when we are reading these reports that they could,

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it looks like huge losses are in the offing under the best of circumstances? Why aren’t we taking a controlling interest in mortgage-backed securities and the Government directing loan modifications to lower principal, lower interest instead of leaving it up

to people who are still freezing credit here in the States, while they

are shipping jobs and money overseas?

This to me is a textbook definition of political insanity. And I

would just like, do you ever think about these things, about the inherent contradictions that are in this, about how Wall Street might

have one view of the world, but the rest of America is just beset

with all these problems as a result of Wall Street?

Mr. KASHKARI. Thank you, Mr. Chairman. I think about these

things all the time. And you asked a very important but complex

question, so please, permit me to give a thorough answer to your

question.

First, let’s talk about the foreclosure piece. The administration

has now come out with what I think is a very good loan modification program, a $75 billion program to encourage servicers and

lenders to make long-term sustainable loan modifications. That

program is getting up and running right now. We have teams of

people, reporting to me, that are working on implementing that

right now. We feel very good about that. I think that is going to

make an important difference in our communities, No. 1.

No. 2, in terms of the loss estimates, I would like to offer my perspective on that. I think we have to segment our different programs, because different programs have different classes of risk for

the taxpayers. So for example, the lending initiative that I have

spent a lot of time talking about today, which Secretary Geithner

wants to take to $1 trillion, is secured by very high quality collateral. We expect, where investors are in the first loss, actually there

are multiple losses for investors, before Treasury is exposed, the

taxpayer is exposed.

My expectation is the losses on that program or the risks on that

program are much, much lower than the risks on some of the other

things that we have had to do. So I am just telling you candidly,

I don’t think we can take the loss estimate for one program and

scale it up and apply it. I don’t think it is going to be that aggressive.

Nonetheless, there are real risks. We are all taxpayers. And none

of us like putting our dollars at risk to have to do what we are having to do. But the economic consequences for all of us are much,

much greater if we don’t do these distasteful things that we are

having to do, putting taxpayer dollars at risk, intervening in these

markets. It is in our own interests. We need to get through this crisis as quickly as possible so the economy can grow again, so we can

create jobs. And then we need to reform our regulatory system so

we don’t get back here again.

Mr. KUCINICH. My time is expired. I would like to go to Mr.

Souder.

Mr. SOUDER. I thank you for your time today, and I wanted to

leave you with a couple of thoughts. One encouraging thing is, all

these hearings, which I know have to be frustrating to you, it is

amazing how much about finance Americans are going to be learning in this process. It is like we forgot what risk was.

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My house, I bought it from a local small town bank, Grable

Bank. The next thing I knew, I was sending it to Brussels, to

Amro, Ambro or whatever that company is. Now it goes to a company owned by the Chinese. If we are not careful here, we will

slam down our own mortgages on ourselves. This money is all over

the place and split and securitized and much more complicated

than most of us even think about when we get our home mortgage,

which may not even have the name of the company we are paying

it to.

The transparency question, one is, I know that some banks are

nervous about getting in because they are worried that if they get

this fund, they are going to get a call from you or somebody that

says, ‘‘we noticed you put satellite radio in your car, why did you

do that?’’ They are very concerned about the big hand of Government here, because they are watching the micromanaging, what is

a fair salary how do you do this?

On the other hand, from the taxpayer perspective, you can hear

today a lot of the frustration with transparency. I think while you

need to have your private ability, and I am very worried we are

about in the process of potentially destroying private sector capital

because of the amount of money that the Government is going to

be taking, how we are going to micromanage this, the different loan

categories. It is a frightening thing. There might be public-private

partnerships, but it is a scary time if you are more of a private sector person. Partly brought on by the private sector.

But in the transparency question, I understand the point here.

But even in mark to market, there is a deep suspicion that, because the change only occurred in 2007, that the reason we can’t

come back is that hedge fund, people who are buying short and

long and all this kind of stuff, have a chokehold on the system. And

it is not transparent. And what would seem logical to a traditional

banking system, we can’t see what is happening. That leads to a

mistrust, because it seems to a hardworking person who gets up in

the morning and goes to work and starts a small business and tries

to get an expansion loan and the bank calls down and says, ‘‘we

are not going to keep your revolving loan credit there, we are having struggles,’’ partly, is somebody speculating against me and I

can’t see it?

So one of the advantages of the education process that we are

going through is that it has also generated a fear that some people

are manipulating us. I think that the demand of transparency is

going to overwhelm the desire to have flexibility in your decisions.

When you touch the Government, you get the full scale of the Government. This is very worrisome to many of us. At the same time,

I don’t know how to do it, because even I don’t have a lot of trust

right now.

Mr. KASHKARI. Thank you.

Mr. KUCINICH. I thank the gentleman.

Mr. Cummings.

Mr. CUMMINGS. I was just sitting here thinking about what

somebody watching this, whether the American people would, how

would they feel about all of this, this hearing. The newspapers are

running a story, by the way, just in case your staff hasn’t told you,

Kashkari says that we should stay out of the banks’ business of

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lending. That is the story that has come out of this. That is what

is all over the place.

And then you have Reuters, just came out with a story an hour

ago, I just want to quote from the story, it says, ‘‘Six months after

the United States Government stepped in and saved an insurance

giant overwhelmed by derivative losses, AIG continues to bleed red

ink. Its stocks and bondholders have been crushed, but one group

has suffered almost no damage: banks that bought credit protection

from AIG financial products. Regulatory filings show that since the

Federal Reserve announced its rescue of AIG on September 15th,

about $50 billion of Government money has passed through the

company to the banks. ‘Treasury is providing a massive wealth

transfer from taxpayers to Goldman Sachs and other parties, and

it is something that absolutely should be investigated,’ said Eric

Hovde, chief executive of Hovde Capital Advisors, where he manages financial services focused on hedge funds.’’

The reason why I mention that, it seems like the banks are coming out of this pretty good. They are getting money, whether they

want it or not, they get it. If they don’t like the rules, you know

what they say? ‘‘Screw you, we will give it back.’’ Then we have you

saying we shouldn’t meddle in their business, taxpayers are saying,

‘‘we just want a loan.’’

Then you tell us, and I am sure this is a good thing, this entity

that you are creating to help people get loans, auto loans and all

of that. But the problem is this. It seems that we are helping the

banks tremendously, but they basically, and they could be more of

a part of a solution to the problem. But I kind of think maybe,

whether it is intentional or unintentional, that we just said to

them, you know, guys, we are going to keep on giving you the

money and you do whatever you want.’’ Because top guy says, Congress, we shouldn’t be trying to determine who they lend to. They

are the decisionmakers, as President Bush said, the deciders.

And the deciders have gotten us into the jam that we are in

today. I guess what I am trying to say is that I want to go back

to that analogy that I gave. I believe that you all are doing everything in your power. I believe you lose sleep, I think you are giving

it everything. And I think you are very, very competent. I think the

whole team is. But I feel like you are going up a hill.

But it is not becoming any easier, when the banks could help us

up this hill by having some gravel down there so we could get a

grip on something, we get ice. Sometimes I think that the folks on

Wall Street operate in a whole different world. I don’t know if they

even have a clue, a clue about the people who are looking at this

right now. I really don’t. When they say, $1 million, it is like $25

to the folks who are losing their homes.

So you have to say something to me, you have to do something

for me to tell these banks to help out. I don’t want us to leave this

hearing with them saying, ‘‘thanks, now we really have our way.’’

And it is very, very painful.

Mr. KUCINICH. You may respond to Mr. Cummings, and then we

will conclude this round.

Mr. KASHKARI. Thank you, Congressman.

I share your frustration. Every time I open the paper and I read

another story of some shindig somewhere, I just wonder, what are

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these guys thinking. They are not helping themselves, they are not

helping me. They are not helping Washington or our leaders who

are trying to get us through this. They are not helping the American people have confidence.

So I think there have been many cases of enormous lapses of

judgment in some of the actions that the banks have taken. And

I also, sir, I don’t want to leave you with the wrong impression. My

comments about, we don’t want to micromanage these institutions,

I am talking about the hundreds, maybe thousands of institutions

we are investing in, community banks all around our country, who

did not create this problem. But we want to encourage them to participate, because they are in the best position to step up and increase credit. So that is where my comments were directed there.

For the institutions, the one-offs that made terrible decisions and

they need extraordinary assistance from the Federal Government

to prevent them from being destabilized, then we absolutely have

obligations and responsibilities to make sure that they run their

businesses in a prudent and sound manner, and that they can pay

back the taxpayers. Again, my two highest priorities are financial

stability and paying back the taxpayers.

Mr. CUMMINGS. Thank you.

Mr. KUCINICH. I thank the gentleman.

Mr. Kashkari, you have been here for four rounds of questioning.

We are going to conclude the question of you and thank you for giving this committee your time here, and giving this country your

service. We know this hasn’t been easy for you as a witness. But

I think that you have been a good witness in representing the point

of view that Treasury has been conducting as policy. The difference

that we have, this whole hearing has been about challenging the

policies, about what we believe is Treasury’s failure to monitor the

ways in which financial institutions are using taxpayers’ funds.

And I think that as I conclude, and send you with the appreciation of this committee, one of the things I have seen here, and Mr.

Souder brings it up, there is a fundamental flaw in Government

intervention in the markets. This is why we are here. The Government is intervening in markets and it is picking winners and losers.

So when the issue came up about micromanaging, you have to

remember that Congress has a constitutional obligation for oversight. We are a co-equal branch of Government. We cannot defer

to Treasury when there are trillions of tax dollars at stake. I know

you understand that, which is the whole point of this hearing.

The reason why we are here in the first place is that the banks

did not perform their fiduciary responsibilities. So when we want

to defer to the banks again, you could understand why we would

have some problems with just letting that go unchallenged, and in

not insisting that Treasury, as we move forward, has to look at

their responsibilities for monitoring the ways in which financial institutions are using these taxpayer funds under the Troubled Asset

Relief Program.

So with that, I just want to say that you have appeared before

this subcommittee on two occasions. You have conducted yourself

in a way that I think reflects honor and service to the country, and

I want to thank you for your presence here. And all the members

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of the committee who I have talked to about your presence here

today, while we may take issue with your presentation, we think

that you have certainly been an excellent witness for the Department of Treasury.

So thank you, Mr. Kashkari.

We are going to proceed, the first panel with Mr. Kashkari is

now discharged. We are going to take a 5-minute recess, and it is

only 5 minutes, as we get the second panel together. We are going

to combine the second panel and the third panel together, without

objection. But we are going to take a 5-minute recess. We will be

back in 5 minutes.

[Recess.]

Mr. KUCINICH. The committee will come to order.

We are fortunate to have an outstanding group of witnesses on

our second panel. If you just joined us, we are combining the second and the third panels. This is the Domestic Policy Subcommittee of Oversight and Government Reform. The topic for today is

‘‘Peeling Back the TARP: Exposing Treasury’s Failure to Monitor

the Ways Financial Institutions are Using Taxpayer Funds Provided Under the Troubled Assets Relief Program.’’

Our first panel has been with Mr. Neel Kashkari. And we are

going to go to the second panel. And moving right into this, I want

to introduce the members of the panel.

They include Professor Anthony B. Sanders, professor of finance

and real estate at the W.P. Carey School of Business of Arizona

State University, where he holds the Bob Herberger Arizona Heritage Chair. He has previously taught at the University of Chicago,

the Graduate School of Business, University of Texas at Austin

Macomb School of Business, and the Ohio State University Fisher

College of Business. In addition, he served as director and head of

asset-backed and mortgage-backed securities research at

Deutschebank in New York City.

Mr. Stephen Horne is vice president of Master Data Management

and Integration Services for Dow Jones Business and Relationship

Intelligence. Mr. Horne has over 30 years experience in master

data management, consumer relationship management, Web data

applications and very large data base development. Mr. Horne specializes in large scale data integration and data utilization from the

Dow Jones master data base and performs business development

and strategy for these areas. Previously, Mr. Horne was a consultant for Generate, a startup relationship mapping and Web-based

data collection form that was acquired by Dow Jones to become the

Dow Jones BRI division.

Mr. Mark Bolgiano is president and CEO of XBRL US, Inc., the

leading advocate for the use of extensive business reporting language, which promises to increase the transparency of reporting

and disclosure of corporate financial information. Mr. Bolgiano

joined XBRL US as its first president and CEO in December 2006.

Previously, he led the technology and online communications operation of the Council on Foundations as vice president and Chief Financial Officer.

We are also joined by Mr. Neil Barofsky. Mr. Barofsky was confirmed by the Senate as a special inspector general for the TARP

on December 8, 2008, and was sworn into office on December 15,

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2008. Prior to assuming the position of special inspector general,

Mr. Barofsky was a Federal prosecutor in the U.S. Attorney’s Office

for the Southern District of New York for more than 8 years. In

that office, Mr. Barofsky was a senior trial counsel who headed the

mortgage fraud group which investigated and prosecuted all aspects of mortgage fraud, from retail mortgage fraud cases to investigations involving potential securities fraud with respect to

collateralized debt obligations. Mr. Barofsky received the Attorney

General’s John Marshall Award for his work on the case that led

to the conviction of the former president of Refco, Inc., and that is

Tony Grant, and the guilty plea of Philip Bennett, Refco’s former

chief executive officer.

Mr. Richard Hillman has served 31 years with the U.S. Government Accountability Office, and is currently the Managing Director

of the GAO’s Financial Markets and Community Investment Team.

This team helps the Congress improve the efficiency of regulatory

oversight in financial and housing markets, and the management

of community development programs. Over the past decade, Mr.

Hillman has produced scores of reports and led a wide variety of

efforts assessing the economy, efficiency and effectiveness of Federal and State regulation of the financial services sector.

It is the policy of the Committee on Oversight and Government

Reform to swear in all witnesses before they testify. I want to

thank all of you for being here, and I ask that now you would rise

and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Thank you, you may be seated.

Let the record reflect that each of the witnesses has answered in

the affirmative.

As with panel one, I ask that each witness give an oral summary

of his or her testimony. I would especially ask that you keep this

summary under 5 minutes in duration.

I would like you to bear in mind that your complete written

statement will be included in the hearing record. And we are going

to go from my left to right, we are going to start with professor

Sanders. You have 5 minutes, and I think we will cover some of

the territory in the Q&A. So you may proceed.

STATEMENTS OF ANTHONY B. SANDERS, PROFESSOR, W.P.

CAREY SCHOOL OF BUSINESS, ARIZONA STATE UNIVERSITY;

STEPHEN HORNE, VICE PRESIDENT, MASTER DATA MANAGEMENT AND INTEGRATION SERVICES, DOW JONES AND

CO.; MARK BOLGIANO, PRESIDENT AND CEO, XBRL US INC.;

NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL, TROUBLED ASSET RELIEF PROGRAM; AND RICHARD J. HILLMAN,

MANAGING DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF ANTHONY B. SANDERS

Mr. SANDERS. Thank you, Mr. Chairman.

Mr. Chairman and members of the committee, thank you for the

invitation to testify before you today. I testified before you on November 14, 2008, on the subject of the Troubled Assets Relief ProVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00203 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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gram [TARP]. At that time, we understood that the Treasury had

not purchased any loans from the financial institutions using TARP

funds. Instead, the TARP funds were deployed to numerous financial institutions.

My testimony today focuses on the lack of transparency surrounding the use of the TARP funds as well as some related Treasury and Federal Reserve programs.

Transparency is of critical importance to the stability of financial

markets, as well as the reputation of the United States in the

international economy. For example, research has found that the

frequency of stock market crashes is higher in companies that are

more opaque, or less transparent, to outside investors. A recent

paper on asset mortgage securitization side has concluded that in

order to attract investors, transparency is essential. The less transparent a market is, the more poorly understood it will be by investors, and the higher will be the yield those investors demand to

compensate for the uncertainty.

Thus, whether we are talking about loans that are originated

and securitized by banks or how TARP funds are deployed to the

banks, transparency is critical to returning trust to our financial

system and comforting investors both United States and globally.

When we consider that our own Federal Government borrows funds

from overseas investors, transparency will be a vital tool in restoring confidence in the tarnished financial system of the United

States.

Greater transparency of the TARP can alleviate concern among

U.S. taxpayers and the investment community that the funds are

being used appropriately and not wasted. Without transparency,

we are no longer the shining city on the hill. Rather, we are New

York City during the blackout of 1977. For example, there should

be more transparent asset valuation so that we understand how

Treasury and the Federal Reserve are valuing the banks relative

to the private market valuations, that is the stock market. If the

Treasury systematically is over-valuing the banks, it is an indication that we are still in danger from toxic assets, particularly mortgages that have not been dealt with. Until asset valuation is more

transparent and the market is confident that the banks have written down toxic assets, such as bad mortgage loans and accurately

priced these assets, any effort to restore stability and confidence in

our financial system will ultimately fail.

One can argue that all assets, including TARP funds, are fungible, meaning that it is very difficult, if not impossible, to trace

how TARP funds are spent. For example, if Bank A receives $15

billion in TARP funding, but is so large and complex that a paper

trail cannot be followed, that presents serious problems. Despite

our accounting and regulatory reporting on these institutions, the

TARP funds seemingly sink into an abyss or black hole. Clearly,

greater transparency is required so that the TARP funds are spent

in a non-wasteful manner.

Currently, financial institutions report that information that can

be found in SEC filings, the 10Qs and 10Ks, and Call Reports that

are produced quarterly. However, this information is not real time

and is highly aggregated. As a consequence, it is difficult to follow

the money from these filings. Although banks can report on the use

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of TARP funds in a timelier fashion with Treasury, even daily, the

quality of these reports may be of dubious substance given the size

and complexity of the financial institutions that have received

TARP funds.

For example, our largest financial institutions have hundreds of

divisions and subsidiaries and perform operations in numerous

countries. For example, Citigroup has operations in over 100 countries and includes such banks as Banamex. For a regulatory body,

Congress, the executive branch or the financial institutions themselves to understand where the TARP funds have gone, there is a

need for more aggressive forms of auditing that permit better disclosure.

Traditional auditing of the financial institutions is a time consuming and labor-intensive process. The Office of the special inspector general for the Troubled Asset Relief Program produced an

initial report to the U.S. Congress on February 6, 2009 detailing

the allocation of TARP funds, which is an admirable first step in

providing transparency for the TARP program. But it does not address how the recipients of the TARP funds have actually spent the

money.

An approach that can offer real time measures of the expenditure

of the TARP funds or any other recipient of Government funds is

volumetrics. It is possible to obtain vast amounts of reported information on loans, corporate benefits, golf tournaments, concerts, retreats and aggregate them into a usable form for regulators and

other market participants.

Should the taxpayers be concerned about a particular bank using

TARP funds for the naming of a sports stadium? Well, it can be

argued that the naming of a sports stadium or professional golf

tournament is part of a marketing strategy, but it can also be argued that the price that the bank pays for these naming rights is

far in excess of their advertising value. While it may be a reasonable argument to name sports stadiums, these institutions must be

aware of the backlash by taxpayers and regulators against perceived squandering of scarce taxpayer dollars in an economic crisis.

The same argument applies to rock concerts, corporate events, executive compensation and perquisites.

Mr. KUCINICH. I would like to ask the gentleman if he could try

to wrap up his testimony, and I know we will get back in Q&A.

Mr. SANDERS. Transparency for the use of funds by TARP recipients represents a step forward in understanding how taxpayer dollars are deployed, particularly in this economic climate. In summary, the TARP should be wrapped in Saran Wrap rather than a

lead veil that Superman can’t even penetrate. Taxpayers have the

right to know what is being done with their wealth and transparency helps achieve more economically sound use of TARP funds

and eliminate waste.

Thank you for letting me share my thoughts with you.

[The prepared statement of Mr. Sanders follows:]

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Mr. KUCINICH. Saran Wrap. [Laughter.]

Mr. Bolgiano.

STATEMENT OF MARK BOLGIANO

Mr. BOLGIANO. Good afternoon, Mr. Chairman and members of

the subcommittee. It is my privilege to testify today about XBRL,

or Extensible Business Reporting Language.

I am here as the president of a non-profit organization, XBRL

US, that advances XBRL as an open, free, open-source standard.

We all benefit from Internet standards, and I am not going to take

any time to try to explain the concept. But just in the way that the

Web standard brought us browsers and global access and search to

a huge amount of information, or .pdf gave us high fidelity to the

print document, or even emails made it possible for any of us to

exchange messages, regardless of what software, what device or

even where we are, XBRL simply makes a common dictionary

available and a consistent structure, so that all financial reports

can use a common format, so that it can be shared and exchanged

at much lower cost with much lower time to do the processing.

As we have heard for last few hours, it is very labor and timeintensive to analyze and parse financial reports.

XBRL documents are more consistent, and they are searchable

and they are machine readable. It can transform a 1,500-page 10K

annual report that is nothing but a long stream of text into a structured, indexed document that can be readily processed.

But it is not the technology plumbing and wiring that is really

the issue here. What is important about this standard and any

standard is that the world chooses to agree on it. And the world

has agreed on XBRL as the standard across the world for business

reporting.

I would like to take the next few minutes to elaborate on this

and refer to my testimony in more detail to make the points that

XBRL is real, it is ready and it is relevant to the discussion of the

subcommittee today. First of all, it is real. Every quarter, 8,000

banks report to the FDIC using this format, and they have since

2005. I will again refer to the testimony on the efficiencies of oversight and regulation gained by the FDIC by using XBRL.

A hundred companies today voluntarily file to the FCC their financial reports using XBRL. And over the next 2 years, SEC rules

will phase in all publicly traded companies will submit their financial reports, including the industrial disclosures and footnotes that

have numbers embedded in narrative text, like the pension footnote, in XBRL. All mutual funds, all credit rating agencies will be

filing to the SEC phased in, these rules have just been promulgated, and they will be phased in over the next 2 years.

So XBRL is real, it is in production. The dictionary that the SEC

uses, developed by our non-profit, by bringing together lots of industries and professions for the common good, contains every concept in U.S. GAAP, Generally Accepted Accounting Practices. We

are building on that, to include, as detailed in the testimony, mortgage-backed securities. This is ready for us and it is being applied

right now in our market.

It is also ready in terms of having a strong organizational

underpinnings. Our non-profit brings together the accounting inVerDate 11-MAY-2000 14:51 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00210 Fmt 6633 Sfmt 6633 U:\DOCS\52883.TXT KATIE PsN: KATIE
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dustries, the CFOs that issue, all the way to the investors and everyone in between, including technology companies, for the common

good, to make sure that we get a high quality agreement between

industry and Government to publish out these dictionaries.

And finally, I am going to say it is relevant in that, again and

again, we heard today about, we are not sure, we can’t see, we

don’t know. The fact is, you can’t provide oversight to something

you can’t see. And this common standard does offer a powerful tool

for the Government and for markets to get true visibility and

transparency into the facts, into the books.

With that, I will conclude my remarks. Again, I thank you. I will

just end with the one point that transparency is no longer a matter

of technical capability. It is a decision that is waiting to be made.

Thank you, Mr. Chairman, thank you subcommittee.

[The prepared statement of Mr. Bolgiano follows:]

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Mr. KUCINICH. Thank you very much, Mr. Bolgiano.

Mr. Horne, you may proceed.

STATEMENT OF STEPHEN HORNE

Mr. HORNE. Good afternoon, Mr. Chairman, Ranking Member

Jordan, members of the committee.

My name is Steve Horne, and I want to thank you for inviting

us here to speak to you today.

I am going to show you an example of what Professor Sanders

and Mr. Bolgiano were just speaking of. The question is getting to

TARP transparency. I have some slides up on the board, you may

not be able to see them too well. Those who have the handouts

have the slides included.

The question you have raised is, ‘‘where did the money go?’’ I

think that is the question everybody has been asking since this

morning started. I am going to show you how to take what is complex financial information and make it simple and then transparent.

I am showing on the slide here eight of the CPP institutions. I

intentionally left off AIG, because being in SSFI, they have different things that we have to look at, and we can talk about those

at another time, if you wish. But these companies collectively received just about $200 billion

of the total TARP outlay from tranche one. They collectively represent over $10 trillion in assets, they have greater than 14,000

subsidiaries, any of which could receive funds that had been fused

into the institutions themselves. They have greater than 6,000 executives making decisions as to how to use these corporate assets.

And in the first 100 days since TARP funds were approved, there

have been greater than 40,000 what we call public events, which

consist of regulatory filings, press releases, and other kinds of public disclosure about these firms regarding TARP, specifically TARP.

Now, let’s look at an institution to illustrate the complexity. I

don’t expect anybody to read this eye chart. Rather, I am making

a point of the structural complexity, in this case of just Bank of

America. I chose Bank of America because they were alphabetical.

So any other institution is going to kind of look this way.

This is a portion, and only a portion, of BofA’s 2,435 subsidiaries

and divisions. The reporting banks on the slide are shown in red,

the investment firms are shown in blue. Any of these subsidiaries

or divisions may be a beneficiary of the funds or part of the total

$45 billion in total capital infusions that have come into this institution through TARP to Bank of America.

A hundred and four of these subsidiaries and divisions file with

up to 20 or more Government agencies. And there is no single holistic view of the institution that comes in through those agencies.

Furthermore, the information sometimes comes in disparate and

incompatible formats. My friend here, Mr. Bolgiano, has commented on the fact that we are very big subscribers to the concept

of XBRL, because that is a computable and consistent format.

In other cases, it is aggregated at a holding company level, but

you lose all the detail of the transactions that are underneath it.

Now, a lens can be put on individual transactions that roll the data

into a single view of the institution. Now, in the time line that is

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shown on my chart here, instead of looking at greater than 10,000

of the Bank of America events, a regulator could highlight what

they might call the seminal events, chosen by them, which show

the key transactions of the funds that move through the institution. In addition, the aggregation of the non-public regulatory data,

as proposed under Congresswoman Maloney’s bill, TARP Accountability and Disclosure Act, would be available to the regulator as

well.

At the request of the committee, we have a sample of trans- actions that are in excess of $1 billion, as well as charitable contributions and marketing events during this first 100 day period.

The first capital infusion at the beginning of the chart took place

in October 28th of last year, and $15 billion were taken onto the

Bank of America books as a partial receivable. The remaining $10

billion was paid out when the Merrill Lynch transaction was completed.

Other events, including the issuance of new debt, to layoffs, to

charitable contributions, continue to impact the balance sheet that

is highlighted in this time line. So let’s drill into one of these

events. Just last week, the Bank of America filed their 10K SEC

annual report for 2008. Now, here on the right side of the chart,

what you are going to see is a statement about their new Q4 lending activity. Other institutions have made similar types of statements.

To use an analogy, think of your own checking account. You

know your balance, you just can’t look at the deposits, you have to

look at the withdrawals, too. So to add transparency, one must look

at the offsetting activities shown in the summary, including writedowns, foreclosures, toxic asset reductions, etc., to get to the balance as you would in your own checking account. You might question the lending activities occurring between the banking institutions and federally sanctioned lending institutions, such as Freddie

Mac, Fannie Mae, FHA, etc. None of this is contained within the

filings themselves.

Now, compare the single institution to looking at three separate,

an aggregated view of three separate institutions, in this case Bank

of America, Citigroup and J.P. Morgan Chase. These banks were

recipients of more than $75 billion during the Q4 period of 2008

of TARP funds that reported increased lending activity. Similar offsets took place with these institutions as well.

What we see here is $75 billion in capital infusions and less than

$100 million in increased net credit facilities to the American people. That is what is on the balance sheet. What is off the balance

sheet is another thing entirely, but that means it is not transparent. How do we reconcile the overall lending activity from the

institutions that are reporting to the Federal Government? Public

data, plus the addition of the data included in Congresswoman

Maloney’s bill, will enable the ultimate provider of information to

go from a complex collection of separate transactions across thousands of organizations to greater transparencies of funds distributed through the Government to private institutions.

I want to thank you, Mr. Chairman, Ranking Member Jordan,

members of the committee, for your time and attention.

[The prepared statement of Mr. Horne follows:]

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Mr. KUCINICH. You have given us a lot to think about here. I am

sure there will be a lot of questions.

Mr. Barofsky, special inspector general.

STATEMENT OF NEIL BAROFSKY

Mr. BAROFSKY. Thank you, Mr. Chairman.

Chairman Kucinich, Ranking Member Jordan, members of the

subcommittee, I am honored to appear before you today as the special inspector general for the Troubled Assets Relief Program

[SIGTARP].

$300 billion has already gone out the door, and including the recently announced programs, Treasury intends to combine TARP

funds with the Federal Reserve and others to more than quadruple

the original $700 billion allotment to fund at least eight separate

programs involving approximately $2.9 trillion.

These huge investments of taxpayer money will invariably create

opportunities for waste, fraud and abuse, and will require strict

oversight. To meet this oversight challenge, I focused SIGTARP on

three areas since our inception: enforcement, transparency and

oversight.

First, enforcement. Of the four primary bodies set forth in the

Stabilization Act, we alone are responsible for investigating those

who seek to criminally profit from the TARP. To meet this challenge, we have developed key relationships with other law enforcement and prosecutorial agencies from coast to coast, and have already shut down one securities fraud in Tennessee and have several other criminal investigations pending.

Today I am also pleased to announce our newly formed TALF

task force. The TALF has been announced as a trillion dollar Federal Reserve Bank of New York program that will be seeded with

up to $100 billion in TARP money. It is intended to secure liquidity

to the securitization market by lending Government money to investors, including hedge funds, to buy newly issued asset-backed

securities.

We have been vocal in our warnings about the susceptibility of

this program to fraud. And today we convert those warnings into

action by putting together a team of Federal law enforcement and

regulatory investigators to address potential fraud in the TALF.

Members of this task force will include the SEC, the FBI, the Postal Inspection Services [ICE], Treasury’s Financial Crimes Enforcement Network, the Federal Reserve’s Inspector General and the

IRS. We will operate out of New York and Washington and provide

training to both Federal and local law enforcement and prosecutorial agencies and provide a conduit, so we can ensure quick response to any tip or lead, whether generated from our hot line,

877–SIG–2009, the Federal Reserve or elsewhere.

Together, the members of our task force will combine our shared

experience in securities fraud investigations and combine our resources to identify and cutoff potential fraud schemes before they

can fully develop, deter would-be criminals and bring to justice

those who seek to commit fraud through the TALF. For any wouldbe fraudster, our message is clear: If you try and steal from this

program, we will find you, we will investigate you, and we will put

you in jail.

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My office has also focused on transparency since my first day in

the office. And our audits are going to bring transparency both to

those running the TARP program and the TARP recipients. We are

conducting a survey on TARP recipients’ use of funds, and on both

the recipients’ plans for complying with executive compensation

conditions, as well as Treasury’s plans on overseeing compliance.

We are also conducting audits on the impact of outside influences, such as lobbyists, on the TARP application process, and a

case study on the circumstances under which Bank of America received approval for $45 billion in cash, $100 billion in asset guarantee in four different transactions through three separate TARP programs.

As for oversight, we have and will continue to coordinate our

oversight activities with my co-panelist, Rick Hillman, and his colleagues at GAO, as well as the other inspectors general whose responsibilities touched on the TARP. We have also tried to have a

positive impact on the TARP programs before the money goes out

the door. Treasury has adopted several of our recommendations

and we will continue to make recommendations to Treasury to address potential fraud as the new programs are rolled out.

The TARP program has changed significantly since the Stabilization Act was passed last October. Originally intended to purchase

and manage $700 billion of toxic assets, that effort now stands as

just a portion of only one of the eight intended TARP programs,

and less than 25 percent of the total $2.9 trillion involved. We

must change with it, and I ask that you support S. 383, the Special

Inspector General Act of 2009, which unanimously passed the Senate early last month, and would give my office important hiring

flexibility to react as the TARP programs grow and evolve. Quick

passage of this important and essential legislation will help me

continue to build the necessary core of my office to meet this challenge.

Chairman Kucinich, Ranking Member Jordan, members of the

subcommittee, I commend you for your efforts to ensure proper

oversight of the trillions of dollars of American taxpayer funds, and

I would be happy to answer any questions that you may have.

[The prepared statement of Mr. Barofsky follows:]

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Mr. KUCINICH. Thank you, Mr. Barofsky.

Mr. Hillman is the person who is the Managing Director of Financial Markets and Community Investment for the U.S. Government Accountability Office.

Thank you for being here, you may proceed.

STATEMENT OF RICHARD HILLMAN

Mr. HILLMAN. Thank you, Mr. Chairman. I am pleased to be here

today to discuss our work on the Troubled Assets Relief Program.

My statement today is primarily based on our second 60-day report

required under EESA that was issued on January 30, 2009. Specifically, my statement focuses on the nature and purpose of activities

that have been initiated under TARP, and Treasury’s efforts to establish a management structure for TARP.

Regarding our first objective, Treasury has announced a number

of new programs to try to stabilize financial markets. But most of

its activities during our reporting period have continued to fall

under its capital purchase program. As of March 5, 2009, Treasury

had disbursed approximately $300 billion in TARP funds, about

$200 billion of which was for the capital purchase program.

Our previous report emphasized the lack of monitoring and reporting for program investments and recommended stronger measures to ensure that participating institutions used the fund to meet

the program’s purpose and comply with program requirements on,

for example, executive compensation and dividend payments. In response to our recommendation, Treasury developed plans to survey

the largest 20 institutions monthly to monitor lending and other

activity, and analyze quarterly call report data for all institutions.

While the monthly survey is a step toward greater transparency

and accountability for the largest institutions, we continue to believe that additional action is needed to better ensure that all participating institutions are accountable for their use of program

funds. Our latest report recommended that Treasury expand the

scope of its monthly surveys to include collecting at least some information from all institutions participating in the program.

Further, our most recent report found that Treasury has made

limited progress in articulating and communicating an overall

strategy for TARP. This lack of a clearly articulated vision has

complicated Treasury’s ability to effectively communicate with Congress, the financial markets and the public on the benefits of

TARP, and has limited its ability to identify personnel needs. While

Treasury has continued to publicly report on individual issues, testify and make speeches about the program, it continues to struggle

to convey clearly articulated and overarching methods about its efforts potentially hampering TARP’s effectiveness and underscoring

ongoing questions about its communication strategy.

Without a clearly articulated strategic vision, Treasury’s effectiveness in helping to stabilize markets may be hampered. Our

most recent report recommended that Treasury clearly articulate

its vision for TARP and to document needed skills and competencies to achieve that vision.

Regarding our second objective on TARP’s efforts to establish a

management structure for TARP, our first report included several

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sight and its system of internal controls. Treasury has taken important steps to address our recommendations, but in its latest report, we found that it still faces several challenges.

First, it took proactive steps to ensure a smooth transition to the

new administration by keeping positions filled and using an expedited hiring process, including direct hire authority. Moreover,

after losing some potential candidates because of conflicts of interest, Treasury is now asking candidates to address potential conflicts earlier in the recruitment process to avoid unnecessary delays

and finalizing employment offers. However, it continues to face difficulty providing competitive salaries to attract skilled employees.

Second, consistent with our earlier report about contracting oversight, Treasury has enhanced such oversight by tracking costs,

schedule and performance, and addressing its training requirements of personnel who oversee the contracts. However, as we previously recommended, Treasury needs to continue to identify and

mitigate conflicts of interest in contracting.

Similarly, in an earlier recommendation, our latest report found

that a framework for adopting and organizing the development and

implementation of a system for internal controls for TARP activities is progressing. The program plans to use this framework to develop specific standards, policies, drive communications on expectations and measure effectiveness of internal controls and the related

policies and procedures. However, to date, much work continues to

be needed to be accomplished in this area, including implementing

a disciplined risk assessment process. Our latest report called for

the development of a comprehensive system of internal controls

over TARP activities, including detailed policies and procedures

and guidance that are robust enough to ensure that the program’s

objectives and requirements are being met.

In summary, Treasury is taking important steps to implement

our previous recommendations, but we continue to identify a number of areas that warrant ongoing action by Treasury to improve

the accountability and integrity of the program.

Mr. Chairman and members of the subcommittee, I appreciate

the opportunity to discuss these critically important issues and I

would be happy to address any questions you may have.

[The prepared statement of Mr. Hillman follows:]

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Mr. KUCINICH. Thank you very much, Mr. Hillman. I would like

to go to questions now and begin with Mr. Horne.

In your testimony, you made the pretty shocking statement that

the new lending several of the largest TARP recipients have

claimed they are doing has been grossly overstated. I am going to

ask staff to help us with some of these Bank of America slides.

How could their representations be so far at odds with your own?

Mr. HORNE. Mr. Chairman, I don’t believe that the representations per se are at odds. What they are is one side of the story.

Mr. KUCINICH. Well, you are just looking at new credit, but not

offset by credit contracted.

Mr. HORNE. If you are going to publish a story that says that you are giving $115 billion or whatever, $150 billion in the case of another institution, etc., it talks about new lending activities. A balance sheet would actually say to you that you should also show the

opposite side of those transactions. That has not been what we

have observed. And again——

Mr. KUCINICH. So we don’t really have a clear view as to the net

effect.

Mr. HORNE. Transparency would dictate that you would want

both sides of it.

Mr. KUCINICH. So you could have a condition where a lot of

money is going out the door, but the credit contracts and you have

a new loss?

Mr. HORNE. Well, again, as I said, we are trying to represent information from a transparency standpoint.

Mr. KUCINICH. I know. Right. I get it.

Mr. HORNE. So our issue is, from a transparency perspective, if

you want to be transparent, and we have been doing so for 100

years for the commercial marketplace, you have to show both sides

of the picture. And it is impossible for you to say that you are giving out lending without having an offsetting amount that shows

that you are retracting.

Mr. KUCINICH. Thank you, Mr. Horne.

I want to ask Mr. Sanders, from the standpoint of impact on the

economy, which is a more accurate description of bank lending activities, the method of representation employed by several TARP

recipients, or the method that Mr. Horne has presented?

Mr. SANDERS. Well, I think that method Mr. Horne is presenting

gives us a much better picture of how it is really impacting our

economy and how it is impacting borrowers. Because again, the

way the bank balance sheets are structured and the call reports,

we just can’t get a good picture.

What Mr. Horne is talking about is much more in real time and

is much more translucent, we can actually see what is going on.

Mr. KUCINICH. So let’s go back to Mr. Horne. If the banks you

have identified are creating so little new credit now that they have

billions in TARP funds, what are they using TARP funds for?

Mr. HORNE. Well, again, most of the activities that we are seeing

from a transparency perspective are reflected in the balance sheet.

So if you looked along the time line of some of the examples of

events, you can see some of the examples of events. The first transaction that took place in the Bank of America event was a $16.8

billion debt buy-down on Countrywide being infused into Bank of

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America. Now, at that point in time they had only received $15 billion, so they used some of their internal funds.

They also, many of the institutions need money to make money.

In other words, you can’t go out and lend secured notes or create

senior debt without having balances or relatively large sums in reserves. So they want to keep this money on their books, in some

cases, in order to be able to try to get other institutions to invest

in them.

Mr. KUCINICH. Well, can I get a true picture at Treasury of bank

lending by relying on the monthly intermediation snapshot?

Mr. HORNE. No, you cannot. You need to have every individual

event that occurs transactionally over time brought together into a

single format and structure to answer that question.

Mr. KUCINICH. So all the necessary information is available to

regulators to create transparency of how TARP funds are being

used?

Mr. HORNE. All the necessary information is available in 25 or

some odd places.

Mr. KUCINICH. Mr. Bolgiano, Treasury can track how banks are

using these funds?

Mr. BOLGIANO. Yes.

Mr. KUCINICH. And the technical capability is there, is that

right?

Mr. BOLGIANO. Yes, that is correct.

Mr. KUCINICH. So it comes at a question of whether there is a

will to do it?

Mr. BOLGIANO. That is right.

Mr. KUCINICH. Some have argued that since TARP funds are fungible, is it not possible to track the use of TARP funds? Mr. Horne?

Mr. HORNE. It is absolutely possible. Professor Sanders mentioned volumetrics. Volumetrics is, if you think of two glasses of

water, and if you were pour the water, they were both half full and

you pour the water out of one glass, and as long as you don’t spill

any into another glass, you should have the same volume of water.

If you look at individual events, and remember, there is a Pareto

principle, I don’t know how many of you are familiar with the 80–

20 Pareto law, well, in these cases of institutions that we are talking about here, it is more like 95–5, where 5 percent of the transactions make up 95 percent of the actual movement of funds.

So there is not, as a proportion of number of transactions, a large

number volumetrically of funds that have to be looked at, nor to

understand the ebbs and flows of the funds moving throughout the

business. It is complex in terms of the interconnections. That is

why it is so important to have a format such as XBRL, which

would leave the ability to take two different systems together that

are speaking totally different languages and bring them together as

one.

Mr. KUCINICH. Thank you, Mr. Horne. My time is concluded this

round. Mr. Jordan, you may proceed for 5 minutes.

Mr. JORDAN. Thank you, Mr. Chairman.

Is it fair to say then, I am trying to gather this together, that

it is almost too much information in too many different forms is actually leading to a lack of transparency? Is that the problem? And

we will go with Mr. Horne again.

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Mr. HORNE. Yes, Ranking Member Jordan. In some cases that is

true. But I feel that it is mostly the lack of the ability for individual members of various committees of the regulatory agencies, etc.,

to read paper documents. We live in Washington, in a documentbased world. We don’t live in a data world.

Mr. JORDAN. Has there been a reluctance on the part of various

financial institutions and/or the Treasury to embrace Mr.

Bolgiano’s XBRL that he talked about, or the process that is going

to allow us to sort of synthesize this and get it in a readable format? Has there been a reluctance out there to go that direction?

Mr. HORNE. I would defer that to Mr. Bolgiano.

Mr. JORDAN. All right.

Mr. BOLGIANO. In our markets today——

Mr. JORDAN. And if there has been a reluctance, why is that the

case?

Mr. BOLGIANO. I think there is certainly a reluctance, first of all,

to change in general. But also, information is a very valuable commodity. And the absence of a standard and the absence of transparency makes the publishing of that information a very profitable

enterprise. This is a commodity that flows through our economy

just like any other.

So the absence of transparency does protect certain businesses.

Mr. JORDAN. I want to go to the inspector general. Mr. Barofsky,

your thoughts on the same question.

Mr. BAROFSKY. We have taken a different approach to this. We

made a recommendation to Treasury that they require banks to establish internal controls to account for the use of funds and report

on the use of funds. We recommended that they do that on a forward-going basis.

They haven’t, so we have initiated our own use of funds survey.

And we have pulled all of the banks and——

Mr. JORDAN. Wait. Go back. You made a recommendation to

Treasury to increase transparency and they didn’t?

Mr. BAROFSKY. Yes. It is included in our February 6th report. We

made a recommendation that for every agreement going forward,

it is taking a step back, we initially made the recommendation

back in late December. And they did adopt it with respect to Bank

of America and Citigroup, in those extraordinary transactions, they

did require those banks to establish internal controls at our recommendation and report quarterly on how they are using the

funds.

They have not adopted that recommendation with respect to any

other financial institutions.

Mr. JORDAN. And give me your guess as to why.

Mr. BAROFSKY. I don’t want to hazard a guess. I think that Mr.

Kashkari has articulated some things this morning that are probably consistent with that explanation. I don’t want to speak for

him, but concern about putting certain conditions on a——

Mr. JORDAN. Well, obviously that is an important question, particularly when in your written testimony you talk about the potential exposure of hundreds of billions of dollars of taxpayer money

potentially being lost to fraud and that is in your written testimony, so that is an important question.

Mr. BAROFSKY. It is absolutely an important question.

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Mr. JORDAN. Talk about your thoughts on the XBRL, that concept as well.

Mr. BAROFSKY. From our perspective, we are taking a look and

we are doing a survey of all the financial institutions’ use of funds.

We are going to get their narratives, they are coming in, I think

we have about 90 percent responded. I think XBRL would help us

turn around and then test some of these responses. But we are taking a different approach really on starting with the financial institutions’ own reporting on how they are using the funds.

Now, our reports also require a certification, subject to criminal

penalty, that if they lie to us, they would be committing a crime

and we would investigate that. So we are hoping that provides a

sufficient hammer to make sure we get accurate responses.

Mr. JORDAN. That is usually a pretty good incentive.

Last question. XBRL, can this help us, and my guess is it can,

get to the questions I posed earlier to Mr. Kashkari that, we still

haven’t got at the focus of this entire TARP program initially, the

mortgage-backed securities? Can it help us in that regard as well?

Mr. BOLGIANO. Yes. Mr. Jordan, we have been working on the

mortgage-backed securities dictionary for the last 6 months with

this question in mind. It is not a substitute for policy, obviously,

and it is not a substitute for access to the information or the Government authority to request that information. But it does give a

consistent vehicle for that information to be delivered and for the

Government to use it effectively.

Mr. JORDAN. I thank the chairman.

Mr. KUCINICH. I thank the gentleman.

Mr. Cummings, 5 minutes.

Mr. CUMMINGS. Mr. Barofsky, you mentioned, I think you were

talking about the task force. And then you just talked a moment

ago about if folks lie to you. How do you deal with that, and what

is the offense?

Mr. BAROFSKY. Any official, senior executive officer, any person

who lies to us, we are a Government entity, or a part of the executive branch, that is a crime under 18 U.S.C. 1001. It is the statute

that Martha Stewart, for example, was prosecuted under, just to

give an easy example. And we require each and every one of the

recipients of our survey to sign a certification with a senior executive officer stating that the information that is contained in this report is true. And if they lie, that is a Federal crime.

Mr. CUMMINGS. When we try to get information from some of

these folks, they seem to duck and dodge. We don’t always get the

whole truth and nothing but the truth. I am just wondering, do you

feel that you are getting the kind of information that you need?

Mr. BAROFSKY. My audit chief, who has begun the review of

these surveys, we are holding off doing our full review until they

are all in, which should be this week, has told me that his initial

review, that they have been very good responses. We have gotten

a lot of detailed responses about use of funds, according to him. He

is encouraged that we are going to be able to do a very complete

audit report. We will have to take a look at that.

Then obviously there is going to be followup. We are not just

going to take the banks at their word. We are going to be doing

followup as part of the audit process.

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Mr. CUMMINGS. Now, are you staffed up sufficiently?

Mr. BAROFSKY. No. We are growing. We have been in existence

a little bit under 3 months now. We have about 25 people on staff.

We are aggressively hiring.

It has been very difficult. S. 383, which is now in the House, will

help us grow. It gives us some hiring flexibility that we desperately

need. We are striving to build to about 100 to 125 initially. So hiring is a challenge.

But I also don’t want to leave the impression that it is only me and my staff of 25 standing between the taxpayers’ $2.9 trillion

and those who would try to take advantage of it. We are working

with all of Federal law enforcement, as well as some State law enforcement, to make sure that we have the right protections in

place.

Mr. CUMMINGS. I see we have a vote coming, but I have one

question I have to get out. In your written testimony you indicate

that you have ‘‘begun an audit into the process under which the

Bank of America received $45 billion in capital investment and it

is to receive a guarantee relating to approximately $100 billion of

toxic assets in four separate TARP transactions under three different TARP programs.’’ You further state, and this is what I am

getting to, as to coordinated oversight, it has been and will continue.

Now, considering what you wrote in your testimony, I am inter- ested to know whether Treasury knew about the $3.6 billion in bonuses awarded by Merrill Lynch in December, just before it was

taken over by Bank of America. Did you know about that?

Mr. BAROFSKY. Congressman, I really can’t talk about any matters that are pending under review in our investigations.

Mr. CUMMINGS. I understand.

Mr. BAROFSKY. It has been stated that we do have a pending investigation into the Merrill Lynch BofA bonus situation.

Mr. CUMMINGS. I understand. Let me ask you another way. And

this may fall in the same category. Is this the kind of information,

though, that would normally come through your office?

Mr. BAROFSKY. Yes, Congressman, we would ask those types of

questions and we would expect to receive those types of answers.

Mr. CUMMINGS. And you would expect to get truthful answers, is

that right?

Mr. BAROFSKY. It would also be a crime to lie to our office, if we

asked that question, if somebody gave an untruthful answer, that

would also be a crime. So yes, we would expect truthful answers.

Mr. CUMMINGS. Very well. I know we have a vote coming up, so

thank you, Mr. Chairman. I yield back.

Mr. KUCINICH. We will go to Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

I am going to try and focus a little bit of attention again on

XBRL. I apologize, I have been going through here and the Circuit

City bankruptcy hearing next door. And actually, they have a lot

in common, since it cost Circuit City $30 million to get a $50 million financing package. Needless to say, their Chapter 11 was

short.

But without getting into whether TARP funds should be used for

DIP financing or to encourage the Debtor In Possession financing

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to stop corporations from going bankrupt completely, Mr. Horne,

Mr. Bolgiano, let me go toward you again. I think I heard Mr. Jordan kind of get on this, but I want to be absolutely sure.

If XBRL were to be implemented going forward, well, let’s go the

other way. If in fact we were to use XBRL to try to drill down into

where the TARP money has gone today, would you be able to do

that?

Mr. BOLGIANO. Yes, sir, with the proper authority from the Government, we would be able to provide the tool to be wielded by the

Government for oversight.

Mr. ISSA. So you could provide the tool. They would need to make

sure they had access to the data bases?

Mr. BOLGIANO. We would be able to provide the standard to be

wielded as a tool, a dictionary. But it is not a system. It is not software. It’s a standard.

Mr. ISSA. Should we realize that you allow other people to develop independently software that use your technology?

Mr. BOLGIANO. It is similar, if you had asked me in 1993, would

it make it easier to get information from people if we had the Web,

I would have immediately answered you yes. It would be a quantum leap in the efficiency, time and expense to gather information.

Mr. ISSA. So I guess, Mr. Horne, would you have the equivalent

of Google, now that we have established that it is like getting the

Web, would you have the ability to drill down?

Mr. HORNE. I would love to be using that analogy. I think the

key is that we would actually create something that would be, to

a greater extent, even more actionable relative to this subject matter. Because we would be dealing with the numbers of events that

are specifically related to the financial instances that would be involved.

So the answer to that, Mr. Congressman, is yes, we would be in

that type of position.

Mr. ISSA. And then I think I will shift, obviously if we implemented this technology going forward, it wouldn’t just be the two

of you we would be asking, but in fact, all our regulators would

then have the tools to do this themselves?

Mr. HORNE. That is correct. And it would also be on the basis

of the fact that we are asking through Congresswoman Maloney

and Congressman King and also in the Senate to pass a bill that

would allow access to the regulated data, so it wouldn’t just be the

data that is publicly available but also the data that would be

available only to those people who would have access for regulatory

purposes.

Mr. ISSA. Mr. Barofsky, when we had Secretary Kashkari here

a few minutes ago, he answered in very, very many ways that of

course, he would love to have the ability to have more transparency, to know the value of these assets in order to value them

and so on. But today, are we in fact, I am going to lead a little bit

here, are we in fact asking for repeatedly, and are you asking for,

repeatedly, production of documents almost in the way that attorneys do in a court case, where you have to know what you want,

you ask for it, they turn it over to you, often you have to sift

through it and say, but it is not in a format I can use, can you remanipulate it and send it back to us? Is pretty much what is going

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on in the delivery of answers to your questions by the various

TARP recipients?

Mr. HORNE. No, Congressman. From what my audit chief tells

me, we have gotten good narrative answers that we think are going

to be very useful.

Mr. ISSA. I was talking about production of data, not narrative

answers. In fairness, Bank of America said they were solvent, so

solvent that they could turn around and buy Merrill Lynch. Today

we know that is not true, that in fact we would have been much

better off having Merrill Lynch live or die on its own, BofA live or

die on its own, and not have two organizations perhaps too big to

fail be now two organizations made into one too, too, too big to fail.

So back to the question. You are receiving answers to your requests, narrative answers. Mr. Kashkari, of course, if he asks for

it, is receiving them. But the real question, the question that Mr.

Horne was asked and answered was, do you or does anyone in the

Federal Government have the ability to basically ask the question,

if they have the access, and get the answers from raw data, diverse

raw data, or do we in fact depend on often self-serving individuals

at various large banks who do not want to fail to give us answers

that cause us to give them money, only to later get answers that

they need more money?

Mr. KUCINICH. The gentleman’s time is expired, but please answer the question.

Mr. BAROFSKY. We have not asked for that type of raw data, in

part because it would be simply way too expensive for us to analyze

it.

Mr. ISSA. So if I can conclude, so you don’t ask for the information because you couldn’t analyze it, people are here today talking

about the tools to analyze it both prospectively and retrospectively.

And we are being told, no, we are going to rely on companies to

deliver us information that have proven to be unreliable.

Mr. KUCINICH. The gentleman makes a point, if I may, and that

is, Mr. Barofsky, how do you know if people are telling the truth

if you don’t have a comprehensive data base against which to analyze the bank’s reports?

Mr. BAROFSKY. What we are doing in our survey and how we are

going to test these answers is, there are several things that we

have built into the survey. And it is a survey, to be very clear. We

are initially, as the initial part of this audit, and as a part one, relying on the banks’ responses. But not in a vacuum. For example,

we have asked them to make reference to their budgets and plans.

Our experience is that when a bank gets a huge influx of cash, they

don’t just say, ‘‘have a party.’’ They budget, they plan for it.

These TARP programs are expensive for some of these banks.

Mr. ISSA. Well, actually AIG did have a party, if I remember

right.

Mr. KUCINICH. They did.

Mr. BAROFSKY. They may have, but many of these financial institutions, they have plans, they have budgets, we make reference to

internal emails, internal planning, and we are going to test it

against that. And again, if they do lie, if they do tell us a story and

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lic statements, with data that we can later obtain, they will have

committed a crime and we are going to investigate that thoroughly.

Mr. KUCINICH. And if I may say, that this investigative party

will continue.

We have dozens, literally dozens of questions to ask the witnesses. But we are out of time. We are going to submit written

questions as a followup, to the witnesses, I will ask Mr. Issa and

Mr. Jordan to join me in this, that will help to fulfill the purpose

of this particular meeting.

We have had a very patient panel here in front of us, because

this hearing has gone on over 5 hours. The title of the hearing,

‘‘Peeling Back the TARP: Exposing Treasury’s Failure to Monitor

the Ways Financial Institutions Are Using Taxpayer Funds Provided Under the Troubled Assets Relief Program.’’ We know that

we could be looking at as much as $3 trillion in funds that are coming from our Government, from the taxpayers, to these various

Wall Street interests. It is a mind-boggling amount of money. And

we also know that if Treasury does not have the capability to keep

track of those funds, we are looking at nightmare.

And we are looking at a severe challenge to trust in the political

system. We can worry about banks collapsing, but we also better

worry about the trust that the American people should have in

their Government collapsing. Because that is the basis for our entire Nation. It is all held together by trust.

So I want to thank each of the witnesses for what they have done

to try to take a path toward trust and toward accountability and

toward reliability of the information which Congress is given.

I want to thank you on behalf of this committee and on behalf

of the American people. This committee meeting stands adjourned,

but we will be back at this subject. I want everyone here who is

paying attention to this to know this subcommittee will not relent

in our efforts to make sure that the people of the United States

know how their tax dollars are being spent.

[Whereupon, at 3:08 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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