U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

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

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

54–353 PDF 2009

S. HRG. 111–219 

NOMINATION OF HERBERT M. ALLISON, JR. 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON 

THE NOMINATION OF HERBERT M. ALLISON, JR., OF CONNECTICUT, TO 

BE ASSISTANT SECRETARY FOR FINANCIAL STABILITY (TARP), 

DEPARTMENT OF THE TREASURY 

JUNE 4, 2009 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

MEL MARTINEZ, Florida 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

KAY BAILEY HUTCHISON, Texas 

EDWARD SILVERMAN, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

AMY FRIEND, Chief Counsel 

JULIE CHON, Senior Policy Advisor 

DEAN V. SHAHINIAN, Senior Counsel 

JOE HEPP, Professional Staff Member 

DEBORAH KATZ, OCC Detailee 

MARK OESTERLE, Republican Chief Counsel 

DAWN RATLIFF, Chief Clerk 

DEVIN HARTLEY, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
C O N T E N T S 

THURSDAY, JUNE 4, 2009 

Page 

Opening statement of Chairman Dodd .................................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby 

Prepared statement ................................................................................... 29 

Senator Tester .................................................................................................. 4 

Senator Bennet ................................................................................................. 5 

NOMINEE 

Herbert M. Allison, Jr., of Connecticut, to be Assistant Secretary for Financial 

Stability (TARP), Department of the Treasury ................................................. 5 

Prepared statement .......................................................................................... 29 

Biographical sketch of nominee ....................................................................... 32 

Response to written questions of: 

Senator Dodd ............................................................................................. 39 

Senator Reed .............................................................................................. 39 

Senator Bennet .......................................................................................... 40 

Senator Bunning ....................................................................................... 41 

Senator Crapo ............................................................................................ 42 

Senator Martinez ....................................................................................... 42 

Senator Vitter ............................................................................................ 43 

(III)

(1) 

NOMINATION OF HERBERT M. ALLISON, JR., 

OF CONNECTICUT, TO BE ASSISTANT 

SECRETARY FOR FINANCIAL STABILITY 

(TARP), 

DEPARTMENT OF THE TREASURY 

THURSDAY, JUNE 4, 2009 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 9:38 a.m., in room SD–538, Dirksen Senate Office Building, Senator Christopher J. Dodd (Chairman of the 

Committee) presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. Good morning. The Committee will come to 

order. Let me welcome all of you here this morning, and let me say 

that my friend and colleague, Senator Shelby, the former Chairman 

of the Committee, will be with us shortly this morning. We have 

been joined, I see, by Senator Schumer, Senator Tester, who are 

here, and others. 

Let me welcome our nominee this morning, Mr. Herb Allison, 

who is our nominee to be Assistant Secretary for Financial Stability at the Department of the Treasury. We welcome you as well, 

Mr. Allison, and let me begin by thanking you for your willingness 

to serve during these times. 

I am going to take a couple of minutes for some opening comments, and I will ask my colleagues whether or not they would like 

to share any opening thoughts on this matter, and then we will 

turn to you for some opening statements. As soon as Senator Shelby comes in, I will also interrupt wherever we are and give him a 

chance to make any opening comments, and then we will get to 

some questions for you, if we can. 

So let me begin by welcoming everyone here. It is no overstatement to suggest that this position for which you have been nominated, that of Assistant Secretary for the Office of Financial Stability within the Treasury Department, is among the most important this Committee will consider in this term of Congress. You 

have inherited a giant task, none bigger than overseeing the Troubled Assets Relief Program. 

The Office of Financial Stability was created as part of the Emergency Economic Stabilization Act. Congress believed that the size 

of the program, $700 billion at the time last fall, required the full- 
2 

time attention of skilled professionals to oversee and manage purchases made under the program. 

At first, some resisted the call to establish such an office, arguing 

that it would create a layer of bureaucracy within the Treasury. 

But I and many of our colleagues, including Senator Schumer and 

Senator Tester, who were deeply involved in the formation of the 

Emergency Economic Stabilization program last fall, believed it 

was a very important mechanism to provide accountability and 

transparency so that the public could understand the Government’s 

decisions. 

Now, with 12 TARP initiatives announced by Treasury, the need 

for a dedicated office to ensure the proper management of their 

money, the public money, taxpayer money, is obviously clear. And 

proper competent management is what the TARP program desperately needs. 

We need strong, steady management to ensure that the core purposes that Congress outlined with the Emergency Economic Stabilization Act—protecting homeownership, college funds, retirement 

accounts, life savings, and jobs—are fulfilled by the TARP. TARP 

funds must be used to get credit flowing again to families, pay for 

homes, a car, or college tuition, and to small businesses to stock 

inventory and to meet payrolls, because with 10,000 foreclosures 

every day being filed and 20,000 layoffs occurring every day, families and small businesses still need our help desperately in this 

country. 

Thankfully, we have begun to see a sharp change in direction for 

the TARP program, from the Homeownership Preservation Program, which draws upon the $75 billion in TARP funds, to more 

accountability from firms which receive taxpayer assistance. 

But as the news this week that General Motors was filing for 

bankruptcy reminds us, we are hardly out of the woods, and I 

would add that this Committee intends to hold another hearing 

next Wednesday to examine the administration’s plans to restructure GM and Chrysler. 

There are also real questions about the future of the Public–Private Partnership Investment Program to purchase so-called legacy 

assets from banks and other institutions which have put an enormous strain on our financial system. When the Treasury Secretary 

was here a few weeks ago, I asked him if this program would work 

and if he believed banks would still be willing to sell these so-called 

toxic assets at discounted prices given the better-than-expected 

stress results that were completed about 2 weeks ago. He said that 

he expected those programs to begin operating over the next 6 

weeks, but now some are arguing that the program may no longer 

be necessary because of the unanticipated strength of these financial institutions. 

And so, Mr. Allison, the responsibility falls to you to provide the 

kind of steady leadership our country needs to navigate through 

the complexities of this economic crisis. With America’s financial 

system continuing to hang in the balance, this office that you will 

be heading needs a strong and vigilant manager, someone who can 

follow through on commitments made and maximize the return to 

taxpayers, as well as keeping them well informed in understandable language as to what is occurring, why it is occurring, what our 
3 

plans are, and where we are headed, where the shortfalls are, the 

pitfalls, what is not working, as well as what is working, in clear, 

clear language. 

There is a tremendous difficulty for the public, as well as many 

members up here, to understand on a daily basis how this all is 

unfolding, how it is working. We need someone who will listen, who 

is responsive to legitimate concerns raised by the TARP oversight 

bodies, makes course corrections when necessary, keeps a watchful 

eye to prevent any conflicts of interest that might arise, and keeps 

this Committee very well informed. We will have to determine 

some way to do this, but almost on a regular basis so that we are 

knowledgeable about any things you see that we ought to be aware 

of rather than just waiting for a hearing process to occur before we 

discover it or read about it in the newspapers. 

We will need someone who is judicious when it comes to committing the remaining TARP funds as well, estimated at some $109 

billion, someone who can ascertain which areas of our financial system require assistance and which do not. Above all, we need someone who can inspire confident, who can articulate a clear vision to 

the public and policymakers regarding the role the TARP program 

and must play in helping our economy recover. 

Mr. Allison, you know as well as I that you face a difficult road 

ahead. As I am sure you have discovered during the last several 

months overseeing Fannie Mae, there will be no parades in the National Mall should you succeed, in my view. But I hope you will use 

your diverse professional background in the fields of finance, retirement services, and education to fulfill the core purposes that Congress outlined with the Emergency Economic Stabilization Act. 

You have an incredible background. It really is remarkable. 

When I looked over the experiences you have had in these areas 

of finance, of retirement issues, of education, you are tremendously 

well suited to do this, in my view. You have had a distinguished 

academic career. You served our country with great distinction—in 

the Navy during the Vietnam Conflict, a graduate of Stanford as 

well as a Yale undergraduate degree. 

So you really have the tools and the experience and the background, I think, to make a significant difference, and I personally 

want to say I am excited about your nomination. I think this is 

going to be a great opportunity for us to get this right and to give 

the country that renewed sense of confidence about how this program is working and why it is in their interest that we succeed 

with it. 

You and your family have epitomized the importance of public 

service. You know you now have a unique opportunity to affect the 

role that our financial markets and institutions play in the lives of 

literally virtually every American citizen. In many ways, you will 

hold the keys to the future of the housing, financial, and economic 

crises that we are currently encountering. And you have a remarkable opportunity to make a difference for millions of Americans, as 

I know you are aware. 

I know you have some family members here as well this morning. Why don’t you take a minute and let us introduce them as 

well? Can we do that before you start? 
4 

Mr. ALLISON. Thank you very much, Chairman Dodd. I would 

like to introduce my wife, Simin, and my sons, John and Andrew. 

Chairman DODD. Welcome. 

Mr. ALLISON. As well as my brother, George Allison, a retired 

captain in the U.S. Navy. 

Chairman DODD. What was that? 

Mr. ALLISON. Retired captain in the U.S. Navy. 

Chairman DODD. Welcome. Nice to have you. 

Mr. ALLISON. Thank you. 

Chairman DODD. Surface ships or submarines? 

Mr. GEORGE ALLISON. Surface. 

Chairman DODD. Ah, well. I thought you might have had some 

experience in Groton, Connecticut, along the way. 

Let me turn to Senator Tester. 

STATEMENT OF SENATOR JON TESTER 

Senator TESTER. Thank you, Mr. Chairman, and those introductions cleared up a lot, because when I came in, I met Mr. Allison 

in the back room, and I walked out here, and I saw his brother 

George, and I thought, ‘‘Wow, how did he get out here so quickly?’’ 

[Laughter.] 

Chairman DODD. He is going to be good. 

Senator TESTER. Exactly. He is going to be very, very good. 

Thank you, Chairman Dodd, and I want to thank you for calling 

this hearing, and, of course, welcome, Mr. Allison. I want to echo 

the Chairman’s comments on thanking you for your willingness to 

serve and your willingness to appear before the Committee today. 

It was Milton Friedman who said that nothing is so permanent 

as a temporary Government program. We need to make sure that 

TARP does what it needs to do and then wind it down and get the 

taxpayers’ money back as soon as possible. And I know you feel 

that way. 

I want to commend you, Mr. Allison, for your willingness to serve 

and your efforts at Fannie Mae. I also want to urge you to be mindful of what I think we are going to need to do to get out of this 

economic recovery. We need to be mindful that the successes of this 

economic turnaround will be driven by small business and middleclass families. It is important, as I said earlier, to repay the taxpayers as quickly a possible and not to just reinvest the funds because we have them. I think this money was specifically put out 

for a specific reason, and we need to keep that in mind as we move 

forward. 

We also need to understand that community banks play a critical 

role in the lifebloods of our small rural communities across this 

country, and they really were not the cause of the economic problem, at least from my perspective. And maybe most difficult is we 

need to deal with the ‘‘too big to fail’’ problem that comes out. And 

if you can help us in that, I think that the sooner we can deal with 

that, the better off this country is going to be in general. 

With that, Mr. Chairman, I look forward to the testimony of 

Herb Allison, and I look forward to a quick confirmation. 

Mr. ALLISON. Thank you. 

Chairman DODD. Thank you. 
5 

I just noticed the arrival of our colleague from Colorado, Senator 

Bennet, I am saying with some deliberation, and I will give you a 

chance to get seated over there. Would you care to make any opening comments at all on the case of our nominee? 

STATEMENT OF SENATOR MICHAEL F. BENNET 

Senator BENNET. Thank you, Mr. Chairman. 

I would just like to thank you, Mr. Allison, for being here. Thank 

you for your willingness to serve. I unfortunately have an Agriculture Committee hearing that I have to go to, but I just want to 

stress—as I was coming in, I heard Senator Tester say this—how 

important small business and community banks are to this recovery effort. We have had a number of conversations here with the 

Treasury Secretary on that subject. We have a case of our own in 

Colorado relating to a bank failure of one of our agricultural banks 

that is under review by the Treasury Department. My perspective 

is the same as Senator Tester’s, which is that until we begin to see 

this involvement beginning to take place at the local level, our public is still going to wonder how we are sending our taxpayers’ 

money. 

So I want to just underscore that for you. I am sure you know 

that. I look forward to hearing your thoughts about that and to 

working with you as a member of this Committee. Thank you for 

being here. 

Mr. ALLISON. Thank you. 

Senator BENNET. Thank you, Mr. Chairman. 

Chairman DODD. Thank you, Senator, very much. 

Mr. Allison, welcome again to the Committee. We are happy to 

hear your opening comments. 

STATEMENT OF HERBERT M. ALLISON, JR., OF CONNECTICUT, 

TO BE ASSISTANT SECRETARY FOR FINANCIAL STABILITY 

(TARP), DEPARTMENT OF THE TREASURY 

Mr. ALLISON. Thank you very much, Chairman Dodd and other 

members of the Committee. I am honored to be before you today. 

First, I want to thank President Obama and Secretary Geithner 

for the trust they have shown in asking me to serve. I also want 

to thank you and your staff for the time you have spent acquainting me with your perspectives on the financial crisis and the measures to address it. 

Before I review my background and my plans for the Office of Financial Stability, if confirmed, I want to recognize my wife, again, 

of 35 years, Simin, and my sons, John and Andrew, for their steadfast support over those years. 

I began my career, as the Chairman said, as an officer in the 

U.S. Navy, serving 4 years on active duty, including a year in Vietnam. After attending business school, I joined Merrill Lynch and 

spent 28 years there, leaving as President in 1999. At Merrill, I 

held many positions in finance, human resources, investment banking, capital markets, and general management. In 1998, I played 

a central role in unwinding Long Term Capital Management—the 

hedge fund that a decade ago presented a systemic risk to our 

banking system. 
6 

I learned from my experiences at Merrill that the long-term success of financial institutions depends on sound corporate governance, including independent checks and balances, tight control over 

risk, and executive compensation geared to long-term performance 

on behalf of clients as well as shareholders. At Merrill Lynch, I 

contributed to strengthening those governance practices in the 

1990s. 

Since leaving Merrill Lynch a decade ago, I have led two other 

major financial institutions through transitions necessary for their 

long-term success. 

In 2002, I became Chairman and CEO of TIAA–CREF, the leading provider of retirement and asset management services. We 

adapted the company to changing markets, created independent 

risk management, and doubled the company’s capital so we could 

withstand a harsh investment climate. As a result, TIAA–CREF is 

now one of very few financial companies that carry AAA ratings. 

And during my tenure, TIAA–CREF became the first company in 

the Fortune 100 to allow its stakeholders an advisory vote on executive compensation. 

In September of 2008, I was named CEO of the Federal National 

Mortgage Association as that company was placed into Government 

conservatorship. The crisis that devastated Fannie Mae’s liquidity 

and capital base also threatened millions of American homeowners 

with foreclosure. New management had to shift the company’s 

focus from maximizing profit and market share to helping hardpressed American families stay in their homes. As a result, Fannie 

Mae is the agent for the President’s Home Affordable Refinance 

and Modification programs, which offer financial relief to millions 

of Americans. 

Members of the Committee, the Financial Stability Program is 

essential to President Obama’s and Secretary Geithner’s plans for 

recovery. Our economy declined sharply last year in part because 

credit stopped flowing. Without access to credit, small businesses 

cannot buy the new equipment, raw materials, and inventory that 

they need to expand. And larger businesses need well-functioning 

credit markets as they adjust to the changing nature of the global 

marketplace. 

If confirmed, I will keep in mind that the financial crisis is not 

mainly about banks. It is about alleviating the real hardships 

Americans are facing every day. I will strive to be a prudent investor on behalf of the American people. To protect the taxpayers who 

have entrusted us with so much of their money. So let me tell you 

what my top priorities will be if you decide to confirm me. 

First, I will carefully review the controls over managing the taxpayers’ money, giving special attention to compliance with laws 

and directives, managing risks, and internal audits. I will work 

closely with the Special Inspector General, the Government Accountability Office, the Financial Stability Oversight Board, the 

Congressional Oversight Panel, and the committees of Congress to 

assure the accountability and oversight that the American people 

demand. 

Second, under the direction of Secretary Geithner, I will continually strive to maximize the effectiveness of financial stability pro-
7 

grams, restoring soundness to financial institutions and liquidity to 

our markets. 

And, finally, as Secretary Geithner has directed, I will emphasize 

transparency and interaction with Congress so that you and the 

American people will know what we are doing with their money, 

why we are doing it, and how it is making a difference to our economy. 

Members of the Committee, let me close by thanking you for considering my nomination as Assistant Secretary of the Treasury for 

Financial Stability. I was raised by a family that has always valued public service. My family spent much of his career as a special 

agent in the FBI. My Dad’s father worked in the U.S. Department 

of Agriculture here in Washington, DC. My mother’s father was 

sheriff of Sioux Falls, South Dakota. And my brother, George Allison, with me today, retired with the rank of captain after 28 years 

in the U.S. Navy. Having started my own career in the Navy, I am 

honored and inspired by the opportunity to return to public service. 

Thank you very much. 

Chairman DODD. Well, thank you very, very much. In our conversation, I did not know that your Dad had been in the FBI. My 

father was an FBI agent. In fact, his first post was in Sioux Falls, 

South Dakota. 

[Laughter.] 

Chairman DODD. Long before I was born, by the way. I might 

have been raised there. Well, thank you. 

We have been joined by Mark Warner, Senator Warner of Virginia. Mark, do you have any opening comments you would like to 

make before we—— 

Senator WARNER. Senator Tester told me since I was late, I had 

to reserve my comments to the questioning time. 

[Laughter.] 

Chairman DODD. Well, Jon runs the show around here. We appreciate it. 

Let me start with some questions, and I am going to leave the 

clock off here. In fact, I am going to invite my colleagues, since 

there are only three or four of us here, to have more of an informal 

conversation with you here. So feel free as colleagues, if I start a 

line of questioning and you have a thought along the same line, 

jump right in here so we make this in a way more cohesive in that 

sense. 

There are so many places to start. Let me start with this: 

SIGTARP noted that since TARP’s inception, the program’s scope, 

size, and complexity have dramatically increased. I made note of 

this in my opening comments when I mentioned the 12 separate 

initiatives under TARP that are around today. Some of these interact with the Federal Reserve, some with the FDIC, some with, obviously, private investors, as we have discussed as well. 

I wonder if you could begin, and I think some of this you mentioned in your initial steps you intend to take, but I would like you 

to expand on this and how you would assure this Committee and 

the public at large of the effective management of such a complex 

program that involves already interaction with almost every other 

Federal agency that is directly or indirectly involved with economic 

recovery in the country. And I wonder if you might share those 
8 

thoughts—and I have been joined now by our colleague from Alabama, and so let me interrupt myself and ask my friend and colleague if he would like to make some opening comments. 

Senator SHELBY. Mr. Chairman, I was late. I have been in the 

Appropriations Committee meeting with Senator Mikulski. We 

have the FBI Director there. But I told him we also had a very important hearing on this nomination here in the Committee. I would 

ask that my opening statement be made part of the record. I might 

have questions in a few minutes. 

Chairman DODD. Great, terrific. We just heard, by the way, that 

Herb Allison’s father was an FBI agent for many years, so it is a 

timely connection. 

Senator SHELBY. It is very good. He has got a presumption in his 

favor right now. 

[Laughter.] 

Mr. ALLISON. Thank you. 

Chairman DODD. Why don’t you begin with that. Now, you have 

been involved in complex entities in the past, obviously, at Merrill 

and Fannie and TIAA–CREF and so forth. So you have a background in this, but give us some sense because it seems to us every 

time we turn around here, there is some new activity involved with 

the TARP program, and I am wondering how we get our arms 

around this. And it is getting more and more complex in understanding how these resources are being used. But give us some 

sense of how you would approach this. 

Mr. ALLISON. Yes, sir. Thank you very much for the question. Actually, one of my first steps as I joined the Treasury was to contact 

the Special Inspector General, Neil Barofsky, and ask to meet with 

him. We have been meeting every week since. I think he plays a 

very important role in protecting American taxpayers, and I want 

to do all I can to work with him going forward. 

As you well said, this is an extremely complex and very large 

program. It requires vigilant control. One of my first acts will be 

to meet with our people in Compliance as well as our own Internal 

Audit people, people in the legal area, to reexamine all of our controls over the financial stability programs. 

Second, we are building our information systems even further so 

we can monitor the performance of each of these programs, monitor 

these controls. I am having—will have, when I am confirmed, 

weekly meetings with the management team to go over all those 

metrics. We are going to be inviting in members and meeting with 

the Congressional Oversight Panel and the other oversight groups, 

including the GAO, and seeking their guidance as well to make 

sure that this program is well controlled and highly transparent to 

all who have to oversee it. 

Chairman DODD. Well, let me jump to the issue of foreclosures. 

There was an article in one of the leading newspapers in the country yesterday about concerns over whether or not the foreclosure 

mitigation program, which we have been so actively involved in on 

this Committee for the last several years, is working very well. The 

administration has dedicated $50 billion of TARP funds for foreclosure prevention and mitigation through a loan modification program. I and most members of this Committee strongly support that 

effort. We have tried various ideas as to how this would work, and, 
9 

obviously, when there are 23 of us up here trying to craft something, you get a lot of different ideas that can make up that decision. And all of us I think understand as well that while we may 

debate about how many causes contributed to this crisis, I think all 

agree that a major cause was, of course, the residential mortgage 

market, the subprime lending, the predatory lending that went on. 

And so any effort to address all of this absolutely demands, insists 

that we do everything we can to try and keep as many people in 

their homes, the 10,000 people a day with the foreclosure filings 

every single day in this country, and the numbers may increase in 

the coming weeks and months. 

So the concern about whether or not this program is going to 

work very well raises two issues, in my mind, given the apparent 

resistance on the part of servicers to participate in this program. 

First, we need good data on how many loans are being modified or 

refinanced in the Hope for Homeowners Program, how many are 

being rejected for assistance in order to hold servicers accountable 

for their promises, and we need that data made public on a 

servicer-by-servicer basis. I wonder if you might commit to doing 

that very quickly. 

And, second, there needs to be some process by which homeowners or consumers can raise concerns about the way the process 

is working. I have two thoughts on this: either creating an ombudsman in a sense that gives people an opportunity to understand all 

of this, dedicated loan modification; or perhaps we ought to ask the 

Special Inspector General to oversee compliance with foreclosure 

prevention programs. 

I wonder if you might share some thoughts. This goes to the 

heart of this in so many ways. If this fails and we are not making 

the kind of—not that we are not making the effort, but if the effort 

is not succeeding in this area and we end up with a new wave of 

foreclosures coming in, as we could, swamping the kind of efforts 

that are being made, this thing is beginning to gain traction. 

Things are beginning to improve. Confidence and optimism clearly 

seem to be getting better. And what none of us wants to see is this 

all of a sudden stalling out and falling back. If it does, to regain 

that momentum again I think will be a lot harder than it was in 

the initial effort. 

So this is a critical moment, it seems to me, not to lose that momentum, however slight it may be, but certainly momentum heading in the right direction for the first time in months, in my view. 

But failure in this area I think would throw us back in ways that 

would make it very difficult to recover. So I would be very interested in the ideas and how you can—I do not think we want to 

wait weeks or months to find out whether or not this was working. 

The concern is that it is not working as well as all of us up here 

would like it to work, and we need to know whether or not we need 

to do something, what can you do, what can the administration do 

to get this back on track again. 

Mr. ALLISON. Yes, thank you for your question and your 

thoughts, Mr. Chairman. I fully share your concerns about this crisis of foreclosures and defaults in mortgages across the country. 

Millions of Americans have been affected by this. There are many 

desperate households today anxious to hold on to their homes, and 
10 

that is why the President and the Treasury Secretary have made 

this one of their top priorities, and the Home Affordable program 

I think is an extremely effective tool. It is going to take time to 

really ramp up and reach full scale, and as you well said, it is important that the Congress and the public are informed about the 

performance of these programs. And I would pledge to you that if 

I am confirmed, one of my first acts will be to reexamine our information systems and our reporting. And I know that the Treasury 

is pulling together more information, as we speak, about this program. 

I think we have to be agile as we look at this program as well. 

Let us see how it is working. If it is not working as effectively as 

it needs to, we will make every effort to make it more efficient and 

more effective and to reach more people. 

What is extremely important in dealing with the mortgage crisis 

is to reach out to as many people as possible. People are fearful 

about losing their homes. They are fearful of contacting their bank 

or their servicer to describe their problem for fear that that could 

cause itself a foreclosure on their house. 

We have to reach out and tell people that programs are available, banks are willing to work with you, Fannie Mae and Freddie 

Mac are willing to work with you. You can go to the 

Financialstability.gov Web site if you are a homeowner who is concerned and get more information and contacts, people who can 

counsel homeowners about how best to hold on to their homes. 

Chairman DODD. But the servicers need to do this as well. You 

know, we carved out that safe harbor provision, which was controversial, to insulate them against lawsuits from investors. And, 

frankly, the investor community spoke up and said, ‘‘You know, you 

are breaking contracts here.’’ And they were right. But we understood if we did not do that the argument would be, look, we would 

like to help out these homeowners, but we cannot face the possibility of an overwhelming number of lawsuits by investors who will 

sue us for engaging in modifications. So we insulated them from 

that problem. 

What are the servicers doing? Servicer by servicer, I want to 

know what they are doing out there. I mean, the homeowner is reluctant, you are right. The servicer should not be reluctant. 

Mr. ALLISON. Yes. 

Chairman DODD. In light of what we have done here for them to 

create that safe harbor and other provisions. So I would like to 

know what they are doing and whether or not we are probing those 

servicers to find out why they are not stepping up, if, in fact, they 

are not doing that. 

Mr. ALLISON. Mr. Chairman, thank you for your question, and at 

least 14 of the top servicers in the country have already signed up, 

and they are already active in this program, and they account—including Fannie Mae and Freddie Mac—for over three-fourths of the 

mortgages in America. So this is moving ahead. 

I will say that this is an extremely complex, large-scale program. 

It takes time to fully get to speed. It is moving ahead rapidly. I 

think we are going to see over the next few months it reaching out 

to even more people. It is encouraging that already over 100,000 

offers for mortgage modifications have been sent out to people. We 
11 

have received millions of contacts on the Web site, people wanting 

more information. 

So, again, this is a matter of outreach. It is a matter of taking 

some time so these banks can reconfigure some of their systems 

and their capability to be able to handle the large volumes that we 

expect. But it is moving forward, and I will be happy to report to 

you often on the progress of that program. 

Chairman DODD. I appreciate it. 

Senator Warner wanted to make a comment. 

Senator WARNER. Thank you, Mr. Chairman, and thank you for 

opening up this line of questioning. Mr. Allison, good to see you 

this morning, and I am glad you raised that issue of the 100,000. 

That is what I have heard as well. I have to tell you, folks in my 

State—I remember when Secretary Donovan was here, and I understand this is a Treasury program and also has, obviously, a 

great deal of collaboration with HUD. You know, we told folks, 

‘‘Call after March 4th,’’ and at least the folks in my State would 

call, and they would then get a basic response that said, ‘‘Well, 

thanks, but we do not have any of the details ready.’’ And I understand the complexity. I think the Chairman has raised a good point 

about perhaps an ombudsman, some kind of appeals or process so 

that if you cannot get answers, a Web site alone may not be 

enough. 

I guess one of the things I think would be helpful from an information standpoint—and this just may be one-off examples, but 

what I am hearing in my State is that there are a number of banks 

that basically have stopped processing foreclosures, waiting for this 

loan modification program to be fully in place; and that while the 

wave of foreclosures has slowed, it has not slowed because necessarily economic conditions have dramatically improved, but everybody is just kind of taking a time-out until the loan modification 

program is fully put in place. And while it is great that 100,000 

offers have been made, one, I would love to know how many of 

those offers have been accepted. And, two, if all of these servicers 

do not get fully engaged, do we have this enormous potentially 

multi-million backlog of foreclosures waiting to flood the system if 

these initiatives are not successful? And do you have any sense on 

whether there is this backlog that has been created? Is this just 

kind of a one-off example or—my sense is this is probably going on 

around the country. 

Mr. ALLISON. Yes, sir. Thank you, Senator, for your question and 

for your concerns about this. It certainly is true that the program 

had to be organized, and during the organization period, anxious 

homeowners were calling in trying to find out when they could get 

assistance. I think we see a much fuller response today than just 

a couple of months ago. 

As to the foreclosure crisis, there were moratoriums. Many of 

those have been lifted now, but recently, the Government has instituted a couple of new programs that can ease the situation for 

homeowners. One is called Deed in Lieu. And, also, there are efforts to get out to as many people right now as possible to engage 

in mortgage modifications. And I think it is extremely important— 

I want to say this again—that we all reach out to as many people 

as possible to alert them to these programs, that help is available 
12 

for them. And I think as we do that, we can help prevent many, 

many foreclosures. 

One of the prime objectives of this administration is to do all possible to keep people in their homes, and we need feedback. We need 

information systems. And if I am confirmed, I will come back to 

you and other members of the Committee with fulsome reporting 

about the progress of carrying out mortgage modifications, the pace 

at which we are doing it, whether we are on track, and what more 

we can do going forward. 

Senator WARNER. Thank you, and that will obviously include 

what percentage of the take-up of that 100,000 offers made, what 

kind of backlog we are looking at, because I am just afraid that we 

may have, in a sense, a false sense of progress because there are 

people in arrears, people about to be foreclosed upon. The actions 

haven’t been taken, but my gosh, if the bullets we fired haven’t 

worked, we have got to be prepared for what is next. 

Mr. ALLISON. I fully share your concern about that, Senator, and 

we will provide you with that information. Thank you. 

Senator WARNER. Thank you. 

Chairman DODD. Senator Schumer wanted to make a comment 

on this, as well. 

Senator SCHUMER. I just have a quick question. I apologize for 

having to go. I just am curious, how much of the capital program 

funds do you anticipate will be repaid next week, in the next 6 

months, next year? How much are we going to get back, which 

gives you money to play with, I guess, or not play with, but have 

in need of an emergency? 

Mr. ALLISON. Senator, I will have to await the final results on 

that. That will be communicated as soon as possible, as the Treasury has been communicating repayments over time, and—— 

Senator SCHUMER. Don’t we expect a bump next week? 

Mr. ALLISON. I think that is quite likely, that there will be a 

bump next week, and that is—— 

Senator SCHUMER. Do you have a ballpark estimate? 

Mr. ALLISON. I wouldn’t want to make an estimate, Senator, as 

to what it will be. I would wait for the Federal Reserve and the 

Treasury to complete that process. 

Senator SCHUMER. OK, and just one more quickie. 

Mr. ALLISON. Yes, sir. 

Senator SCHUMER. Several firms feel they are going to be at a 

disadvantage if their competitors are approved for repayment before they are. You know, there is always competition, of course. 

Mr. ALLISON. Yes. 

Senator SCHUMER. Have you heard that concern? How are you 

going to address it? 

Mr. ALLISON. Senator, I have heard that concern and I am sure 

that the administration is well aware of that and it will be taken 

into account as the announcements are made. 

Chairman DODD. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

Mr. Allison, thank you for taking on this responsibility. I wish 

you well. What assurances have you been given from Secretary 

Geithner and the White House that you will have sufficient auton-
13 

omy in your decision making, in other words, the management of 

this program? 

Mr. ALLISON. Senator, first of all, I understand my responsibilities if I am confirmed for this position, and my role is to carry out 

the Treasury Secretary’s directives, as well, on this program. He 

and I will be consulting frequently. I know how concerned he is 

about making sure that these programs are successful. I see him 

daily about these issues. And those contacts will probably grow 

even closer if I am confirmed. 

Senator SHELBY. What is your view, if you have one at the moment, of how the Treasury, which you will be right in the central 

role there, should manage its investments in GM and Chrysler, and 

how long do you believe Treasury will be a shareholder of GM and 

Chrysler, if you want to? 

Mr. ALLISON. Thank you for the question, Senator. I must say to 

you that I have not been involved directly in the auto initiative, 

and at this point, that would have been presumptuous of me to get 

involved before I am confirmed, so I can’t give you details on the 

auto program. 

Senator SHELBY. But you plan to get involved, don’t you? 

Mr. ALLISON. Yes, sir, very much involved. 

Senator SHELBY. With both elbows? 

Mr. ALLISON. Yes, sir. Absolutely. I can assure you that I will get 

involved in all of the initiatives under the Financial Stability Program. 

Senator SHELBY. Sure. Well, your No. 1 goal right now is to get 

confirmed. We all here understand that. 

AIG, the management of AIG, what steps do you believe need to 

be taken—have you thought about this—for the Federal Government’s oversight of AIG? In other words, you have got a big bear 

and you can’t turn it loose. I hope we won’t have to put more 

money into it. I don’t know. But it seems—I don’t know how you 

discard it. 

Mr. ALLISON. Well, Senator, certainly I understand the importance of the AIG situation. Again, I have to tell you that I have 

not been involved in AIG because, again, that would have been presumptuous if I started getting into it. But I will certainly, if I am 

confirmed, immediately turn my attention to that issue, as well, 

and I will be happy to come back and discuss it with you. 

Senator SHELBY. Just a generic thing. What do you believe is the 

best way for the Federal Government to manage its equity investments in the TARP recipients to, one, ensure that the management 

of these firms have the proper incentives in running their companies and hopefully paying back the money? 

Mr. ALLISON. Senator—— 

Senator SHELBY. You would have an interest in that, would you 

not? 

Mr. ALLISON. Yes, sir. I think that is a very important question 

that you are asking and very shortly, the administration will be announcing its policies as a shareholder of companies, and we have 

all heard the President as well as Secretary Geithner say the government has no desire to be a day-to-day manager of those companies. It will be a shareholder and its policies on governance as a 

shareholder will be made public soon. 
14 

Senator SHELBY. Mr. Allison, you well know this. We all do. Government programs are quite often difficult to create and sometimes 

just about impossible to terminate. The TARP program has a statutory termination date that can be slightly extended—— 

Mr. ALLISON. Yes, sir. 

Senator SHELBY. ——at the request of the Treasury Secretary. 

You know this. Do you believe that the TARP program should ultimately be terminated, and would you have any concerns if the program were converted into some kind of permanent revolving fund? 

Mr. ALLISON. Senator, I think that is an important question 

many Americans, as well as people in Congress, are asking. As you 

said, the program is scheduled to terminate at the end of the year, 

although it could be extended by an act of the Secretary until, I believe, as late as October of 2010. But I think it is important to 

point out that the programs within the national stability area have 

themselves termination provisions, many of them. There are terms 

to the financing, end dates. There are also disincentives built into 

those programs that cause—which should cause banks to want to 

repay that money as fast as possible. We have already seen and we 

will see additional repayments. So this program is designed to deal 

with an extremely serious financial crisis and it was not set up to 

be a long-term permanent program. 

Senator SHELBY. Mr. Allison, while the TARP program has provided hundreds of billions of dollars to the banking sector, there 

have been a lot of complaints, and we all hear it here in the Senate, that the banks receiving TARP funds are not making loans, at 

least not enough. What is being done, and what do you intend to 

do, about ensuring that the TARP recipients are making loans, particularly to small businesses? We are not talking about making bad 

loans. I know you can’t micromanage the daily activities of them. 

But as far as policies, it seems that the small business community 

is really being squeezed in the financial sector in this country. 

Mr. ALLISON. Yes, sir. Well, we are acutely aware that in many 

small communities around the country, small businesses are still 

having difficulty getting access to credit. I think there are a number of reasons for that, but it is important to point out that the 

Secretary recently directed that we would reopen the Capital Purchase Program for small banks, which provide an out-sized portion 

of lending to small businesses around the country—— 

Senator SHELBY. You believe that will help a lot, don’t you? 

Mr. ALLISON. I do, and I think it is important. We are not forcing 

money on banks. We are making money available. We want to be 

helpful in every possible way to small business. We are also—the 

Secretary has initiated a number of actions—and to small banks. 

I think what is the first priority is to make sure these banks are 

well capitalized, and over time, that capital will turn into more and 

more lending. I think we have to go through a period where there 

are concerns by borrowers, as well. Small companies, in some 

cases, are fearful about borrowing because they are not sure about 

the economic environment. 

As the Chairman said, we are not yet out of the woods with this 

economic crisis. We all have to be aware of that. We have to be 

vigilant. We can’t be complacent. We have to be willing to modify 

these programs, if necessary, moving forward. We have to have a 
15 

constant dialog with the Senate, with the House, with the American people, and with the financial community to make sure that 

these programs are as effective as they possibly can be, and I know 

that the Secretary is completely dedicated to making sure that happens. 

Senator SHELBY. Thank you, and thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator Shelby. 

Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman. 

Kind of going back to when this program would end, assuming 

it wouldn’t be extended, does that mean that the money would be 

paid back by October of 2010 for the program to end, or does that 

mean that no more money would be lent out by October of 2010? 

Mr. ALLISON. Senator, it would mean that no more money is 

going to be invested from this program from that point onward. 

Senator TESTER. OK. 

Mr. ALLISON. There still may be monies outstanding. That is why 

it is also important that we have a strong and effective asset management capability within the Office of Financial Stability—— 

Senator TESTER. Yes. 

Mr. ALLISON. ——and that will be one of my responsibilities, if 

I am confirmed, as well, to make sure that happens. 

Senator TESTER. And you may or may not have looked at this. 

I mean, you are talking about AIG, Bank of America, GM, Chrysler. Those paybacks are probably going to take some time, or what 

is your perspective on that? 

Mr. ALLISON. Senator, I don’t think any of us can forecast exactly 

how long that will take. I think it will take some time. The purpose 

of putting capital in there is to enable, for instance, the auto companies to make that transition over some period. 

Senator TESTER. OK. Jump back to the auto program. You had 

said that you are going to be jumping in waist-deep, at least, if not 

further, into this program. Can you tell me, from your perspective 

right now, who is making the day-to-day decisions on that program, 

or will it be you? 

Mr. ALLISON. Well, eventually, if I am confirmed, I will be involved in making those decisions—— 

Senator TESTER. The primary decision maker? 

Mr. ALLISON. The Secretary is involved, as well, and I will report 

to the Secretary of the Treasury, as well, and I am sure we will 

have a continual dialog about that along with others within the 

Treasury Department and throughout the government. 

Senator TESTER. One of the concerns that Ranking Member Shelby brought up, I believe, or maybe it was Chairman Dodd who 

brought up the fact that the TARP recipients aren’t loaning money, 

or at least in some cases that is the case. Yesterday, it was brought 

up to me by a person who uses—an industry, actually, that uses 

a lot of fuel that this TARP money is being used to speculate in 

the oil market. Would you have any control in your position to look 

at that? Quite honestly, I have got some real problem with folks 

tinkering around in the oil industry that aren’t taking delivery on 

the product, and maybe I am alone in that, maybe I am not, but 

it creates artificial balloons and when they pop, we have problems. 

Would you have any ability in your position to take a look at if, 
16 

in fact, they are doing something like messing around in oil speculation and driving the prices up artificially? 

Mr. ALLISON. Senator, I should point out that already, the Treasury Department is producing monthly reporting on the lending activities of the banks that are receiving Financial Stability funds 

and that reporting was recently expanded to include all the banks 

that have received that funding. We will work to make that reporting as fulsome as we possibly can. 

Let me also point out that throughout this recession, and I think 

thanks to these programs that have been put in place, we have 

seen lending remain fairly steady throughout this period, and I 

think it has been important, by injecting capital into these banks 

as they wish to have it, that we have been able to sustain lending 

during this very difficult period. But all of us want to see lending 

increased. 

And may I also say, Senator, that we will—I will be glad to get 

back to you on your question about whether these monies are being 

used for oil speculation. We want to develop more reporting, both 

for the oversight committees as well as for the Congress. 

Senator TESTER. If they are—— 

Mr. ALLISON. Yes? 

Senator TESTER. ——is it within your capacity to say no? 

Mr. ALLISON. Senator, we are not going to be in the business of 

micromanaging these banks. We are there to help them be financially sound. 

Senator TESTER. I appreciate that. But the reports that we can 

get, we can give direction off the reports. 

Mr. ALLISON. Yes, sir. 

Senator TESTER. Thank you. 

Mr. ALLISON. Thank you. 

Senator TESTER. A couple questions, if I might, Mr. Chairman. 

Your predecessor recently commented that firms deemed too big to 

fail have an unfair advantage over smaller competition because 

they can raise money more cheaply in the debt markets. What are 

your thoughts on that? 

Mr. ALLISON. Senator, the administration is working right now 

on a proposal on financial reregulation that is very much needed 

and I am sure that it will be addressing broadly the type of issue 

that you are raising. 

Senator TESTER. So you do think that it is a concern? 

Mr. ALLISON. I think that there is a concern on behalf of the 

American public and certainly myself that we have a strong, stable 

financial system—— 

Senator TESTER. Yes. 

Mr. ALLISON. ——and a system that is responsive to the longterm needs of the shareholders and the long-term needs of this 

country. 

Senator TESTER. OK. I will let you off on that one. 

Do you think—just give me your opinion on the too big to fail 

thing as an overall perspective, and you know what mine is. I 

mean, I think that if failure is not a possibility, that means the 

taxpayers are on the hook, and that also means that there is not 

a lot of risk there if you know that you cannot fail and you are one 

of those banks that are too big. What is your perspective on that? 
17 

Do you think it is healthy? Do you think we need to do something 

about it? What would you do if you were in my boots? 

Mr. ALLISON. Senator, I think one of the reasons for this initiative on financial industry reform and reregulation is to deal with 

the fact of what we were confronted with as a country last year 

when these huge institutions began to fail and there was no real 

mechanism for an orderly resolution to those problems. I think 

what we need is to have a mechanism in place to, if that type of 

event should ever recur again, and we are going to try to work very 

hard to make sure it wouldn’t—— 

Senator TESTER. Right. 

Mr. ALLISON. ——that there is a mechanism for dealing with it. 

The other is to make sure that these organizations have a framework of regulation that will allow for transparency and active 

interaction between regulators and financial institutions to try to 

prevent some situation like this from happening again. 

Senator TESTER. OK. Very good. Thank you, Mr. Allison. Thank 

you, Mr. Chairman. 

Chairman DODD. Thank you very much. 

Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. 

I want to go back to comments that both Senator Schumer and 

Senator Shelby made. Senator Shelby raised the point of—I liked 

your analogy to we have got this bear, AIG, and we don’t know 

what to do with it. Senator Corker and I, when Secretary Geithner 

was in recently—— 

Chairman DODD. Senator Warner, let me apologize. I did not see 

Bob Corker walk into the room. I apologize to my friend from Tennessee. 

Senator WARNER. I was about to say good things about him and 

you are going to cut me off? 

[Laughter.] 

Chairman DODD. No, no, no. I apologize, and my apologies to my 

colleague from Tennessee, but normally we go back and forth from 

one side to the other, so forgive me. Senator Corker, I apologize. 

Senator CORKER. I will let him ask his first question—— 

Chairman DODD. All right. 

[Laughter.] 

Senator CORKER. ——and then come back to him, because I 

think—— 

Chairman DODD. He seems to be complimenting you in some 

way. 

Senator CORKER. No, that is right. Go ahead. Go ahead with 

that. 

Chairman DODD. Very smart of you, Senator Warner, to do that. 

Senator WARNER. I am learning, Mr. Chairman. I am learning. 

[Laughter.] 

Senator WARNER. But we pressed—we were very concerned, and 

I think a lot of folks have been obviously very concerned about the 

whole AIG situation. We were concerned with the fact that 100 percent pay-off on the counterparties with AIG, no haircut taken. Secretary Geithner said, well, he didn’t have any authority and now 

there is a precedent set, and consequently, even if we tried to give 

him authority, perhaps it couldn’t be fully utilized. 
18 

That brings me to what Senator Schumer raised earlier, which 

is as we think about a repayment pattern from the financial institutions that receive TARP funds, we know they want to pay back 

these dollars. We know many of them want to pay them back as 

soon as possible. Secretary Geithner said that as these banks start 

paying back, at least initially it was his intent to take back not 

only—let them repay, but also kind of wash out the warrants or 

sell back the warrants, as well. 

And my concern is before we start setting precedents on this repayment program that we think through an overall strategy and 

policy goal for our repayments, and what I am particularly concerned about is the warrants. You know, the American taxpayers, 

we as shareholders and investors took an awful lot of downside risk 

exposure and I would like to see some of the upside here. 

Now, I know that we don’t want to be long—none of us want us 

to be long-term holders of—investors in financial institutions, but 

my hope would be that, one, you would have an overarching policy 

in terms of repayments; that second, that one thing that you would 

consider, and we raised this with Secretary Geithner, that while 

we, the Federal Government, may not want to hold those warrants 

too long because we don’t want to have that potential even hint of 

political interference, I would hope we would at least consider some 

other options rather than selling them before we got full value, 

which might include setting up a trust or selling them to a third 

party where we could share some of the upside so there is an independent financial entity that is making sure that we get some 

value on those warrants since we, the taxpayers, have taken that 

risk. So if you could comment a little bit about your thoughts about 

a repayment policy and particularly as it applies to the warrants. 

Mr. ALLISON. Senator, first of all, I appreciate your concern 

about the taxpayers and the importance that the taxpayers receive 

an appropriate return on the investment that they have been making in these institutions. Given the recent enactment of the Reed 

amendment, which gives the Treasury more flexibility as to the 

timing of disposition of the warrants, the Treasury is now looking 

at that issue actively and I am sure it will be announcing before 

too long what its policy will be on warrants, given this change in 

the rules governing the management of the warrants. 

Senator WARNER. So in other words, that doesn’t give any hint 

of what your thoughts are. 

Mr. ALLISON. This is actively being discussed right now and I am 

sure that there will be policy that is made public before long. 

Senator WARNER. Thank you, Mr. Chairman. 

Chairman DODD. And, of course, under the Reed amendment, 

there is a lot of flexibility. 

Mr. ALLISON. Yes, sir. 

Chairman DODD. That was the idea. 

Mr. ALLISON. There is. 

Chairman DODD. I think what Senator Warner is suggesting, 

that now that we have the flexibility, looking at a range of ideas 

that would give us additional options within that range of flexibility other than making the choice of either selling those warrants 

or holding those warrants, it seems to me between those two bookends, there are some opportunities here that we ought to examine. 
19 

Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman. 

Chairman DODD. My apologies again. 

Senator CORKER. No, no, no. I understand. There is a lot going 

on. 

Mr. Allison, first of all, thank you for being here, being willing 

to do this. I think we are fortunate in the public arena to have people like you with the background you have that are willing to offer 

yourself and I want to thank you for that. 

Mr. ALLISON. Thank you, Senator. 

Senator CORKER. I have a lot of similar kinds of concerns. When 

we began this program with TARP, it was sold and we all focused 

on it in this way, I think, as something where we were going to 

buy assets of value. We all talked about the fact—I know we were 

highly involved in meetings about the fact that the $700 billion in 

all likelihood would yield a return, that we would get back more 

than $700 billion. And by the way, I think that very well could 

have been the case. It is evident with some of the things like AIG, 

and I don’t want to create a debate here on the panel, but starting 

to use money for things like mortgage modifications and all that, 

that that is likely not going to be the case today. 

But as we look at the various—as we look at TARP, or as you 

look at it, I would like to get an understanding. I know that these 

things evolve and there is fine print in bills and people are able 

to be very entrepreneurial about taking advantage of a few words 

in a bill and starting to do a lot of other things with it, which I 

think we have all learned a lesson from in many, many ways. But 

is it your perspective that with these TARP funds, your primary 

goal is in stabilizing the financial system, investing in things that 

will have value and that will return taxpayers their money? 

Mr. ALLISON. Yes, sir. As the law states, the Financial Stability 

Program is intended to improve the stability of the financial system 

while protecting the interest of taxpayers. I think it is very important that I, if I am confirmed for this responsibility, are mindful 

of both of those conditions. I think it is early to say what the eventual returns will be to the American public. I can assure you that 

if I am confirmed, I am going to work very hard to make sure that 

these monies are well invested and well managed and tightly controlled going forward, keeping the interest of the taxpayer and 

American people very much in mind. 

Senator CORKER. You know, as we look at where we are in the 

TARP program today, somebody like you, I don’t think, would take 

on a position like this unless you had responsibilities and you felt 

like you were making a difference. I mean, you have stature and 

you have substance. And yet as I look at the program and where 

we are, it seems to me that those decisions that are going to be left 

as it relates to TARP, other than making decisions about timing 

and when we take advantage of our warrants and those kinds of 

things, much of the heavy lifting may have already been done. It 

seems like the decisions about who we are going to invest in 

majorly will be made by the Treasury Secretary and that the TARP 

leader may be more of an implementor, and I am just wondering 

what kind of conversations you all have had in that regard, be-
20 

cause again, looking at your resume and background, I am just 

wondering what it is that is luring you to this position. 

[Laughter.] 

Mr. ALLISON. Well, I am lured to the position and have taken on 

this responsibility, if you confirm me, because I believe that this is 

still a very serious economic time for this country, that much still 

has to be done to restore stability. There are many positive signs 

thanks to the initiatives by the administration and these programs. 

We are seeing spreads coming down, credit spreads in the banking 

area. We have seen home sales more steady the past few months. 

And there are other signs, for instance, the banks being able to 

issue equity on their own, to issue unsecured debt. These are all 

very positive signs. But we also see housing prices are still falling. 

The commercial real estate market is still under pressure. Small 

businesses are still having some difficulty. We have still credit 

spreads, this measure of risk in the system, still higher than they 

historically had been and should be. 

There is still a great deal of work to be done here and I don’t 

think at this point we ought to become complacent and think that 

because the banks are starting to repay some of this money that 

the crisis is over and we can just go ahead. There still could be, 

as the President and the Secretary have said, some bumps along 

the road here. 

I think we have to see this program through and make sure that 

it is well administered all along the way. As the Chairman said, 

this is going to require close management and experienced management skills and I think that is what I can help to bring to this and 

also provide assistance to the Secretary of the Treasury, who has 

the overall responsibility for these programs. 

Senator CORKER. A very good answer, and this is my last question, Mr. Chairman. Secretary Paulson last summer, when he was 

given the authority, if you will, to act as a conservator for Fannie 

and Freddie, mentioned that before he left, he was going to give a 

statement about what the ultimate outcome of those two organizations ought to be. The events of the day and the crises that continued sort of prevented that from happening, or if it happened, it was 

overwhelmed by other news that was happening at the time. 

You have been at Fannie and you are a smart guy, and I am 

wondering if while we are all here, since it is a major responsibility 

of all of us on this committee, if you could just tell us what you 

think, as we move through this crisis, what the ultimate outcome 

should be with Fannie and Freddie. A lot of people have talked 

about privatization. A lot of people have talked about we ought to 

only use them as insurers. There are all kinds of things that have 

been stated. You have lived it and breathed it and I wonder if you 

might share with us what you think the ultimate outcome of those 

organizations ought to be. 

Mr. ALLISON. Senator, thank you for the question and let me just 

tell you what I used to tell the people at Fannie Mae who were asking this question themselves. You could see they were quite concerned about the future of an institution where they had worked 

for many years, and by the way, they are outstanding employees 

and they are working extremely hard today on behalf of the American public. 
21 

What I told them was, let us not try to anticipate what form this 

company may take and whether it may even exist in the years 

ahead. Let us look at what is in the best interest of the American 

public. Let us do our jobs on behalf of people right now who are 

desperate to stay in their homes, and that is the line of business 

of Fannie Mae today, is to keep people in their homes. 

I think that this will be an issue debated within Congress. The 

administration will take its viewpoint on this down the road. I 

think what is most important is that we have a vibrant housing 

system in the United States with liquid markets so that people can 

access credit in responsible ways to own their home. After all, that 

is part of the American dream. So at this point, I wouldn’t offer 

any specific prescription. I think this depends on major government 

policy going forward. This is a pivotal moment and I think that it 

calls for a debate, a reasoned debate about the future of the housing market and of housing policy in the United States. 

Chairman DODD. Thank you very much, Senator—— 

Senator CORKER. That was pretty much a nonanswer, and I 

guess during a confirmation hearing, when you don’t know if you 

are going to be confirmed or not, it is maybe unfair to ask that. 

I sure hope that as time moves on and you are confirmed, that you 

will be more clairvoyant and helpful to us as to what you think 

ought to occur. But I will certainly, like Senator Tester, will give 

you a pass and tell you you would be well qualified to run for public office based on that answer, but thank you. 

[Laughter.] 

Mr. ALLISON. Thank you, sir. 

Chairman DODD. Let me just say, I was going to suggest, by the 

way—let me just mention to my colleague, before Senator Corker 

leaves, just so my colleague is aware, your reputation at Fannie 

among the employees was just remarkable. At a time when they 

were being absolutely deluged and overwhelmed, you restored a 

sense of confidence to a workforce that was feeling rather battered 

in many ways, and I want my colleagues to know about that. That 

is strong leadership at a time like that. 

And obviously, we would like your ideas. I want to pick up on 

Senator Corker’s point. This is a very important issue as to where 

we go with this policy, and the fact that you were there and understand that institution as well as you do and enjoy the reputation 

with the workforce as strongly as you do. This is not the moment 

for it. But there will be a moment we would like to invite your 

thoughts and ideas of how that construct ought to occur, so I second the request—— 

Senator CORKER. Thank you, Mr. Chairman. 

Chairman DODD. ——and appreciate that. 

Let me go back to Senator Warner. Do you want to finish up and 

then—— 

Senator WARNER. Yes. I just have one more point. Thank you, 

Mr. Chairman. 

Mr. Allison, one of the comments you made in terms of your priorities was transparency, and I just want to get a little further confirmation on that as well. One of my frustrations that actually led 

me to put forward legislation with Senator Martinez and Senator 

Brown—and Senator Tester said he wants to join me in this—to try 
22 

to mandate, since we have not seen it so far from the administration, on a publicly accessible, single–Web site basis the status of all 

of the investments we have made with the TARP program. I mean, 

the Chairman made clear that, I think, there are 12 odd separate 

programs and initiatives, and the administration has gotten better 

on this. You still need not only a technology degree but also a finance degree to try to find all this information on various Web 

sites around, and the fact that it could and should be consolidated 

into a user-friendly, single-site where the American people can 

check what we have done with this $700 billion and what the status of these loans and investments are is terribly important, because I can tell you, at least, again, in my State, an awful lot of 

folks think that we have taken these funds and basically either 

thrown them into the wind or flushed them down the toilet and 

that we are never getting them back, when in reality I am optimistic that we—I would like to hope we get it all back, but that 

we will actually get a fairly good rate of return and that we will 

have shored up the financial system. 

This is as much a comment as a question, but my hope is that 

when you get confirmed, as I know you will, that perhaps you could 

mitigate or even get rid of the reason for this legislation by trying 

to put in place this kind of user-friendly, single–Web site to highlight and in real time indicate the status of all these TARP programs and let the American public know where these funds have 

gone and what the status of either repayment or potential for repayment would be. 

Mr. ALLISON. Senator, thank you very much for your suggestion. 

I fully share your thoughts about that, as I know the Secretary 

does as well. And the Treasury is in the process of further enhancing the information on its Web site about these programs, and I 

have met with people in the homeownership initiative area about 

that very subject. So I am confident that we will be able to prepare 

more information, and we would like to have a two-way dialog 

about this and make sure that we are satisfying your needs for information and those who you represent. 

Senator WARNER. Well, Mr. Allison, I hope that would be the 

case. My only hesitancy—and it is one of the reasons why we actually put forward legislation, which I, again, would love to not have 

the need for—is that we have heard that response from every individual who has testified, from the Secretary on down, that, yes, 

that is a good idea, we want to get this information out, yet it is 

still pretty hard to find in a single source and in a user-friendly 

way. So we look forward to that kind of conversation and that kind 

of result. 

Mr. ALLISON. Thank you. 

Senator WARNER. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much. 

Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chair, and I thank you for 

your testimony, Mr. Allison. You have both the Wall Street experience and the experience in the housing world. I wonder if you can 

give us some insights on the role that prepayment penalties and 

yield spread premiums played in creating financial risk or contrib-
23 

uted to the housing bubble and how we ought to address those in 

the future. 

Mr. ALLISON. Well, I think that there is a need to reexamine the 

financing of homeownership in the country. It is obvious that some 

of these loan structures were totally inappropriate for the people to 

whom they were sold, and I think that needs to be looked at very 

carefully. I think there should be a simpler process for borrowing. 

The terms of the borrowing should be highly transparent. And I 

think that attention is going to be given to that as well, as the Government looks at reregulation of the financial industry. 

You know, a home is the biggest investment most people ever 

make, and that should be taken into account. If we want to promote homeownership and promote wealth creation in the United 

States among the public, I think there has to be much more attention given to the structures of those loans. 

Senator MERKLEY. How did those practices contribute to systemic 

risk? 

Mr. ALLISON. I think we have seen inappropriate lending practices, not full transparency in some cases. I think there is plenty 

of evidence that many homeowners were convinced to take risks 

that they should not have been taking, and that happened on a 

pretty large scale. And I think that led to a significant part of the 

housing crisis. 

Senator MERKLEY. Thank you. I would just suggest that one has 

to track how the securitization and the subsequent splitting of the 

tranches, and the creation of CDOs and CDO-squared contributed 

to creating really the toxic assets that contaminated the international banking world, and one needs to make those connections, 

I feel, in order to get one’s hands around the systemic risk part of 

this. 

Am I way off track here, or do you share that—— 

Mr. ALLISON. Well, I think that we have seen that Secretary 

Geithner is concerned about making sure that there is adequate 

disclosure, that there are mechanisms in the marketplace that will 

lead to better risk management. And this is complex issue. There 

are many elements to having an inappropriate risk management 

approach within the financial industry, and I am sure that is getting a lot of attention among those who are working on these proposals for reregulation. 

Senator MERKLEY. To change topics here, my support for the second half of the TARP was contingent upon a big chunk of it going 

to mortgage modification, assisting homeowners, or perhaps in refinancing. The reports we get from the field in Oregon remain very 

minimal; that is, people are as frustrated today in trying to reach 

someone they can talk to. Those who service the loans are as 

unknowledgeable, if you will, and as unhelpful as they were 

months ago. We have one particular institution that folks repeatedly get told, ‘‘Well, our institution is participating,’’ when their institution is participating. This institution was featured in an article 

yesterday in a different States with experiences that very much reflect what is happening in Oregon, in which a person who had lost 

their job and was doing everything they could to make their payments, but clearly was going under, was simply told they would 

have to wait until they were behind 3 months, and then the effort 
24 

was made to sell them a new loan at a higher interest rate with 

high servicing charges that would have put them further in the 

hole, kind of a repeat of the types of flipping practices that have 

been destructive. 

Somehow we have to get over the hill here. We have to get into 

the world where our institutions are really taking seriously the 

modifications programs. Institutions that have received enormous 

tax support from citizens who are earning 30,000 bucks a year and 

seeing their tax money go to help these institutions but then in return are being stonewalled on the mortgage front. 

What can we do to accelerate this effort to assist our citizens? 

Mr. ALLISON. Senator, I share your concerns that we be as effective as possible in rolling these programs out to every community 

in America where people are feeling under great pressure right 

now. And this is a mammoth program, and it has taken some time 

to get rolling. I think all of us are impatient. We want this to be 

working as quickly as possible because people are suffering every 

day. 

So I know that people are working day and night. I am encouraged, as I mentioned before, that more banks are becoming involved. The banks who account for the institutions, at least 75 percent of mortgage loans are involved in this program right now. It 

has taken them time to build their staffing, to change some of their 

systems, to be able to implement this program as it is designed. 

And it is frustrating when we all want to see this operating overnight because we know people out there need this immediately. 

So I can assure you that, if I am confirmed, I will be working 

with others within the Government. I know that Secretary Donovan is very concerned about this, Secretary Geithner, not to mention President Obama. There is a great deal of pressure on even 

to get this program out as fast as possible, working closely with the 

banks, and they are making, I think, great efforts to. 

Now, we have to do more. We have to reach more institutions. 

We have to reach more people. It is important that they know 

these programs are available. In the case you mentioned, I think, 

you know, it is important that we try to get as many banks as possible involved in this program. And I would be happy, if I am confirmed, to talk with you or your staff about this and learn more 

about those situations. I think everybody has got to be working at 

maximum effort to try to make this program effective. 

Senator MERKLEY. I appreciate your statement and what I can 

characterize as a commitment that it is a high priority for you, 

maximum commitment. 

Mr. ALLISON. Yes, sir. 

Senator MERKLEY. Or an effort to make this program success. 

Thank you. 

Mr. ALLISON. Thank you. 

Chairman DODD. Thank you very much, Senator. 

Senator Reed has joined us, and I am going to have to slip out 

in a minute. Senator Tester I think is going to take the gavel to 

finish the hearing. I have been told you are, anyway. 

Let me, if I can, the issue was raised by Senator Shelby earlier 

about AIG, and on May 20th we had a hearing—in fact, the Secretary was here, and the issue came up dealing with creditors and 
25 

counterparties. And, obviously, a lot of the attention was focused 

on bonuses and so forth when the AIG matter broke in the winter. 

At about the same time, there were announcements about the 

counterparties and creditors that did not get anywhere near the 

same attention. But one of the things that has been disturbing is 

the fact that while the value of an AIG stock has declined, obviously, the creditors and counterparties were getting paid 100 percent of value. 

The issue it obviously raises, as many of us raised here, is: Who 

is doing the negotiating? We are an 80-percent owner of this company, and here counterparties are getting 100 cents on the dollar. 

It does not exactly sound like a great negotiating position, it seems 

to me, given the exposure of the dollar amounts. 

What I would like to know is—and, again, I realize you are not 

in the job yet, but, you know, what tools do you feel the Government needs to negotiate the best terms for taxpayers? Do we need 

to give you any additional tools? If there is something we need to 

be doing, I would like to know about it. If you have the tools necessary to negotiate better, then we would like to know whether or 

not—what they are and how they are intended to be used, without 

getting into—I do not expect you to necessarily tell me what the 

answer ought to be. But the answer that we cannot do anything, 

that we just have to accept this, is unacceptable. I think most of 

this, anyway, is just unacceptable given the exposure we are talking about. 

Mr. ALLISON. Mr. Chairman, I think everybody is frustrated 

about the AIG situation. I think that is a major reason why the 

Secretary and others are working hard on financial reregulation 

proposals. There was no mechanism for the orderly resolution of 

the AIG problem, and there needs to be if, God forbid, there ever 

is another situation like that. 

I think one of the practical implications—and, again, I am not involved in the AIG matter directly, but there were cross-default 

clauses that would trigger defaults across AIG’s exposures to 

counterparties and debt holders that would have caused a massive 

problem within the financial system given the size of that entity. 

And that could have had ripple effects throughout the banking system. 

So I think that the Government has been doing what it can in 

that very difficult and very complex situation to protect the interests of taxpayers. That is frustrating, and I think that it is a very 

strong reason why there is a need to put new measures in place 

that can deal with a situation like that if it ever does happen 

again. 

Chairman DODD. Well, the resolution mechanism is clearly something we have got to deal with, but, again, the negotiating process 

that goes on, I believe the tools are there. It is a question of whether or not you buy into the notion that any negotiation that could 

in any way diminish something less than 100 cents on the dollar 

value would somehow create the kind of economic problems that 

you have just mentioned, or not. And I know there is a pretty significant debate. I am not satisfied that that is the case, but I am 

going to continue raising this issue, as I am sure others will, because, again, the exposure dwarfs—there were a lot of headlines 
26 

about the bonuses. The bonuses by comparison to the exposure 

here is just no comparison, it is such a vast difference what we are 

talking about potentially. 

Let me turn to Senator Reed, and thank you very much, and we 

look forward to moving your nomination as soon as we possibly 

can. 

Mr. ALLISON. Thank you. 

Chairman DODD. And thank you again for your willingness to 

take on this job. 

Mr. ALLISON. Thank you very much. 

Chairman DODD. And welcome to your family as well. Delighted 

to have them. 

Mr. ALLISON. I appreciate that very much. Thank you. 

Senator REED. Thank you, also, Mr. Allison. Thank you, Chairman Dodd. 

Senator Warner I believe raised the issue of warrants which is 

close to my concern also. Just once again to emphasize with the recent legislation you have complete flexibility on the use of the warrants, and I urge you to use that flexibility wisely. 

There is an issue that, frankly—this is a question that has just 

come to mind. The TARP fund will receive two forms of payment: 

the principal that was advanced and also interest on the preferred. 

Does that interest revert back into the TARP program? And another question related is the value of the warrants, the profits from 

the warrants, does that go back into the TARP program? 

Mr. ALLISON. Senator, as I understand it, the monies that are received go into the general funds of the U.S. Treasury. The amount 

advanced initially is then deducted from the amount outstanding 

under the $700 billion limit. I will double-check that for you, but 

that is my understanding. 

Senator REED. So, essentially, the repayment would restore the 

ability to extend the principal amount that is repaid, but the additional, the profits, the interest, and the value of the warrants, they 

go back to the general Treasury. 

Mr. ALLISON. Again, that is my understanding. I will go back and 

double-check it for you, Senator. 

Senator REED. Thank you very much, Mr. Allison. 

I would assume that you have looked at the April 21st report of 

the Special IG for TARP. 

Mr. ALLISON. Yes, sir. 

Senator REED. And I think he did a very good job in laying out 

some of the problems of transparency and oversight. Do you have 

any thoughts about these recommendations and how to influence 

them? And if you have covered them before, I apologize. 

Mr. ALLISON. I have begun in my first week in the Treasury to 

meet with the Special Inspector General. I meet with him every 

week, if not more often. Our staff at the Treasury meets with him 

also, and his staff. 

We are, I think, all intent on making sure these programs are 

very well controlled and that there is as much transparency as 

practical given the need to have these programs also be quite 

broad. I know that the Special Inspector General shares those objectives. So we are respectful of his findings, and we take them 
27 

very seriously, and we are working with him to find practical ways 

of dealing with those concerns. 

Senator REED. And there is another issue, or potential issue. I 

know the regulators are doing a great deal to avoid the issue, that 

is, a reapplication to TARP for an institution that might have paid 

out but then needs additional assistance. Are you establishing any 

procedures for that, or is that something that is still off on the horizon? 

Mr. ALLISON. Senator, if I am confirmed, I will certainly look at 

that, and I would be happy to meet with you or your staff on that 

question. Thank you for the question. 

Senator REED. Well, again, thank you, Mr. Allison, for your willingness to serve. I think it began as a lieutenant—or an ensign, 

really, in the United States Navy. 

Mr. ALLISON. Yes, sir. 

Senator REED. So thank you very much. 

Mr. ALLISON. Thank you very much. 

Senator TESTER [presiding]. Thank you, Senator Reed. 

Senator Merkley, do you have any further questions? 

Senator MERKLEY. Yes, I would like to ask one more question, if 

appropriate. One of the concerns I have is related to the PPIP program and the possibility of manipulation between buyers and sellers. I believe that TARP recipient banks are not going to be participating in the legacy loans program, but that no such restrictions 

have been put in place in the legacy securities program, which will 

be managed by Treasury and the Fed under TALF. 

Any thoughts or insights that you have basically parties with an 

interest on both sides of the transaction? 

Mr. ALLISON. Well, there are going to be very clear conflict-of-interest rules in the Public-Private Investment Partnership, and 

those rules are also being discussed with the Special Inspector 

General as well as with people within Treasury. I think it is very 

important for the credibility of the program and to protect the taxpayers that the program be administered in a way that prevents 

such conflicts of interest. 

Senator MERKLEY. Absolutely. Thank you. 

Mr. ALLISON. Thank you. 

Senator TESTER. Mr. Allison, there have been a few figures floating around about how much is left out there to be invested or 

loaned, however you want to put it. Have you been able to take a 

peek and see what is left out there, how many billion are left? 

Mr. ALLISON. It is roughly $100 billion, Senator, that is available 

today. 

Senator TESTER. And as things unfold here, your crystal ball 

being as clear as anybody’s, what kind of criteria do you see utilizing for potentially investing those dollars, personally? 

Mr. ALLISON. Well, I think first of all it is important that we 

leave some headroom in this program because we are not yet out 

of this crisis. 

Senator TESTER. Right. 

Mr. ALLISON. And I think the Treasury, the Government, needs 

some flexibility so that if there is a need in the future, we can intervene in a timely manner on behalf of the American public. 
28 

Senator TESTER. So it is $100 billion which you think is adequate 

for headroom? 

Mr. ALLISON. Senator, I would not want to place a number on 

that. I think we all have to be vigilant, and there needs to be flexibility in this program so we can act on behalf of the American people, if necessary. 

Senator TESTER. OK. Thank you. Thank you very much. I appreciate you putting yourself forward for public service and going 

through all the questions. 

Mr. ALLISON. Thank you. 

Senator TESTER. I also appreciate your family for being here. I 

think that behind every good guy there is a good family, so we appreciate that. 

Thank you very much. 

Mr. ALLISON. Thank you, sir. Thank you, Senator. 

Senator TESTER. This hearing is adjourned. 

[Whereupon, at 11 a.m., the hearing was adjourned.] 

[Prepared statements, biographical sketch of nominee, and responses to written questions supplied for the record follow:] 
29 

PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY 

Thank you Mr. Chairman. This morning we are considering the nomination of Mr. 

Herbert Allison for the position of Assistant Secretary for Financial Stability at the 

Department of the Treasury. If confirmed, Mr. Allison will have the primary responsibility for running the TARP program. 

When Secretary Geithner appeared before the Committee a few weeks ago, I 

noted my serious concerns about the manner in which the TARP program had been 

hastily conceived and then inconsistently administered. 

I believe the failures in both design and execution have wasted taxpayer funds 

and done little to address the problems in our financial markets. I think it is crucial 

that we terminate this program as quickly as possible. 

That said, the TARP program remains in place and hundreds of billions of taxpayers dollars are at risk. Consequently, the program must be properly administered until it is wound down. 

I believe proper administration means protecting the American taxpayer while 

taking deliberate but careful steps to end the program. 

As I noted at the earlier hearing with Secretary Geithner, we should be under 

no illusions about how difficult it will be to unwind the massive funding facilities 

that have been constructed. 

In fact, it is very likely that the greatest challenges posed by this financial crisis 

still lie ahead. 

If the Treasury stumbles in dismantling its facilities, there is a great risk of 

sparking another and potentially more severe crisis. 

If done well, the withdrawing of government intervention will likely do no more 

harm. If done poorly, we could face serious and prolonged economic problems. 

I look forward to hearing today from Mr. Allison about how he would manage the 

TARP program, how he proposes to retract TARP facilities, and how quickly he believes that can be done. 

Thank you, Mr. Chairman. 

PREPARED STATEMENT OF HERBERT M. ALLISON, JR. 

TO BE ASSISTANT SECRETARY FOR FINANCIAL STABILITY (TARP), 

DEPARTMENT OF THE TREASURY

JUNE 4, 2009 

Chairman Dodd, Ranking Member Shelby, and all of the Members of this Committee, I am honored to be before you today. First of all, I want to thank President 

Obama and Secretary Geithner for the trust they have shown in asking me to serve. 

I also want to thank you and your staff for the time you have spent with me, helping to move my nomination forward, and working to acquaint me with the concerns 

you have about the financial crisis and the comprehensive measures needed to address it. 

If I am confirmed, I will always keep in mind Congress’s directive, that the primary objective of the Assistant Secretary for Financial Stability is to restore liquidity and stability to the financial system of the United States. In doing so, we must 

never forget that this financial crisis isn’t just about banks, credit, and lending— 

it’s about the day-to-day effects the crisis is having on the American people. Millions 

of people have lost their jobs, numerous families have lost their homes, nearly all 

working people have lost retirement savings, hundreds of thousands of young people 

have been forced to postpone college, and countless small businesses have curtailed 

their activities and laid-off skilled employees, all because of failing credit markets. 

These real-world harms are the reason Congress has given the Office of Financial 

Stability the mandate it has, and I will ensure that combating these human costs 

remains the focus of the office. 

Before I briefly review my background and my plans for the Office of Financial 

Stability, should I be confirmed, I want to express my heartfelt thanks to my wife 

of 35 years, Simin, and my sons, John and Andrew, who are with me today and 

have provided unwavering support over many years. 

I began my career in public service, as an officer in the U.S. Navy, serving 4 years 

on active duty, including a year in Vietnam, before receiving an honorable discharge 

in 1969. After attending the business school at Stanford University, I joined Merrill 

Lynch and spent more than 28 years with that company, leaving as President in 

1999. In 1998, I played a central role in devising and negotiating the unwinding of 
30 

Long Term Capital Management—the hedge fund that a decade ago posed systemic 

risk to our banking system. 

In all of these areas, my experiences taught me lasting lessons about the right 

ways to do business including the importance of sound corporate governance, independent oversight, tight controls over risk and pay geared to long-term performance. 

At Merrill Lynch in the 1990s I contributed to strengthening all of these practices, 

which were not always popular, but which have proven essential to the long-term 

viability of any company. If I am fortunate enough to be confirmed, I will bring 

those principles with me to the Office of Financial Stability. 

Since leaving Merrill Lynch, I have led two major financial institutions through 

transformations necessary to their future success, TIAFF–CREF and Fannie Mae. 

In 2002, I became Chairman and CEO of TIAA–CREF, the leading provider of retirement and asset management services in the educational, medical, and cultural 

fields. To meet the changing needs of its customers, the challenges from increased 

competition, and the need for more stringent regulation, we transformed operations, 

controls and product lines. While improving investment performance, we doubled its 

capital base and established strong, independent risk management. We also upheld 

TIAA–CREF’s leadership in corporate governance, becoming the first Fortune 100 

company to allow stakeholders an advisory vote on executive compensation. And we 

redesigned executive compensation programs to give far greater weight to performance on behalf of clients than to profits. These efforts produced results: TIAA–CREF 

is one of a select few financial companies in the United States that retains AAA 

debt ratings, and the company and its clients have avoided the worst effects of this 

crisis. 

In September of 2008, I was named CEO of the Federal National Mortgage Association as the company was placed into government conservatorship. The crisis that 

devastated Fannie Mae’s liquidity and capital base also threatened millions of 

American homeowners with foreclosure. New management had to quickly transform 

the company’s focus from maximizing profit and market share to helping hardpressed American families stay in their homes. While much remains to be done, we 

have laid the groundwork for success. Working closely with the Federal Housing Finance Agency, we began developing foreclosure prevention and mortgage modification programs and the systems to support them. The hard work by the company’s 

employees convinced the government to appoint Fannie Mae as agent for the President’s Home Affordable Refinance and Modification programs, which offer financial 

relief to millions of Americans. We also began reforming aspects of Fannie Mae’s 

operations, controls, and policies that had contributed to the company’s excessive 

risk-taking. We initiated quality-assurance programs covering the company’s purchases of mortgages; no longer would Fannie Mae simply take the word of bankers 

and mortgage brokers for the quality of their loans. And we began to pursue institutions that had not been upfront about the defective loans they were selling the company. Today, although still burdened by credit losses on loans made during the 

housing bubble, Fannie Mae is performing well on behalf of the American people. 

Members of the Committee, if I am confirmed, I will bring the same managerial 

discipline and drive for results to the important office I will occupy. The Financial 

Stability Program is essential to President Obama’s and Secretary Geithner’s plans 

for recovery. Our economy declined sharply last year in large part because credit 

stopped flowing. Without access to credit, small businesses in Connecticut, Alabama, 

and Colorado cannot buy the new equipment, raw materials, and inventory that 

they need to expand. And larger businesses, like Boeing, Caterpillar, and United 

Technologies, need well-functioning credit markets as they adjust to the changing 

nature of the global marketplace. The Financial Stability Program is designed not 

only to help companies endure the challenges of the current economic crisis, but also 

to enable them to compete successfully in the new economy. Strengthening and reforming our financial markets is an essential to furthering those goals and achieving our ultimate ends: putting Americans back to work and resuming strong, sustainable economic growth. 

Given the magnitude of the financial crisis, this program must meet the highest 

standards. Much good work has already been done and for that I am grateful to 

those that have already served. But with the extraordinary amount of the American 

people’s money with which we have been entrusted, good work is not enough—we 

must strive to be flawless. Every dollar must be wisely and carefully managed, and 

we must be constantly accountable to the public which has entrusted us with their 

money. 

To that end, if confirmed, I will work closely with the Special Inspector General, 

the Government Accountability Office, the Congressional Oversight Panel, the Financial Stability Oversight Board, and the committees of Congress to assure the 

kind of accountability and oversight the American people deserve. And finally, as 
31 

Secretary Geithner has directed, I will emphasize transparency so that the Congress 

and the American people will know what we are doing with their money, why we 

are doing it, and how it is making a difference in our economy. Openness will be 

a guiding principle of this office and will help ensure that we remain focused on 

putting these taxpayer dollars to their highest and best use—rebuilding the American economy. 

In closing, I would like to say a few words about public service. My family has 

always emphasized to importance of serving one’s community, whether at the federal or local level. My father spent much of his career as a Special Agent with the 

FBI. His father worked for years for the United States Department of Agriculture. 

My Mother’s father served as Sheriff of Sioux Falls, South Dakota. And with me 

today is my brother, George Allison, who retired with the rank of Captain after 28 

years in the U.S. Navy. I admire all Americans who devote themselves to serving 

their communities and their country. Having started my career as an officer in the 

U.S. Navy, I am honored and inspired by this opportunity to return to public service. Thank you. 
32 
33 
34 
35 
36 
37 
38 
39 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM HERBERT M. ALLISON, JR. 

Q.1. It has come to our attention that some TARP recipients are 

exerting their status as creditors in corporate bankruptcy/restructuring proceedings to obtain the best financial outcome for themselves. In some cases, the heavy hand of these creditors is preventing companies from successfully restructuring to eliminate 

debt, preserve jobs, and emerge stronger and more stable. Do you 

believe it is appropriate for TARP banks to exercise their creditor 

status in this manner? 

A.1. Mr. Chairman, I appreciate your leadership on this issue and, 

if confirmed, I look forward to working with you on this and many 

other matters. President Obama and Secretary Geithner have stated that, as a general matter, the Administration is not seeking to 

involve itself in day-to-day management of individual companies. I 

believe taxpayer value is best protected by avoiding government involvement in tactical business decisions. While some recent corporate bankruptcies and their impact on communities and employment concern me deeply, if confirmed, I intend to work with my 

colleagues at Treasury and throughout the Administration more 

broadly to find alternate ways to help these companies and their 

employees and support overall recovery. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 

FROM HERBERT M. ALLISON, JR. 

Q.1. A recent report from the National Foreclosure Mitigation 

Counseling Program indicates that homeowners are waiting, on average, 45–60 days for responses to requests for help. Other homeowners are finding servicers reluctant to make meaningful changes 

to the terms of their mortgages despite advertised participation in 

the Administration’s foreclosure prevention initiatives. Companies 

that have agreed to participate in these programs must be held accountable, especially when so many are simultaneously receiving 

taxpayer dollars. What mechanisms would you recommend putting 

in place to ensure that servicers’ public pronouncements translate 

into relief for homeowners? Would you, for instance, consider collecting regular data on the volume of homeowner inquiries, average 

response time, and number and type of workouts offered, in the 

model of the Monthly Lending and Intermediation Surveys? Would 

you consider requiring detailed action plans from participating 

servicers for how they will expand the capacity of their loss mitigation departments, and holding them accountable to meeting benchmarks? 

A.1. I agree that it is extremely important that participating 

servicers fully comply with the Home Affordable Modification Program (HAMP), and I also recognize the importance of providing robust public reporting on servicer performance and borrower behavior and experience under the program. If confirmed for this position 

I expect to oversee this process and make sure as many Americans 

as possible are able to take advantage of this program. 

In specific response to your question, the Treasury is currently 

working with Fannie Mae, the program administrator, and with 

the servicers to provide detailed information concerning the pro-
40 

gram. We will be capturing information from each servicer at the 

loan level and it will include items such as homeowner contacts, 

types of workouts offered and accepted, interest rate before and 

after modifications, payment amount changes, as well as a number 

of other categories. We will be able to look at this data by different 

views including by servicer, geographic regions, and loan characteristics. We are also creating a database which will allow further 

views of the data. This detailed information will begin flowing the 

end of June. At that time Fannie Mae will have completed the electronic system to capture this information. It is anticipated that the 

first payments under this system would happen in July when the 

first set of homeowners would complete the 90 day trial modifications. 

In addition to this detailed information which we will be receiving from the servicers, we have also instructed Fannie Mae to establish a call center capability that will allow the borrower to be 

able to speak to a representative to obtain more help with the program. This call center augments the Making Home Affordable web 

page which was launched a couple of months ago. The call center 

provides the extra support that borrowers might need. This call 

center has been established through the ‘‘Hope hotline.’’ It will 

allow us to also capture independent information concerning the 

borrowers’ experience with each servicer,invaluable in managing 

the program. Another important feature of the call center is that 

borrowers that need more help will be able to be immediately 

transferred to a HUD certified counselor who can provide the extra 

support that they may need. The contract to expand the ‘‘Hope hotline’’ was signed this past month and the hotline has been ramping 

up over the last few weeks and it should be fully operational, with 

the further Making Home Affordable information, now. 

In addition, if confirmed, I expect to be working closely with 

servicers to ensure they put in place the proper systems and workforce to properly implement this program. 

All of the features I have described should help to make this program live up to the expectations of the Congress and the Obama 

Administration. It is a complex issue that has required tremendous 

effort on all parts in order to handle the volumes of borrowers, 

technical changes to systems, and proper support mechanisms to be 

put in place in such a short span of time. If confirmed for this position I expect to oversee this program and make sure it is done 

right. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BENNET 

FROM HERBERT M. ALLISON, JR. 

Q.1. It’s my understanding that certain TARP recipients, which are 

creditors to companies undergoing Chapter 11 bankruptcy, are 

using the restructuring process to increase the pricing of their debt 

instruments. It’s troubling that financial institutions that have 

benefited from taxpayer money are now acting in a manner that 

undermines the vitality of companies that don’t have the luxury of 

receiving Federal assistance. It’s also disturbing that these creditors were expected to be repaid in full under the bankruptcy process. Is this an issue that the Treasury Department is monitoring? 
41 

A.1. Both President Obama and Secretary Geithner have stated 

that, as a general matter, the Administration is not seeking to involve itself in the day-to-day management of individual companies. 

I believe taxpayer value is best protected by avoiding government 

involvement in these individual business decisions. While some recent corporate bankruptcies and their impact on communities and 

employment is something that concerns me deeply, I intend to 

work to find alternate ways to help these companies and their employees and support overall recovery. I appreciate your attention to 

this issue and, if confirmed, I look forward to working with you on 

this issue. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BUNNING 

FROM HERBERT M. ALLISON, JR. 

Q.1. ESSA established numerous reporting requirements regarding 

a variety of issues, but all with a common purpose—to provide information to Congress and other government entities on the implementation of the Act’s provisions. 

The Act’s stated purposes are: 

(1) to immediately provide authority and facilities that the 

Secretary of the Treasury can use to restore liquidity and 

stability to the financial system of the United States; and 

(2) to ensure that such authority and facilities are used in 

a manner that—(A) protects home values, college funds, 

retirement accounts, and life savings; (B) preserves homeownership and promotes jobs and economic growth; (C) 

maximizes overall returns to the taxpayers of the United 

States; and (D) provides public accountability for the exercise of such authority. 

This is the Black Letter Law that was written into the ESSA Act 

and cannot be superseded. Even though transparency is at the discretion of the Secretary of the Treasury as stated in section 114, 

the Act still requires the Secretary to make sure that the intent as 

described above is insured under the act. 

If confirmed, can you please share with us how under your leadership the Department of Treasury will ensure and safeguard the 

Act’s stated purposes? 

A.1. If confirmed, I will do my best to see that the Office of Financial Stability operates effectively and efficiently, maintains high 

ethical standards, manages its programs in a way that maximizes 

their effectiveness in order to restore liquidity and stability to the 

financial system while protecting the interests of the taxpayers, 

and provides full and timely disclosure of its activities to Congress 

and the public. 

Q.2. Although most firms will perform fully within their commitments to correctly manage the funds provided to them, isn’t there 

potential that this opens the opportunity to have the funds used inappropriately without the proper level of transparency as both a 

deterrent and a regulatory process? 

If confirmed, will you institute a technological system that would 

not only provide for true transparency, but provide for near real 

time oversight of how TARP funds are being utilized? 
42 

A.2. If confirmed, I will continue Treasury’s efforts to develop ways 

to monitor the effectiveness of TARP programs. Technology is a 

necessary part of these efforts and I look forward to hearing from 

and working with Congress. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO 

FROM HERBERT M. ALLISON, JR. 

Q.1. Can I have your assurances that you will look into making 

sure that the Federal Home Loan Banks are sufficiently strong to 

continue to achieve their core mission of providing liquidity and 

supporting community banks and thrifts? 

A.1. The Federal Home Loan Banks have played an important role 

of providing a stable source of funds to their member institutions 

throughout the recent disruptions in credit markets. The Federal 

Home Loan Banks have access to a credit facility that the Treasury 

Department established under the Housing and Economic Recovery 

Act of 2008. The Treasury Department works closely with the Federal Housing Finance Administration in evaluating the financial 

condition of the Federal Home Loan Banks. If confirmed, I will look 

forward to continuing this work with my colleagues at the Treasury 

Department. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR MARTINEZ 

FROM HERBERT M. ALLISON, JR. 

Q.1. The Special Inspector General for TARP continues to recommend that Treasury require all TARP recipients to report on 

their actual use of TARP funds. To my knowledge, Treasury has no 

data driven, transparent way to show that the funds infused into 

TARP recipients have been used and performed as intended. The 

American people have a right to know how their tax dollars are 

being spent. If confirmed, how would ensure that TARP funds are 

better accounted for? 

A.1. This is an important issue and I share President Obama and 

Secretary Geithner’s commitment to transparency. I agree with you 

that it is important to monitor TARP investments to determine 

whether they are achieving their intended purposes. 

Treasury has already taken a number of steps towards these 

goals. Treasury is tracking lending levels at the banks that have 

received CPP funds. Treasury has launched a monthly lending survey of the 21 largest CPP recipients, and has issued four monthly 

Snapshots that provide detailed information by institution and category of loan. It contains quantitative information on three major 

categories of lending—consumer, commercial, and other financial 

activities—based on banks’ internal reporting, as well as commentary to explain changes in lending levels for each category. In 

addition, the survey contains a qualitative section that provides 

market color on lending demand and credit standards generally to 

help Treasury and the public meaningfully and accurately interpret 

the quantitative data. Treasury has recently added a small-business lending component to this survey. 

Treasury has also published its first monthly report of lending 

activity by all CPP participants (over 500 banks). This report meas-
43 

ures consumer and commercial lending activities at CPP participants. 

Because banks’ double-entry bookkeeping systems, including 

their cash flow statements, cannot trace the precise paths of funds 

from their receipt to investment, we have no way to attribute contributions of TARP capital to particular uses. Nonetheless, if confirmed, I will continue Treasury’s efforts to develop additional ways 

of assessing the performance of TARP programs and more detailed 

reporting of results to Congress and the American taxpayers. I will 

be pleased to brief members of the Committee on those initiatives 

in the months to come. 

Q.2. Senator Warner and I introduced the TARP Transparency Act 

(S. 910), which directs Treasury to implement technology to more 

aggressively compile information and disclose to the TARP Inspector General, the Congressional Oversight Panel, and the GAO how 

TARP funds have been used. This type of system will bring to the 

surface potential issues in real time as they occur, not after the 

fact like traditional audits. 

Do you believe a technological system, utilizing near real time 

data, would be beneficial to Treasury’s efforts to track, report, and 

analyze the impact of TARP funds? 

A.2. I appreciate your concerns and if confirmed, I would be happy 

to study this issue in greater detail. While I agree that advanced 

technology could improve Treasury’s ability to track, report, and 

analyze the impact of TARP funds, the absence of such a system 

does not undermine transparency or impede the flow of information 

to TARP’s oversight bodies. In fact, Treasury already publishes a 

wealth of information about TARP programs and investments on 

the financialstability.gov Web site, and maintains active and open 

working relationships with SIGTARP and GAO and, increasingly, 

with the Congressional Oversight Panel. 

Treasury staff provides briefings for all four oversight agencies 

as new programs are developed, announced, and structured, as well 

as in response to specific requests from the oversight agencies. Additionally, Treasury staff interacts with the staff of the oversight 

agencies on a daily basis, answering questions, providing information, and making itself available for meetings to discuss topics of 

interest or address audit inquiries. 

If confirmed, I intend to be in regular contact with the Special 

Inspector General to discuss any issue or concern that either party 

wishes to raise. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER 

FROM HERBERT M. ALLISON, JR. 

Q.1. On February 5, 2009, in a GAO TARP report on the Status 

of Efforts to Address Transparency and Accountability Issues, Assistant Secretary for TARP Neel Kashkari said, ‘‘Once the funds 

are given to the institutions, the money is fungible, we have no 

idea how to track it.’’ 

Do you agree with Mr. Kashkari that TARP funds cannot be 

tracked and thus there is no way to determine how TARP funds 

have been used? 
44 

A.1. It is important to distinguish between Treasury’s capital-enhancement programs and its other programs. The Capital Purchase 

Program, Capital Assistance Program and institution-specific programs for AIG, Citigroup and Bank of America were designed to 

provide capital to cushion against losses and allow financial institutions to continue operating in the ordinary course of business, including lending to consumers and businesses. In order to serve its 

purpose, capital must be available for any legitimate business purpose. While Treasury requires applicants for participation in the 

Capital Assistance Program to specify how they intend to use the 

funds, accounting for actual use of particular dollars invested as 

capital is not a meaningful exercise. Because banks’ double-entry 

bookkeeping systems do not trace the paths from creating liabilities 

(receiving capital) to investing in assets (making loans), we cannot 

precisely attribute the contribution of TARP capital to particular 

uses. The banks can, however, report trends in loans and other 

uses of funds, and we do require that they report such to Treasury. 

On the other hand, Treasury’s homeownership preservation program, small business lending initiative, auto industry programs, 

and the terms of Treasury’s participation in the Term Asset Backed 

Securities Loan program impose specific limitations on the use of 

TARP funds, and require controls and periodic reports to insure 

that those limitations are respected. 

Q.2. If you do agree, are you saying, that that this Congress and 

the American people will never know how over $700 billion of taxpayer dollars were spent? 

A.2. As Secretary Geithner has said, our two goals are first, to stabilize the financial system and second, to protect the American taxpayer. I am committed to both of these goals and will work to ensure that our investments through TARP are achieving their intended purposes. 

The Financial Stability Plan and other Administration initiatives 

seem to be having positive effects (such as rising consumer confidence, lower credit spreads, and relatively stable volumes of lending in spite of a deep recession) that should lead to increased willingness of companies to borrow and banks to lend as the economy 

stabilizes. 

Q.3. As you know, Treasury Secretary Timothy Geithner has said, 

‘‘Oversight and transparency requirements in the original (TARP) 

proposal were inadequate.’’ And, Lawrence Summers, Director of 

the National Economic Council, has said, ‘‘The priority now has to 

be restoring trust, demonstrating that the financial system can be 

supported in ways that are accountable and transparent.’’ 

If there is no one specific source of information that would provide a transparent exposure to the true nature of the use of taxpayer-supported TARP funds, from a statisticians perspective, it is 

impossible to determine if these infusions were either associative 

or causal in actually improving the health of the financial sector 

and the overall economy. 

Is it possible to have better technological mechanisms and processes in place to determine the actual impact the infusion of TARP 

funds have had on the overall economy? 
45 

If it is possible to use better technology to track TARP expenditures, what impediments stand in your way to instituting such 

mechanisms and processes? 

A.3. Just as it is impossible to pinpoint any single cause of the current financial crisis, it is impossible to measure the precise effect 

of any particular expenditure of TARP capital. Nevertheless, it 

seems clear that the funds injected into the financial system 

through TARP have had a positive effect. For example, risk spreads 

in the interbank market, which were at unprecedented levels before the Capital Purchase Program was announced, have returned 

to more normal levels. The 3-month LIBOR–OIS is down to 45 

basis points from 365 basis points in October 2008. Spreads for investment grade corporate bonds have fallen 250 basis points since 

November 2008 and spreads on high yield corporate bonds are 

down 870 basis points. 

Issuance of asset-backed securities, which fund about half of all 

consumer credit in normal times, has restarted and increased since 

the Term Asset-Backed Securities Lending Facility began operating 

in March 2009 with $30 billion in new ABS issuance in 2009. While 

lending standards remain tight, the largest 21 CPP recipients extended roughly $260 billion on average each month in new loans 

to consumers and businesses in the first quarter of 2009. 

The question of using technology to better track TARP expenditures is an important one and if I am confirmed as Assistant Secretary for Financial Stability, I look forward to familiarizing myself 

with the issue and then determining whether it may be cost-effective to introduce additional technological mechanisms and processes for depicting the impact of TARP funds on the overall economy. 

Q.4. If confirmed, will you work with Congress to institute such a 

technological system that would not only provide for true transparency, but provide for near real time oversight of how TARP 

funds are being utilized? 

A.4. If confirmed, I will keep uppermost in mind that the ultimate 

purpose of the Act under which the Office of Financial Stability 

was created and operates is to benefit the American public by 

strengthening the financial system so that access to capital and liquidity is restored, confidence of businesses and households is bolstered, homeownership is protected and new jobs are created. If 

confirmed, I will lead the Office of Financial Stability with constant 

awareness that the support of Congress and the public for Financial Stability programs depends on trust that taxpayer money is 

being invested carefully, all activities adhere to the law, and controls and management of risk are rigorous. To merit that trust, I 

will endeavor to provide full and timely disclosure of the Office of 

Financial Stability’s activities to Congress and the public.