[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                      OVERSIGHT CONCERNS REGARDING
                   TREASURY DEPARTMENT CONDUCT OF THE
                     TROUBLED ASSETS RELIEF PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           DECEMBER 10, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-148



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES WILSON, Ohio                 JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
BILL FOSTER, Illinois                KENNY MARCHANT, Texas
ANDRE CARSON, Indiana                THADDEUS G. McCOTTER, Michigan
JACKIE SPEIER, California            KEVIN McCARTHY, California
DON CAZAYOUX, Louisiana              DEAN HELLER, Nevada
TRAVIS CHILDERS, Mississippi

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 10, 2008............................................     1
Appendix:
    December 10, 2008............................................    99

                               WITNESSES
                      Wednesday, December 10, 2008

Dodaro, Hon. Gene L., Acting Comptroller General of the United 
  States, U.S. Government Accountability Office..................    19
Hensarling Hon. Jeb (TX-05), Congressional Oversight Panel Under 
  the Emergency Economic Stabilization Act.......................    53
Issa, Hon. Darrell E., a Representative in Congress from the 
  State of California............................................     1
Kashkari, Hon. Neel, Interim Assistant Secretary for Financial 
  Stability and Assistant Secretary for International Affairs, 
  U.S. Department of the Treasury................................    20
Pascrell, Hon. Bill, Jr., a Representative in Congress from the 
  State of New Jersey............................................     3
Warren, Elizabeth, Leo Gottlieb Professor of Law, Harvard 
  University, and Chair, Congressional Oversight Panel Under the 
  Emergency Economic Stabilization Act...........................    89

                                APPENDIX

Prepared statements:
    Baca, Hon. Joe...............................................   100
    Carson, Hon. Andre...........................................   101
    Dodaro, Hon. Gene L..........................................   103
    Kashkari, Hon. Neel..........................................   115

              Additional Material Submitted for the Record

Castle, Hon. Michael N.:
    Letter to Hon. Barney Frank, dated December 9, 2008..........   121
Dodaro, Hon. Gene L.:
    GAO Report to Congressional Committees entitled, ``Troubled 
      Asset Relief Program, Additional Actions Needed to Better 
      Ensure Integrity, Accountability, and Transparency,'' dated 
      December 2008..............................................   122
Kanjorski, Hon. Paul E.:
    Letter from the American Council of Life Insurers (ACLI), 
      dated December 10, 2008....................................   194
    Letter from the American Insurance Association (AIA), dated 
      December 2, 2008...........................................   196
Maloney, Hon. Carolyn B.:
    Letter to Hon. Henry M. Paulson, Jr., and Hon. Gene L. 
      Dodaro, dated December 5, 2008.............................   199
Warren, Elizabeth:
    ``Questions About the $700 Billion Emergency Economic 
      Stabilization Funds, The First Report of the Congressional 
      Oversight Panel for Economic Stabilization,'' dated 
      December 10, 2008..........................................   201
Written statement of the National Association of Realtors........   238


                      OVERSIGHT CONCERNS REGARDING
                   TREASURY DEPARTMENT CONDUCT OF THE
                     TROUBLED ASSETS RELIEF PROGRAM

                              ----------                              


                      Wednesday, December 10, 2008

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:01 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Kanjorski, Waters, 
Maloney, Watt, Ackerman, Sherman, Meeks, Moore of Kansas, 
Capuano, Hinojosa, Clay, McCarthy of New York, Baca, Lynch, 
Miller of North Carolina, Scott, Green, Cleaver, Moore of 
Wisconsin, Davis of Tennessee, Hodes, Klein, Mahoney, 
Perlmutter, Murphy, Donnelly, Foster, Carson, Speier; Bachus, 
Castle, Royce, Manzullo, Biggert, Capito, Feeney, Hensarling, 
Garrett, Brown-Waite, Barrett, Neugebauer, Price, Campbell, 
Putnam, Bachmann, Roskam, McCotter, and Heller.
    Also present: Representatives Issa and Pascrell.
    The Chairman. The hearing will come to order. We have been 
asked by the Republican side to use the full 20 minutes on each 
side for opening statements, so we will go to that, but I was 
also asked to accommodate the gentleman from California. So, we 
will begin. The gentleman from California is recognized.

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

    Mr. Issa. Thank you, Mr. Chairman. I appreciate your 
indulgence in this. I know we are all on kind of a crazy 
schedule here in this extended, extended, extended Congress.
    Mr. Chairman, Ranking Member Bachus--if he was here--and 
members of the committee, I want to thank you for this 
opportunity to speak today. There is no more important issue 
before Congress now than ending the financial crisis that 
besets our country, whether it is in fact the financial crisis 
that we believed we were dealing with only weeks ago or it is 
the auto companies that were before you this week.
    As you know, I have been a critic of the bailout from its 
inception. I have stressed deliberate action and warned of 
potential failures. I think I have been vindicated in my 
objection to that spending of $700 billion of taxpayers' 
dollars, of which half already appears to have been spent.
    I am not pleased with that. I wish I had been wrong. After 
all, these are not private funds that companies can use freely. 
These are, in fact, the future tax dollars of Americans, and 
our children will be paying not just the principal but the 
interest for generations to come.
    To date, the oversight of the bailout has been severely 
lacking. Through no fault of the Congress, we were pushed to 
quickly pass a bill that only generally called for accounting. 
The Government Accountability Office--as we will hear more 
about today--the Washington Post and other media outlets, and 
most importantly, the American people have been critical of the 
lack of oversight and the inability to apply oversight. People 
want to know where their money is being spent and if it is 
having the impact that is intended, and few think that it is.
    While we know there are many bad actors and causes of 
financial crisis from lack of lending practices to insufficient 
regulatory scrutiny, substantial questions regarding the root 
causes still remain. Yesterday, in our Committee on Government 
Reform we dealt with Freddie Mac and Fannie Mae, and we came 
away with more unanswered questions than answered questions.
    Neither Congress nor officials within the Administration 
have sufficient expertise to gain a full understanding of the 
complex issues surrounding both how we got in and how we will 
get out of this. A Colombia University professor recently 
stated that any reform must begin with a dispassionate and 
informed assessment of what went wrong. And I agree.
    We must pass legislation to create a bipartisan or 
nonpartisan blue-ribbon panel that can give the American people 
an objective assessment of the causes and the handling of the 
financial crisis. Although no one bill would be perfect, and 
certainly mine is no different, in November, I introduced H.R. 
7275, the Financial Oversight Commission Act of 2008. Modeled 
after the 9/11 Commission, the Financial Oversight Commission 
is designed to have experts examine the causes of this crisis, 
evaluate corrective measures taken thus far, and make 
recommendations for alternative measures. The commission should 
examine the missteps of we as Congress, the Administration, the 
private sector, nonprofit organizations, certainly the GSEs and 
all others have taken, and then make recommendations on the 
next step forward. Had we done this in the original 
legislation, we would already be halfway through the commission 
process.
    The commission could take up to a year to conduct its 
entire investigations, make findings, and report the 
recommendations to Congress and the President. However, as I am 
sure the Chair would agree, commissions in the first 90 days 
often accomplish a great deal of what they will accomplish in 1 
year by bringing the type of focus and the type of individuals 
and the type of scrutiny that causes others to begin to 
volunteer changes.
    As economic conditions in the financial sector itself are 
not static, the panel will continue its review and would 
evaluate ongoing circumstances. In a report to Congress, the 
commission shall make a complete accounting of the 
circumstances surrounding the crisis, the private sector, the 
government role in causing the crisis, and the extent to which 
the United States preparedness for immediate response to a 
future crisis. The report should offer a conclusion and 
recommendations for corrective measures that can be taken to 
prevent further economic breakdown.
    Mr. Chairman, Ranking Member Bachus, it is time that we 
realize that we are a partisan organization; the next President 
will be a partisan organization; that we had a hand in the 
creation of this problem, whether it was a large hand or a 
small hand; whether it was in fact things we told the financial 
institutions to do or, quite frankly, oversight we failed to 
assert over them at both the executive and the congressional 
level.
    So Mr. Chairman, I strongly recommend that as you 
deliberate the current, you begin thinking about how we would 
put together, on a broad basis, a commission that would be a 
tool of this Congress. I thank you for this opportunity.
    The Chairman. The gentleman from New Jersey.
    Mr. Pascrell. Thank you, Mr. Chairman.
    The Chairman. I am going to try to hold Members as close as 
possible to 5 minutes. As close as possible means as long as I 
don't daydream, 5 minutes.

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

    Mr. Pascrell. Thank you, Mr. Chairman, Ranking Member 
Bachus, and members of the committee for allowing me to present 
testimony before this committee. I am here to talk about the 
need to use TARP funds to open up the credit market for 
consumers to start purchasing automobiles again.
    Mr. Chairman, while I was back home in New Jersey this last 
week, I happened to pass the Port of Newark, and saw an endless 
stream of brand-new cars, just row upon row, sitting there, 
seemingly hoping to be moved by fate, if not by sale. I have 
never seen that many cars piled on top of each other--well, not 
unless you count D.C. traffic on a Friday afternoon when 
everyone is trying to get out of town.
    Mr. Chairman, the fact is that no bridge loan or bailout of 
the auto industry or any other industry for that matter, no 
matter how well-structured or planned, will work unless credit 
is available to consumers to make these purchases. And 
purchasing power and credit is down 99 percent from last year.
    The reason why I voted, and I believe so many Members of 
Congress voted, to approve the $700 billion in October was so 
that the Treasury could open up the frozen credit market. This 
was supposed to help keep people in their homes, and make it 
possible for the American people to make large purchases, like 
automobiles, that could boost our ailing economy. Sadly, that 
does not seem to be occurring.
    The economic health of our Nation depends on a robust 
automotive industry. Nearly 1 in 10 Americans rely on the 
automotive industry for their livelihood and their financial 
security. Auto sales constitute 20 percent of all retail 
spending in the United States and generate up to 20 percent of 
the sales tax revenue for State and local governments. We know 
how hard-pressed they are today.
    We have heard a lot of talk in the past few weeks about the 
bridge loan being a bailout for the Big Three or an economic 
stimulus intended just for Detroit. But I don't think one Main 
Street in America, I can't think of one that isn't affected 
when a local new-car dealer closes shop, takes good jobs and 
economic opportunity with them. When a new-car dealer goes out 
of business, they not only take away jobs and money, but they 
also become a blight upon the landscape, a visual reminder of 
the failures in our economy.
    Nearly 700 mostly family-owned new-car retail businesses 
have closed in the past 11 months. That equates to some 20,000 
newly unemployed Americans, just in time for this holiday 
season. The automobile retail industry is highly credit-
dependent and has been hit especially hard by the recent 
financial crisis in flagging consumer confidence.
    Although it is an opportune time to buy a new car, thanks 
to many industry deals and great incentives, the public cannot 
get the financing they need to bring that new car home. People 
who have the good credit necessary to get car loans can no 
longer gain approval for their purchases. In fact, for 2008, 
only an estimated 13.5 million new vehicles were likely to be 
sold, down from 16.1 million in 2007, which is a 15-year low.
    The truth is that this crisis in the automobile industry 
goes far beyond the Big Three. Sales at Toyota and Honda are 
down more than 30 percent from last year, and are down more 
than 40 percent, roughly in line with the loss of sales for 
American automakers.
    We need to stop making this an issue of blame and find the 
constructive solutions necessary to get the economy moving. It 
was my understanding, and I thought it was your understanding, 
Mr. Chairman, that the TARP was supposed to be one of the main 
solutions, but so far that has not come to fruition for the 
average American. TARP funds have been greatly mismanaged to 
date and they have not been used to help consumers purchase the 
goods that they need.
    I believe that the TARP funds should go directly into 
helping consumers gain access to these loans which would 
provide a direct stimulus to the economy. Credit is essential 
in our economy. If loans don't get made, businesses don't 
expand, orders don't get placed, and workers don't get hired. 
As banks have restricted access to mortgages, auto loans, and 
credit cards, consumers have had to alter their spending 
behavior so rapidly that companies cannot adjust fast enough. 
The Treasury should use TARP funds to open a credit market for 
auto loans because, as I stated before, no amount of loans or 
bailout will work in the short or long term unless consumers 
are able to buy the cars in the first place.
    Mr. Chairman, I would like to mention that I also believe 
we urgently need to consider new tax incentives for consumers. 
I would in closing say, as you know, I introduced the bill, we 
talked about it in the last meeting, the Auto Insurance Tax 
Assistance bill. I call on you, Mr. Chairman, and Mr. Ranking 
Member, to do something about the TARP funds to get this 
economy moving. And automobiles have a lot to do with it.
    Thank you, Mr. Chairman.
    The Chairman. I thank both Members. I will now begin our 
opening statements. I will of course begin by--we had to sit 
through yours, but you don't have to sit through ours.
    The gentleman from New Jersey well understands, as a member 
of the Ways and Means Committee, the last item he mentioned is 
not within the jurisdiction of this committee, but of the Ways 
and Means Committee.
    While we are on the subject of jurisdiction, I want to be 
sure the new ranking member of the Oversight Committee, who 
apparently yesterday expressed some concern that we would screw 
his committee out of doing their job, nothing could be further 
from the truth. That was what was reported. The AP said they 
heard that.
    Mr. Issa. Thank you, Mr. Chairman. I will be glad to talk 
to you anytime. We don't have to use the AP.
    The Chairman. Excuse me. I haven't yielded. We have rules 
here. I was responding to an AP comment. The gentleman said we 
could talk at any time. I don't remember hearing from him. I 
read it in the AP.
    I want to just respond here in this way: Some of my 
Republican colleagues appear to believe that the world was 
created in January of 2007 when we became the Majority. I will 
tell you this: The relationship between this committee and what 
was then the Committee on Government Reform did not change in 
2007. The notion that somehow there was some machination on the 
part of myself or others to diminish the role of that committee 
is: (a) wrong; and (b) completely ignores the history. There 
was literally no change in that relationship between the 
chairmanship of Mr. Oxley. So this notion that somehow in 
January of 2007 we began some change is wrong.
    Secondly, I will say that I have at no point ever asked any 
member of that committee not to do anything. I worked with Mr. 
Kucinich, who is the chair of the appropriate subcommittee. At 
one of our most recent hearings, I read into the record a 
letter that he had done. I encouraged Mr. Waxman to go forward. 
So if there was not oversight to the gentleman's satisfaction, 
that was entirely the result of decisions made within that 
committee. During the 12 years of Republicans being in the 
Majority, and during the last couple of years, it did seem to 
me they began to do some things. So I did want to allay the 
gentleman's fears.
    Mr. Issa. If the chairman would yield?
    The Chairman. I listened to the gentleman's statement, and 
read what he said in the paper.
    Mr. Bachus. May I ask the chairman, what is the order here?
    The Chairman. I am making my opening statement.
    Mr. Bachus. This is your opening statement. Okay.
    The Chairman. It is not my closing statement.
    I said we were through with them and we would now go to 
opening statements. I said they didn't have to listen to ours. 
I would have preferred an opening statement that was more 
relevant to this hearing, but when things are said 
inaccurately, and reported in the newspaper, and they cause 
some concern, I like to calm people down.
    I have people worried that this committee is plotting to 
take away their jurisdiction. I don't want to ruin anybody's 
Christmas by thinking I am going to Grinch-like take away the 
jurisdiction of another committee.
    I yield to the gentleman from California.
    Mr. Issa. I thank the chairman. As you know, we worked 
together very well while we were both on Judiciary together. 
The comments yesterday with an open mike quite candidly, taken 
properly, would have been a compliment to you and to Mr. 
Waxman.
    The Chairman. I appreciate the compliment. I would say my 
advice--the gentleman is free to take it or not--is that I 
would shut off both the compliments and the mike next time.
    I have to get back to the subject of this hearing, which is 
the TARP. I am not going to exceed my 5 minutes, and no one 
else is.
    I did vote for this. I continue to think I was right to 
vote for this. One of the advantages that economists have over 
people in the public sector is that they can employ something 
called the counterfactual. They can--and Professor Warren is 
nodding her head; I appreciate the validation--compare what was 
happening to what would have happened in the absence of action. 
That is the counterfactual.
    I have said before what people say to me, ``Well, what do 
you think about the way that TARP is working?'' I have invoked 
before the wisdom of the great 21st Century philosopher, Henny 
Youngman in his exchange, ``How's your wife?'' ``Compared to 
what?'' The metric of, ``compared to what'' is a very important 
one when you are doing this.
    I do believe that the counterfactual here, namely our 
failure to have done anything at all late last fall in the face 
of the credit crisis, would have left us in a worse situation. 
I would just cite, as I have done before, the treasurer of the 
State of Massachusetts, who reported he couldn't roll over 
short-term notes, meaning payroll for the Commonwealth of 
Massachusetts, paying vendors. Once the bill was passed, he was 
able to do it. The treasurer of California, Mr. Lockyer, I know 
has communicated similarly.
    So the question is not whether we should or shouldn't have 
done that, in my mind; but having done it, could it have been 
executed better? I believe it can.
    I would cite two things as I draw this to a close. In the 
legislation, indeed essential to the passage of the legislation 
was the language the gentlewoman from California worked on, 
among others, to ensure that some of these funds would be used 
to reduce foreclosures, not solely or even largely as a matter 
of compassion for individuals, but because in the macroeconomic 
sense foreclosure reduction is an essential part of the problem 
of getting us out of the problem we are in. The refusal so far 
to use the money for that purpose has been, I think, a 
violation of the intent and undermines the ability to get votes 
in the Congress to do things in the future.
    Similarly, I was distressed when we were told we didn't 
have good oversight. The fact we are in this hearing, 
responding to a GAO report, shows that we did have good 
oversight. The GAO was in there from day one. We met with them. 
They have done a very good job. There is a new board that will 
also be doing some oversight.
    The point is that what troubled me was when Treasury was 
asked by GAO, ``Do you know how much money each bank is lending 
out, those that have gotten capital infusion?'', they appeared 
to say, ``We are not going to try to find that out.'' Now, I am 
hoping and some indications are we are going to get a 
clarification of that. On those two issues, I was disappointed.
    The gentleman from Alabama is recognized for how much time?
    Mr. Bachus. You took 7 minutes. If I could have an equal 
amount of time.
    The Chairman. It is 20 minutes and 20 minutes. I am 
surprised he is acting as if there are new rules here; it is 20 
and 20.
    Mr. Bachus. I will take just take 5 minutes. I am sure I 
will have other members.
    First of all, and I didn't realize we were going to depart 
from the subject matter of the hearing, but I want to 
compliment you, Ranking Member Issa, for yesterday's hearing. I 
want to say to Members on both sides and to the general public 
that what you are hearing revealed yesterday was quite 
astounding, and that is that we had Fannie and Freddie--if I am 
characterizing this right, there were multiple warnings; people 
within those organizations which were warning that what they 
were doing was dangerous. They were being pushed by mandates, 
affordable housing mandates and mandates to make loans which 
should not have been made.
    I hope this Congress will take a look at the various 
sometimes congressional-mandated, sometimes administrative-
mandated, directives to loan money to people who, quite 
frankly, did not have the ability to pay them back. No document 
loans, stated income loans, just a smorgasbord of bad business 
decisions. And it wasn't as if people in the organizations were 
not sounding the alarm. I thank you and Scott Garrett on this 
committee who participated in that.
    I listened to a great deal of that. People wondered where I 
was yesterday. I was following that hearing. It was a very 
important hearing.
    As we attempt to pick up the pieces with you and not make 
mistakes of the past, I hope we won't let what went on at 
Fannie and Freddie go on in the future.
    So I compliment you, Ranking Member Issa--Ranking Member-
elect Issa.
    Mr. Issa. I think that is more appropriate.
    Mr. Bachus. And I compliment you, Mr. Garrett, for your, I 
think, very constructive role.
    It has now been a little over 2 months since Congress 
passed legislation establishing TARP. A lot has happened in 
that time, some good and some bad. A particular concern of many 
members on this committee has been the Treasurer's ever-
shifting strategies and explanations for its actions in 
implementing TARP, which have resulted in uncertainty among 
market participants and confusion among the American people. 
This has made it more difficult to achieve the goals that 
Congress has set in creating TARP and stabilizing the financial 
markets and increasing the flow of credit to Main Street.
    There has been some semblance of order restored in certain 
segments of the credit markets and among the financial service 
industry, and that is a good thing. No one faults Treasury for 
trying to tailor its policy responses to changing market 
conditions and challenges. But as the GAO report clearly 
states, implementing its various initiatives, Treasury has 
often failed to explain to Congress and the public what it 
hoped to achieve or to clearly communicate its expectations for 
the institutions that receive funding.
    For example, Treasury and the regulators have indicated 
recently that they expect the banks that have received an 
infusion of government money under the Capital Purchase Program 
to lend, rather than hoard, the cash. But the time to have 
thought about that, about what we expected banks to do with 
those funds, was before the money went out the door as a 
condition of investment rather than after the money was already 
in the banks' vault.
    That is why some of us in the negotiations on TARP asked if 
there would be conditions, and we were told that would limit 
the program. We talked about clawbacks, we talked about 
restrictions on dividends, we talked about something that Mr. 
LaTourette has complained about, and that is these banks using 
those funds to acquire their competitors or other banks. We 
think that is a serious matter. It is not in the legislation. 
But if there is any way to undo that admission, it needs to be 
done.
    Now I will close with this. I wonder whether Secretary 
Paulson or Mr. Kashkari, back when they were still working for 
Goldman Sachs, ever agreed to a deal in which billions of 
dollars changed hands, based on a 2-page application, without 
asking what the money was going to be used for or whether it 
was going to be paid back. For instance, the Uniform 
Residential Mortgage Application is 8 pages. The application 
for Federal Student Aid is 11 pages. When student lenders and 
mortgage companies ask more questions in lending thousands of 
dollars than the Federal Government does when it injects 
billions of dollars' worth of capital, we should all be 
concerned.
    The application process for the Capital Purchase Program, 
consisting of a 2-page form in which the bank identifies itself 
as a bank and asks for money and little else is very 
surprising. Secretary Paulson and Mr. Kashkari, you cannot be 
faulted for not having all the answers and for not being able 
to predict the future. But when you are acting on behalf of the 
American taxpayer, the taxpayer has the right to expect they 
will exercise the same basic judgment, the same standard of 
care that they would have exercised when they were working for 
Goldman Sachs and its investors. They should be held to the 
standard of care that we would expect from a reasonable, 
prudent investment banker whom I hope would not agree to a deal 
without doing some minimal amount of due diligence and 
conditions.
    Secretary Paulson and Mr. Kashkari should learn something 
from what we have seen in these past few weeks in connection 
with the committee's consideration of a possible bailout for 
the domestic auto industry. The CEOs of those automobile makers 
appeared before us to present detailed business plans showing 
how they intended to return their companies to profitability. 
They tried to justify their pleas for taxpayer help by 
admitting that their business models were flawed and explaining 
how they are going to change them. While the jury is still out 
on whether they made their case successfully, the detailed 
explanations and documents they put before us and the American 
people stand in stark contrast to the lack of information we 
have received from Treasury or from the financial institutions 
that have received taxpayer money under TARP.
    Let me close by thanking Chairman Frank for holding today's 
hearing, giving me the opportunity to focus on yesterday's 
hearing before the Oversight and Government Reform Committee, 
which was very important, and for inviting our colleague, the 
gentleman from Texas, Mr. Hensarling, to testify on the 
important work being done by the TARP Congressional Oversight 
Panel. He has some concerns. I share those concerns, and I look 
forward to his testimony. I look forward to his insights and 
those of the other witnesses.
    Thank you.
    The Chairman. Given the concern about time, how much time 
did the gentleman consume? Someone tell me how much time. The 
gentleman consumed 7\1/2\ minutes, so the gentleman has 12\1/2\ 
minutes left to allocate. We have consumed 5\1/2\ minutes, so 
we have 14\1/2\ minutes left.
    The gentleman from Pennsylvania is recognized for 5 
minutes.
    Mr. Kanjorski. Thank you, Mr. Chairman. The oversight of 
the Troubled Assets Relief Program is inadequate and must 
quickly improve. Where it takes time to establish an 
appropriate oversight program, we have run out of time. Of the 
$350 billion allocated to Treasury to date, $335 billion has 
been spent or obligated.
    The Emergency Economic Stabilization Act became law on 
October 3rd and called for strong oversight. However, the first 
members of the Congressional Oversight Panel were not named 
until 6 weeks later, on November 14, 2008, and the Senate 
confirmed the special inspector general of TARP a mere 2 days 
ago. It was difficult to have quality oversight when the 
overseers did not exist.
    Surely Americans are baffled that corporations have, to 
date, been given taxpayer money with no strings attached and 
without transparency. The dire need for improvement is evident 
to everyone who reviewed the Government Accountability Office 
study released last week. It is full of examples of failed 
supervision. According to GAO, the Treasury has implemented 
TARP by directly investing $150 billion in 52 financial 
institutions. While the Treasury claims its purpose behind the 
Capital Purchase Program is to increase financing and to incur 
mortgage modifications, it makes no such demands that the 
capital recipient actually engage in those activities.
    The GAO also reports that institutions have no reporting 
requirements, and while the Treasury asks the companies to 
comply with executive compensation limits, no compliance 
mechanism is in place. Further, conflicts of interest have not 
been adequately addressed. According to GAO, the Treasury must 
prove its communication with both the Congress and the public. 
We deserve to know why and how the Treasury is implementing 
this program.
    Two of the members of the Congressional Oversight Panel are 
here with us today. We know that from press reports that Ms. 
Warren is dissatisfied with Treasury's lack of a clear sense of 
its fundamental purpose with regard to TARP, for what began as 
a troubled assets relief program has morphed into something 
entirely different.
    I look forward to learning more about the Congressional 
Oversight Panel's findings from today's testimony and its 
report. My hope is that greater oversight, transparency, and 
accountability will be pursued with the utmost urgency. If 
necessary, Congress should consider legislation to provide the 
special inspector general with broader powers.
    Thank you, Mr. Chairman.
    The Chairman. Mr. Castle, for 1\1/2\ minutes.
    Mr. Castle. Thank you, Mr. Chairman. Thanks for continuing 
to hold hearings on the Troubled Asset Relief Program.
    I am concerned that when we passed the Emergency Economic 
Stabilization Act, we developed layers of oversight for the 
Troubled Asset Relief Program and not a capital injections 
program, which is what we actually have been carrying out. I am 
pleased that GAO and Treasury have published these recent 
reports, which are very insightful on TARP's progress, but I 
would like to ask the witnesses today if they believe the 
regulations we have implemented need to be modified due to the 
Treasury's switch from a troubled asset buying plan to the 
capital purchase program.
    Additionally, Mr. Chairman, I am equally concerned about 
the almost $1 trillion in emergency loans and private asset 
purchases recently made by the Federal Reserve, and the absence 
of oversight we are dedicating to these expenditures. Section 
129 of the Emergency Economic Stabilization Act requires 
oversight of decisions made by the Federal Reserve Board when 
acting pursuant to section 13-3 of the Federal Reserve Act. 
However, I believe the EESA requirements could go farther. The 
details of these emergency acts by the Fed are not subject to 
the same rigorous scrutiny that Congress required of Treasury 
actions made under the TARP.
    While I respect the long-established history of the Fed to 
keep intervention of institutions confidential under other 
sections of the Federal Reserve Act, these emergency actions 
have been widely reported in the press and subject to very 
limited review. I would welcome a hearing by this committee in 
consideration of the Government Accountability Office's review 
of the expenditures made by the Federal Reserve.
    Mr. Chairman, I would like to submit for the record a 
letter raising these concerns, which was given to your staff 
yesterday.
    The Chairman. Without objection, it is so ordered.
    Mr. Castle. Thank you. I yield back.
    The Chairman. The gentlewoman from California is recognized 
for 4 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. If there is 
one thing I regret, I regret attempting to be cooperative in 
providing to Treasury the flexibility to deal with our economic 
crisis. Not only, again, did I work very hard with members of 
this committee, but the Congressional Black Caucus, and the 
Hispanic Caucus, showing just how homeowners would be helped, 
how the loans would be modified, and ensuring them that I 
trusted the Treasury to do what it claimed it would do when 
they came to us to request this extraordinary amount of money 
without a lot of strings attached. And so here we are, and we 
don't have any systematic way of helping homeowners to modify 
these loans. The Treasury has refused to use their dollars to 
buy up the nonperforming assets. And the money has basically 
gone as equity investment in banks that are not putting the 
money back out so that our consumers can have access to credit.
    Take a look at what is happening in Chicago, where you have 
poor workers who are sitting in a Republic Windows and Door 
factory because Bank of America--to whom we gave $15 billion in 
TARP funds--refused a line of credit and refused to follow 
through on its commitment to finance the company.
    Now I don't know who the Treasury--I, too, don't know who 
they believe we are and what we can or cannot do, but I am 
sure, I am just sure that Mr. Kashkari, who is here today, has 
come to tell us how they are going to correct this. If he is 
not here to tell us how they are going to correct it, I am 
going to have to proceed with a bill that I am introducing that 
will basically place into law the program that Ms. Sheila Bair 
has put into place to do loan modifications, a proposal or 
program that she has shown can work because of what she has 
done with the takeover of IndyMac.
    And so the world is watching. Many communities are 
disadvantaged. We are losing the value of homes in communities 
across this country. The foreclosures continue to rise. And we 
sit here twiddling our thumbs, trusting Treasury to do what 
they said they were going to do.
    I want to hear from Mr. Kashkari today. They told us that 
this Interim Assistant Secretary for Financial Stability would 
come with a program and plans that would help us out of this 
economic crisis--that he was a genius and we could expect great 
things from him. So far, I have seen nothing. And I know that 
in addition to what Sheila Bair has done, there are other 
proposals that have been brought to the Treasury for the 
modification of these loans so that we can stem the tide of 
foreclosures.
    Mr. Chairman, I appreciate everything that you have done, 
but I am not going to even cooperate with you anymore when you 
try to be reasonable. Now don't come back with a fast answer. I 
know you are about to do that. I just want you to know, as much 
as I respect you and do everything that I can to be supportive, 
you have been too kind, you have been too good, and you have 
allowed them to walk all over us. It doesn't feel good. These 
footprints on my back are just too tough. And we have to do 
something to make sure that the money that we are signing off 
on is used appropriately to help the consumers and homeowners 
of this country.
    Thank you. And please do not use your microphone.
    The Chairman. The gentlewoman doesn't have to worry about 
much further communication between us.
    The gentleman from California for 1\1/2\ minutes.
    Mr. Royce. Thank you, Mr. Chairman. The question of 
modifying these mortgages is one that I think we are all 
concerned with. I am interested in hearing the Comptroller 
General's comments and the Assistant Secretary's comments here.
    This week a new issue has sort of come to light, and one 
that I think all of us should be concerned about. The least 
expensive way for the taxpayers for these modifications of loan 
agreements to occur is by the loan servicers to concur that if 
you have, let's say, a 5-year ARM that is going to shoot up to 
8 percent, it makes more sense to modify that loan and convert 
it into a 30-year loan at 6 percent and leave it on the books 
on the basis of the original term of the loan.
    What is it that keeps the loan servicers from modifying 
these agreements? The answer is a class action lawsuit last 
week has done exactly what some of us have counseled against, 
warned about. We need to have legislation in order to stop the 
chilling effect on mortgage servicers of bringing these class 
action lawsuits.
    This one last week, targeting 400,000 loan workouts, which 
kept borrowers in their homes and, frankly, worked to the 
benefit also of those who had lent the money; because at the 
end of the day, you lose 30 percent to 50 percent during a 
foreclosure in terms of the value of that asset.
    So many presume that this wasn't required by the way of 
legislation. Clearly it is. And if we do that, then arguably 
the 2.7 million loan workouts that we have seen--that haven't 
cost the taxpayers anything--done in concurrence with the work 
of our Treasury Department and attorneys general across the 
United States as these workouts have proceeded, that number can 
grow enormously. Those in the industry tell me the one thing 
that is keeping loan servicers from coming to the table is this 
issue.
    Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from New York for 2 minutes.
    Mrs. Maloney. Thank you, Mr. Chairman, for having this 
hearing. Regrettably, the report from GAO today makes clear 
that Treasury is not taking responsibility for making sure that 
the moneys are used consistently with the purposes of the Act. 
We will have to legislate that we want accountability, 
transparency, a systemic system with regulators so that we can 
track and find out where this money is going. A prime purpose 
of this Congress was to help people stay in their homes. I 
completely support FDIC Commissioner Sheila Bair's program, and 
am willing to legislate it with my colleagues. But we urge 
Treasury to put it in place.
    We do not know what banks are doing with their money 
because Treasury will not tell us. But the press tells us that 
they are buying highways in Europe, that they are buying other 
banks, or that they are holding on to the money. What my 
constituents tell me is they cannot have access to capital. We 
have put $7.8 trillion of taxpayers' money out there for the 
purpose of creating credit, and it has been a dismal failure.
    The car dealers were in my office yesterday from New York 
State. Americans want to buy their cars in New York State, but 
they cannot get credit from banks.
    What I am getting calls on is the proposed 4.5 percent 
interest rate to get new homes in the pipeline and get our 
economy moving. We need to get credit out in our communities in 
order to revive our economy. Economist after economist has told 
us we will not solve this crisis until we solve the problem of 
keeping people in their homes and getting the housing market 
moving again.
    I look forward to your proposal on the 4.5 percent interest 
rate--my phone has been ringing off the hook in support of it--
or any ideas or programs you have to get credit out into our 
economy to get our economy moving again.
    Thank you.
    The Chairman. The gentlewoman from Illinois is recognized 
for 1\1/2\ minutes.
    Mrs. Biggert. Thank you Mr. Chairman, and thank you for 
holding this hearing today. Briefly, I would like to say that I 
am disappointed in several findings of the GAO report.
    First, Treasury has yet to establish an insurance program, 
which I think is critical to the matter of determining the 
value of the liquid assets on the books of the financial 
institutions, not to mention helping us to understand the 
magnitude of the problem.
    Second, Treasury has yet to set up a loan modification 
program to help worthy borrowers stay in their homes.
    Third, and most importantly, it baffles me that there are 
no reports about where American tax dollars are going once a 
TARP check is written to a financial institution. With billions 
of dollars at stake, taxpayers deserve regular reports on how 
their money is being used to keep both financial institutions 
and our economy afloat. There must be far more accountability 
and transparency weaved into the implementation of this 
program.
    I hope that today's hearing will give us an opportunity to 
hear Mr. Kashkari outline a concrete timetable as to when these 
items will be addressed.
    With that, let me say I look forward to today's hearing, 
and I yield back.
    The Chairman. The gentleman from Texas has asked for 1 
minute.
    Mr. Green. Thank you, Mr. Chairman. I want to be as concise 
as I can and make this very clear. We live in a world where it 
is not enough for things to be right; they must also look 
right. And it may have been right to convince the American 
public that we would spend some of this $700 billion on 
mortgage-backed securities by way of a reverse mortgage 
process; it may have been right, but it doesn't look right when 
that kind of course change takes place and the American public 
is left without a clear and concise understanding of what 
happened. That has to be explained sufficiently to the public 
or it does create some harm as we move forward and make 
attempts to do the just thing in a time of economic crisis.
    I yield back the balance of my time.
    The Chairman. The gentlewoman from West Virginia for 1\1/2\ 
minutes.
    Mrs. Capito. I want to thank you for holding this hearing 
today, and I look forward to learning the progress of the TARP 
program. As many of my colleagues did, I opposed the creation 
of the TARP for three basic reasons: It was too fast; had too 
much risk for the taxpayers; and it did not contain enough 
oversight.
    Since the creation of the TARP, we have seen several 
iterations of the plan. My major question today is, you keep 
shifting the plan, the plan keeps going to different facets of 
the financial markets, and is this working and is it accounted 
for?
    The recent GAO report expresses concern that there is not 
sufficient oversight of the TARP within the Treasury. That, to 
me, is alarming. Proper oversight is needed to assure that the 
Treasury is being good stewards of the taxpayer dollars, but 
also to guarantee that institutions participating in the new 
Capital Purchase Program are complying with the limitations 
that are within those programs.
    I can assure you the American taxpayers were certainly 
leery of this program to begin with. We must work together to 
make sure companies utilizing the TARP and the Capital Purchase 
Program follow important guidelines and find out the status of 
those initiatives.
    I look forward to this hearing today. I am really astounded 
that as we move forward, the oversight portion of this huge 
program has not been one of the most detailed and most 
communicated parts of the program with the initiative that 
certainly I felt in my constituency, and felt in the 
constituency across the country, questioning the expenditure of 
$700 billion of taxpayers' dollars.
    Thank you.
    The Chairman. We will go to the gentleman from New Jersey 
for 1\1/2\ minutes, so we can balance it off.
    Mr. Garrett. I thank the chairman and the ranking member as 
well.
    When Congress passed the Economic Stabilization Act, which 
created TARP, I also did not support the legislation, and I 
voiced many serious concerns that it was not the best solution 
to address the credit crisis. I advocated that Congress take a 
little bit more time to examine other alternatives, consider 
possible unintended consequences, and put in proper safeguards 
to make sure the money is actually spent appropriately. Had 
that been done, maybe members today who voted in favor of it 
would not have regrets.
    Unfortunately, Congress rushed ahead, passed an open-ended 
bill that was sold to members as an asset purchasing plan, but 
was instead used to inject capital into the banking industry. 
Because the capital injection authority was really buried 
throughout the several different sections of the text and very 
little discussion was given during the debate to the strategy, 
apparently none of the appropriate safeguards--to include 
necessary provisions to guarantee the banks would actually lend 
the money and not hoard the capital or use it to pay dividends 
or buy other assets--were included in the bill.
    If you had taken that legislation through the regular 
legislative process and had a committee markup, allowed 
amendments, perhaps we would have addressed some of the 
concerns that are being raised today.
    I am also worried that we are making the same mistake right 
now with the auto bailout legislation being drafted. Democrat 
leadership and the Administration do not have a monopoly on 
good ideas. I think it would be very helpful for more members 
to have an opportunity to present ideas on how to improve that 
piece of important legislation as well.
    Also, I am also concerned with the amount of time it has 
now taken for the Congressional TARP Oversight Committee to be 
established, before hiring staff.
    With that, I yield back.
    The Chairman. The gentleman from California, Mr. Sherman, 
for 1 minute.
    Mr. Sherman. There are not just those who supported the 
bill and those who rejected it, but many of us who wanted to 
adopt a very different bill. Among those appear to be Secretary 
Paulson himself, who testified on September 18th that he would 
use the TARP bill only to buy toxic assets and not to buy 
preferred stock; then, by October 3rd, had changed his mind, 
buttoned his lips, and had us vote on what we thought was a 
toxic asset plan, only to have the Treasury implement its 
preferred stock asset plan.
    I might have voted for the preferred stock investment plan, 
not because it is all that effective, but because it is far 
less expensive than the original toxic asset purchase plan. 
Being a basically nice guy, let me use this opportunity not to 
praise the frugality of the Treasury, rather than to disparage 
its duplicity.
    While we talk about the cost of the bill, let us recognize 
it would cost the Treasury even less if we had negotiated tough 
with the banks. Instead, we got half the yield and one-sixth 
the warrants that private investors were able to get on similar 
transactions. Had we not played Santa Claus, had we not 
accepted the same number of warrants from those banks that 
posed very large risk to the Treasury as we accepted from those 
who posed less risks, we would have a smaller Federal debt to 
pass on to our children.
    I yield back.
    The Chairman. The gentlewoman from Florida for 1\1/2\ 
minutes.
    Ms. Brown-Waite. Thank you, Mr. Chairman. Thank you for 
holding this hearing today. Over the past 2 months, a number of 
my constituents have contacted me about problems they are 
having with foreclosures and also obtaining loans. One of them 
is a small, very successful businessman in my district, who has 
had an account with his bank, which is the same bank, by the 
way, that received billions in bailout money. They are now 
blaming the financial crisis on the fact that they are 
substantially curtailing his line of credit. What does that 
mean? It means he is going to have to lay off people. It means 
he may very well be closing his business because right now he 
is operating it on his retirement funds that he is using to 
keep his employees employed.
    Far from using the money from the Capital Purchase Program 
to increase the flow of financing to businesses, homeowners, 
and consumers, banks are actually hoarding the cash in their 
vaults. And if they are not hoarding it, they are using that 
cash for mergers and acquisitions. This should have been 
foreseen.
    I voted against the bailout because it lacked a very clear 
plan and enough oversight to prevent our current situation. Let 
me be clear, I didn't support the bailout programs proposed by 
Secretary Paulson. However, many of my colleagues did. I 
believe that they thought that it would help the consumers. 
With this lack of oversight, clearly we have been sold a pig in 
a poke and a bait-and-switch has occurred. That is not fair to 
the taxpayers who are funding this massive bailout.
    I hope we hear more about plans to protect not the banks, 
not the investors, but the taxpayers today. Thank you.
    I yield back.
    The Chairman. The gentleman from Georgia for 1 minute.
    Mr. Scott. Thank you, Mr. Chairman. What we have here, 
quite honestly, is one big mess. That is exactly what we have. 
The people sitting at that table looking at us ought to be 
Secretary Paulson and the Treasury Department and the banks. We 
have been lied to; the American people have been lied to. We 
have been bamboozled; they came to us to ask for money for one 
thing, then used it for another. They said we would have 
oversight, and no oversight is in place. We have given these 
banks $290 billion for the sole purpose of so-called buying 
these toxics. They change it, and all of a sudden now they are 
not lending it but using it for acquisitions, using it for 
salaries. These are lies. We have been bamboozled. The 
Secretary of the Treasury owes us an explanation about this, 
owes the American people an explanation about this.
    We have the auto companies coming to us. In a few days, we 
are going to give them a $15 billion loan. When they were here, 
we asked them, why can't you go to the banks? The banks won't 
lend it. Here we have sent them $290 billion, but they won't 
lend it.
    Why won't the banks lend the money to small businesses and 
the American people? That is the question.
    The Chairman. The gentleman from South Carolina for 1 
minute.
    Mr. Barrett. Thank you, Mr. Chairman. In the interest of 
time, I will submit my statement for the record. This is about 
oversight; this is about accountability; this is not about 
writing a blank check and forgetting about it. This is the 
taxpayers' money, and we need some answers.
    I yield back.
    The Chairman. The gentleman from North Carolina for 2 
minutes.
    Mr. Watt. Thank you for convening this very important 
hearing. I really want to focus in on some very practical 
issues related to the use of the money that has been approved. 
When toxic assets were proposed to be purchased, a set of 
professionals were hired to administer that program. We 
received the announcement of who those professionals were. 
Then, right after, the whole focus of the program shifted from 
purchase of toxic assets to investments in banks, purchase of 
equity positions or preferred stock positions, or whatever. The 
professionals who had been hired under contract to administer 
that program, the toxic asset program, continued under contract 
and have continued to be paid. I would be interested in 
knowing, if they were hired to do the administration of toxic 
assets, what exactly are they doing now with taxpayer money?
    These are multimillion-dollar contracts that we entered 
into, or at least hundreds of thousands of dollars of contracts 
that we entered into to administer a program that was never put 
in place. And it seems to me that we have a responsibility to 
know what those people who were under contract to do are now 
doing with taxpayer money. So that is one of the focuses that I 
will be pursuing today.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman from Michigan for 1\1/2\ 
minutes.
    Mr. McCotter. Thank you, Mr. Chairman. At the risk of being 
counterfactual, let me be clear, I appreciate the way that you 
have held these oversight hearings and expect them to continue 
into the future.
    We saw recently the auto companies appear right at that 
table because they requested tens of billions of dollars of 
taxpayer money. And yet as we continue to go through this 
process, we see no CEO or anyone from the financial 
institutions that have, to date, received hundreds of billions 
of dollars of taxpayer money. I hope that in the future, we can 
correct that. I don't care if they take a yacht, I don't care 
if they hitchhike; I think they should be here to account for 
what they did to put us where we are, how they will get us out 
of this, what they will do with the money they have received, 
and how it will help working Americans.
    Thank you.
    The Chairman. The gentleman from Texas for 1\1/2\ minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman. Just recently, the 
budget deficit numbers for the first 2 months of this October-
November were released, and it is half-a-trillion dollars. At 
that clip, that means we are on tap to do a $6 trillion deficit 
if things continue. One of the things that actually boggles my 
mind is that we are passing out billions of dollars without a 
plan.
    The Treasury Secretary and the Chairman of the Federal 
Reserve have come to this group and they have talked about how 
we are trying to stabilize the markets. But we really don't 
have a defined plan with stated results so that the oversight 
board can actually monitor what is going on.
    You can't go borrow money, as small businessmen in America, 
on the basis that the money is being passed out by the 
Treasury. What we need and what the oversight board needs is, 
we need to have some measurements that we are at some 
expectations, and we need an overall plan because we can't keep 
just throwing money at this problem until it gets better, 
because there is not an unlimited supply of money because we 
are spending money that we don't have. We are spending the next 
generation's money on the basis that we are operating now.
    The numbers people are throwing are anywhere from $4 
trillion to $7 trillion. I think that is a number that the 
oversight board needs to know. I think we need to know what the 
direct and contingent liabilities of all of the entities that 
are involved in this process have committed the American 
taxpayers to. But, more importantly, if you are going to have 
oversight, you have to have a plan to oversee, and there is no 
plan, and that should be of great concern to the American 
people because it is a great concern to me.
    The Chairman. The gentleman from Nevada for 1 minute.
    Mr. Heller. I appreciate the opportunity to spend a few 
minutes here in this hearing to discuss what I am hearing as 
frustration in the community banking, especially the small 
community banks across this country. As they go to the Web 
site, they fill out these applications and wait. They literally 
wait, wondering when and if these TARP funds will become 
available.
    I think this frustration, as I continue to get these phone 
calls--they want to know what the criteria are. ``We filled out 
the 2-page application, and we heard nothing.'' What are the 
thresholds, what are the expectations, what are the criteria to 
know the difference--is it assets, is it deposits? What is the 
threshold that is going to determine between a small bank and a 
big bank whether they receive assistance? Because these small 
community banks are not lending, they are saying they are not 
lending. In fact, most of them are just wondering if we are 
sitting around, waiting to be acquired by people who do receive 
TARP funds. So I am hoping that we can get answers to some of 
these questions.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. This side has 30 seconds remaining. I am just 
going to use it to respond to a very important point made by 
the gentleman from California, Mr. Royce, about the lawsuits 
interfering with servicers. The gentleman from California has 
consistently raised that. This committee is determined next 
year to change the legislation defining legal rights here, so 
that we will not have this continuing ambiguity about 
servicers.
    I will say, though, that acting on the initiative of the 
gentleman from Pennsylvania, Mr. Kanjorski, and the gentleman 
from Delaware, Mr. Castle, we did include in the legislation 
that we passed as good a clarification as we could have going 
forward that servicers who do what is economically in the best 
interest of the holders of those loans should not be sued.
    The only further step we could take would be to indemnify 
them. The problem there is you would be using taxpayer dollars. 
And if the holder of the loan could sue the servicer and we 
then indemnified the servicer, you would put taxpayer dollars 
in the hands of the people who made these bad loans. I don't 
believe there would be any support for that.
    The last thing I would say is the gentleman from California 
correctly mentioned a class action lawsuit. Of all the 
outrageous acts of social irresponsibility I have ever seen, it 
is the lead plaintiff in that lawsuit who bought paper solely 
for the purpose of doing it. We are not talking here of an 
owner who, having made the loans or having acquired the loans, 
subsequently ran into this problem. He bought that paper after 
the fact, I believe solely for the purpose of lawsuits. It is 
greatly irresponsible.
    I have spoken to Treasury, and I think it is very important 
that we encourage Bank of America, which is the target of this 
suit, to stand up and fight that lawsuit. I hope there will be 
amicus briefs filed by the United States Government, by 
ourselves and others, because I think this is a scurrilous, 
socially irresponsible effort by someone who has no legitimate 
problem, because he is not talking about loans that had been 
previously been made.
    I do think that the gentleman from California hit on an 
important problem. It is important that we deal with it at 
every level.
    With that, we call up our witnesses. We have the Acting 
Comptroller General and the Interim Assistant Secretary. One of 
these days, we will get back into actual people. But we do 
appreciate the very hard work that both gentlemen are doing in 
their status.
    Mr. Dodaro is the Acting Comptroller General of the 
Government Accountability Office. And I would just say, for 
people who want to know whether the Government Accountability 
Office puts its principles into practice, they are for saving 
money. We changed the name from the Government Accounting 
Office to a more descriptive name, the Government 
Accountability Office. But you will notice that we did it in a 
way that does not require them to change their towels; it is 
still the GAO. So we all deserve credit for that efficiency.
    And Mr. Neel Kashkari, who is the Interim Assistant 
Secretary for Financial Stability.
    Mr. Dodaro, we will begin with you.

 STATEMENT OF THE HONORABLE GENE L. DODARO, ACTING COMPTROLLER 
 GENERAL OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Mr. Dodaro. Thank you very much, Mr. Chairman. Good morning 
to you and to the members of the committee. I am pleased to be 
here today to discuss GAO's efforts to evaluate the TARP 
program to date.
    Soon after the legislation was enacted on October the 3rd, 
we moved quickly to put our team in place. And, as mentioned, 
we issued our first report within the 60-day requirement under 
the legislation last week, on December the 2nd. Now, that 
report outlines the actions that the Treasury Department has 
taken to date to implement the program and recognizes the 
challenges that they faced in starting a new program from 
scratch.
    The report also, however, points out several critical 
issues that are not yet addressed. And, as a result, we made a 
series of recommendations that we think are very important and 
that, if properly implemented, can improve the integrity, the 
accountability, and the transparency of this very important 
program. Those recommendations fell into four general 
categories.
    The first dealt with ensuring that the funds are being used 
in compliance with the legislation and that requirements, such 
as limits on executive compensation and payment of dividends, 
are complied with. To date, Treasury hadn't finalized its 
strategy for monitoring these very important initiatives. So we 
recommended that the Treasury Department work with the 
financial regulators which are already in place to develop a 
systematic means for ensuring that there is monitoring and 
reporting on the use of the funds to ensure that it is 
consistent with the Act and that it is being done in a timely 
fashion, and that there be an effective monitoring program put 
in place to ensure that the program requirements are adhered to 
by the institutions receiving the funds.
    The second area had to do with the communications strategy. 
As has been pointed out this morning in virtually every 
member's opening comments, the program has undergone a lot of 
changes. And, in addition to that, the economic situation has 
been rather fluid. Because of all these changes, that really 
put a premium on having effective communications to not only 
explain by Treasury as to what they were doing but why they 
were undertaking the initiative. So we recommended that they 
give this area and the communications strategy some additional 
attention.
    The third area has to do with people, having the right 
numbers and skills necessary to effectively carry out this 
program. To date, Treasury has made many efforts to try to 
bring people onboard on an interim status. But they have yet to 
bring on the full complement of people that they need in order 
to effectively manage the program over time. We recommended 
that they expedite their hiring practices and also put in place 
a comprehensive plan to ensure a smooth transition to the next 
Administration. Right now, they only have a very limited number 
of people who are committed to make that change going forward.
    The fourth area has to do with a comprehensive system of 
internal controls. Treasury recognizes that they need internal 
controls. In fact, one of the contractors that was hired was 
brought in to help them craft the system. And so, you know, we 
gave them credit for acknowledging that they need to do this. 
But the system needs to be fully designed and put into place.
    And a couple of areas that are really important, one is 
overseeing contractors. To date, the contractors that have been 
hired have been on a time and materials basis, which puts the 
onus more on the government to manage the contractors, so that 
they need additional people to be able to do that properly. We 
recommended also that, in the future, to the extent that the 
Department can, they put in place fixed-price contracts to 
provide the necessary support for them going forward.
    We also recommended that the Department finalize their 
regulations on conflict of interest and put in place a robust 
monitoring effort to make sure that the conflict-of-interest 
provisions and the associated mitigation plans that are put in 
place are properly implemented going forward so that there are 
proper safeguards in place.
    In summary, in our first report and set of recommendations, 
we believe--or have very important suggestions for the Treasury 
Department to implement, to ensure that this program has the 
accountability, has the transparency necessary and what the 
expectations are going forward. We plan to continue to work 
with the Treasury Department to monitor their implementation of 
those recommendations and also the TARP program, as it 
continues to unfold in the coming months.
    I would ask, Mr. Chairman, that our detailed report of 
December 2nd be submitted into the record, since it was 
statutorily required, along with my testimony today, if that 
would be permissible. And I would be happy to answer any 
questions members may have at the appropriate period of time. 
Thank you very much.
    [The prepared statement of Mr. Dodaro can be found on page 
103 of the appendix.]
    Mr. Kanjorski. [presiding] Thank you very much, Mr. Dodaro.
    Without objection, the gentleman's request is agreed to.
    Mr. Kashkari?

  STATEMENT OF THE HONORABLE NEEL KASHKARI, INTERIM ASSISTANT 
 SECRETARY FOR FINANCIAL STABILITY AND ASSISTANT SECRETARY FOR 
     INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY

    Mr. Kashkari. Good morning, Mr. Chairman, Ranking Member 
Bachus, and members of the committee. Thank you for asking me 
to testify before you today regarding oversight of the Troubled 
Asset Relief Program.
    We are in an unprecedented period, and market events are 
moving rapidly and unpredictably. We at Treasury have responded 
quickly to adapt to events on the ground. Throughout the 
crisis, we have always acted with the following critical 
objectives: One, to stabilize financial markets and reduce 
systemic risk; two, to support the housing market by avoiding 
preventable foreclosures and supporting mortgage finance; and 
three, to protect the taxpayers. The authority and the 
flexibility granted to us by the Congress has been essential to 
developing the programs necessary to meet those objectives.
    Today, I will describe the many steps we are taking to 
ensure compliance with both the letter and the spirit of the 
law and what measurements we look at to gauge our success.
    A program as large and complex as the TARP would normally 
take many months or years to establish. Given the severity of 
the financial crisis, we must build the Office of Financial 
Stability, we must design our programs, and we must execute our 
programs all at the same time. We have made remarkable progress 
since the President signed the law only 68 days ago.
    The first topic I will address is oversight of the TARP. We 
first moved immediately to establish the Financial Stability 
Oversight Board. The board has already met 5 times in the 2 
months since the law was signed, with numerous staff calls 
between meetings. We have also posted bylaws and minutes from 
those board meetings on the Treasury Web site.
    Second, the law requires an appointment of a Senate-
confirmed special inspector general to oversee the program. We 
welcome the Senate's confirmation, just on Monday, of Mr. 
Barofsky as special IG. I spoke with him just yesterday, and we 
look forward to working closely with his office.
    In the interim, pending his confirmation, we have been 
coordinating closely with the Treasury's inspector general. We 
have had numerous meetings with Treasury's Inspector General to 
keep them apprised of all TARP activity. And we look forward to 
continuing our active dialogue with both the Treasury IG and 
the special IG as he builds up his office.
    Third, the law calls for the GAO to establish a physical 
presence at Treasury to monitor the program. We have had 
numerous briefings with GAO, and our respective staffs meet or 
speak on an almost daily basis to update them on the program 
and review contracts.
    The GAO published its first report on the TARP, as Mr. 
Dodaro said, on December 2nd. They provided a thorough review 
of the TARP program and progress to date, essentially a 
snapshot in time at the 60-day mark of a large, complex project 
that continues to be a successful work in progress.
    We are pleased with our auditors' recommendations, because 
the GAO has identified topics that we are already focused on. 
The report was quite helpful to us because it provided us with 
thoughtful, independent verification that we are, indeed, 
focused in the right topics. And we agree with the GAO on the 
importance of these issues. Our work continues.
    Finally, the law called for the establishment of a 
congressional oversight panel, the fourth oversight body to 
review the TARP. That oversight panel was recently formed, and 
we had our first meeting with them on Friday, November 21st. We 
look forward to having additional meetings with the 
congressional oversight panel.
    Now, people often ask, how do we know our programs are 
working? First, and this is very important, we did not allow 
the financial system to collapse. That is the most important 
information that we have.
    Second, the system is fundamentally more stable than it was 
when Congress passed the legislation. While it is difficult to 
isolate one program's effects, given the numerous steps that 
policymakers have taken, one indicator that points to reduced 
risk among default of financial institutions is the average 
credit default swap spread for the eight largest U.S. banks. 
That CDS spread has declined 200 basis points since before 
Congress passed the law.
    Another key indicator of perceived risk in the financial 
system is the spread between LIBOR and OIS. The 1-month and 3-
month LIBOR-OIS spreads have each declined 100 basis points 
since the law was signed and 180 basis points from their peak 
before the CPP was announced on October 14th.
    People also ask, when will we see banks making new loans? 
First, we must remember that just over half the money allocated 
to the Capital Purchase Program is out the door. Although we 
are executing at report speed, it will still take a few months 
to process all of the remaining applications. The money needs 
to get into the system before it can have the desired effect.
    Second, we are still at a point of low confidence, both due 
to the financial crisis and due to the economic downturn. As 
long as confidence remains low, banks will remain cautious 
about extending credit, and consumers and businesses will 
remain cautious about taking on new loans themselves. As 
confidence returns, we expect to see more credit extended.
    We are actively engaged with regulators to determine the 
best way to monitor these capital investments in bank lending. 
We may utilize a variety of supervisory information for insured 
depositories, including the Home Mortgage Disclosure Act data, 
the Community Reinvestment Act data, call report data, 
examination information contained in CRA public evaluations, as 
well as broader financial data and conditions.
    In conclusion, while we have made significant progress, we 
recognize that challenges lie ahead. As Secretary Paulson has 
said, there is no single action the Federal Government can take 
to end the financial market turmoil or the economic downturn, 
but the new authorities that you provided, you and your 
colleagues provided in October, dramatically expanded the tools 
available to address the needs of our system. We are confident 
we are pursuing the right strategy to stabilize the financial 
system and support the flow of credit to the economy.
    Thank you again for having me here today, and I would be 
happy to take your questions.
    [The prepared statement of Mr. Kashkari can be found on 
page 115 of the appendix.]
    Mr. Kanjorski. Thank you very much, Mr. Secretary.
    Mr. Secretary, it is sometimes, in my opinion, sort of 
unfortunate that we don't have more of a mix of associating 
between Members of Congress and the Executive Branch. But when 
you are in a role such as mine, you get to hear very often the 
opinions of Members out of the public realm and off the 
newspapers, but their honest opinions of what happened.
    And I think one of our colleagues, yesterday at a caucus, 
made a great observation, Mr. Kucinich of Ohio. He posed the 
question, after all the turmoil of the last 10 or 12 weeks, why 
is it that we do not have the beginning of an industrial policy 
in this country so that, as we start structuring the recovery 
acts and various programs, we don't have a standard or a base 
to measure what we are doing against? I thought that was a good 
observation.
    And now working on the auto recovery program, having worked 
tirelessly just 6 or 8 weeks ago on the ``bailout'' of Wall 
Street, I am beginning to think that somebody has to become a 
drafter of a master plan of what we are going to do, what we 
intend to do, what we are doing, so that we have some measure 
of objective judgment or understanding.
    Now I, for one, have been very sympathetic to the Secretary 
and to the Administration. And you obviously know I am on the 
other side of the aisle, politically, from the Administration. 
Because I think that we are in such a challenge in our economic 
structure that we have to tell the American people the truth, 
and that truth is going to hurt. Some of that truth is we are 
going to spend billions of dollars incorrectly and wrongfully 
and wastefully. And they are going to have to know that, 
because we are like mad scientists in an economic laboratory 
trying to get the correct potion to resolve this problem. And I 
don't know that anyone has gotten that.
    So that we can't be harsh judges of what the Administration 
is doing and hold you to such a high order when, in fact, none 
of us know what the true answer is. I think as you have 
testified and just indicated, nobody does really know.
    On the other hand, it is very disconcerting to listen to 
the Secretary come up here 1 week, as he did in September, and 
tell us the sky was falling, and I can't even repeat some of 
the issues that were raised by him and Dr. Bernanke, in terms 
of they are still confidential and secret, as I understand it. 
But they did shake the hell out of Congress, I can tell you 
that.
    We did react within a couple of weeks to pass the rescue 
program, and in my opinion, we did it inadequately. We didn't 
accrete the Office of the Inspector General with the powers 
necessary to really do the job. We didn't get the people in 
place on the oversight board. We didn't get the inspector 
general, until 2 days ago, appointed. And we really up here 
don't know what is totally going on.
    But I keep looking at the Administration. And Mr. Paulson, 
when he called that reverse in the backfield, going from 
purchasing toxic assets to making investments, and he did it 
overnight without any pre-information, just did it, and now he 
has been making these calls, totally reversing the position of 
where we thought we were going and where we were informed 
previously in the huddle as to where we were going, it is 
starting to shake our confidence.
    And when I say that, it is not just the confidence of the 
Congress. We are probably not important in that regard. But we 
do represent, to an extent, the confidence of the American 
people. And, to a large extent, we are not coming out of this 
economic problem until we build the confidence of the American 
people. I think, by that nature, we have to build a 
relationship between the Administration and the Congress to 
build our confidence, because, in some respects, we do 
represent the American people.
    When do you see a capacity that you are going to come 
forward and tell us what your plan is, what we can expect, 
perhaps developing an industrial policy for this country, and 
to give everybody a little comfort that we seem to know what we 
are doing and we have a game plan to play the whole game?
    Mr. Kashkari. Congressman, thank you for the question. Let 
me answer it in two parts.
    First, in terms of the remaining use of the TARP funds, 
right now we are executing the programs that we have announced. 
So we have announced the Capital Purchase Program. We are deep 
in execution; the execution is going quite well. We can discuss 
that, and I am sure members have views.
    Second, we have announced, the Federal Reserve has 
announced a program for asset-backed securitization facility, 
which is going to get consumer credit going--auto lending, 
consumer loans, student loans, etc. That program in the process 
of being developed and stood up. That also will use $20 billion 
from the TARP.
    In terms of future programs, we have a lot of policy 
development work going on. That policy development work, in 
many cases, is we are consulting with the transition team to 
keep them informed of what we are developing. At this point, 
there has been no determination made by the Secretary on 
whether or when to request further funds from the Congress, the 
$350 billion. If that determination were to be made, he would 
do it, consult with the transition team, also notify Congress 
and provide details of exactly what our plans would be for 
those remaining funds, number one.
    Number two, in terms of a master industrial policy, 
candidly, Congressman, that is not something that I have spent 
much time thinking about. My focus, and I think the Treasury 
Department's focus right now, is just to ensure the stability 
of the financial system so that credit can flow to our 
communities and our consumers and our businesses.
    I think that, as a Nation, my personal perspective is, once 
we get through the immediate crisis, we need to take a step 
back and thoughtfully review our regulatory system to make sure 
we don't get back here again in the future. Sometimes it is 
hard to make those judgments in the middle of a crisis.
    Mr. Kanjorski. Thank you very much. I wish we could go on, 
but we have others. Let uss turn to the ranking member now, Mr. 
Bachus.
    Mr. Bachus. Well, it might take a while.
    Mr. Dodaro, the original asset purchase program, it had a 
pretty extensive mechanism to administer the program, you know, 
where we would pay fair value or fair price, etc., etc., you 
know, and that the goals would be realized.
    Has the Treasury adopted a similar detailed mechanism to 
ensure that the Capital Purchase Program fulfills its goals?
    Mr. Dodaro. The Department has been largely relying on the 
regulators for the industries to help in their process for 
determining which institutions they will approve under the 
Capital Purchase Program and that the institutions are sound 
and financially viable going forward. So I think relying on the 
regulators was a good step in that process going forward.
    What our--
    Mr. Bachus. Let me ask you, when you say relying on 
regulators to inject capital into this, hold off on that, what 
about the State-chartered institutions? Is there a bias against 
them? Are they also consulting with--
    Mr. Dodaro. I think all the institutions are going through 
the same process.
    Mr. Bachus. All right.
    Mr. Dodaro. The applications come in, are screened by the 
regulators, and then they go forward to the Treasury 
Department, where Mr. Kashkari then makes the decision, you 
know, going forward with the process.
    What our recommendations are focused on is, once the 
Capital Purchase Programs are approved and the money is then 
transferred to the institutions, that is where we see the need 
to have greater monitoring by the regulators, more timely 
reporting. The regulators get a lot of information--
    Mr. Bachus. Is that into what they are doing with the 
money?
    Mr. Dodaro. Yes, yes. That is what they are doing with the 
money, whether it is consistent with the purposes of the Act, 
and what kind of effect is it having to achieve the program's 
objectives.
    Mr. Bachus. I understand.
    Is there leverage under the law, or under the lending 
regulations, to require them to lend it, as opposed to, say, 
they pay the amount of dividend or to make acquisitions?
    I will ask Mr. Kashkari or either one of you gentlemen.
    Mr. Dodaro. Basically--and Mr. Kashkari can elaborate on 
this--my understanding is the requirements that are signed 
basically require the institutions to spend the funds in 
accordance with the purposes of the act.
    Mr. Bachus. Okay.
    Mr. Kashkari. And, Congressman, I would just add that the 
contracts that these banks--we have now funded 87 banks in 30 
States. The contracts that we have entered into restrict their 
dividends; they cannot increase their dividends. They cannot do 
a share buy-back. So we have put--
    Mr. Bachus. Yes, I know they can't increase it, but they 
are using it to pay and maintain the dividend.
    Mr. Kashkari. That is correct. And, again, one of the keys 
here is we want to attract private capital to our banking 
system. To come in to healthy banks and wipe out all their 
dividends would drive away private capital. We want to 
encourage private capital.
    And may I respectfully repeat that this is a program for 
healthy institutions of all sizes. Hundreds, potentially 
thousands, of banks from across the country are applying. We 
feel great about that.
    Mr. Bachus. In fact, you know, we had conversations that we 
wanted all the banks to participate. Now, I wasn't in the end 
game there, but let me ask you about that. The Subchapter S 
banks, a third of the banks are in that case. You still haven't 
come up with a program for them, have you?
    Mr. Kashkari. Not yet. We have professionals at Treasury 
working on it and consulting with outside experts. It is a very 
complex legal issue. Our program intention is that every bank 
in America that is healthy gets to participate on equal terms. 
There are some real legal complexities on how to make equity 
investments in Subchapter S and mutuals. And if you can make 
the investments, how do you get it out in the end so that the 
taxpayers can get their money back in the future? We are 
looking hard at that.
    Mr. Bachus. Right. I think there are 2,500 such 
institutions.
    Let me ask you this. You know, the switch from troubled 
assets to capital injection, did that imply that it was a 
solvency issue as well as a liquidity issue?
    Mr. Kashkari. Congressman, this has always been about 
capital. Buying troubled assets, the initial plan was also 
focused on getting more capital into the system and freeing up 
their balances sheets.
    The Secretary made the determination to lead with capital, 
because, although Congress moved with lightning speed, just 2 
weeks between when Secretary Paulson and Chairman Bernanke came 
to the Congress and the legislation was passed and signed, 
credit markets deteriorated rapidly. And we realized very 
quickly that we had to lead with capital.
    The key for an asset purchase--
    Mr. Bachus. And I agree with that. As you know, I proposed 
that in the first meeting.
    Mr. Kashkari. The key, Congressman, for an asset purchase 
program to work is it must be done on a very, very large scale. 
And once it became clear that we had to lead with significant 
capital and maybe more capital, we would be left with a very 
much smaller asset purchase program that may not be big enough 
to do the trick.
    Mr. Bachus. Okay. Let me say this, and I will close with 
this question. You know, you have done repeated capital 
injections into AIG and Citigroup. I say repeated; it is over 
$100 billion in the case of AIG. You know, have you required 
any corrective action on their part, similar to what you are 
hearing about the auto companies today, as opposed to what 
you--
    Mr. Kashkari. We should segment--this is very important; I 
am glad you raised it--we should segment failing institutions, 
such as AIG, Fannie Mae, Freddie Mac, from the healthy bank 
program. If you look at our track record, in the case of AIG, 
Fannie, and Freddie, in each case we replaced the management. 
The taxpayers got 80 percent of the equity of those 
institutions. Their existing shareholders paid the ultimate 
price. And so, when we have a situation like that, we are very, 
very aggressive to protect the taxpayers.
    When we have a healthy bank program and we want thousands 
of banks to participate, we want to make it attractive for them 
to volunteer to participate in the program, not to scare them 
off.
    Mr. Bachus. And I like that model, as opposed to having the 
Congress or the Administration micromanage these operations; 
you replace the management. I think maybe that might be a model 
for some, not all, but some of our automobile companies, too.
    Thank you.
    Mr. Kashkari. Thank you.
    Mr. Kanjorski. Thank you very much, Mr. Bachus.
    And now we will hear from Ms. Waters.
    Ms. Waters. Thank you very much.
    Mr. Kashkari, you know that I and some of the others are 
focused on trying to save homeowners and stop these 
foreclosures so that American citizens can remain in their 
homes. You have done nothing, Treasury has done nothing, to 
pursue any program, except I think begrudgingly you took Ms. 
Sheila Bair's program and applied it to, I guess, Citigroup, 
when you gave them all of that money.
    If it is good enough for the Citigroup program, why hasn't 
it been applied to all of the banks, or why didn't you go back 
to purchasing the toxic paper and doing loan modifications? 
What is your resistance to helping homeowners stay in their 
homes and to stopping these foreclosures?
    Mr. Kashkari. Congresswoman, thank you for asking. This is 
a very important topic. And, if you will permit me, I am going 
to give you three parts to the answer.
    The first part is Secretary Paulson came to the Congress to 
ask for this legislation to prevent a financial collapse. And 
if you will permit me, imagine how many foreclosures we would 
have had if we had allowed the financial system to collapse, 
number one.
    Number two, we continue to work very hard at Treasury, 
within the Administration, with the Federal Reserve, in 
consultation with the transition team, looking at various 
foreclosure mitigation policies--
    Ms. Waters. Taking back my time, why haven't you adopted 
the Sheila Bair program?
    Mr. Kashkari. These programs are more complicated than they 
seem on the surface.
    Ms. Waters. Why was it good enough for Citigroup?
    Mr. Kashkari. That was a request that the FDIC made as part 
of the negotiation. If you will permit me to complete my 
answer--
    Ms. Waters. No, I can't, because what you are doing is you 
are just going over what you have already said. And I really 
want to focus on why we don't have a comprehensive program to 
deal with the foreclosures and helping homeowners stay in their 
homes.
    Fannie Mae and Freddie Mac adopted a program. Do you like 
that program?
    Mr. Kashkari. Yes, actually, thank you for raising that. 
That is where I was going to go.
    We are trying to use the right tool for the right job. So, 
for example, Fannie Mae and Freddie Mac, we worked with FHFA 
and with Fannie and Freddie to adopt a streamlined model. Why 
that is so important, Congresswoman, is because most of the 
pooling and servicing agreements for private mortgage-backed 
securities, subprimes, point to the Fannie/Freddie servicing 
standards for how their loans need to be serviced. So, by 
imposing those at Fannie and Freddie, we have now adopted a new 
industrywide standard with a streamlined protocol. If we had 
spent all $700 billion buying whole loans, we could have bought 
3 million to 4 million loans. As you know, there are 55 million 
loans in America. Versus, using Fannie and Freddie, we can now 
touch almost every loan in America by establishing this new 
standard.
    Ms. Waters. Well, let me, if I can, take back my time 
again. By simply working on Fannie and Freddie, you cannot--you 
cannot--cover all of those loans that are out there, those 
mortgages.
    And let me just say this: You have resisted working with 
Sheila Bair, with what we think is a legitimate program. You 
have had a program presented by RLJ Companies, Mr. Bob Johnson, 
that talked about dealing with the services problem. You have 
just ignored him, and you have not responded to what looks like 
a legitimate way in which to deal with these foreclosures. You 
don't have a comprehensive plan to deal with foreclosures. Now 
the scam artists have taken over.
    I just recently responded to a scam artist that--the name 
of the company is the Federal Loan Modification Program. I gave 
them phony criteria as a consumer about a foreclosure. They 
assured me that I qualified for their program, and they asked 
me for $3,500. And you are doing nothing about that. The scam 
artists are now filling the gap of a lack of assistance to 
American consumers and homeowners that Treasury should be 
dealing with.
    And so you talk about or allude to the other $350 billion. 
Please don't come here and ask for another penny. Because, if 
you do, I am going to work 24 hours a day with the same people 
that I worked with to support you to make sure that they do not 
support giving you another dime.
    President-elect Obama has said that he wanted to do 
something for the homeowners. You have not even followed up 
with that request, with that signal that he has sent. And you 
come here and tell us about how you have saved all of the 
economy with what you have done.
    One question, have you called Bank of America? Did you get 
them involved in helping to extend the financing to the door 
company in Chicago where people have been sitting in? Did you 
ask them to do anything?
    Mr. Kashkari. We have not talked to Bank of America.
    Ms. Waters. Why not? You gave them, what, $15 billion?
    Mr. Kashkari. Congresswoman, I don't know the details of 
that instance.
    Ms. Waters. Well, you should. They have been in the media. 
You should be embarrassed by that.
    Mr. Kashkari. Well, Congresswoman, it is not appropriate 
for me, as a Treasury official, to comment on specific loans or 
specific banks in that regard. They have a bank regulator, the 
OCC, that is their primary Federal regulator, that has dozens 
of staff on site at Bank of America every day as part of their 
normal supervisory activity.
    Ms. Waters. Okay. I appreciate that you think that is not 
appropriate, but let me tell you what is appropriate. It is 
appropriate, when you come before this committee, where we have 
worked very hard to follow your lead on buying up all that 
toxic paper, it is appropriate for you to tell us why you 
didn't do it. You haven't done a good job of that, and you 
still come without a program to deal with that.
    I yield back the balance of my time. And I thank you very 
much, Mr. Chairman.
    Mr. Kanjorski. Thank you, Ms. Waters.
    And now, we will hear from Mr. Neugebauer.
    Mr. Neugebauer. Thank you.
    Mr. Kashkari, can you tell me a little bit--87 different 
entities, banks that you have bought, I guess, warrants and 
preferred stock in. What was the criteria? I mean, I am looking 
at this amount. Some people got $10 billion; some people got 
$17 million. What was the criteria on how much money you got?
    Mr. Kashkari. Sure. Congressman, we established a standard 
program where banks of all sizes could apply for between 1 
percent and 3 percent of their risk-weighted assets. So it is 
an equal deal for all banks in the country.
    They submit their application to their primary regulator, 
who reviews the application, makes a recommendation to 
Treasury. We review their recommendation and make a final 
decision.
    This is meant to be a healthy bank program so that, if a 
regulator deems an institution is not viable, they will likely 
not recommend them for the program. But in terms of the amount, 
the guidelines are 1 percent to 3 percent of assets. So, 
although, you know, some banks got as high as $25 billion, the 
smallest amount has been less than $2 million. That is because 
there are huge banks and there are little banks.
    Mr. Neugebauer. Sure. What about the pricing? Was 
everybody's pricing the same?
    Mr. Kashkari. Identical.
    Mr. Neugebauer. And so, does that say that every one of 
those entities is an equal risk of that capital that you are 
putting in there?
    Mr. Kashkari. That is a good question. It is very hard for 
us to go out and value individually the thousands and thousands 
of banks around the country. So we felt that the fairest way to 
go was to apply the same terms for everybody so they could all 
apply. So long as their regulator deems that they are a 
healthy, viable bank, then they would be able to participate on 
the same terms as their neighbors, big or small.
    Mr. Neugebauer. And when these banks applied for this 
money, did they present a business plan? For example, ``If you 
put $2.2 billion in my bank, this is what we are going to do 
with it?''
    Mr. Kashkari. Not specifically. In some cases, banks 
offered some indicator. We felt that--a couple of things on 
this, because it is very important.
    The overall purpose was to put more capital in the 
financial system, to increase the strength of the system and, 
over time, increase lending. By putting more capital in, 
restricting dividends and restricting share repurchases, the 
banks have very strong economic incentive to want to put that 
money to work. If they don't put it to work, their return on 
equity, their return on assets will go down, so their returns 
will suffer.
    So we wanted to put the right economic incentives in there. 
But, at the same time, thousands of banks across the country in 
all of our communities--it is very hard for us to try to 
micromanage and say, ``This is how you should run your 
business,'' because each bank, and each community, is a little 
bit different.
    So we wanted to work with the regulators to identify the 
healthy banks, put capital in on the same terms, and then 
create the economic incentives for them to want to go make new 
loans.
    Mr. Neugebauer. When you look at the economy and markets, 
many would say that markets are a reflection of the economy. 
And when I look at the plan that Treasury and the Federal 
Reserve put forward, it appears to me you are trying to address 
the market structure, when, fundamentally, I think what a lot 
of people--and somebody said a while ago, we owe the American 
people the truth. We do owe them the truth. The truth is we 
have fundamental problems with the overall economy, which I 
think are being reflected in the markets.
    And so would you say this plan tries to address markets or 
it tries to address the economy?
    Mr. Kashkari. That is a great question. I am glad you asked 
it.
    This is an economic stabilization plan to prevent a 
financial system collapse, to stabilize the financial system. 
It is not an economic growth plan, an economic stimulus plan. 
Those are very different.
    And our energy is focused on making sure the financial 
system is stable so that credit can flow. The economy has real 
challenges, as you indicated. And that is not going to be 
addressed. Even if we execute the TARP perfectly, that is 
different than stabilizing the financial system.
    Mr. Neugebauer. But the question is, then, were we trying 
to--you say this is a healthy bank program. Many of these banks 
said they would not have ever probably participated in this, 
but, you know, it is kind of like, if the candy jar was out 
there, I think we should go and get some of those. So we have 
banks probably that are very healthy, very stable, still they 
were making loans, participating in the market, but now we have 
encouraged them to participate in this program. And so I kind 
of wonder how that is addressing the market.
    Mr. Kashkari. Right. If we have a dollar and we give this 
dollar to a healthy bank or gave that same dollar to a failing 
bank, the healthy bank is in a much better position to turn 
around and make new loans. And that is exactly why we focused 
on healthy banks for the Capital Purchase Program, because they 
are the ones who are in the best position in this time of 
economic disruption to step up and make new loans to their 
businesses and their consumers in their communities. That is 
exactly right.
    Mr. Neugebauer. Last question then, as a follow-up on that. 
Do you have evidence that this capital injection has, in fact, 
led to increased lending activity? Have you monitored that?
    Mr. Kashkari. We are in the process of working with the 
regulators to monitor that.
    As I indicated in my opening statement, there are 
indicators of the credit crisis softening, some confidence 
returning. It is going to take time. Think of it this way: 
Remember the economic stimulus checks that Americans got? If a 
homeowner or a person was nervous about their economic 
situation, and they got that check, they would be more likely 
to put it in the bank than to go out and spend it. And so we 
need to see confidence return to the system to really see the 
lending take off, and we need to get all the capital in the 
system. It is not going to happen as fast as any of us would 
like, but it is going to happen much faster for us having taken 
this action than if we hadn't.
    Mr. Kanjorski. The gentlelady from New York, Mrs. Maloney?
    Mrs. Maloney. Thank you.
    And I would like to welcome and thank both panelists for 
their government service and their testimony today.
    I would like to ask Mr. Dodaro about the report that you 
just issued on the program and where we are going and what has 
happened. Along with several Members of Congress--and I would 
like to place in the record this letter--we sent a letter to 
you and to Secretary Paulson asking if you had the 
technological capacity to provide real-time data, transparency 
on transactions by the entities receiving the TARP moneys, so 
that we can be sure that the moneys are used for the purposes 
that they were intended, not only to stabilize our markets but 
to provide credit to Americans.
    We are hearing some stories that this money is being used 
for overseas purchases. We want to make sure this money is not 
for private gain, but is consistent with the purposes of the 
Act.
    I would like you to comment on the recommendations that 
your report made. And is Treasury accepting your 
recommendations? Are we moving toward a systemic system with 
regulators so that we can track if the money is used for the 
purpose it was intended?
    Mr. Dodaro. Our first recommendation in the report was to 
Treasury to work with the regulators. And, as Mr. Kashkari 
mentioned, some of the regulators are right in the 
institutions, and some of the larger ones on a regular basis. 
Others have a lot of knowledge, obviously, about the 
institutions that they regulate. So we think it is good.
    You need a systematic process for doing that, and it has to 
be more timely. Right now the regulators get information on a 
quarterly basis, usually called data quarterly financial 
statements, but that could be modified for a certain amount of 
the information.
    Now, that is, though, the one recommendation that we made 
that Treasury had a different interpretation on it. And I think 
it is important for them to reconsider collecting this 
information at an individual institution level. It is not 
micromanaging to ask people what they did with what you gave 
them, to the extent that it is possible. And I think it is very 
important, and it is the only way that we will have 
transparency.
    Mrs. Maloney. I agree completely and I intend to legislate 
that recommendation to make it clear to Treasury that we want 
transparency and accountability.
    I would like to ask Mr. Kashkari--I am grateful that the 
financial system of America did not collapse and that we are 
moving toward stability of our financial institutions. That was 
a goal, and we have achieved that, and we are getting stronger 
every day.
    But what I am hearing from my constituents is that the next 
step of getting credit out in the community is not happening. 
We have put $7.8 trillion into the financial system--10 times 
the $700 billion of the TARP program.
    Yesterday, there were 10 car dealers in my office from New 
York State. They say people want to buy from them, they want to 
buy their cars, but they cannot get a loan from a bank. We are 
hearing from constituents who would like to buy houses, but 
they don't know where to go to get a loan. The money is not 
getting out into the community. And I would venture that we 
should look more at what is happening to the money now, as 
opposed to putting it into the system.
    I have received numerous phone calls in support of a 
proposal of Treasury of a 4.5 percent program that would allow 
for people to buy their first homes.
    I think what is lacking here is there is not a clarify of 
programs to the people of where they can go for help. This, I 
believe, got such a groundswell of support because it was 
clear: You can go to Treasury, you can get a 4.5 percent, 30-
year loan. And economists tell us that key to solving our 
challenge is helping people stay in their homes and getting the 
homebuilding, the home purchasing, this segment of our society 
moving.
    I want to underscore what many members on this panel have 
said, that we support moneys going to help people stay in their 
homes for long-term loans. And if Treasury has an objection to 
Commissioner Sheila Bair's program, if you feel you can 
streamline it, you can make it more effective, then do it. But 
that certainly is a goal.
    Numerous economists have told us we will not solve this 
problem --meaning the overall economy--until we stabilize the 
foreclosures, the 2 million to 5 million foreclosures that are 
predicted by some economists. But also a factor is the 4.5 
percent program to get the economy moving.
    And I would like to know, are you moving forward with this 
program? I certainly support it. What is the status of it? And 
any program that you have that will get lending out to the 
community.
    Mr. Kashkari. Thank you, Congresswoman.
    Let me answer by starting with we look at the foreclosure 
problem as a critically important problem and issue that we are 
working hard on that is distinct but related to getting housing 
going again. And so the mortgage program that you referred to 
we put in the latter category. It is a housing program to help 
the housing market more broadly. We are looking at a variety of 
programs there. This is one thing we are looking at very 
seriously, trying to work out the details to understand exactly 
how to do it and implement it.
    But I agree with you, reducing interest rates to get 
borrowers off the sidelines so they can afford to buy a home 
for the first time or to afford a bigger home, it is the only 
thing that is going to help home prices, so we think it has 
some merit.
    On the foreclosure side, again, as I mentioned to Ms. 
Waters, we, again, continue to do a lot of work. We are in 
consultation with the transition team. Ultimately, programs 
that we implement, they are going to be the ones living with 
and executing, so we want to make sure that there is 
coordination there. So we are doing a lot of work on both 
fronts. And I agree with you in terms of the merit of both.
    In terms of consumer credit more broadly and auto loans and 
auto dealerships, we have heard the exact same thing. If you 
look at the cost of an auto loan today compared to a year or 2 
years ago, it is remarkable. I mean, who would pay 14 percent 
to go buy a car today?
    That is exactly why we worked with the Federal Reserve to 
design this new consumer credit securitization facility. That 
should help bring the cost of consumer finance down right 
directly to our consumers--to our homeowners, to our car 
buyers, to our students who want to go to school, etc.
    Mrs. Maloney. My time has expired. Thank you.
    Mr. Kanjorski. I thank the gentlelady from New York. There 
has been a request on her part for submission.
    Mrs. Maloney. Yes.
    Mr. Kanjorski. If there is no objection, it is so ordered.
    Mr. Kanjorski. I also have two letters, one from Mr. 
Keating from the ACLI, and one from Mr. Racicot from the 
American Insurance Association. If there is no objection, we 
will admit the same into the record. The Chair hears none, so 
they are admitted.
    And now, we will have Mr. Castle of Delaware.
    Mr. Castle. Thank you, Mr. Chairman.
    Mr. Dodaro, back in my opening statement, I mentioned what 
I would like to ask you questions about, and that is the role 
of the lending by the Federal Reserve and what is being done 
with respect to overseeing what they have actually been doing.
    Their loans, actually, are at a rate much higher than 
anything the Treasury has done. It is close to a trillion 
dollars. I am looking at their balance sheet now, which is a 
very odd balance sheet, because assets become liabilities and 
vice versa. But it is approximately in that range.
    And I am interested in more oversight and greater detail 
concerning their expenditures and what they are doing, all of 
which is pursuant to section 13-3 of the Act allowing these 
loans.
    I realize when I say all this that the Federal Reserve has, 
by legislation and by fiat in general, certain protections with 
respect to the kinds of lending which they are doing to banks 
for reasons of security. But, to me, these kinds of loans 
aren't that dissimilar from what is happening in Treasury. And 
when we deal with these section 13-3 loans, we are dealing with 
something of which there should be more transparency and, I 
think, more knowledge with respect to what is happening.
    I would just like to get your views on it, since you are 
the ones who are really overseeing what Treasury is doing. And 
I realize there is nothing you can do now because of the 
confidentiality aspects of the Federal Reserve, but should we 
be doing something as legislators to make sure that 
transparency is increased?
    Mr. Dodaro. There is no question, Congressman, that the 
Fed's activities, you know, in terms of volume and the amount 
of money, you know, it far exceeds the TARP program activities.
    The Federal Reserve has certain protections to statutorily 
protect its independence. Part of that is that it is one of the 
few areas in the Federal Government where there are 
prohibitions against GAO oversight for activities regarding 
foreign currency transactions, transactions with foreign banks, 
with open market transactions, and also with the discount 
window. So there are limitations on our ability to provide this 
type of oversight.
    There have been legislative proposals in the past to give 
GAO additional statutory authority to provide greater oversight 
over some of these activities that would be taking place. My 
view would be that a carefully crafted legislative solution 
would be necessary for GAO to have more ability to oversee 
those type of transactions while also providing and 
safeguarding the confidentiality necessary to do that.
    We have a long history of protecting information of a 
classified status in the national security area and others and 
have an unblemished record, so I think we have the ability to 
do this. But, in my opinion, it would require a statutory 
change.
    Mr. Castle. Oh, I agree with that. I guess my question 
really is, is it something you would welcome? Is it something 
that would be helpful, in terms of the broader picture of all 
these loans which are being made and the return to stability 
that we are all concerned about?
    Mr. Dodaro. My philosophy on this is that we exist at the 
GAO to support the Congress in carrying out its constitutional 
responsibilities. And if the Congress believes that it is 
necessary, we would be happy to work with you to craft the type 
of legislative proposal that would provide that type of 
oversight and assistance to the Congress.
    Mr. Castle. And let me just restate, of course, that I am 
just talking about those loans which are being made pursuant to 
these emergency circumstances as opposed to their normal bank 
lending, which I think takes on a different tone all together.
    Mr. Dodaro. I understand that, Congressman, and I agree 
with that. And that is what I was speaking about also.
    Mr. Castle. Okay.
    Mr. Kashkari, quickly, are you or the regulators who deal 
with--let's see, there are 87 loans, as you have indicated--
following what the banks have actually done after they have 
gotten the money? We are all concerned about, is this getting 
out to Main Street in some way or another. And is that being 
done?
    I realize the representations they made, I realize that you 
are worrying about securing them as far as their capital is 
concerned. But we are somewhat concerned about what are they 
actually doing. Are they doing what they represented they would 
do, and are they actually making sure that, pursuant to what 
you said here today, it is in their best interest to have these 
loans go out and to become economically strong again.
    Is that actually being pursued to make sure that is 
happening as a part of these reports which we are getting and 
going to get?
    Mr. Kashkari. Congressman, we are working on that very 
issue with the regulators. We had a call just a day or so ago 
with the four banking regulators to look at their supervisory 
data that they can get to monitor on an individual basis and on 
an aggregate basis what is happening with the banks that have 
received the funds versus the banks that haven't received the 
funds.
    So that program is being designed and put into place. It is 
not going to be perfect. And, as you know, you put a dollar 
into an institution, it is impossible to follow where that 
dollar goes. You know, you have to look at it in the aggregate. 
And so we are looking at market-wide measures, as well as 
working with the regulators to look at institutional measures, 
as well. And we are not there yet, but we are working on it.
    Mr. Castle. Okay.
    Thank you, Mr. Chairman.
    Mr. Kanjorski. Thank you, Mr. Castle.
    And now we will hear from the gentleman from North 
Carolina, Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman.
    Welcome, Mr. Kashkari.
    I am looking, in front of me, at a sequence of events here. 
On October 6th, at 12:30 p.m., the Treasury Department 
announced procurement authorities and procedures, in which they 
were talking about purchasing whole assets and whole loans and 
the whole process of things; they outline the procedures. At 
1:45 that same day, they announced that you were being hired as 
the Interim Assistant Secretary for Financial Stability.
    On October 13th, you gave a speech to the Institute of 
International Bankers, in which you were still talking about 
purchasing troubled assets, ``mortgage-backed securities 
purchase program: This team is identifying which troubled 
assets to purchase, from whom to buy them, and which purchase 
mechanism will best meet our policy objectives. We are 
designing a detail auction protocol,'' so forth and so on.
    On October 13th, at 2:27 p.m., it was announced that a 
firm, Ennis Knupp & Associates, had been hired. And in that 
announcement, ``The investment advisor will conduct research on 
mortgage whole loan asset managers and on servicing 
organizations. Firm will identify qualified minority- and 
women-owned businesses to provide services for the 
portfolios.'' A contract of $2,495,190 was announced on that 
occasion.
    My questions to you: How much has Ennis Knupp been paid, 
and what have they done?
    Mr. Kashkari. Thank you, Congressman. Ennis Knupp is our 
consultant--
    Mr. Watt. I know who they are. Tell me how much they have 
they been paid and what they have done.
    Mr. Kashkari. I don't have the dollar value for how many 
dollars have gone out the door, but I can get it for you.
    They are advising us right now. We have received hundreds 
of applications for equity asset managers for all the equity 
investments we have made. They are helping us screen through 
those applications, identifying small, minority- and women-
owned equity asset managers.
    And so, although we hired them to be our asset manager 
selection consultant, we thought we would be selecting asset 
managers for mortgages and mortgage-backed securities, we are 
using the same firm to help select the equity asset managers.
    Congressman, we have hired no firm for the asset managers, 
mortgage-backed securities, or mortgages. We never hired 
anybody. And so there is no one that we have hired who is just 
sitting around doing nothing because we changed strategies. We 
made sure that didn't happen.
    Mr. Watt. But when you put out the request for a proposal, 
it was to deal with the purchase of distressed assets. Did you 
put out another request for a proposal and give other 
applicants the opportunity to compete for that or you just 
decided this firm is the firm because they had some formal 
connection to Goldman Sachs and--I mean, that is what the 
public is asking us, Mr. Kashkari. This looks like a Goldman 
Sachs monopoly. And when you have all of these people who have 
these connections to Goldman Sachs in the chain, it makes all 
of us look bad, including yourself, mind you. I can't tell you 
the number of people who have questioned your credentials, as 
well as they are, because of your former connections to Goldman 
Sachs.
    Do you see what I am saying? And here are Ennis Knupp 
principals having connections to Goldman Sachs--people are 
asking me, is Goldman Sachs running this country? What are we 
doing? We have given $700 billion, and there is this monopoly 
on who is controlling it. Nobody is accounting to anybody for 
it. And the perception, whether the reality is correct or not, 
the perception is that there is something sinister going on 
here. So I want you to send to me, if you would, a detailed 
description of what has been paid to this firm and what they 
have done, because none of the people who have submitted 
applications to manage any of these assets have heard anything 
from Ennis Knupp. There are 100-and-some applicants out there 
that Representative Waters and I have been trying to get in the 
door to help with this process, and they can't get in the door 
because you all keep changing the rules about what it is they 
are supposed to do, and Knupp is not doing anything to process 
their applications.
    I yield back, Mr. Chairman.
    Mr. Kashkari. Mr. Chairman, may I respond?
    The Chairman. Briefly, Mr. Kashkari, yes.
    Mr. Kashkari. We have a very formal procurement process, 
led by career staff at the Treasury. Let me segment it in three 
categories. Mortgage asset managers, we put out solicitations, 
received applications, hired nobody. Investment manager 
consultant, that is Ennis Knupp. They are not making any 
decisions. They are just advising the career Treasury staff. 
And we have received hundreds of applications for equity asset 
managers. Our career staff is reviewing those, with advice from 
Ennis Knupp, has down selected, are right now in the process of 
negotiating conflicts of interest to make sure taxpayers are 
fully protected.
    I am very proud of the procurement process that we have 
established very quickly, led by the most senior career 
professionals at Treasury.
    Mr. Watt. Let me just say this as gently as I can: All 
these billions of dollars are out there doing something, and 
you are telling me that nobody has been hired to do any of the 
management of what they are doing. That is not adding up for 
me, Mr. Kashkari, I am sorry. And it is not adding up for the 
public. I mean, I am not a conspiracy theorist here, but I 
wouldn't come and make these accusations or even ask the 
questions if people were not asking me.
    The gentleman who ended up being the CEO at Wachovia was 
from Goldman Sachs. And people on the ground in my community 
are saying, what is up here? Is Goldman Sachs running the 
country or is Congress running the country? Is this 
Administration running the country? It looks bad, Mr. Kashkari. 
That is the problem we have.
    The Chairman. The gentlewoman from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman. And thank you, Mr. 
Dodaro, for your, I think, very thorough report. I really 
appreciate it. My question is for Mr. Kashkari.
    The deadline for submitting insurance proposals has passed. 
I think that was October 28th. Did you receive a large number 
of responses on the request? And can we expect to hear more 
from Treasury regarding the insurance program?
    Mr. Kashkari. Yes, Congresswoman, we received, I believe, 
close to 100 responses, which we have gone through very 
carefully. And actually, the recent Citigroup investment that 
we made, in coordinated action with the Federal Reserve and the 
FDIC, the Treasury provided--the TARP provided $5 billion of 
insurance against mortgage-related assets. That is the first 
exercise of our authority under Section 102 of the Troubled 
Asset Relief Plan.
    Mrs. Biggert. Well, you know, I applaud the exercise of 
authorities other than the capital injection. But I wonder why 
the government didn't implement a program where it is the 
insurer of first resort, and not secondary.
    Mr. Kashkari. Forgive me, I don't follow you.
    Mrs. Biggert. Well, for example, under the Aon plan the 
Treasury Department could implement a program allowing holders 
of illiquid assets to form an asset stabilization pool so that 
those entities are the first resort, while in the Citi, isn't 
it that the government is the--
    Mr. Kashkari. No, actually Congresswoman, Citigroup in that 
program is taking the first loss position, followed by TARP and 
the FDIC and then the Federal Reserve.
    Mrs. Biggert. Yes, but for a very limited amount.
    Mr. Kashkari. I don't have the number. I believe it is 
close to $40 billion, $30- or $40 billion is the Citigroup's 
first loss position.
    Mrs. Biggert. Could you get that to me?
    Mr. Kashkari. Absolutely. I would be happy to.
    Mrs. Biggert. Thank you. Have you reviewed the Aon proposal 
to develop an insurance solution to deal with the illiquidity 
of mortgage-backed assets?
    Mr. Kashkari. I personally have not, but we have a team 
that studied all of the proposals, all close to a hundred, and 
I am almost certain that that proposal came in through the 
formal channels. And all of those were reviewed very carefully.
    Mrs. Biggert. Well, that proposal was really the same as 
the language that we put into the bill. Isn't that correct?
    Mr. Kashkari. Again, Congresswoman, I am not sure. I can 
find out, though.
    Mrs. Biggert. Okay. Well, what plans does the Treasury have 
for addressing then the undervalued mark-to-market assets, 
which really do drag down the balance sheets of the financial 
institutions?
    Mr. Kashkari. The mark-to-market is a very important issue. 
We are focused on stabilizing the financial system so that they 
can recognize their losses and also raise additional capital 
and get lending going in our community again. We believe that 
both by helping the consumers directly; for example, through 
our facility with the Federal Reserve that I have spoken about, 
and putting more capital in the banks, it puts them in a better 
position so that we can weather this downturn and get these 
assets moving again. So there is no one tool. All of the 
regulators are bringing the various tools to bear in a 
complementary manner to try to get through the financial 
crisis. The TARP is very important, but it complements the 
other tools that we have.
    Mrs. Biggert. Well, you said that you are monitoring, and 
there are indicators that include: One, that the financial 
system hasn't collapsed; two, that the credit default swap 
spread for the 8 largest U.S. banks has declined more than 200 
points; and three, that the LIBOR and OIS spreads have declined 
100 basis points, but when will we hear a more concrete 
description just about what the institutions are doing with the 
funds that they are receiving?
    Mr. Kashkari. Congresswoman, that is something we are 
working on right now with the regulators. As you know, the four 
banking regulators, the Fed, FDIC, OCC, and Treasury are the 
supervisors of these banks.
    Mrs. Biggert. Can you give us a date?
    Mr. Kashkari. I can't give you a specific date aside from 
saying as we speak right now, just yesterday we spoke about it, 
we are working with the regulators to collect this information 
on a regular basis, taking very seriously the feedback provided 
by the GAO and the Congress.
    Mrs. Biggert. Do we have to mandate that if you can't give 
us some timeline? Everybody, I think, has asked this, when are 
we going--
    Mr. Kashkari. Again, it will probably be weeks before we 
are going to start seeing the initial data. They collect this 
data right now I believe quarterly, the call report data. We 
are working with the regulators to figure out which are the 
right metrics that are going to get at the fundamental 
questions that people are asking. I don't want to overcommit 
here, but it is something that we are taking very, very 
seriously.
    Mrs. Biggert. I yield back.
    The Chairman. I recognize myself for 5 minutes. First, 
before my 5 minutes starts, I apologize, but I have been 
working on the question of the automobile industry, and I will 
be leaving shortly to go testify before the Rules Committee. So 
the chairman of the Financial Institutions Subcommittee will 
continue the very good job he is doing of presiding.
    I also want to respond, I received a letter apparently 
today, if today is December 10th, from--the lead signature is 
the minority leader, Mr. Boehner, and some others, asking me to 
immediately summon CEOs from institutions that have received 
TARP funds before the committee. Now, we do have a week before 
we can have a hearing, so this is apparently a request for a 
hearing sometime next week. I will consider it and consult with 
the members. I will say this: If it is not likely to be the 
case that the second $350 billion is requested until January, 
then I think this is something we can accommodate. I will say 
that I know people don't always think of things instantly, the 
banks in question have had TARP funds for some time. Apparently 
someone woke up yesterday and thought it would be a good idea 
to have a hearing right away, today being December 10th. I 
think it will be hard logistically to accommodate that next 
week, but I agree in the substance. And I would say this, my 
assumption is that we will be able to have such a hearing with 
some of the CEOs, obviously not all of them. There are, I don't 
know, several dozen I would guess who have gotten funds under 
the TARP are banks, but we will call in a representative 
sample, including different sizes, and have such a hearing. At 
some point, there will be a request to trigger the second $350 
billion. We will have 15 days to vote on that. My intention now 
would be to have that hearing sometime during this period. So I 
will not, I think, be able to comply with the request that I do 
it immediately. I am not sure that the request that I do it 
immediately was done with any expectation that I would do it 
immediately. But yes, I do think it is appropriate to have such 
a hearing.
    Mrs. Biggert. Will the gentleman yield?
    The Chairman. Yes.
    Mrs. Biggert. As a signatory of that letter, I appreciate 
you taking such a prompt look at it. And I appreciate you 
considering holding a hearing when it--
    The Chairman. And if we did it on that timetable, does the 
gentlewoman think that would be compliant?
    Mrs. Biggert. Well, ``immediately'' is a term that people 
have different ideas about, but I think that timetable would 
work.
    The Chairman. Okay. As long as it is clear that by 
immediately, we don't mean immediately, then we will be able to 
do it.
    Mr. Scott. Mr. Chairman, would the chairman yield for a 
moment?
    The Chairman. To whom?
    Mr. Scott. To me.
    The Chairman. The gentleman from Georgia, yes.
    Mr. Scott. Thank you, Mr. Chairman. Let me just encourage 
you to move ahead with all deliberate speed to get these CEOs 
before our committee. There are pertinent questions that we 
have to ask and get that answer as to why they are not lending.
    The Chairman. That is why I said that we would do it.
    Mr. Scott. Yes, sir.
    The Chairman. Let me say that the deliberate speed I will 
employ will be a lot quicker than the deliberate speed which 
the gentleman is well aware of is not the fastest moment in our 
history when we segregated for much longer.
    Mr. Scott. Amen.
    Mr. Lynch. Mr. Chairman?
    The Chairman. Yes.
    Mr. Lynch. One question: I know under the original TARP 
bill that it is a joint resolution of disapproval that we would 
have to pass. So is there any fear that there might be some--
    The Chairman. I have no expectation--let me say this, and I 
have had some business with the Secretary of the Treasury and 
we have discussed this. It is conceivable that we could have a 
request for $350 billion. I will tell you this: If it came, I 
know that the Speaker and the Majority Leader would reconvene 
our bodies, as inconvenient as that might be. I think it is 
likely at this point, absent a lot of work on foreclosures and 
other things, that such a resolution of disapproval could pass. 
Yes, it could be vetoed. Given the extent to which the 
psychology of the investor community is a large part of our 
problem, and I have spoken to people in the Administration, I 
don't think anyone thinks that releasing the second $350 
billion as a result of the President vetoing a resolution of 
disapproval would not in fact be doing more harm than good. So 
I am confident there will be conversations. I think people are 
behaving responsibly here. There were conversations between the 
outgoing Administration, the incoming Administration, and the 
leadership. And my own advice is that I think ultimately we 
should have that $350 billion, but after there has been a lot 
of conversation about how it would be used. And I don't think 
it would be in anybody's interest to force that issue before 
there is a consensus on that. I am reasonably confident of 
that.
    Mr. Lynch. Okay. Great. Thank you, Mr. Chairman.
    The Chairman. Mr. Secretary, I apologize for having been in 
and out. One of the things that, as you know, raised my concern 
was the GAO's recommendation that you do a better job of trying 
to see whether or not the banks in question were relending the 
money that they were lending.
    Let me say my 5 minutes should just be starting now in 
terms of the questions. And I know we had a conversation, and I 
appreciated your responsiveness, and you may have touched upon 
this in your statement, I believe that the response you put in 
writing was so worded as to suggest that you weren't going to 
try to do that, and I was afraid that would give a signal to 
some of the banks that they wouldn't have to worry so much. And 
I understand we had that regulator's statement of November 
12th, which was useful. The anecdotal evidence is still 
overwhelming that there are people who think they are good 
borrowers who can't get loans. I know there is some problem 
with where the loans could be.
    So I guess I would ask you to clarify what is the state now 
of this? Are you going to be measuring in some near term 
whether the banks that got the money have relended? I 
understand that money is fungible, but total loan amounts are 
also countable, so that there should be some way to do that. 
What is the current state of your view? And the answer to that 
I think whether or not there is a successful request for a 
drawdown of the second $350 billion is dependent, in my 
judgment, in part on mortgage foreclosure, some of the relief 
going forward, including the 4.5 percent or some variant of it, 
and the consumer matters.
    I will say to people who have been concerned about auto 
dealers that relief for the auto dealers is going to come 
ultimately from the TARP, but that also showing that there is 
some way of counting how we are doing that. And I ask you to 
comment and then Mr. Dodaro to comment on your comment, please.
    Mr. Kashkari. Thank you, Mr. Chairman. We are working very 
hard with the four banking agencies to look at the supervisory 
data they collect and to understand if that will get at an 
answer to the fundamental questions that you and other members 
are asking and that the GAO is asking. So we are working right 
now with the four banking agencies to look at the quarterly 
reports that they collect, does that shed light on this issue? 
If not, what other data do we need? And how frequently can we 
collect it? So we have heard the feedback, we got it, and we 
are working on it.
    The Chairman. Mr. Dodaro, let me ask you to comment, but 
first let me take some credit of there is a credit scarcity in 
this country, one of money to lend, and two, for anything we 
do. We never get any credit. So I want to give us some. One of 
the criticisms made of the bill was it didn't have adequate 
oversight. Now, there was a slowdown in the creation of the 
congressional panel. My guess is some who were complaining that 
there was too little oversight, now that we have that 
congressional panel will be heard to complain that there is too 
much of it. I myself welcome it. But we did write--and we still 
have a pending confirmation in the Senate of an Inspector 
General. But we knew that the GAO was there, we know--there are 
few institutions around here that are as respected across the 
ideological and political spectrum as the GAO. And we were very 
pleased, as you know, Mr. Dodaro, we met with you early. You 
reported to us that with the cooperation of Secretary Paulson 
and Mr. Kashkari you were on the ground as soon as this startup 
was there. You had people there. And the very fact that we are 
here talking about a report which gives them some credit and 
some criticism I think testifies to the adequacy at the very 
least of the oversight parts of the bill.
    But would you now comment on Mr. Kashkari's--are you in on 
these discussions? Do you have some confidence about them going 
forward?
    Mr. Dodaro. We have had some preliminary conversations, the 
staff on the team, with Mr. Kashkari and his team. But we need 
to stay involved to see what they come up with in their 
proposal that they are going to work with the regulators on. I 
think they are now headed in the right direction, but you know, 
I would like to see the specifics about what data, how 
frequently they are going to do it. We will stay involved, give 
them our feedback to ensure that recommendation--
    The Chairman. I appreciate that. Let me just say this, 
given the jurisdictions around here, if there is a request for 
the second $350 billion, whether it comes early in January as a 
joint proposal from the two Administrations or it comes later, 
I would like to be in a position to defend the $350 billion, 
not to oppose efforts to cut it off. My ability to give a good 
answer to this question that we are now talking about, are we 
effectively measuring relending, that will be critical to my 
getting the bill through. I think the extent to which I and the 
Speaker and a few others can get major legislation through 
entirely on our charm has run out. So we are going to need some 
very hard answers.
    The gentlewoman from Florida is overreacting to that, I 
might say. But we will try to get some hard answers. I thank 
you. And the gentleman from Pennsylvania will resume the Chair.
    Mr. Kanjorski. [presiding] The gentleman from Texas, Mr. 
Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman. Mr. Kashkari, in 
your testimony you speak, I think in the first paragraph, about 
the critical objectives that Treasury has undertaken under the 
EESA statute. By my reading, it appears that Treasury has nine 
different factors it must take into consideration in operating 
the TARP program, including protecting the interests of the 
taxpayers, maximizing overall returns, minimizing the impact of 
the national debt, stabilizing our financial markets, helping 
families keep their homes, stabilizing communities, and 
ensuring that all financial institutions are eligible.
    In your interpretation of the statute, did you get 
direction from Congress on how to weigh these various 
considerations? And do you consider some of them to be 
competing interests in the short term?
    Mr. Kashkari. Congressman, I think that all of those 
considerations are important. I think some of them can be 
competing. And it can be difficult to prioritize, especially in 
a time of financial crisis. As an example, we absolutely want 
to protect the taxpayer, but we first and foremost want to 
prevent the financial system from collapsing. That was our 
highest priority. Once we were able to do that, we want to do 
that in a manner that provides as much protection to the 
taxpayer as possible. Also keep in mind what would happen to 
the taxpayers if the financial system had been allowed to 
collapse. So these are very complex and important 
considerations, and I will just tell you our highest priority 
was to get out there and move aggressively to stabilize the 
financial system.
    Mr. Hensarling. Mr. Kashkari, I have a great preference for 
the use of voluntary capital from investors over the 
involuntary capital of taxpayers. I believe that one man's 
nimble response to the economic crisis may be another man's 
confused ad hoc approach. It is anecdotal, but I have heard 
from many investors that frankly they have been less than 
confident in the actions of the Treasury, that their capital is 
sitting on the sideline, that there are homeowners who have the 
ability to pay their mortgages or to work with lenders, but are 
unwilling to do it at this time, thinking they may get a better 
deal from Treasury, or a better deal from Chairman Bair of the 
FDIC.
    My question is in bringing stability, at what point is 
certainty, legislative and regulatory certainty, needed in the 
marketplace? I mean some of what we are facing is 
psychological, I believe, in nature. And in fact Chairman 
Frank, I see he is no longer in the chair, has stated, ``the 
psychological problem is even worse than the real problem.'' 
But at least the anecdotal evidence is very strong that by 
careening seemingly from one strategy to another, frankly you 
have done more to incite panic in the markets as opposed to 
calming them.
    Mr. Kashkari. Congressman, there is no question that 
clarity and certainty are very important for developing market 
confidence. We have had to move and be nimble and react to 
changes on the ground. I say since the beginning of the credit 
crisis, the one constant has been its unpredictability. And it 
has only intensified and deepened more rapidly than we had 
expected, even in the few weeks that we were working with the 
Congress on this legislation. So I think we have a choice of 
being on our back foot and seeing what happens, potentially 
risking a financial collapse, or being on our front foot and 
being aggressive to try to stabilize the system, prevent a 
collapse, and then let the system heal. But I agree with you 
that more clarity will help with confidence, and will help the 
system to heal faster. And we think we have the right strategy.
    Mr. Hensarling. Mr. Dodaro, not a question but a comment, I 
read every word of your report. It was excellent. It was very 
helpful to the process. In the remaining seconds I may have 
available, Mr. Kashkari, I am still somewhat confused about the 
point. I want there to be clarity. For institutions requesting 
funds under CPP, is it the policy of Treasury to allow the 
regulator of the financial institution in question to determine 
viability? And is that the only criteria that Treasury is 
employing at this time for access to those funds?
    Mr. Kashkari. The regulator--we are looking at viability. 
That is our test. And the regulator offers us their assessment 
of the institution's viability without government assistance. 
Ultimately, Treasury makes the decision. So in some cases the 
regulator will submit an application and recommend a ``yes.'' 
We may look at it and say, gee, we are not so sure. We will 
send the application back to the four banking regulators so 
they can review it, a peer review process, and come to us with 
a combined regulation. The point is that we don't want to put 
government capital into a bank that is ultimately going to 
fail. We don't think that is protecting the taxpayers. And so 
there are some unhealthy banks that are out there, and the 
regulators are in the best position to offer us information and 
their judgment on who is healthy and who is not.
    Mr. Kanjorski. Thank you. Now the gentleman from New York, 
Mr. Meeks.
    Mr. Meeks. Thank you, Mr. Chairman. I am still waiting to 
hear really some answers, especially in regards to some of the 
questions that Ms. Waters asked. I am concerned with reference 
to just the response to Mrs. Maloney when--and I agree that 
lowering interest rates, you know, may be a good thing in 
trying to get individuals back into buying homes, etc. However, 
the number of individuals who can get back into the market 
because of the lack of availability of credit and the fact that 
you have to have the super high scores to be eligible shows 
that the number of individuals who are going to buy homes is 
not going to be great in comparison to the number of 
individuals who continue to lose their homes. And thereby, you 
know, it seems to me to make sense if in fact we figure out how 
we are going to help those individuals to prevent them from 
losing their homes so that we can make sure that we are 
starting to stabilize this market.
    And in the Emergency Economic Stabilization Act that we 
passed, we put in there specific words that the Secretary had 
the authority to use loan guarantees and credit enhancements to 
facilitate these loan modifications to prevent affordable 
foreclosures. But it seems that the Secretary has not moved. 
Whether it is the program that was put out there by Mr. Johnson 
or Chairwoman Bair, the Secretary has not moved to do anything, 
or at least it appears to us to do anything to make a 
difference in helping those individuals or preventing 
individuals from going into foreclosure.
    So my first question is, is the Treasury looking to do 
anything with reference to what he has the authority to do to 
stop the rising tide of foreclosures that are imperiling the 
economy that we are currently suffering from?
    Mr. Kashkari. Thank you, Congressman. The answer is yes, 
absolutely. And I am going to give you, if you will permit me, 
a two-part answer. First, we continue to work very hard looking 
at the various proposals that we have received and that we have 
developed ourselves working with the Federal Reserve, also 
consulting with the transition team to identify the right 
approach that is going to help homeowners without creating a 
windfall to hedge fund investors. We want to balance it so that 
the homeowners are getting the benefit, not the investors, 
number one.
    Number two, we are trying to bring all of the tools in the 
Federal Government to bear on this problem. And so, for 
example, the work that we did with Fannie Mae and Freddie Mac 
by establishing a streamlined loan modification protocol for 
Fannie Mae and Freddie Mac, the advantage of that, Congressman, 
is that most of the agreements that govern the subprime loans 
out there refer back to the Fannie and Freddie underwriting--
excuse me, the Fannie and Freddie servicing standards. So by 
using Fannie and Freddie, we have been able, with their 
regulator, FHFA, to establish effectively a new industry-wide 
standard for loan modifications. So we are looking at what we 
can do under the TARP, but we are also looking at what other 
tools we have outside the TARP. We want to bring all of the 
tools to bear and use the right tool for the right job.
    Mr. Meeks. Except it seems as though there is none--because 
we are talking about a small percentage of the TARP money that 
would be utilized in regards to trying to make sure that the 
mortgagors--that would prevent the foreclosures of these 
mortgages. And when you look at the number of individuals, I 
think it is 70 percent of subprime borrowers are not getting 
the help, that there are not enough servicers. And unless we 
start putting some money into training and having more 
servicers for these loans so that we can help save some more 
individuals from going into foreclosure, then we will never get 
from under this mortgage foreclosure problem, which seems to be 
the epicenter of all of the problems that we are having here.
    And then, let me ask this question also, because I think it 
goes to something of the perception, continuing the perception 
that Mr. Watt talked about. Because I am also concerned that in 
recent weeks the Federal Reserve has approved expedited bank 
holding company applications for numerous companies, including 
Goldman Sachs, and I think Morgan Stanley, and the Treasury 
Department has already awarded TARP money under the Capital 
Purchase Program to Goldman Sachs and Morgan Stanley, and that 
these companies are also issuing billions of dollars of 
federally guaranteed debt under the FDIC's debt guarantee 
program, designed specifically for banks and bank holding 
companies. In light of these circumstances, what I want to find 
out is what safeguards is the Treasury Department establishing 
to ensure that taxpayer money under the TARP program and the 
FDIC programs and the Federal Reserve discount window is not 
being used to support the substantial nonbank commercial 
activities of any of these newly formed bank holding companies?
    Mr. Kashkari. Congressman, by becoming bank holding 
companies, these various entities are coming under increased 
regulatory supervision. So the Federal Reserve will now be 
their regulator, perhaps the OCC. They are going to now have 
Federal regulators in their offices on the ground with them 
supervising their activity, making sure they are not putting 
the taxpayers at undue risk. So the Federal regulators are in 
the best position to do that. They are now onsite doing that.
    Mr. Meeks. But see--just one follow up--because there are 
bank holding companies that also own commercial businesses such 
as travel agency businesses. And what I don't see, and I am 
trying to find out what safeguards are in place to prevent TARP 
money from going to say the travel agency that happens to be 
owned by a diversified company? And just because it became a 
bank holding company? Because we had that same kind of 
situation when we talk about even when we are dealing with the 
auto industry, that they don't qualify under TARP. But I don't 
understand what we are doing here in that regards--
    Mr. Kashkari. It is very difficult--
    Mr. Meeks. --as far as protections are concerned.
    Mr. Kashkari. It is very difficult, Congressman, to ring 
fence money in an organization and say, well, this money stays 
here and that money stays there. If we gave money to one part 
of the organization, that would mean they would have to take 
less money from the other part of the organization in. So this 
is something that we are looking at, but it is very difficult 
to try to say this money needs to stay in this little part of 
the organization. I haven't heard a good idea how to do that.
    Mr. Kanjorski. Maybe a good idea would be to separate the 
institutions. Maybe we ought to revisit that question. Thank 
you, Mr. Meeks.
    The gentleman from New Jersey, Mr. Garrett.
    Mr. Garrett. Thank you. Thank you for your hard work and 
your dedication to this issue. Let me begin with a question 
that I hear from my district all the time. You sort of touched 
on it, and I think the answer is probably an easy ``no.'' When 
you said to one of the other questions how many foreclosures 
would have occurred had we not done this, and of course you 
have heard other people say before the bill came along if you 
don't do it the credit market will crash, and so on and so 
forth. We did pass the bill, obviously the market still 
crashed, and what have you. It seemed things didn't really 
begin to get a little bit of an uptick until you saw the 
globalization coordinated effort.
    So the short question is, is there any way to measure what 
would have occurred had we not taken the passage of this bill?
    Mr. Kashkari. It is very difficult to measure the 
counterfactual, as the chairman started with.
    Mr. Garrett. Yes. Okay. That is what I thought. To the 
gentleman behind me, he raised the good question I thought with 
regard to what some of the goals are here, and is it an 
economic one or is it towards market driven? I appreciate your 
answer there. To the extent that it is not simply to get the 
market, the stock market up again and the market going in the 
right direction again, but larger global or larger economic 
issues and what have you, one of the questions I have is at 
what level? The number I read the other day was, for example, 
that household debt to income is down for 2 quarters straight 
now from a high of 139 percent down to I don't know what the 
current number is. Now, in one sense, that is bad for the 
economy when going forward. But in the other sense, if we can 
get back to a reasonable level on that, that may be a good 
thing. As the gentleman behind me always asks, what do you have 
against poor people in the sense that they are the ones who 
want to be able to buy into these houses, and what we are 
trying to do with a number of these initiatives is to keep the 
price inflated. So in a nutshell, how do you address that 
question as to what level?
    Mr. Kashkari. It is a great question. Clearly, we don't 
want our consumers to be overlevered. And coming back to a more 
normal savings rate is an appropriate process. I think the 
challenge for policymakers and for legislators is we don't want 
that correction to happen too quickly, where it becomes 
destructive to the economy as a whole and we suffer grave 
economic consequences. So having a gradual, orderly transition 
to that new level probably makes sense. It is hard for me to 
opine on what the right level is.
    The other comment, Congressman, I would make is we want to 
be careful to avoid an overcorrection, either an overcorrection 
in house prices or an overcorrection and excessive deleveraging 
of the system, because that will exacerbate our economic 
problems that result from that correction, even if much of the 
correction is necessary. And so a lot of the actions that we 
are looking at and that we are taking are to stabilize the 
system and to try to prevent an overshoot on the downside.
    Mr. Garrett. Some of the other economists or experts who 
speak on these things worry about we may go to that 
overcorrection because of some of the actions we are taking 
with regard to the valuation of the dollar, and although no one 
is talking about it today, down the road when you V-type 
approach as far as interest rates and inflation down the road, 
so you may see a spiking of the overcorrection occurring there.
    One of the other comments that you made was with regard to 
the goal initially, or always has been I think you said with 
regard to TARP was to get more capital back into the system. I 
have to tell you that wasn't always the impression that we got 
as it was selling. The cap phrase always was, how do we get 
these toxic assets off the books? And then, of course, we were 
talking about the reverse mortgage aspect. A lot of us were 
asking how is that going to work? Because if you don't hit the 
numbers exactly right, you may end up with those banks having 
too low.
    So I have to just share with you that it was not the 
presentation by the Administration that was the goal. It was 
just to get them off and to have lending occur there. And the 
capital aspect was a secondary issue, except for some members, 
as the ranking member was trying to raise those.
    Mr. Kashkari. I understand your question. From our 
perspective, and if we didn't articulate it clearly I 
apologize, it has always been about capital. As the correction 
has taken its course, Secretary Paulson and Chairman Bernanke 
were aware that there may come a time when there would be not 
enough capital in the system, and the private markets would be 
unwilling to provide that capital. There are different ways you 
can get at the capital problem. Purchasing illiquid assets--
    Mr. Garrett. Was one way.
    Mr. Kashkari. --was one way.
    Mr. Garrett. Yes.
    Mr. Kashkari. And then this was a faster way.
    Mr. Garrett. The last question is, can you just briefly 
talk about the TALF program and explain to me what actually are 
the assets that are actually backing them if you are talking 
about things like student loans or credit cards or even cars, 
car loans, which obviously are a depreciating asset in normal 
times, and are probably depreciating even more? But what is the 
actual asset that we are looking back to be able to reclaim if 
these things go bad?
    Mr. Kashkari. The assets will be--the details are being 
designed right now, but it is new securitizations of new credit 
card receivables.
    Mr. Garrett. Yes.
    Mr. Kashkari. New auto loan securitizations, so the AAA 
pieces of new securitizations. The very high quality credit, 
low risk for the taxpayers, where right now some of the spreads 
have just completely blown out, and it is just completely 
unreasonable for someone to go buy a car today.
    Mr. Garrett. So what is the backing on a credit card, a AAA 
credit card situation? What do you go after? What does the 
taxpayer go after, in essence, if that asset goes bad?
    Mr. Kashkari. Well, ultimately, it is the credit cards, and 
ultimately it is the borrowers who owe on the credit cards, or 
on auto loans. Similarly, these are consumer credit vehicles to 
start with. But what the Federal Reserve and Treasury are 
focused on is these are historically very low credit risk. They 
are not being priced where they are today because of credit 
risk; they are being priced where they are today because of 
illiquidity in the system.
    Mr. Garrett. I yield back.
    Mr. Kanjorski. Thank you very much, Mr. Garrett. Now, Mr. 
Capuano of Massachusetts.
    Mr. Capuano. Thank you, Mr. Chairman. Gentlemen, first of 
all, thank you for being here. Mr. Dodaro, my question revolves 
around one item in your report. I want to make sure that I read 
this clearly.
    You have recommended that Mr. Kashkari's group monitor 
individual institutions in the use of their money. Is that 
correct?
    Mr. Dodaro. That is correct.
    Mr. Capuano. And Mr. Kashkari, you have been reported as 
saying you oppose that position. Do you still oppose it?
    Mr. Kashkari. Congressman, we do not oppose it. We are 
working with the banking regulators, who are collecting various 
data from these institutions, to look at the best way to do it. 
Our hesitation has been about our effectiveness, our ability to 
determine is it the Capital Purchase Program having the effect? 
Are there other policy programs having the effect? It has not 
been a lack of desire, it has been concern about our ability to 
isolate what is the effect, what is the cause, and is it really 
boiling down to the policy objectives?
    Mr. Capuano. Well, in that case, I think you better clarify 
both to the GAO and to the independent Congressional Oversight 
Board, because they both report that you oppose it. Now, if you 
have changed your position or it wasn't clear, so be it. But I 
was under the impression that was what the GAO was supposed to 
be about, they make a recommendation, you tell how you feel 
about it. They reported clearly that you oppose it. They 
reported that the Federal Reserve opposes it. And the 
Congressional Oversight Board just today reported that you 
oppose it. And if you don't, that is good news. But if you do, 
or you hesitate to review the use of these moneys by individual 
institutions to see if they are fulfilling the requirements of 
the law and the intention of the Congress and the President in 
passing this law, I would strongly suggest that you couldn't be 
more wrong if your life depended on it, and you would be 
heading into very, very dangerous waters.
    I would personally think that it is a dereliction of duty 
to not look at individual uses. To give any bank, any 
institution $45 billion and not look at how they did it? I will 
tell you unequivocally I don't think you will find a single 
Member of Congress who would suggest, and I voted for the 
package, I don't regret it yet, but I would like to see a 
little bit more oversight on the individual institutions to see 
whether they are using the money individually. I understand you 
are looking at generic metrics, and I respect that, and I am 
willing to wait for that time, I understand that takes some 
time, I get all that. But it is not that hard to tell whether 
individual institutions are living up to their requirements and 
actually using this money to actually put money on the streets. 
Your own words in your own report, actually very clearly, I 
think very well, banks in turn have an obligation, an 
obligation, that is your words, not mine, to their communities 
to continue making credit available to creditworthy borrowers 
and to work with struggling borrowers to avoid preventable 
foreclosures. I couldn't agree with that statement more. That 
is a wonderful statement. But if you don't look at the 
individual banks and you don't look at them hard, you will 
never be able to fulfill that requirement. And I would just 
encourage you to do so. And again, if it is a miscommunication, 
I would strongly urge you to communicate more directly to the 
gentleman sitting next to you and also to the people at the 
Congressional Oversight Board.
    Mr. Kashkari. Thank you.
    Mr. Capuano. I yield back.
    Mr. Kanjorski. The gentlelady from Florida, Ms. Brown-
Waite.
    Ms. Brown-Waite. Thank you very much. Mr. Dodaro, I 
appreciate the report that you put together. It is very 
helpful. Did you have access to the contracts that were given 
when the money was given to the 87 banks in the 30 States? Did 
you see those contracts?
    Mr. Dodaro. We have looked at all the individual contracts, 
once the decisions have been made, not only for the agreements 
that the banks have made--they are all signing, my 
understanding is, let me just correct that--make sure I am 
correct, but they are all signing a standard agreement for the 
87 institutions. And we have looked at that standard agreement. 
We have also looked at the contracts that have been let to hire 
the financial agent, the one that has been hired, as well as 
the other contractors to support Treasury's administrative 
operation.
    Ms. Brown-Waite. Let me just clarify. So it is a 
boilerplate contract that the 87 banks, 87 financial 
institutions who received funds signed. Is that correct?
    Mr. Dodaro. That is correct.
    Ms. Brown-Waite. And in this boilerplate contract, was 
there specific language that said the purpose of this money--
and remember, it is taxpayer dollars--and I am just asking you, 
and then I am going to ask Mr. Kashkari--
    Mr. Dodaro. Right, right.
    Ms. Brown-Waite. --was the purpose there specifically so 
that the financial institutions would be helping consumers and 
helping to free up money in the marketplace?
    Mr. Dodaro. Yes, my understanding is the language in there, 
in the boilerplate languages, included in what is called the 
recitals there in the agreement that the money was to be used 
for purposes of the Act which would increase the flow of credit 
and also be used potentially to mitigate foreclosures.
    Ms. Brown-Waite. Did the contract at any point say, ``Use 
this money and go forth and purchase other financial 
institutions?''
    Mr. Dodaro. No.
    Ms. Brown-Waite. Mr. Kashkari, you have a difficult job to 
do. You really and truly do. But you have to realize that we 
have a responsibility to the taxpayers. Right now I can tell 
you, and I think members, whether they voted for it or voted 
against it, are viewing the action that was taking place with 
the bailout as the great taxpayer train robbery. Because while 
you made a statement, and I wrote it down, you said that it did 
not--that the public is not considering the fact that you did 
not allow the financial system to collapse--am I correct that 
was your statement?
    Mr. Kashkari. Yes, it was not about the public, it was just 
a statement that we did not allow the financial system to 
collapse.
    Ms. Brown-Waite. But, sir, the economy is collapsing. When 
businesses do not--cannot have access to a line of credit that 
they have had with the same bank for over 20 years and become--
grow from a small business to a medium-sized business and 
employ lots of people, the economy, sir, I don't want to quote 
the quote that was used during one of the presidential 
campaigns, but it is the economy. And if the money is 
stagnantly being hoarded or used for these other purposes, we 
are going down a rat hole, sir. That is not what people who 
voted for it believed that they were getting. Individuals who 
called me encouraging me to vote originally for it, now that 
they know the details, are saying they were wrong. And when 
constituents and business people call you up and say they were 
wrong to try to encourage this Member of Congress to vote for 
it, you have to realize what the public thinks of the Treasury 
and of this Congress.
    Mr. Kashkari. Congresswoman, thank you for the feedback. We 
take such feedback very seriously. And it is hard, the other 
Congressman to your right asked about the counterfactual and 
whether we could--Mr. Garrett--whether we could prove with 
evidence what would have happened had we not taken these 
actions. And it is very hard to demonstrate that to people. It 
is hard to demonstrate it--it is hard for economists to 
quantify it and show the effects. And so the actions that we 
are taking, all we can do is try to be as clear and transparent 
in the actions we are taking to try to communicate why we are 
taking the actions that we are taking, and to measure our 
results, and to make adjustments as we need to as we move 
forward.
    Ms. Brown-Waite. And let me also point out that Treasury 
notes, 4-week Treasury notes are now being sold at 0 percent. 
So it has a total effect on the economy, small businesses, and 
also the Treasury.
    Mr. Kashkari. Absolutely. And if you will permit me, 
please, as I mentioned previously, this was a plan and is a 
program to stabilize the financial system so that credit can 
flow. It is not going to happen overnight or as fast as we 
would like. But that is different than an economic growth plan 
or an economic stimulus plan. And we do face real economic 
challenges.
    Ms. Brown-Waite. I yield back.
    Mr. Kanjorski. I thank the gentlelady from Florida. The 
gentleman from Texas, Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Mr. Chairman. My question is going 
to be to the honorable Secretary Kashkari. I voted in favor of 
this bill for many reasons. And I would like to focus on one, 
which was the calls that I got from the presidents of colleges 
and universities, chancellors and others who were saying that 
there was a lack of credit, and consequently banks that used to 
make college student loans were no longer making them. So I 
would like to know how Treasury's Term Asset-Backed Securities 
Loan Facility, which we will call TALF here, will help the not-
for-profit secondary markets for student loans return to making 
and purchasing student loans. Treasury's plans seem to have 
focused solely on the for-profit sector, despite the fact that 
private student loan lenders have been the subject of 
investigation by State attorneys general. Tell me what the 
Treasury is going to do to help these lenders who have played a 
key role in the federally guaranteed student loan program, as 
well as have been providers for low-cost, consumer-friendly, 
non-Federal loans to fill the gaps between the cost of 
attendance and what is available through Federal financial aid?
    Mr. Kashkari. Thank you, Congressman. We too believe that 
the issue of making student loans available at a cost-effective 
rate for our students is absolutely vital for our country short 
term and long term. So the way the TALF is structured, and it 
is a Federal Reserve facility that the Treasury is investing 
in, it is structured, from my understanding, to help both the 
private and the nonprivate providers of student loan credit. It 
will help both. And it will provide liquidity to the markets to 
bring down student loan rates so that they are available on 
rates that students can afford just so they can go to college.
    Now, we have a team at Treasury that is working with a team 
at the Federal Reserve to design the details and get the 
program up and running. They have been receiving a lot of 
feedback from market participants in the student loan space and 
the auto space and the credit card space, etc., and are 
incorporating that feedback as they design the details. We want 
this program to help as many students as possible. Right now, 
it is being designed as a $200 billion program with $20 billion 
from Treasury, but it is designed to be scalable so we could 
expand it from there over time to make sure we are getting help 
to everybody who needs it.
    Mr. Hinojosa. But you should know that this sector is huge; 
there was over $16 billion that was lent out in college loans. 
And to have banks not offering credit, not offering these 
student loans not only for the cars and for appliances and for 
many things that you have heard from my colleagues before me, 
these student loan programs are not working right now. And you 
need to know and have people report back to you on how it is 
not fixing the problem.
    I would like to ask Comptroller General Dodaro, the TALF 
program's aim was to increase credit availability for credit 
cards, auto loans, and student loans, as I mentioned. However, 
private lenders of the non-Federal student loans already enjoy 
Federal protections that auto and credit lenders do not, making 
it nearly impossible for student borrowers to discharge private 
student loans in bankruptcy. How will TALF program take into 
consideration these differences in the treatment of consumer 
debt?
    Mr. Dodaro. Congressman, that is something that is under 
consideration by the Treasury Department, so a lot will depend 
on how they decide to move forward in those programs. I mean we 
are watching what they are doing, and as they institute 
programs, evaluating whether they are going to achieve the 
objectives or not. So it will depend on how that program will 
be designed going forward.
    Mr. Hinojosa. Would Comptroller General Dodaro like to 
address my question?
    I am sorry, I meant to say Secretary Kashkari. Forgive me. 
I apologize.
    Mr. Dodaro. I am the one with the gray hair.
    Mr. Hinojosa. There you go.
    Mr. Kashkari. Congressman, the details, as I said, are 
being worked out right now, as the Comptroller General said. 
The only other comment I would make, sir, is that the program 
is being developed and it is going to take, you know, probably 
sometime in January before it is up and running. So again, none 
of these things can be turned on overnight. But we are getting 
a lot of positive market feedback from lenders of all types who 
are saying this is the right tool that they need to get credit 
flowing to our students and to our consumers.
    Mr. Hinojosa. I yield back, Mr. Chairman.
    Mr. Kanjorski. Thank you. Mr. Barrett?
    Mr. Barrett. Thank you, Mr. Chairman. Gentlemen, thank you 
are being here today.
    I was reading the legislation. The explicit intent is to 
immediately restore liquidity and stability in the financial 
system in the United States, and I believe that. That is why I 
voted for it. Are we, Mr. Kashkari, have we passed the point 
where our banking system, our financial system is catastrophe 
proof? Are we past that point?
    Mr. Kashkari. Congressman, I feel confident that the 
financial system is stronger than it was when the Congress 
acted so quickly. But this crisis has been unpredictable. And 
there have been times in the past when market participants 
breathed a sigh of relief and said, okay, we are through it. I 
don't want to make predictions, but I do say that it is 
important that we all stay on our front foot, and continue to 
move aggressively to take action to adjust to situations on the 
ground until we are sure we are through it. That is about as 
good an answer as I can give you, Congressman.
    Mr. Barrett. Well, that is an answer. I know it is tough. 
There seems to be a lot of fundamental inconsistencies between 
the claim the financial system was at risk because of toxic 
assets and the claims that the TARP go to healthy banks. I 
heard your answer, and I understand that. But looking in my 
district, and looking across America, it seems like the smaller 
banks are the healthier banks. They are the ones that are 
actually doing well right now. Is bigger better? Is giving TARP 
funds to these healthy banks that are in turn buying other 
banks and becoming mega banks, and it seems to me that that was 
part of the problem that some of these institutions were too 
big and didn't know what was going on, that seems a little 
counterproductive. Walk me through that.
    Mr. Kashkari. Sure. That is a great question. Bigger is not 
necessarily better. And you are right, some of our smallest 
institutions are some of our healthiest. That is exactly why we 
want small banks to participate and to take the capital, 
because in many cases they are in the best position to extend 
new loans. Now to the topic of mergers and acquisitions, it is 
absolutely not our policy objective to encourage mergers or to 
consolidate the banking industry. Because as you said, bigger 
is not necessarily better.
    Mr. Barrett. Right.
    Mr. Kashkari. But if you have a bank that is weak or 
failing, and that bank is acquired by a healthy bank, that 
community is often better off, because now credit can still be 
extended, and branches will still stay open in that community, 
versus if that bank were allowed to fail and the bank would 
have to be shut down and dissolved, then that community would 
be worse off. So prudent mergers and acquisitions can be a 
healthy part of the financial system. We don't want to overdo 
it.
    Mr. Barrett. I agree with you 100 percent. I guess the key 
word is ``prudent.'' And as some of our banks have gotten 
larger, and I do agree, I think they are protecting some weak 
communities or some weak banks that in turn protect the 
community, how do we ensure that these bigger banks are using 
the prudent oversight so this doesn't manifest into the same 
thing on down the road?
    Mr. Kashkari. It is a very important issue. And I don't 
think there is a perfect brightline test that anybody can 
apply. But ultimately, each of these mergers and acquisitions 
needs to be approved by their primary Federal regulator, in 
many cases of both the target bank and the acquiring bank. And 
the regulators who are there onsite are in the best position to 
judge is this a prudent acquisition or is this a risky 
acquisition. Treasury, as you know, is not a bank regulator. 
But they don't have an easy job either.
    Mr. Barrett. Have we, Congress, in this legislation 
hamstrung you guys with specific mandates or specific 
directions we are telling you to go in that have decreased the 
program's effectiveness? I mean I know it seems like when 
Congress gets involved every time, you know, we try to mandate 
something, and too many times every time we do that we screw it 
up. Is that the case? If so, can you be specific?
    Mr. Kashkari. Broadly speaking, I don't believe so. I think 
we worked very hard and constructively with the Congress to 
build in a lot of flexibility. It is interesting, sitting 
through those midnight negotiations sometimes what seemed like 
an obvious good idea at the time, when you actually go to 
implement it, it turns out to be a lot more complicated. We 
found those cases, but I this we also found ways of 
implementing the intent and the spirit of what was in the 
legislation in a manner that can be executed as quickly as we 
need. We are not done. There are things that we still have to 
do to follow up, to make sure banks are complying on a go-
forward basis. So we are learning as we go, but we are making a 
lot of progress.
    Mr. Barrett. Thank you, gentlemen. Thank you, Mr. Chairman.
    Mr. Kanjorski. Thank you very much. We have a little bit of 
a problem. We are trying to accommodate Mr. Hensarling, who has 
a conflict meeting at 1:15, so at this time, we would ask the 
indulgence of Panel One to step aside, remain here of course, 
because we are going to recall you to continue examination. But 
we will ask Mr. Hensarling to make his presentation. At the 
table, or do you want to do it from there, Mr. Hensarling?
    Mr. Hensarling. If it would help accommodate the panel and 
the committee, I am happy to issue the testimony here.
    Mr. Kanjorski. We want to accommodate our friends on the 
other side of the aisle. Any way you wish to do it.
    Mr. Hensarling. Why don't we allow our panelists to keep 
their seats, Mr. Chairman?
    Mr. Kanjorski. Very good. You are recognized then to make 
your presentation, Mr. Hensarling.

      STATEMENT OF THE HONORABLE JEB HENSARLING (TX-05), 
  CONGRESSIONAL OVERSIGHT PANEL UNDER THE EMERGENCY ECONOMIC 
                       STABILIZATION ACT

    Mr. Hensarling. Thank you, Mr. Chairman, and I appreciate 
the accommodation, since earlier we were scheduled for the 
first panel. So Mr. Chairman, Ranking Member Bachus, and fellow 
members of the committee, I want to thank you for inviting me 
to testify in this oversight hearing on the Troubled Asset 
Relief Program and to address the role of the Congressional 
Oversight Panel, after which I look forward to reclaiming again 
my role as inquisitor as opposed to inquisitee.
    Before I begin my testimony, I do want to recognize the 
work of the Congressional Oversight Panel Chairwoman, Elizabeth 
Warren. Faced with a number of challenges and time constraints 
not of her making, she was able to first, produce an initial 
report and, second, produce one that raises legitimate issues 
and questions for which Treasury must account, and about which 
this committee should care. Although I cannot in good 
conscience support the report at this time for reasons I will 
discuss later, I commend her nonetheless on her work.
    Mr. Chairman, it is clear that many Members of Congress are 
only now awaking to the fact that Congress has granted 
unprecedented discretionary powers to the Treasury Secretary, 
and has simultaneously created unprecedented taxpayer exposure. 
I, along with many of my colleagues on both sides of the aisle, 
supported alternative plans, and opposed the enactment of EESA. 
We were not, as one of my colleagues put it earlier today, 
bamboozled. I believe many of the criticisms that we are 
hearing today of Treasury are better directed at Congress for 
passing the misguided law in the first place. Be that as it 
may, EESA is now the law of the land, and I intend to do 
whatever I can to help ensure its success.
    In that regard, Mr. Chairman, I believe that effective 
oversight should have three main goals:
    One, ensure the program actually works. In other words, 
ensure that Treasury actually exercises its broad authority 
commensurate with the act, and that its actions are effective.
    Two, ensure the decision-making process is transparent and 
based on meritorious considerations of what helps the entire 
American economy, not an opaque political process picking 
winners and losers.
    Last, but certainly not least, ensuring that the often 
forgotten taxpayer is protected in this program.
    Even by Washington standards, $700 billion is a great deal 
of money. It translates into roughly $9,400 per American 
family, when they are struggling to keep their jobs, send their 
kids to college, and pay their mortgages. Mr. Chairman, they 
need the $9,400 paid back.
    First, we must again ask, is TARP working? After listening 
to the testimony, it is: (a) probably too early to tell; and 
(b), certainly most challenging to tell with respect to cause 
and effect. One, again, can argue in the short run that 
Congress has given Treasury a number of competing goals without 
guidance on how to weigh them.
    Furthermore, as we know, and as the panel's report has 
indicated, Treasury under EESA does not operate in a bailout 
vacuum. Treasury's efforts over EESA are dwarfed by the actions 
of the Fed. Since the inception of the financial crisis, the 
Fed has committed over $5 trillion through its facilities, 
windows, and other actions, compared to $335 billion for 
Treasury under TARP, a factor of roughly 15 to 1.
    Mr. Chairman, we in Congress will be negligent if we only 
focus upon Treasury and TARP and ignore the actions of the 
Federal Reserve.
    Second, with regard to transparency and the meritorious 
decision-making process, even after the testimony we have 
received, many questions remain: How will the activities of 
those participating in CPP be monitored; why AIG; why 
Citigroup; why are some Capital Purchase Program applicants 
encouraged to withdraw their applications?
    Finally, is the American taxpayer truly protected? We have 
an unprecedented level of Federal intervention, and every 
Treasury action will be paid for by congressionally mandated 
drawdown on future generations, compromising their freedom, 
their opportunity, and their standards of living.
    Mr. Chairman, I believe the Congressional Oversight Panel 
has a unique role to play in the accountability of EESA. Time 
will tell whether or not the panel will prove effective in that 
role. For a number of reasons, panelists were appointed late in 
the process, with a report looming large for submission today. 
Due to these and other exigent circumstances, the panel has 
operated rather informally and has held no hearings. Issues of 
panel rules, panel process, resource allocation, minority 
rights, and the panel's hearing agenda remain unresolved.
    In order to be an effective advocate for the American 
taxpayer, I have to ensure that every panel member has the 
resources and rights necessary to conduct effective oversight. 
And I wish to ensure that the panel officially adopts a serious 
hearing agenda that brings transparency and accountability to 
the process. I have raised these concerns, but I assume due to 
the urgency and exigency of the circumstances, they have yet to 
be addressed.
    The report today, Mr. Chairman, and I will conclude 
briefly, has many good points and questions that I agree need 
to be asked of Treasury. I, however, remain concerned about 
language that I believe can be interpreted as a panel 
expectation that Treasury adopt policies that could make credit 
more expensive and less available and policies that could delay 
the recovery of our housing market at exactly the wrong time.
    Mr. Chairman, I hope that soon I can conclude that 
taxpayers' voices are effectively represented on the panel. The 
panel represents a serious attempt at bipartisan oversight. 
Until such time as I can conclude that, I cannot and will not 
in good conscience approve any panel reports. Regardless of the 
panel's future or my future, I remain committed to bringing the 
highest level of accountability and transparency to the 
process.
    With that, I appreciate the chairman's indulgence and his 
accommodation to my schedule. I yield back.
    Mr. Kanjorski. [presiding] Thank you very much, Mr. 
Hensarling. Since Mr. Hensarling is technically a member of 
Panel Number 2, the committee members would have a right to 
exercise an examination of Mr. Hensarling. But because of his 
other commitment, what I would suggest, unless there is some 
pressing question that has to be immediately answered, that any 
questions either side of the committee has for Mr. Hensarling 
be submitted in writing. I am sure he will accommodate the 
committee by answering the same in writing. Is there any 
objection to that?
    The Chair, hearing none, Mr. Hensarling, thank you very 
much for your testimony.
    Now we will resume with our Panel Number 1. The gentleman 
from California.
    Mr. Sherman. Thank you, Mr. Chairman. I will have a number 
of questions for the record because 5 minutes is not enough to 
ask all the questions I have.
    Let me first start with a question that affects the travel 
plans of all of my colleagues. Mr. Kashkari, how certain are 
you or confident are you that Treasury will not be asking for 
the final $350 billion in a formal submission to Congress this 
month?
    Mr. Kashkari. Congressman, I am not certain of the timing 
of any such submission. Ultimately, the Secretary would make 
the determination, likely in consultation with--
    Mr. Sherman. I look forward to singing Christmas carols 
with my colleagues on the steps. But can you at least assure me 
that we are not going to get such a request in the next day or 
two?
    Mr. Kashkari. Again, Congressman, honestly, I don't want to 
make promises. It is the Secretary's determination.
    Mr. Sherman. Has the Secretary clued you in that he is 
planning to ask for the money in the next day or two? Wouldn't 
he tell you? You are running the program.
    Mr. Kashkari. We talk about that topic quite often, and 
ultimately it is the Secretary's decision to be made.
    Mr. Sherman. I am asking you whether he has indicated to 
you that he is going to ask for the money in the next day or 
two.
    Mr. Kashkari. He has not indicated that.
    Mr. Sherman. Thank you.
    Now, one of the most fun things, especially at this time of 
year, is to play Santa Claus, particularly when you can be 
generous and it doesn't cost you anything. One thing that the 
Treasury has done is to buy preferred stock in these banks and 
get warrants that are supposed to compensate the taxpayer for 
the risks we are taking. But, of course, Treasury accepted one-
sixth the warrants that Warren Buffet got in a similar 
transaction, and took the same number of warrants from every 
institution, whether it was a high-risk institution or a low-
risk institution, indicating that we are being generous to the 
shareholders and executives of the high-risk institutions.
    But I want to focus first on another act of generosity. 
Section 111 of TARP says: ``The Secretary shall require that 
the financial institution in which you invest meet appropriate 
standards for executive compensation.''
    The law then lists three particular items that you need to 
put into the stew. But the mandate is clear; not just deal with 
these three particulars involving like golden parachute-type 
contracts, but devise appropriate standards, enforce 
appropriate standards on executive compensation.
    Now, after AIG got TARP money, they announced and are in 
the process of paying bonuses as high as $3 million or $4 
million. Sir, have you met your responsibility to require that 
appropriate standards of executive compensation be imposed on 
AIG and the other recipients of TARP funds?
    Mr. Kashkari. Congressman, this is an important issue in 
which we must not lump all the institutions together.
    Mr. Sherman. I am not. I am asking about AIG. Is a $3 
million bonus an appropriate standard of executive 
compensation, or has the law been violated?
    Mr. Kashkari. Congressman, I don't have the details of what 
the bonus levels are at AIG.
    Mr. Sherman. You are the one who is supposed to impose 
appropriate levels of executive compensation. Have you done 
that? Are they making payments of executive compensation that 
are not appropriate, or are you just blind to whether they are 
appropriate or not?
    Mr. Kashkari. Congressman, we have imposed on AIG new 
corporate governance standards, executive compensation 
standards.
    Mr. Sherman. Do your standards prevent the payment of a $3 
million bonus?
    Mr. Kashkari. I do not believe that they specifically 
prevent a payment of $3 million.
    Mr. Sherman. So have you imposed appropriate standards for 
executive compensation? Are you here to tell this committee 
that appropriate standards of executive compensation would 
allow a $3 million bonus? How about a $30 million bonus; would 
that be appropriate executive compensation, or would that be 
prohibited by any standards that met the statutory requirement 
imposed on by Treasury?
    Mr. Kashkari. Congressman, in the case of AIG we were 
placed--please permit me to finish. This is a very important 
issue.
    Mr. Sherman. Sir, I didn't ask you about corporate 
governance, I didn't ask you about the makeup of the 
executives. I asked whether a $3 million bonus or a $30 million 
bonus is consistent with a statutory requirement that we have 
appropriate standards on executive compensation.
    Let me ask it specifically: As to $30 million, is that 
appropriate or inappropriate, or you have no opinion?
    Mr. Kashkari. I am not in a position to opine on a specific 
number, if it is appropriate or not.
    Mr. Sherman. Well, when Congress tells Treasury to limit 
things to appropriate compensation, I would hope that you would 
devise such standards. And so the standards that you have 
written so far do allow $30 million bonuses to be paid. There 
is nothing that Treasury has done that would prevent a $30 
million bonus, correct?
    Mr. Kashkari. Ultimately, I believe, and I need to check, 
the Treasury and Federal Reserve, the U.S.--
    Mr. Sherman. Sir, you wrote the regulations. What is in 
them?
    Mr. Kashkari. Congress, ultimately the Treasury and the 
Federal Reserve, because now the taxpayers own 80 percent of 
AIG, are in a position to approve specific compensation 
standards. My point in talking about the executives--we want to 
get the taxpayers' money back, in the case of AIG. And so we 
needed to put in place a management team, hire quality 
managers. For me to come in here and say, well, $100,000 is the 
right number or $500,000; I don't know the right number.
    Mr. Sherman. Sir, these bonuses were paid to executives 
that had been there for a while and a part of the team that ran 
the company into the ground, and your level of generosity is in 
stark contrast to the suffering of the people in my district.
    I yield back.
    Mr. Kanjorski. Thank you very much, Mr. Chairman.
    May I add something? That is the one question that I hear 
more of as I travel across this country, the absolute 
frustration of the American people in this Administration not 
imposing some standard or rule. I have to just make the point 
because we just finished the examination with the auto 
industry. We have a successful CEO running Toyota in the United 
States, getting $1 million a year as compensation, and we have 
a very unsuccessful CEO in the United States, running one of 
the major car companies called GM, getting $23 million a year. 
The American people are just wondering what is wrong with this 
Administration that they can't establish a standard of 
compensation.
    Mr. Kashkari, are you saying you don't have the capacity to 
make those standards down there? Do you want us to do it? Is 
that what you are recommending, that we legislate that?
    Mr. Kashkari. Congressman, I am suggesting respectfully 
that we were implementing the letter and spirit of the law. 
Very specific executive compensation provisions were spelled 
out in the legislation. We have met every single one of those 
in every case we have made an investment. We took those very 
seriously.
    Mr. Kanjorski. So it is your opinion that the Congress, in 
regard to compensation, inadequately structured the law.
    Mr. Kashkari. I don't believe the Congress specified that 
you want to set a specific cap on what an appropriate payment 
level is.
    Mr. Sherman. Mr. Chairman, if I can just quote the statute, 
subdivision (b) of section 111 includes the words: ``The 
Secretary shall require the financial institution meet 
appropriate standards of executive compensation.'' It requires 
Treasury to decide what that means. And apparently it means $30 
million is just fine, since the regulations they wrote do not 
prohibit a $30 million bonus, nor is Mr. Kashkari willing to 
say here and now that he would not allow $30 billion bonuses in 
the future.
    I yield back.
    Mr. Kanjorski. Thank you very much. While I have you, Mr. 
Kashkari, I heard you defend the right of some of these 
entities to pay dividends. There is a difference. I served on 
boards of directors in my past, and there is a way of paying 
cash dividends and paying stock dividends. There is no reason 
in the world, if you want to encourage people to participate 
and therefore they need a dividend, give them a cash dividend. 
If they want to go out in the marketplace at the rate the 
market pays for their shares of stock, let them sell that 
interest. But there is no reason to be handing out millions and 
millions of dollars of taxpayers' money as a dividend to some 
existing companies and say it is perfectly justified because it 
encourages people to invest or make a contribution of equities. 
There are other ways of getting equity to people and to 
encourage them to participate.
    I think it is just sloppy management, if you want my honest 
opinion. And I think I am hearing from you today that we should 
reinstigate some of these rules and regulations and start 
laying down a congressionally mandated standard. Set it out.
    I think one of them we are all talking about now is, by 
God, if the CEO of Toyota, running one of the most successful 
auto manufacturing companies in the world can do it on $1 
million a year, it just seems to me it is not a bad standard if 
the taxpayers of the United States are paying for the operation 
of a motor company in this country, that we accept that 
standard; and if somebody doesn't want to work for $1 million a 
year, maybe we could entice the President to give up his 
$400,000 salary and come to work for $1 million a year for 
running that company, or any Members of Congress for that case, 
or some of the professors at our universities and law schools. 
We may be able to find somebody in this country who is willing 
to take that.
    Anyway, I have rambled on enough.
    Our next participant is Mr. Roskam.
    Mr. Roskam. Thank you, Mr. Chairman. I just would point 
out, my predecessor, Henry Hyde, had a way of describing this 
conundrum, and he observed that there is one thing worse than 
gridlock, and the worse thing than gridlock is the greased 
chute of government. It is exactly what we are dealing with 
today, a greased chute that created this TARP program and now, 
seriously, there are Members of Congress who are looking at the 
Administration, and the Administration is looking at Members of 
Congress, saying, oh, is this what you meant? It is really 
shocking. So here we are, several hundred billion dollars into 
this.
    I want to shift gears a little bit and really go toward 
part of the conversation during the deliberation of TARP that 
really didn't get a lot of discussion and that was revisiting 
mark-to-market. As you know, mark-to-market is a good idea sort 
of in theory and in a post-Enron environment where there were 
manipulations in the past that had to be dealt with. But my 
question is: There has been all this energy and capital that 
has been injected into the marketplace, either originally in 
the purchase of toxic assets or now ultimately in direct 
capital injection, and that is bringing capital in one way; but 
are we adequately making sure that there are not regulations in 
place that are draining the market of the very capital that we 
are trying to create?
    Could you comment, because basically when the mark-to-
market conversation came up during the TARP deliberations, 
there was sort of this pat you on the head, tap you on the 
backside, and kind of a feeling of it is really interesting, 
but off with you, be lively, we are not really interested in 
that, because the orthodoxy that had developed was we are going 
to pump capital in, and that is the way we are going to do it.
    Now that we can be a little bit more reflective, is there 
an interest or is there a recognition that mark-to-market and 
some of the changes need to be in play and need to be more than 
sort of the dalliance that we have seen from the Securities and 
Exchange Commission so far, but there has to be a real safe 
harbor here?
    Mr. Kashkari. Congressman, I remember the discussions that 
you reference from the negotiations. Mark-to-market is a very 
important issue. You are right to raise it. A lot of people 
have raised it. First, as you know, I believe the legislation 
called for the FCC to undertake a thorough study of mark-to-
market, and I believe they are well underway and their report 
is due, I believe, on January 2nd. So they are consulting both 
internally with government experts and with outside experts to 
look at mark-to-market. There is no question that mark-to-
market is procyclical and it is exacerbating the swings.
    At the same time, we have not seen a better alternative. 
There are cases in history where countries have pretended that 
their assets were worth a lot more than they ultimately were 
worth, and they prolonged their economic downturn and their 
economic crisis. So we clearly need to find the right balance.
    What we have right now where there is no bid in the market 
also does not appear to be optimal, clearly; but just also 
pretending these loans are worth more than they are does not 
also seem to be a good solution. So I will respectfully defer 
to the FCC and their ongoing work to study this issue. It 
clearly needs to be studied very carefully.
    Mr. Roskam. We are not going to settle this in the couple 
of minutes that we have this afternoon, but it seems to me that 
the urgency with which the original TARP deliberation took 
place, we would have been well-served had that same urgency and 
that same clarity been brought about to require or to provoke--
use any verb you want to--but to get a fundamental change in 
mark-to-market. It would seem to me there were things that were 
on the table that would have been substantive and very helpful, 
and we may have been in a very different situation right now.
    Let me just turn quickly, Mr. Dodaro, could you comment on 
that element of things? In other words, as the GAO evaluates 
TARP, can--or is part of your deliberation and your evaluation, 
regulatory burdens that may be in place, impediments to 
progress that Congress itself can remove, or the Securities and 
Exchange Commission or FASB or others? Is that part of your 
portfolio, so to speak?
    Mr. Dodaro. It is not part of the specific requirements 
under TARP for us to take a look at it. It is more program 
implementation, whether it is meeting the performance and 
expectation of goals of the legislation. But we do have other 
authorities and other work that we have underway to look at the 
regulatory structure which we think needs to be reexamined in 
light of current events, and we will have a report to the 
Congress with some criteria and characteristics that we think 
should be guiding principles in reexamining the regulatory 
structure.
    We also have an effort underway to look at, similarly, 
criteria that could be considered in making a determination as 
to the ultimate character of the entities for Fannie Mae and 
Freddie Mac once they emerge from conservatorship. We are also 
following the mark-to-market situation closely at the SEC, and 
we will be in a position to comment on that as well.
    Mr. Roskam. Thank you. I yield back.
    Mr. Kanjorski. The gentleman from Missouri, Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman, and I thank the 
witnesses for their amazing testimony today. We have witnessed 
an amazing set of events since we originally passed TARP--I 
guess while we passed TARP. The Administration was able to 
influence a majority of the members of this legislature to go 
along with the plan that they said they were sure would rescue 
the U.S. economy. Several weeks later, you dumped the entire 
plan and said, oh, that probably won't work. I didn't think it 
would work then, and I don't think you all know what you are 
doing now.
    Let me ask you, Mr. Secretary, we own 80 percent of AIG. 
What benefits do the taxpayers of this country--what have we 
derived in benefits from owning 80 percent of AIG, lending them 
a total of $125 billion? Did we buy the assets or were the 
assets sold? If so, to whom? And how is AIG managing those 
assets now if they didn't sell them?
    Mr. Kashkari. Congressman, let me start by saying we didn't 
want to own 80 percent of AIG. We didn't want to intervene in 
AIG. AIG was on the verge of collapse, which jeopardized the 
financial system as a whole. So we had to take this action.
    Mr. Clay. Jeopardized what?
    Mr. Kashkari. The financial system as a whole.
    Mr. Clay. Look, I am from Missouri. We speak plainly. 
People of Missouri want to know. What if they had failed? So 
what? What if they had failed? What would have happened?
    Mr. Kashkari. It is hard to know for sure. It is 
conceivable that the financial and banking system would not 
function. Imagine if you went to your ATM and couldn't get 
money out of your checking account, or your money just wasn't 
available, or your 401(k) was worth half as much as it was the 
day before. It is hard to know.
    Mr.  Clay. Based on AIG failing.
    Mr. Kashkari. AIG is a trillion-dollar institution with 
transactions and counterparties around the United States. We 
took this action to make sure that a collapse did not happen 
because the consequences were grave. And now, because we had to 
step in to stabilize them, we have tried to provide as much 
protection for the taxpayers as possible. So now the taxpayers 
own 80 percent of the company. The new management's job is to 
do an orderly disposition of some of the businesses, to 
generate cash to pay back the taxpayers so that we are made 
whole.
    Mr. Clay. Today, Mr. Secretary, what is the company worth?
    Mr. Kashkari. I don't know the answer to that. I will try 
to find out. I don't know the answer to that.
    Mr. Clay. Thank you. Let me ask you about GAO's 
recommendations. There are nine recommendations. One of them, 
my friend from California brought up. What measures have CPP 
taken to ensure that institutions comply with executive 
compensation, dividend payments, and repurchase of stock; and 
have you all taken the recommendations of GAO and instituted 
them?
    Mr. Kashkari. Yes, Congressman. We agree with GAO's 
recommendations and we are already instituting them. That is 
why we felt good about the report, because it verified the 
directions that we felt we were already going. These are not 
going to happen overnight. We are instituting the programs now.
    Now, most importantly, executive compensation, dividend 
restrictions, these are contractual agreements between the 
United States Government and these institutions. If they 
violate our contracts, we have many legal recourses to go after 
them, including going to the Justice Department and going after 
them. So I think banks will be very hesitant to sign a contract 
with the U.S. Government and then not fulfill their 
obligations. We are going to go after them. The regulators are 
already supervising, and we are looking at other measures to 
make sure that they continue to comply.
    Mr. Clay. Thank you for that response. We understand the 
TARP program continues for credit card, auto loan and student 
loans. However, private lenders for non-Federal student loans 
enjoy Federal protections that auto and credit lenders do not; 
namely, private student loans are exempted from bankruptcy, 
except under extreme circumstances.
    How will the TARP program take into consideration these 
differences in consumer debt?
    Mr. Kashkari. Congressman, I don't know the answer to that. 
I would have to talk to my colleagues at Treasury who are 
implementing it with the Federal Reserve. It will help all 
classes of the consumer credit, but I don't know how it will 
take into account the bankruptcy difference.
    Mr. Clay. Mr. Secretary, would you please get back to us on 
what AIG is worth on this day?
    Mr. Kashkari. Yes, sir.
    Mr. Clay. Thank you.
    Mr. Kanjorski. Thank you, Mr. Clay.
    We will now hear from Mr. McCotter.
    Mr. McCotter. Thank you. Mr. Kashkari, you have a very 
difficult job. I know you work under Mr. Paulson, who works 
under the President, and sometimes things roll downhill. Yet 
they roll inevitably anyway.
    With that said, I heard your testimony, read through it, 
and it gave me great insight for the next time I take a weekend 
trip with my wife. I am generally loath to ask for directions 
or assistance, which greatly annoys my wife, but the next time 
that she claims we are lost, I am simply going to say, ``We are 
taking many steps to adapt to events on the ground. And we have 
made remarkable progress in only 68 days, Dear. We cannot be 
lost, because I am sure that I know what I am doing.''
    So in that spirit of disconcertion, I would like to ask you 
a couple of questions. The first thing that I found very 
interesting as this began was the concept of stigma--the stigma 
of having to receive taxpayer assistance for a problem that you 
may have caused. Now we have seen individuals, average working 
people who are down on their luck and have had to go through 
things such as drug testing to receive Federal assistance or 
State assistance, because the stigma that attaches to seeking 
government benefits is a protection of the taxpayer because it 
prevents other people from coming forward and seeking 
assistance when they do not really need it. And yet, in the 
instance of the bailout, we have heard that we cannot 
stigmatize financial institutions that come forward for 
taxpayer money; that would be wrong. And we hear reports of 
healthy financial institutions being asked to take taxpayer 
money they don't necessarily want so that the stigma does not 
attach to the people who have helped cause this problem, unlike 
individuals.
    So I would like to ask the logic behind that, because it 
seems to me that if you hand out taxpayer money to avoid a 
stigma, that you will then stigmatize those who do not 
unnecessarily take taxpayer money. It seems counterintuitive to 
me.
    Secondly, we have heard discussion from the gentleman from 
California, Mr. Sherman, that there is a prospect that the 
second round of billions of dollars will be asked for because, 
as you know, we have only appropriated directly $350 billion--
``only'' $350 billion. And yet as I read through the testimony, 
the GAO has identified several instances where, shall we say, 
oversight has to continue to occur. And this--if I am wrong, 
correct me--but we have already spent $200 billion. I think 
with AIG at $40 billion, we are over $200 billion.
    Mr. Kashkari. I think that is approximately correct.
    Mr. McCotter. Let me see what we haven't done. We have 
already spent $200 billion and these things have not been done 
completely yet. We have not developed a comprehensive system of 
internal controls, we have not issued final regulations on 
conflicts of interest, we have not instituted a system to 
manage and monitor the mitigation of conflicts of interest. And 
I could go into the other six items. This is after $200 billion 
of taxpayer money has been spent in a program that has had more 
twists and turns than an Agatha Christie plot.
    So my question is: How can there be consideration of asking 
for another $350 billion in taxpayer money for this program 
when these controls are not in place for accountability and 
oversight and $200 billion has already been spent?
    Mr. Kashkari. Well, Congressman, again, as indicated in my 
testimony, it has been 68 days since the President signed the 
law. We have teams of people working around the clock to build 
the operation, design the programs, and implement them all at 
the same time. We would love it if the financial markets just 
healed themselves and we could go at a much slower pace and 
just implement this thing as a normal government program would 
be implemented.
    We haven't had that luxury. We have had to move quickly, we 
have had to adapt to events on the ground, and we are going to 
continue to move aggressively as long as we are here.
    Mr. McCotter. As I remember, when we met with Mr. Bernanke, 
some of the House Republican leadership, and--I think it was 
Bear Stearns--there was an indication that the entire financial 
system could melt down because of the interconnectivity due to 
the credit market and the stakes that have been made. I also 
remember reports that potential scenarios for legislation such 
as this and a program such as this had been prepared by 
potentially Treasury and the Federal Reserve for just such a 
potentiality occurring.
    So I am aware of the 68 days because I was voting against 
it. And I have been counting the days until we actually have 
someone from the CEOs come in, and I thank Chairman Frank for 
that. But this isn't as if you are telling me that the 
Republican Administration of President Bush was sitting there 
and Secretary Paulson and his predecessor were sitting there 
with absolutely no indication whatsoever that this could be 
potentially a problem down the road that might need some type 
of foresight and forethought put into a potential plan.
    You make it sound as if it was an economic Pearl Harbor 
that came without warning. I think the facts preceding the 68 
days tend to disprove that. But that is my opinion.
    Mr. Kashkari. Well, Congressman, over the course of the the 
winter and the spring--I think I mentioned earlier--we thought 
there may come a time when the government would have to step in 
to provide capital because the private sector was unwilling to, 
and began planning for such a contingency. It is very different 
to lay out the broad strokes of a plan and to work through the 
very detailed internal control procedures. We hired PWC, who is 
working with us. You can't do that in advance.
    Mr. McCotter. If I can, because my time is up, I welcome 
your response in writing. Let's just be clear: The broad stroke 
that you outlined was a TARP program of toxic assets, and that 
proved to be wrong.
    Mr. Kashkari. It proved that the credit crisis intensified 
deeply in the 2 weeks between when Secretary Paulson first came 
to the Congress and the Congress acted. I can show you lots of 
data that substantiates that. And I would be happy to, 
Congressman.
    Mr. Kanjorski. I thank the gentleman.
    The gentleman from Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. Let me pick up right 
where Mr. McCotter left off. And I appreciate both witnesses 
hanging in, and your help with the committee's work today.
    One of the central factors within this current crisis has 
been the lack of reliable information in the credit markets 
with respect to counterparty risk. That has been a huge part of 
this. I think what Mr. McCotter--part of what he was saying, 
not to put words in his mouth--was some of the things that 
Treasury has done in this whole process has really hurt 
confidence. Getting us all in line here for this toxic asset 
purchase program and getting enough votes and then, a few days 
later, just completely changing, without any explanation or any 
real debate here, changing the whole program here so now the 
Troubled Asset Relief Program doesn't purchase any troubled 
assets. That all goes away. That itself is very upsetting to 
the markets when you say you are going in one direction and all 
of a sudden you go in the other.
    A couple of other things: The dramatic infusions of cash 
into a lot of these banks. And we heard the reports about how 
several of them actually said they didn't want the money, they 
didn't need the money. That doesn't instill a lot of confidence 
in folks either, especially when there are so many people in 
other industries begging for help. I don't think that really 
pumping up the capitalization 1 or 3 percent in these banks is 
going to address the underlying fear of a lot of banks that 
they are not sure that their counterparty or other lenders, 
other banks, are not going to go belly-up at some point because 
of some CDOs that they hold, or that there may be something 
that would lead them to be unable to repay their loans.
    So for me, really a lot of what needs to be done here deals 
with transparency. Again, this TARP program, when you think 
about it, is really operated in the dark, with the exception of 
the work that Mr. Dodaro has been trying to do. The bill called 
for a Special Inspector General. And I am not blaming you, Mr. 
Kashkari, but under the bill, the new Inspector General is 
supposed to inform Congress within 60 days of his swearing-in 
over at the Senate. He is never going to file a report. He is 
going to be gone. By the time he is required to report to us, 
he will have been gone. There will be a new guy in his place 
with the new President, I suspect. It is reasonable to assume.
    The new guy won't have to report until the 3rd week of 
March. So we are going to have, very likely, $700 billion out 
the door without having had anyone, other than the good work of 
Mr. Dodaro, telling us where the money is, what it has been 
used for.
    With these new plans that have been going out there, now we 
are going to start to, as I understand, purchase some asset-
backed securities; but there will be no information for 
Congress or the people whom I represent, who keep asking me, 
``What are we buying, who is getting the money, where is it 
going?'' There is a disconnect here. Believe it or not, at some 
point I will stop talking.
    What are we doing? What are we doing to address that piece 
of it, the lack of transparency? We have to get this thing 
going again. As long as people don't trust each other, as long 
as there is no transparency here, folks are going to be afraid 
to lend. And I am afraid that some of those flaws, some of 
those frailties, are reflected in your own organization, this 
TARP program, because there is a lack of transparency there. We 
can't understand what is going on and we don't have a regular 
flow of information back and forth. How do you help that 
situation?
    Mr. Kashkari. Thank you, Congressman. It is something I am 
personally very focused on. I give a lot of updates to the 
country in the form of speeches and hearings such as this so 
that people can see in granular detail what we are doing.
    But let me also comment on reporting. The legislation calls 
for many levels of reporting: Transaction reports within 2 days 
of every investment; traunch reports every time we obligate $50 
billion; and a report to Congress within the first 6 days of 
our first commitment, and then monthly thereafter.
    We have met every single one of our reporting requirements, 
every single one, on time. All of this information--there is a 
wealth of information on the Treasury Web site, and I am having 
a heck of a time getting people to go there and look at it. 
People say, ``We don't have the data.'' And I say, ``Well, have 
you looked at the Treasury Web site? It's all there.'' They 
say, ``No, I hadn't looked there.''
    So we need help getting the message out because we are 
putting so much data out there, I am afraid we are overwhelming 
people with too much information and too much data.
    Mr. Lynch. Mr. Dodaro, what do you think Mr. Kashkari can 
do to help that transparency issue, in addition to what he has 
just commented on?
    Mr. Dodaro. First of all, our first couple of 
recommendations, particularly the one that focuses on tracking 
what the individual institutions are doing with the money and 
providing reporting back as to what is happening at that level, 
I think would do wonders for transparency. I do agree with Mr. 
Kashkari, they are posting a lot of information. But the bottom 
line is, what are people doing with the money? That is what 
people want to know.
    Mr. Lynch. I agree. Thank you for your forebearance, Mr. 
Chairman. I yield back.
    Mr. Kanjorski. Thank you, Mr. Lynch. Now, Mr. Heller.
    Mr. Heller. Thank you very much, Mr. Chairman. I appreciate 
the patience of those at the desk today. By the time you get to 
me, you have had to have been very patient, so I do appreciate 
spending a few minutes.
    Mr. Chairman, thanks for the hearing and the opportunity to 
ask a few questions. The specific question I have is if you are 
a nonsystemically significant institution, i.e., a State-
chartered bank, an independent community bank, or perhaps a 
credit union, is it a waste of your time to apply for TARP 
funds?
    Mr. Kashkari. Congressman, we want all of our healthy banks 
across the country to apply and participate in the program. We 
put out term sheets, as I am sure you are aware, for public 
banks as well as for private C Corp banks. There are other 
categories of banks such as the mutuals, subchapter S, which we 
are working to come up with term sheets so they can access the 
funds on the same terms as everybody else. There are some real 
legal complexities with doing that, and we are working to make 
this as broad a program as possible, because we want the 
healthy banks around the country to participate.
    Mr. Heller. I am looking at the list of 87 banks that are 
currently participating in this program. I see in here one bank 
from South Carolina, the First Community Corporation. I don't 
know how large that is. There is one bank in Nevada that is a 
regional bank, so it is in Nevada, Arizona, and California. 
They may very well be State-chartered banks or independent 
community banks.
    Mr. Kashkari. I don't know. I can find out. In each case, 
the bank must have a primary Federal regulator. So if there is 
no Federal regulator, it would not be in the program because we 
are relying on the primary Federal regulators to do the initial 
screen to the applications and then make recommendations to us. 
It has been essential for us. Because we want to use taxpayer 
resources efficiently and protect the taxpayers, we don't want 
to invest in banks that are nonviable or unhealthy banks in the 
Capital Purchase Program so we are relying on the Federal 
regulators to make an initial screen. And if there is a bank 
that does not have Federal regulation, then they would not be 
in the program.
    Mr. Heller. I guess the definition of nonviable or a 
healthy bank would be very helpful in this process because we 
have numerous bankers, as I mentioned in my opening statement, 
that have called me and asked me, ``What are the criteria? We 
go to your Web site, we take a look at the Web site, we fill 
out the application, and we wait.''
    Is there something out there that can determine the 
viability of a financial institution, some of the criteria that 
you just mentioned that I can share or spread with these other 
bankers so that they are aware of what the criteria is to 
become a healthy bank or unhealthy bank, a viable bank or 
nonviable bank?
    Mr. Kashkari. Let me just start with, if you will permit 
me, there are many applications in the system. So the 
applications go through the regulators. There are literally 
hundreds and hundreds of applications that the regulators are 
processing, and then they are submitted to Treasury for review 
and approval.
    The Treasury process is actually very efficient. When it 
comes to funding these deals, oftentimes it is the banks who 
need more time than Treasury. So my first response is, I would 
recommend, respectfully, that you go back to your banks and 
say, ``It's probably being looked at by the regulator right now 
on its way to Treasury.'' So don't interpret the fact that it 
is taking some time to be reviewed as the fact that they are 
not going to be eligible for the program, number one.
    Number two, the viability judgment. There is no one 
measurement you can look at. The regulators and Treasury look 
at capital positions, look at exposure to real estate, look at 
how many nonperforming loans, look at different ratings that 
the regulators look at. Because each bank is unique, we can't 
point to one measurement and say, this is the one test. The 
regulators look at a wealth of information in coming up with an 
overall assessment that we then review and make the decision 
on.
    Mr. Heller. You can understand the frustration where I am 
coming from with these independent bankers calling me and 
saying, ``Hey, we have done what we have been asked to do. In 
fact, we have invested in GSEs as we were asked to do, either 
by this Congress or through the Administration, and yet we have 
these applications out there and we are getting no feedback. We 
continue to ask, we continue to write letters, and there is 
just no information coming back as to whether or not we are 
considered a healthy bank, whether we are considered a viable 
bank.''
    And what they want to know is, is there any way--and I 
understand it is a clouded question because it is very 
difficult to pinpoint specific viability or not--but there has 
to be some criteria out there that they can use in order to 
determine whether or not they can actually apply or should be 
applying for these TARP dollars.
    Mr. Kashkari. It is a very good question. Most banks that 
apply, the vast majority are ultimately going to be approved, 
just having gone through the investment committee so many times 
now, watching the process. There are some banks that in the 
regulators' judgment are not viable, in which case they will go 
to the bank and say, maybe you shouldn't apply, or you should 
withdraw your application.
    If that hasn't happened, they should feel pretty good. But 
ultimately, it needs to work through Treasury to make the final 
decision.
    Mr. Heller. Thank you. I yield back. Thank you, Mr. 
Chairman.
    Mr. Kanjorski. Thank you very much, Mr. Heller.
    Mr. Miller.
    Mr. Miller of North Carolina. I agree with those members 
who have said that we have to get a handle on the foreclosure 
problem. Credit Suisse, I think just this week, said we are 
probably going to experience 8.1 million foreclosures or 
perhaps 10.2 million foreclosures, which is almost one mortgage 
in five, in the next 4 years. If we don't get control of that, 
nothing else we do is going to work.
    But my questions are about due diligence. You have said 
that you are trying--you are working carefully to make sure we 
are putting money in viable institutions and we are relying 
principally on the principal regulators to assess viability for 
that determination.
    There was a sentence in the Congressional Oversight Panel's 
report that was striking: ``The Citigroup experience, the AIG 
experience, raise questions about assessment of institutional 
health and need by Treasury and by bank regulators.'' No 
kidding.
    AIG, I understand, got into trouble not because of anything 
the subsidiaries are doing, which are very closely regulated by 
State insurance commissioners, but by the parent, the holding 
company, which is, as I understand it, almost entirely 
unregulated, and because of the business derivatives and credit 
defaults were almost entirely unregulated. What regulator did 
you depend upon to assess the viability of AIG?
    Mr. Kashkari. Congressman, when we talk about the 
regulators assessing viability, I am speaking about the Capital 
Purchase Program. It is $250 billion for a healthy bank. AIG 
was a separate program. That is the systemically significant 
failing institution program, where the regulators were not 
assessing viability, the regulators were assessing what would 
happen if we had allowed them to collapse.
    Mr. Miller of North Carolina. That was my impression as 
well, that it had nothing to do with viability. And that was 
the gist of your answers to Mr. Clay's questions a couple of 
minutes ago.
    There was a story in The New York Times on November 11th 
that talked about the systemic risk and about making good on 
derivative contracts by AIG. The usual rule in the economy is 
when you do business with somebody and you can't perform the 
contracts, you lose. But those who were in derivative contracts 
with AIG aren't losing; that the money that we put into AIG is 
being used to pay them in full.
    Lynn Turner was quoted as saying, ``We are funding someone 
on the other side.'' And the article said that neither AIG nor 
the Treasury was identifying who the significant counterparties 
were for AIG. Did The New York Times just not look on your Web 
site? Have you identified who those counterparties are? And if 
you have not, why have you not?
    Mr. Kashkari. We have not--to my knowledge, we do not have 
a list of all of AIG's counterparties. We now have examiners, 
especially with the Federal Reserve, onsite at AIG, going 
through all of their books and records to try to understand 
their businesses and sell off assets over time in an orderly 
manner to pay back the taxpayers. So we have examiners onsite 
now and can look into that. But the reporting requirements that 
I spoke about were all of the requirements under the law for 
all the investments we make.
    Mr. Miller of North Carolina. Are you going to tell us, 
ever, who got the money that we paid under AIG's derivatives 
contracts? And if not, why not?
    Mr. Kashkari. It is hard to know--Congressman, it is a 
tough question because it is hard to know with a dollar in a 
company, did this dollar of the taxpayers go to this use, did 
it go to paying expenses?
    Mr. Miller of North Carolina. That is really not a credible 
response.
    Who were we paying off? Who are all of the counterparties 
in AIG's derivative contracts?
    Now, with respect to other people who are getting money 
from us, we are getting something. We are getting warrants, we 
are getting preferred stock, we are getting senior debt. But 
with respect to AIG, the money we are paying to their 
counterparties, in the words of Rob Blagojevich, ``We are not 
getting anything except appreciation.''
    Mr. Kashkari. Congressman, look at another example. When we 
put in money in Fannie Mae and Freddie Mac--when you put money 
into a business, that goes to sustaining the business. So all 
of the customers, all of the contractors, all of the 
counterparties benefit from having put the money in to 
stabilize that business. I am just trying to understand how you 
isolate the derivative counterparties versus all of the 
customers of AIG who have benefited from the action as well.
    Mr. Miller of North Carolina. The subsidiaries, the folks 
who had boring old commercial lines and personal lines, they 
are getting paid. Those subsidiaries are fine. State regulators 
make sure they are solvent. The entity that is not is the 
parent, is the holding company. My understanding, and maybe I 
need to go on your Web site, my understanding was that those 
were always almost exclusively because of derivatives, credit 
default swaps, etc.
    Mr. Kashkari. Forgive me. If we didn't put in the money to 
stabilize AIG, would all of those insurance customers still be 
getting paid?
    Mr. Miller of North Carolina. My understanding is that the 
subsidiaries were closely regulated. They are all solvent, 
fine. The problems with AIG are all the parent, the holding 
company, which is completely unregulated. Is that wrong?
    Mr. Kashkari. I believe a lot of the problems were at the 
parent. Again, even if the parent ran into trouble, that 
doesn't mean the subs would necessarily be fine. Again, when we 
try to stabilize it, we are trying to stabilize the entity as a 
whole and ultimately allow them to sell off the subsidiaries so 
we can pay back the taxpayers. It is very hard to isolate one 
business and say the money went for this, and not that. That is 
what I am struggling with.
    Mr. Miller of North Carolina. With respect to Citigroup, 
was there anything about the panicked additional $25 billion in 
guaranteeing $306 billion in troubled assets without really 
saying much about what the assets were or why they were 
troubled, was there anything about that that undermined your 
faith in the principal regulator for Citigroup?
    Mr. Kashkari. I think these are very large, very complex 
institutions, and the actions that we took for Citigroup were 
to strengthen the institution and improve confidence in the 
system as a whole. These institutions are not just there in 
isolation. A lot of times the market looks at these 
institutions in combination or in the aggregate. So we had to 
make sure confidence was there for the system as a whole.
    Mr. Kanjorski. Thank you, Mr. Miller.
    Mr. Feeney.
    Mr. Feeney. Thank you, Mr. Chairman. Mr. Kashkari, you have 
an economics background, I understand.
    Mr. Kashkari. I have a finance background, sir.
    Mr. Feeney. A finance background. The severity of the 
credit crisis today is reminiscent, certainly not as severe, as 
what happened after the October 29th stock market crash in 
America. At the time, it was a contraction in the monetary 
supply by some 33 percent over 4 years. Today, the Fed is 
easing significantly. Interest rates are next to zero, we have 
TARP trying to pour money into financial institutions, and yet 
there is more than anecdotal evidence that there is a credit 
seizure. Even banks often refusing to lend to banks, let alone 
small business borrowers, etc.
    If you are not an economist by background, you are familiar 
with the term ``paradox of thrift.'' If each of us or any 
particular institution saves, that is probably a good thing at 
a micro level; but if everybody decides to save and not lend. 
Yet, that is exactly what is happening as banks and financial 
institutions put this money in their balance sheets to firm up 
their own creditworthiness. But they are, for a variety of 
reasons, not lending to others, including a crackdown by 
Federal Reserve regulations on existing loans to businesses and 
others. There is a severe credit contraction that continues 
today regardless of what you are trying to do with interest 
rates or with TARP.
    Are you familiar with what Mr. Isaac at the FDIC did during 
the 1980's savings and loan crisis to save the credit crunch in 
the United States?
    Mr. Kashkari. I know several actions were taken, and we 
have studied many of them.
    Mr. Feeney. Well, it was successful. By the way, what they 
essentially did was take notes from banks over a 5- or 6-year 
window, and the Treasury gave, effectively, a note back. They 
were called network certificates. The importance of that trade 
was that for every million dollars, number one, the taxpayers 
got virtually all their money back. It was beautiful.
    Number two, it created $10 million worth of lending 
capability for every $1 million trade. Why we haven't used that 
as a model to save homeowners, to save small businesses and 
individuals, is beyond me. By the way, it is beyond Mr. Isaac, 
who actually saved us from severe credit problems at the time. 
I suggest that model to you.
    Since we sold this most recent bailout--by the way, I have 
been against all the bailouts. I believe this is not your fault 
or the Treasury Secretary's. I believe that you have been in 
charge of a fool's errand. Trying to micromanage something as 
complicated and centrally plan something as complicated as the 
American economy can never work, in my view. It never has 
worked. Are you familiar with the Nobel Prize winning 
economist, Mr. Hayek?
    Mr. Kashkari. With the name, but not his research.
    Mr. Feeney. Well, he wrote a book, and the title should be 
sufficient. He said that centralized planning, no matter how 
well intended, led to what he called--and this is the name of 
the book in quotes--``The Road to Serfdom.'' And bit by bit, 
that seems to be, in my view, where we are going.
    So I don't blame you. I think you have been instructed to 
lead a fool's errand. I do not think it is good for America, 
but I don't think it is because of anything particularly that 
you have done.
    I will say trying to micromanage the American economy with 
tinkering and bailing out individual institutions, and now 
going we are going on to the auto industry, apparently this 
afternoon, is a little bit like trying to manage the circus 
from the middle of the monkey cage. It may be fun, it is 
enjoyable to watch, but it is just not going to work, and I 
don't think it has ever worked for any economy on the planet in 
history. It never creates prosperity. And yet, we seem to be 
committed.
    We were told by the same people, both in the Administration 
and the leaders in Congress, that if we passed the stimulus 
package of $600 per taxpayer, including many nontaxpayers, that 
would fix the problem with the American economy. That was 8 
months ago. We bailed out Bear Stearns and AIG. We were told 
that bailing out Fannie and Freddie this summer would do the 
trick.
    By the way, Mr. Dodaro, the GAO at the time estimated that 
the likely cost of the bailout of Fannie and Freddie would be 
$20 billion. Do you know what the current likely estimate is?
    Mr. Dodaro. No, but I can do some research and provide that 
for the record.
    Mr. Feeney. I bet it is many multiples of the $20 billion. 
So, again, this is not GAO's fault. I think Congress and the 
Administration have led Americans in a direction that may be 
very difficult long term to recover from.
    There are things that we can do like managing a monetary 
supply not to create bubbles. There are things that we simply 
cannot do. Micromanaging the decisions of 300 million Americans 
and businesses and institutions is not something that 
Washington will ever do successfully, in my view. God bless you 
on your mission. I don't think it will work. I hope it does. It 
never has in history.
    With that, I yield back.
    Mr. Kanjorski. Thank you very much, Mr. Feeney.
    Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Chairman. Mr. Kashkari, 
first of all, the great concern we have is--the fundamental 
need right now are two things for us to get out of this doldrum 
that we have in our economy. One is we have to lend the money--
the banks have to lend the money. We have to get consumers to 
spend the money.
    As you well know from finance--and you are a man of 
finance--the banking system is sort of like the heart of our 
economy. Like our own heart and our own bodies, the primary 
function is to pump the blood to get throughout the body. That 
is what the banks are there for. But they are not pumping the 
blood, the money, out to the system. It is not getting out to 
the fingers, and out to the toes. It is not getting out there. 
It is not getting out to the homeowners who are hanging on by 
their fingernails, and not getting out to those people who need 
to keep their jobs. That is what we have to break through with.
    I want to deal with a couple of specific points, and I 
think that we can give you an example, and I want to get your 
answers as to how you might be able to help us to do this. For 
example, here is one example. In Atlanta, Georgia, we have the 
Hartsfield International Airport which, I am sure, if you have 
been around, everybody has gone through. It is the world's 
busiest airport. We have a great need now. We are building a 
second terminal, the Maynard H. Jackson International Terminal. 
However, without access to the short-term credit market, 
construction will stop. We need that access.
    The question is: Can Treasury make sure that the reserves 
and money and resources that are going to the banks be directed 
to unfreeze the market for State and local debt so that 
projects like this can go forward? That is nearly over 3,000 
jobs that will stop. Now, can we do that?
    Mr. Kashkari. Congressman, we are very aware of the 
challenges of State and local finance in the municipal bond 
market and we are designing programs and plans. Right now, some 
of my colleagues are trying to directly address that so we can 
get credit flowing to State and local governments for the exact 
same reason that you are saying.
    So we have ideas on how to go about that and we are 
designing our plans and getting feedback from experts in the 
market and in the industry to make sure that they will work.
    Mr. Scott. But can we not use the banking system to do 
that, for example? And you are saying, yes, we can.
    Mr. Kashkari. Well, I think that the banks have an 
important role to play. But I think that the non-bank financial 
sector is also really important, and we need to try to get both 
working.
    Mr. Scott. Let me give you an example. Right now, today, a 
bank, the major bank in Atlanta, Georgia, where the airport is, 
SunTrust Bank, is coming and asking you for an additional $1.4 
billion. Cannot you use that direction to put that marriage 
together, and cannot we use that as a pattern, that, as we go 
about getting moneys into these banks, that we systematically 
have an identification plan of which we can assist these banks, 
say, ``Okay, you want this money?''--these are taxpayers' 
dollars. They are not the bank's dollars. These are the 
taxpayers' dollars. We are the stewards of the taxpayers' 
dollars. The taxpayers want this money to get out into the 
system so they can stay in their homes, they can keep their car 
dealerships, they can keep their jobs, and we can build the 
expansion for the Maynard Jackson terminal airport.
    Or, for example, another example, at the same time in my 
district, in Clayton County, for example, we are on the verge 
of losing a hospital, because the hospital is $40 billion in 
debt to their creditors. Well, it seems to me that we ought to 
be able to--if the bank is down there--that is what I am 
saying. They are hoarding this. The communities around them are 
suffering. It is not just the homeowners who are not getting 
money; the businesses are not either.
    Can we do this?
    Mr. Kashkari. I think we can continue to encourage banks to 
increase credit. And that is what we are working on with the 
regulators, to measure that now, so we have the data to know 
what is really happening.
    But I will say I am very cautious about getting into the 
business where the Treasury Department is telling an individual 
bank, ``You should make this individual loan.'' I think that is 
a bridge too far. I don't think the Treasury Department or 
Washington is the best place to make those individual 
decisions. But we think the system as a whole should get the 
credit out to the people who need it.
    Mr. Scott. Right.
    Let me go to you, Mr. Dodaro--we have pumped $290 billion 
into these banks. Do we know how they are spending it? Do we 
have a record of where this money has gone?
    Because we have another $350 billion that we are going to 
put some halt on. I am going to do everything, I am here to 
stop any more, not another dime, going out to these banks until 
we get an accounting for how they have spent this $290 billion 
that is there. And hopefully, we can maintain a hold on this 
remaining $60 billion, since we are not using it. Or, 
hopefully, we can use it to get to Ms. Bair to help with the 
home foreclosure program.
    But could you answer that for me?
    Mr. Dodaro. Right now, there is not a systematic reporting 
process in place to report back how this money is being used by 
the individual institutions. This was our recommendation.
    Mr. Scott. And let me ask you, your primary need to do 
this, is it not that you want to use your bank regulators to 
facilitate this?
    Mr. Dodaro. We believe that structure is already in place. 
It is something to build off of. In this case, you know, you 
have a new program, you don't want to create a whole new 
mechanism. You can build off the existing structure with the 
regulators who are already involved.
    Remember, they are the ones reviewing the applications in 
the first place from the bank and making the decision as to 
whether or not the institution is financially viable and sound. 
So they have knowledge about these institutions. They collect 
information on a quarterly basis. And what we are suggesting is 
they modify their normal collection process to get more 
information back, in a more timely manner than quarterly, but 
they get the information, and it gets fed in, and there is a 
systematic roll-up of this information, as best it could be 
determined.
    Mr. Scott. Are you concerned that there may be too cozy a 
relationship that exists right now that should be re-examined 
between the bank regulators who are right there in the bank and 
the bank? Is that too close?
    Mr. Dodaro. You know, I am focused on getting the data, and 
I think that is what people want to be focused on, is getting 
the data. We trust the regulators to provide proper oversight 
of the system, and I am not questioning that.
    Mr. Scott. All right.
    Mr. Dodaro. But I do think they need to be part of the 
solution here to get better feedback on how this money is being 
used. I mean, that is what everybody wants to know. They can 
help in accomplishing that.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Kanjorski. Thank you very much, Mr. Scott.
    Mrs. Bachmann?
    Mrs. Bachmann. Mr. Chairman, thank you.
    And thank you gentlemen for being here for this long period 
of time. I appreciate it.
    I, too, voted against the bailout, and I must say that, in 
the time that we were away from this body after that vote, 
every day I was happier and happier that I had made that vote 
against the bailout. I can tell you most assuredly that my 
constituents are not happy with the bailout.
    And you are not responsible for all of them, but if you go 
back to January of 2008 and begin with the initial stimulus 
package, that was expected to be about $150 billion; it ended 
up being $168 billion. And then if you go forward from there 
and you go through the litany of all--the $29 billion for Bear 
Stearns, and then you go to the hundreds of billions for the 
Federal Home Loan Association, hundreds of billions of dollars 
for Freddie and Fannie. Each one of these initiatives, this is 
just the spring. We were told each one of these initiatives 
would help to bring about the turnaround in the economy.
    And it seemed what happened is, with each intervention, 
whether it was through the Federal Reserve or whether it was 
through Treasury or whether it was through the Federal Home 
Loan Association, each one of those measures seemed to only 
roil the stock market. So we would see increasing nosedives on 
Wall Street just as the American taxpayer was being asked to 
continually open up his or her wallet yet one more time and put 
more greenbacks on the table for troubled industries.
    After a while, as Members of Congress--and this, I think, 
is a bipartisan feel--we felt as though we were not being given 
the entire story. And that is what I think this GAO report said 
to me. When the GAO report came forward this month, I thought 
that the title said it all, ``Additional Actions Needed to 
Better Ensure Integrity, Accountability and Transparency.'' 
Literally what we saw in this report, then, was a litany of the 
shortcomings related to Treasury's lack of oversight of the 
TARP program.
    And that is something that I think that people in the 
United States right now are feeling: a real lack of security 
about what Treasury is doing. They feel there has been a lack 
of communication with this Congress. That has been itemized in 
this report that came out, that not only does the report feel 
that you have failed to communicate with this body, with the 
Members of Congress, but, in turn, with the American people. So 
they really don't know who to believe anymore.
    And that is the beauty of our country. The beauty of our 
system of government is that we govern by the consent of the 
people. I don't really believe that we have the consent of the 
people right now. And it seems to me that part of that 
responsibility must lie with Treasury, in that you have failed 
to adequately assure the public that the work that you are 
doing on the TARP program is work that is getting our country 
on the right side of the economy.
    And I don't say that in any personal way, but just that I 
believe that this report also gives backing to what I am 
hearing from my constituents. As a matter of fact, it refers to 
this as ``information gaps and surprises.'' And this 
communication, I think, is more than just irksome. I think that 
it has actually led to real market instability, where literally 
we can go 700 points up and then we can go 600 points down, 
then 200 up, then 800 down. People don't know what to do, and 
they are very frightened. And you see that even in the retail 
market for this important Christmas season.
    I, too, had members of the automobile dealers in my office 
yesterday. And they are telling me that people can't get loans 
unless they are at a 15 percent interest rate. That is keeping 
people out of their showrooms, and they are not being able to 
make these purchases.
    Now, I know that you are attempting, through your work, to 
try to bring those interest rates down. You are attempting to 
unthaw the credit freeze. But what it appears like to many of 
us is that what we are seeing over and over by government 
intervention is moving further and further away way from a 
free-market economy, not only in financial markets but also now 
in the auto industry. And there is a very real concern that we 
will not find an answer that comes with a free-market answer.
    I am wondering, will we get to that point when we return to 
a free-market economy? Or will we stay with a deep philosophy 
of government intervention at every turn?
    And so, finally, here is my question, and if we don't have 
enough time, I would ask that you respond in writing. How will 
you determine whether the capital that the government has 
injected into a specific institution is being used for lending 
purposes?
    This was one of the very concerns that I had with the 
fundamental principles behind TARP and the Capital Purchase 
Program. On one hand, government should not micromanage, and I 
believe that, the entire private banking industry. But on the 
other hand, how will you ensure that your plan achieves its 
goals so that we can actually unthaw this credit freeze?
    Mr. Kashkari. Congresswoman, thank you for the comment. I 
will say three things.
    First, remember, when we started in this hearing, the 
overall objective of our actions has been to stabilize the 
financial system and to prevent a collapse, number one.
    Number two, we are working with the regulators to design 
the right measurements to look at loan levels, to see if 
increasing in lending is taking place relative to those who did 
not take the capital over time, to judge the merits of the 
Capital Purchase Program by themselves.
    And third, Mr. Chairman, if you will indulge me for just 30 
seconds, to get some sense of the severity of this crisis, 
think about this: Bear Stearns; Washington Mutual; IndyMac; 
Fannie Mae; Freddie Mac; AIG; Wachovia; Lehman Brothers--all 
major U.S. financial institutions that have collapsed in the 
last 9 or 10 months. This is not a joke.
    Mr. Kanjorski. Thank you very much.
    Mrs. Bachmann. Mr. Chairman, thank you.
    And if I could just respond, my remarks were not that this 
is a joke. I think we all understand and take this very 
seriously, as do the American people.
    My remarks are that the American people no longer have 
confidence over how the program is being run. And the question 
again is, how will we have adequate oversight, as GAO has 
suggested Treasury needs to have, to make sure there is 
adequate communication with this body?
    Thank you.
    And, Mr. Chairman, thank you for your indulgence.
    Mr. Kanjorski. Thank you, Mrs. Bachmann.
    Now, we will hear from Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the witnesses for being so patient. I know it 
has been a long day for at least one of you.
    Mr. Kashkari, you just indicated that the overriding aim--
and I am paraphrasing--of the program was to stabilize 
financial systems or financial institutions. I think that may 
be a part of departure with reference to your position or the 
position of the Treasury juxtaposed to the position of the 
Congress. Because, in Congress, we passed the Emergency 
Economic Stabilization Act of 2008. And when we passed it, we 
included therein the opportunity for the Secretary of the 
Treasury to establish TARP, the Troubled Asset Relief Program. 
It appears to us that the CPP, which is what you established, 
the Capital Purchase Program, is a little bit antithetical, not 
that it is of no good, serves no purpose, but it is a little 
bit antithetical to where we thought we were going to go from 
our perch. Our perch gave us one vista, and yours apparently 
accorded another vista.
    The question becomes this, given that we have these two 
different propositions before us. Focusing on the concern with 
reference to toxic mortgage-backed securities, I believe you 
concur and agree that they are a part of the problem that we 
are trying to confront. True?
    Mr. Kashkari. Yes.
    Mr. Green. Okay. If they are--and we have at least one 
chairwoman, Chairwoman Bair, who has suggested that her plan 
will deal with, not in toto, but will deal with to a great 
extent toxic mortgage-backed securities. Do you concur that her 
plan does that, that it deals with toxic mortgage-backed 
securities?
    Mr. Kashkari. It certainly attempts to deal with and reduce 
foreclosures, which would help toxic mortgage-backed 
securities.
    Mr. Green. Exactly. So my question to you, and this is, to 
a limited extent, a follow-up on what Chairwoman Waters 
introduced to us earlier, and I think she was quite eloquent, 
but I do want to follow up. The question is, what are the 
deficiencies in the Bair program?
    And I ask this because, clearly, you have moved $20 billion 
from the TARP over to the Fed for the Fed to use with TALF. So 
you can move the money. There is no question about whether it 
can be moved, in my opinion, because you have demonstrated you 
can do it. It is a $200 billion program, but you are using $20 
billion just as a sort of a backstop for some of the losses.
    So the question becomes, what is the problem with the Bair 
program, if there is a problem?
    Mr. Kashkari. Sure. Thank you, Congressman.
    One of the other Members of Congress talked about competing 
interest and tensions. We have an interest to avoid preventable 
foreclosures. We also have an interest to protect the 
taxpayers.
    And one of the concerns that we have to look at very 
carefully are redefaults and what happens if borrowers 
redefault. If a borrower redefaults, that borrower is out of 
luck, because they are going to be out on the street, so that 
borrower has not been helped. If the borrower redefaults and 
then, at the same time, the costs to the taxpayer go through 
the roof, what have we accomplished?
    Comptroller Dugan, the head of the OCC, on Monday released 
data showing very high redefault rates for some types of loan 
modifications. And so one of the things we have to look very 
carefully at is, how do we make sure that the loan 
modifications are sustainable, that they are not going to lead 
to a lot of redefaults? And if there are redefaults, we don't 
want to reward the banks because the borrowers have lost a 
house. So we have to construct the right incentives so that the 
borrowers who need help are helped without creating the wrong 
incentives and rewarding the banks if the borrower redefaults.
    So there are some--Congressman, this is an issue that I 
have studied for 18 months, and it is probably the most 
difficult policy issue I have come across, is how do you find a 
program that helps the borrowers who need help without 
rewarding everybody who doesn't?
    You know, the legislation that this body, this committee 
championed, the HOPE for Homeowners legislation, was a very 
thoughtful attempt at this problem. By putting in place the 
taxpayer protections, not as many borrowers as we would like 
are getting the help that they need.
    And so, there are real tensions here that we are trying to 
work through to try to find the right solution.
    Mr. Green. Permit me to ask this. The Bair program 
contemplates, I believe, 31 percent of income as the markdown 
in terms of monthly payments, trying to get persons at that 
point, because it is perceived that if you are at that point, 
you can afford the property. So it is a restructuring program.
    That formula apparently has attracted the attention of a 
number of economists who think that it can work. What do you 
see as a problem with that formula?
    Mr. Kashkari. Well, it is not whether it is a 38 debt-to-
income or 34 or 31; different people have different views. We 
have adopted a similar approach with Fannie and Freddie, where 
they are moving people down.
    The key is, if you are putting insurance on an asset, that 
is a payout if the borrower redefaults. Think about that. The 
bank only gets a payout if the borrower redefaults. Does that 
create an incentive for the bank to encourage a default and 
foreclosure?
    So we just have to look very carefully at these incentives 
to make sure that they are aligned so that the taxpayer dollars 
are really going to help the homeowners. That is our objective.
    Mr. Green. Thank you.
    Mr. Kanjorski. Thank you, Mr. Green.
    Mr. Manzullo?
    Mr. Manzullo. Thank you, Mr. Chairman.
    Mr. Kashkari, you were asked the question about whether or 
not you thought a $3 million bonus to an executive at AIG was 
excessive. And from my understanding of the answer that you 
gave to Mr. Sherman, your answer was no. Is that correct?
    Mr. Kashkari. Congressman, my answer was I don't have a 
number in my head that says, this is an appropriate bonus 
level, and that is--
    Mr. Manzullo. Well, does anybody have a number in their 
head when we spend $125 billion of the taxpayers' money on AIG? 
Is a $3 million bonus too much to give to a person who was 
there and responsible when that company went under? Yes or no?
    Mr. Kashkari. Congressman, our track record is clear--
    Mr. Manzullo. Your track record is clear here. I want a yes 
or no.
    Mr. Kashkari. Congressman--
    Mr. Manzullo. I represent--no, let me tell you something. I 
represent a city--the largest city in my district has 11.3 
percent unemployment, $41,000 a year median income. In 1980, 
Rockford, Illinois, led the Nation in unemployment, at 25 
percent.
    I am asking you right now, and I want an answer, and there 
is a reason for it: Is a $3 million a year bonus excessive to a 
company owned 80 percent by the United States Government and 
into which over $125 billion of taxpayers' money has been 
invested?
    Mr. Kashkari. It is excessive for a failing institution, 
yes.
    Mr. Manzullo. All right. So are you going to ask for the 
money back, yes or no?
    Mr. Kashkari. Forgive me, Congressman. Which money back?
    Mr. Manzullo. The $3 million bonus that just went to the 
AIG executive. Are you going to ask for it back?
    Mr. Kashkari. Again, Congressman, I don't know the details 
of the bonus that--
    Mr. Manzullo. That is the bonus. If he got a bonus of $3 
million, are you going to ask for it back?
    Mr. Kashkari. Again, Congressman, I don't know the detail 
of the bonuses.
    Mr. Manzullo. Mr. Kashkari.
    Mr. Kashkari. Yes, sir.
    Mr. Manzullo. An executive at AIG just got a bonus of $3 
million. The three executives from the Big Three said they 
would work for a dollar a year. I am asking you, if that is the 
case, is TARP going to ask for the money back, if they got the 
$3 million bonus?
    Mr. Kashkari. Again, Congressman, I am going have to look 
into it and get back to you.
    Mr. Manzullo. Mr. Kashkari, I want to suggest something 
here. And it is not because of--maybe it is because of the 
people I represent. We can't relate to you in your world. I 
don't know where you come from or the people with whom you deal 
on a day-to-day basis, but when you sit there and cannot take a 
position as to whether or not a $3 million bonus to a failed 
company and into which the taxpayers have put $125 billion in 
assets, perhaps you are not the right person for the job. 
Perhaps you don't understand the situation at all. Perhaps we 
should put somebody in your position who is one of my community 
bankers, who understands people.
    What would you think if you earned $41,000 a year and the 
city in which you live has 11.3 percent unemployment, yes, and 
five of the last governors in the State of Illinois have been 
indicted, and you sit here in charge of all this money, and you 
can't tell them whether or not a $3 million bonus to an 
executive at that failed institution is excessive?
    Mr. Kashkari. May I answer?
    Mr. Manzullo. Of course.
    Mr. Kashkari. There have been some press reports--and, 
again, I don't know the details of the specific case you are 
referring to--there have been some press reports about AIG that 
have referred to bonus schemes. When I have looked into it and 
had our people look into it, there have been some cases where 
they had deferred compensation that was already earned by 
people, not the CEOs--
    Mr. Manzullo. Well, deferred compensation of $3 million?
    Mr. Kashkari. Remember, Congressman, we got rid of the 
management team of AIG.
    Mr. Manzullo. Well, who are these new clowns getting that 
money? Why can't you just give a simple answer so the people I 
represent can have confidence in you? We don't have confidence 
in your answer; how can we have confidence in your decisions?
    Mr. Kashkari. Because I am trying to be precise in my 
answer, Congressman.
    Mr. Manzullo. Your answer is imprecise. I don't think you 
understand. I don't think you understand at all the pain and 
the hurting that is going on in this country, of the people who 
are on the verge of losing their jobs. And you can sit there 
and not come to a decision as to whether or not a $3 million 
bonus is too much?
    If you even have to ask that question, whether it is too 
much, Mr. Kashkari, you are not the man for the job. We need 
somebody else in that position. We need somebody with the long-
term experience, somebody who has dealt with loans of ordinary, 
common people, somebody who understands the hurt that this 
country is going through, somebody that can feel their pain and 
the anxiety which they express to me on a daily basis. On the 
basis of your answer, sir, I think you should step aside.
    Mr. Kanjorski. Thank you, Mr. Manzullo.
    The gentleman from Missouri, Mr. Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Mr. Kashkari, I actually feel sorry for you. And the reason 
is that it is Mr. Paulson who needs to be in that chair.
    Do you have staff members with you?
    Mr. Kashkari. A few.
    Mr. Cleaver. Because I have been watching--I left for 20 
minutes to meet with someone. By my count, there were four 
members who asked for information to be sent back to them. And 
I watched to see if anybody on the front row was writing down 
their names and what they asked for, and I didn't see it. If I 
overlooked, if you have it, if you could raise your hands?
    You wrote it down? Okay, I just looked at the front row, so 
I didn't see you back there on the second row.
    The reason I went there is because my concern is that--and 
maybe you can answer the question--do you know why we were not 
asked to come back as a committee to hear Secretary Paulson's 
reason for diverting the money to banks? I mean, the name of 
the program is ``Toxic Assets,'' and nothing went there. So I 
have been curious as to why we weren't called. You know, there 
was an emergency need for us to gather. Do you know?
    Mr. Kashkari. Congressman, in the negotiations as we worked 
with the Congress to design the legislation, we worked very 
heard to build in flexibility because we knew the credit crisis 
is unpredictable. And so, as the crisis deteriorated in just 
the 2 weeks before when we first came to the Congress and when 
the Congress acted and then the 2 weeks that followed, we made 
rapid adjustments as facts changed on the ground. And the 
legislation provided us the flexibility that we needed to be 
nimble and adjust our strategy.
    Mr. Cleaver. Yes, sir. I was here. I try to--I have never 
missed any of our committee hearings, and I try to get here on 
time--I do get here on time.
    You are absolutely right. But understanding that this was a 
dramatic turn from what Congress approved--I was listening to 
Lou Dobbs, which is self-prosecutorial, but I am listening to 
it, and he is starting the news off by saying, ``The government 
has switched.''
    Now, I went to a town hall meeting in Belton, Missouri, 
just outside of Kansas City. There were about 125 people there, 
and they were furious because they think that I voted to 
switch. And I would dare say that the overwhelming majority of 
the people in this country believe that we voted to switch from 
what we initially said.
    And so, given the delicate nature of this, don't you think 
that we should have publicly said, ``This is the direction we 
need to go?'' I don't disagree with the direction you went. I 
mean, this is the European model.
    But can't you see--I mean, some of my colleagues, we have 
nothing in common except life, but I find myself agreeing with 
them because of the fact that we are the ones being politically 
bludgeoned. And it would have taken a call to Barney Frank. The 
Treasury did call Barney Frank. I had dinner with him the night 
that they did, the evening of the notification. But he didn't 
ask for any meeting; he told him what he was going to do.
    Mr. Kashkari. Congressman, I appreciate the feedback. And, 
clearly, we have heard the message, and we understand the 
concerns that have been raised by us adjusting our strategy as 
we move forward.
    At the same time, we have had to move very quickly, as I 
have said, and market conditions have changed so quickly. I 
feel good about the actions that we have taken, that they were 
the right actions to take to try to stabilize the system.
    Mr. Cleaver. But don't you know that we would have gotten 
on airplanes and come right back to Washington?
    Mr. Kashkari. I believe that, Congressman. And the actions 
that the Congress took in passing the legislation in just 2 
weeks is truly remarkable. The crisis was intensifying at such 
a rate that even 2 weeks may not have been fast enough.
    Mr. Cleaver. It wouldn't have been 2 weeks to get on a 
plane to come back. I don't want to argue with you about plane 
travel.
    But I would like to switch now--I have to say this because 
I am hoping the people in my district will get a chance to 
understand that we had nothing to do with this, that this was 
not a bait-and-switch on the part of Congress.
    And I want--and maybe I am wanting too much--I just want 
some understanding of why people are angry up here. And the 
reason I ask about the notes is because I didn't want it to 
appear as if we don't matter, we just do things.
    And I didn't even get into the fact that we need a de-icer 
with credit. And if we are not giving money to Chrysler 
financing and GMAC, it doesn't matter how much money we put 
into the automakers, people won't be able to buy cars, because 
right now, the credit score required to get a car is between 
700 and 725. There are people in this room who don't have that 
kind of credit score, and there is no money going into the 
entities that finance automobiles.
    I think I have run over, Mr. Chairman. I thank you for 
indulging me.
    Mr. Kanjorski. Thank you, Mr. Cleaver.
    Mr. Perlmutter?
    Mr. Perlmutter. I have a number of things, but first--and I 
didn't expect to be an apologist for the Treasury Department, 
but I do want to say that things have been moving at a clip 
that nobody could imagine. And I have been attending all of our 
hearings and hearing from different economists, from the left 
and the right and the center, who do appreciate the fact that 
the Congress acted quickly and that the Treasury is acting 
quickly to deal with some unprecedented twists and turns in an 
economy. So I do want to thank you for that.
    Now, I am going to chew you out. And the reason is--and I 
think part of Mr. Manzullo's criticisms, Mr. McCotter's 
criticisms, and Mr. Sherman's criticisms are that you have a 
massive undertaking here. You have 48 people that you have 
hired. That isn't enough. The Department of Defense, for $700 
billion, has hundreds of people monitoring how that money is 
being used.
    And so the GAO, in its report, really had, in my opinion, 
two very serious critiques. One was you don't have the staff, 
and you are having to deal with this stuff on the run. We need 
more people to be able to monitor properly how it is happening. 
And, two, there does need to be a reporting system back to you 
from the banks as to where this money is going, if they are 
just recapitalizing themselves or they are purchasing another 
bank or whatever.
    So I sent you a letter last week signed by many of the 
members of this committee. How do you respond to the staffing 
question and getting the banks to report to you how they are 
using the money?
    Mr. Kashkari. Right, both very important issues.
    On the staffing front, let me just offer a minor 
correction. When we talk about 48 or 50 people, those are full-
time TARP staff. We have well over 100 when you combine the 
Treasury personnel who are spending almost all of their time 
working on it, as well. And, as we are ramping up, we are 
hiring actively so we can replace the Treasury staff with more 
and more full-time TARP staff.
    So I don't want to leave the impression that we have half 
the staff that we need. That is just not correct. We have the 
staff. We want more and more of the full-time. And this is one 
of our highest priorities. The people who report directly to me 
are sick of me bringing up hiring, hiring, hiring. It is just 
so important, and so I am spending a lot of my time on that, 
number one.
    Number two, on the data, in terms of what the banks are 
doing, again, this is the very point that we are working on 
with the regulators, to be able to collect the data and monitor 
what is happening at the system level and at the individual 
institution level, so that we can see, are our programs having 
their desired results?
    Mr. Perlmutter. I disagree with a number of my colleagues 
who said that you were only authorized--and Secretary Paulson 
turned quickly--you were only authorized to buy the troubled 
assets. I think you were authorized under our legislation to do 
three things: One, buy troubled assets, these big portfolios. 
You were going down that path; you chose not to do it. Two, to 
recapitalize the banks. That seems to be about the thing that 
has been focused on. And then the third, which is a much 
broader kind of authority within the bill, was to use some of 
the other agencies of the government--the Small Business 
Administration, the Federal Home Loan Bank boards, the Farm 
Credit Administration--to get money down to Main Street.
    You have used the middle one, the recapitalizing, but not 
the other two. So a lot of our questions and a lot of the 
complaints that I hear in Colorado are, you know, homeowners--
one of the things you have talked about is maybe using Fannie 
Mae, Freddie Mac, or some other agency to help with purchases 
at a 4 or 4.5 percent rate. What is happening with that?
    Mr. Kashkari. Congressman, that is a program that we are 
looking at very carefully, talking to Fannie and Freddie about 
to understand how we would do it. No decision has been made 
yet, but we understand the merits of such a program to get 
people buying homes again.
    And if you will permit me--I am in no rush, I am happy to 
stay here as long as you would like--if you will permit me to 
just give a thorough answer, that leads to a broader point: We 
want to use the right tool for the right job. And the TARP is 
the only tool in the Federal Government, the only tool--Federal 
Reserve, Treasury, others--that can purchase equity. And so we 
want to use the TARP now, given the severity of the crisis, for 
what it is uniquely capable of doing and complement that with 
other tools. Fannie and Freddie are a great example--outside of 
the TARP, but potentially some powerful tools that we can bring 
to bear on this problem.
    Mr. Perlmutter. Okay.
    Next question, the Treasury and the Federal Reserve turned 
Goldman Sachs and Morgan Stanley into banks over a weekend. We 
have heard now in this committee that GMAC, Chrysler Credit--I 
don't know about Ford Credit, but at least GMAC and Chrysler 
Credit have sought bank holding status so that they could 
receive TARP funds.
    Where are you on that?
    Mr. Kashkari. First, the Treasury does not make 
determinations about who becomes a bank holding company and who 
does not. It is the Federal Reserve who does; just a minor 
clarification.
    Second, I have heard similar things, that some of these 
entities are converting to bank holding companies to try to get 
access to the TARP. They would have to go through that process, 
get confirmed by the Federal Reserve, and still meet the 
application deadlines and be recommended by their regulator.
    So I can't speak to the individual applications that you 
spoke of. I am aware of the issue. We have a process and 
procedures in place to deal with it. But, ultimately, the 
regulators are making many of the decisions about who can 
become a bank holding company and who can't, and I just don't 
know where they stand in terms of those individual 
applications.
    Mr. Perlmutter. Thank you, Madam Chairwoman.
    Mrs. Maloney. [presiding] Thank you.
    The Chair recognizes Mr. Price for 5 minutes.
    Mr. Price. Thank you, Madam Chairwoman. I appreciate that.
    I want to apologize for being out of the room for a period 
of time. I had another conflict. I know that you all are 
getting tired. I appreciate your forbearance in sticking 
around.
    I want to echo the comments of my colleague from Georgia, 
Mr. Scott, who talked about Hartsfield-Jackson International 
Airport having difficulty gaining access to credit and an 
expansion of terminal facilities that have been on the books 
for a long time. Everything was rolling along well until 
recently, and many of the institutions that they are attempting 
to get resources through are ones that have gotten funds 
through the TARP. So it is a huge question that we have about 
who is getting this money, where is this money going.
    To that end, anecdotally, a constituent of mine owns a 
company that sells water utility software to governments and 
municipalities to help them comply with EPA regulations. This 
company has created 10 new jobs in the last year; it is growing 
about 50 percent each year. Recently told me about, in their 
next move to expand, he has gone to eight different banks to 
attempt to obtain credit. Three of these have received in 
excess of $30 billion through the TARP. At every turn, he has 
been told no.
    Where is this money going?
    Mr. Kashkari. Congressman, it is not surprising to see 
that, with confidence still low, both fears of the credit 
crisis and the economic downturn, that banks are cautious about 
extending credit. And I hear the same anecdotes you do. Many 
people call us, saying, ``We need credit, we need help.'' And 
so the best we can do is to work with the regulators to make 
sure the banks are making prudent lending decisions.
    It is a delicate balance, because we don't want to go to a 
bank and say, ``You must make more loans even if you don't 
think those are good loans.'' We don't want to return to the 
bad lending practices that got us here in the first place. And 
so, how do we strike the right balance of encouraging the banks 
and pushing them to make prudent loans without taking on undue 
risk? And the regulators are looking at this. They put out a 
joint statement of how they are going to be supervising all 
banks.
    You know, all banks in America have benefited from the 
actions that we have taken, not just those that we have 
invested in. And they all have an obligation to extend credit 
in their communities.
    We are very focused on this, but I don't think it is going 
to happen as fast as you or I would like. But it is going to 
happen faster than had we not taken this action.
    Mr. Price. I am not certain of that. But do you have a 
list, of the money that has been let, of the credit that has 
been provided?
    Mr. Kashkari. Of the investments that we have made, we 
have.
    Mr. Price. Not of the investments you have made; of the 
next step. That money is going out to whom?
    Mr. Kashkari. Not yet. That is part of what we are working 
on with the regulators for the data that they collect, to try 
to aggregate, you know, the banks that are receiving the 
capital, are they loaning versus the ones that aren't. I don't 
know if we are ever going to get to the point of, you know, 
``These 10 loans were made to these parties.'' That may be one 
layer too deep.
    Mr. Price. Has any credit been extended out of the TARP 
funds?
    Mr. Kashkari. You mean have any of the banks that have 
received TARP capital made loans? Sure.
    Mr. Price. How do you know?
    Mr. Kashkari. I hear from firms who are getting new loans. 
I hear from banks that are making credit. It is not that banks 
aren't making any loans; they are just not making as many loans 
as they used to make.
    Mr. Price. Is that information that you are able to provide 
for us?
    This fellow has a perfect credit score; his partners have a 
perfect credit score. Six months ago, he would have signed for 
a loan with his own signature. Now he has gone to eight banks 
and can't get any money. How is he supposed to expand his 
business? How are we supposed to move the economy?
    Mr. Kashkari. Congressman, that is exactly why we are 
working as hard as we are, to try to get credit flowing again. 
We agree with what you are saying and why this is so vitally 
important to get credit out to the businesses and the consumers 
around the country that need it.
    Mr. Price. Let me respectfully suggest that this whole 
process, frankly, is absolutely predictable. To put $350 
billion on the table and have the Federal Government be in 
charge of keeping track of that $350 billion, which it has a 
difficult time doing, which continues to extend the time when 
private capital gets into the mix, because they are not certain 
how much more Federal capital is coming, that respectfully I 
would suggest that we are deepening the hole and lengthening 
the time before recovery.
    This fellow's example is all across this Nation, of private 
individuals who had no difficulty getting capital before. And, 
because of the, at least in some instances, the infusion of the 
rules and regulation morass that has gone on, he now cannot 
obtain any money at all.
    Mr. Kashkari. But forgive me, Congressman. We may just have 
a different view on this. Do you believe that, absent the 
actions that we have taken, he would have been able to get a 
loan?
    Mr. Price. I think that, with the control of the Federal 
Government at the pursestrings of this process, that we have 
deepened the hole and lengthened the process to recovery. I 
have no doubt about that. I think that has been demonstrated in 
previous actions, and I think it has been demonstrated in other 
countries.
    Mrs. Maloney. The gentleman's time has expired. But, Mr. 
Kashkari, if you would like to respond, it would be 
appropriate.
    Mr. Kashkari. I am okay. Thank you.
    Mrs. Maloney. Okay.
    Congressman Donnelly?
    Mr. Donnelly. Thank you, Madam Chairwoman.
    And thank you, Mr. Kashkari.
    Thank you so much, Mr. Dodaro.
    We had sitting in those seats a week ago the CEOs of the 
auto companies, just as was being mentioned. And they said to 
us, ``Our financial companies have applied for TARP funds; we 
cannot get an answer.'' And, as you well know, we have a crisis 
in this country with these companies.
    And I was with dealers last week who said, ``I can't get 
these auto financial companies to provide us with funds for 
loans.'' And so, they can't get an answer, and it appears that 
we don't know where their application is in the process.
    Now, I would suggest that this is a matter of utmost 
urgency, that we try to make a decision on this. And so, who 
would know where their applications are in the process?
    Mr. Kashkari. Congressman, as the gentleman behind you 
raised, I think in these cases it is a two-step process. One is 
becoming a bank holding company--
    Mr. Donnelly. Right. And I am trying to find out who would 
know, in the two steps, which step they are at today.
    Mr. Kashkari. That would be the Federal Reserve would be 
making determinations for firms who are becoming bank holding 
companies, number one. And then, second, the Federal Reserve 
would then receive their application for the Capital Purchase 
Program and submit it to Treasury. And so, you know, we can 
call the Federal Reserve--
    Mr. Donnelly. So are you saying it is still at the Federal 
Reserve level right now?
    Mr. Kashkari. To the best of my knowledge, Congressman, but 
I can go back to our shop and--
    Mr. Donnelly. Is there someone in your shop who could get 
that information to us by tomorrow at this time? Because this 
truly is a matter of national urgency.
    Mr. Kashkari. Yes. We agree with you. And that is why 
something we spoke about earlier, the TALF program, is targeted 
specifically at consumer credit, such as auto loans, to bring 
rates down for borrowers.
    Mr. Donnelly. And that is a great number-two hitter. Now, 
the number-three hitter is getting these approvals done for 
TARP funds. And so, we are thrilled to have that coming along; 
we want to have that done. Now we have to get this done. And it 
seems to me what we have to do, more than anything, is find out 
where in the process it is. So somebody knows, and--
    Mr. Kashkari. Sure. We will find out and get back to you 
tomorrow.
    Mr. Donnelly. If you could call me back tomorrow to let me 
know.
    Mr. Kashkari. I will.
    Mr. Donnelly. So we can give those three folks who were 
sitting here an answer, and all the car dealers around this 
country an answer, so we can find out when will these 
applications be approved. And the sooner, the better, because 
we are in a crisis situation on that.
    I also have the privilege of representing a number of 
recreational vehicle companies, who came to me in the last few 
weeks and said, ``Our funding has completely dried up.'' The 
people who were providing them credit for floor planning and 
other purposes called and said, ``We just don't have the funds 
anymore. There is no credit that is going to be available.'' 
And they said, ``Without that, how do we operate a business?''
    So the next set of funds that comes along, the $350 
billion, can it be put into anybody you give those funds to 
that they have to sign to agree to put, for every dollar they 
receive, at least $1 out in lending? Can that be made part of 
your program?
    Mr. Kashkari. We have looked at rules such as that. And, in 
fact, by going with capital, if you will permit me for just a 
moment, many of these banks are leveraged, you know, say, 10 to 
one. So you put in a dollar of capital, you could get many more 
than a dollar of loans out the door.
    Mr. Donnelly. Absolutely, but we can't even get the first 
dollar.
    Mr. Kashkari. Well, I think it is too soon to say that, 
Congressman, again, because we have an economic downturn at the 
same time. And so it is hard to judge how many loans would be 
made today had we not taken these actions.
    Mr. Donnelly. I understand that.
    Mr. Kashkari. So, going forward, we are going to continue 
to look at the best way to get credit flowing in our economy.
    You know, if you will just indulge me for a second, my 
phone rings off the hook. People around the country are calling 
me, businesses, municipalities, saying, we need help, we need 
help. If we took the $700 billion and went out to everybody 
individually, every business and every family who needs help, 
it wouldn't go very far. We are focusing the $700 billion on 
the financial system as a whole, so, by stabilizing the system, 
we can then get credit flowing out to everybody who needs it.
    Mr. Donnelly. But with $350 billion sitting there, isn't 
there something that can be done where we say, ``If you want 
these funds, you have to show us that at least an equal or more 
significant amount due to leverage has been loaned out?''
    Mr. Kashkari. I think that is something that we can look 
very hard at. I don't want to overcommit, just because we 
haven't seen the details. But I think it is something that we 
can and are looking very hard at.
    Mr. Donnelly. Well, thank you.
    And thank you both for your time and for hanging in there 
with us today.
    Mrs. Maloney. Congressman Foster?
    Mr. Foster. Thank you again for your time. I really 
appreciate it.
    Let's see. I would also like to say that I think some of 
these claims that there is some sort of bait-and-switch or 
bamboozling going on on your part, I think, are really 
unwarranted. You know, the option of recapitalizing 
institutions was explicitly discussed during the debate. I know 
in my testimony in front of this committee, in my debate on the 
Floor before the thing was voted on, you know, this was an 
explicitly discussed option. And the Members who have said that 
somehow you have sprung this on them I think were either not 
paying attention to the debate or maybe not reading what was 
actually passed. So that is just a comment.
    One related thing, though, is that we made the decision in 
the legislation to specify preferred shares rather than real 
equity with voting rights. And I was wondering, in retrospect, 
given the problems that have arisen in trying to get the banks 
to directly loan out the money that we have injected into them, 
whether in retrospect we would have been better off following 
more exactly the Sweden model that this is, basically, and 
taking real equity stakes.
    Mr. Kashkari. It is a tough question. I don't think--in my 
judgement, there is not a clear answer. There are some 
advantages of common stock versus preferred shares, clearly. At 
the same time, as I spoke about earlier in the hearing, you 
know, we want healthy banks to volunteer for this. And if the 
price tag of volunteering to take more capital was more control 
from Washington, it is unclear that we would have thousands of 
banks across the country volunteering to take the capital. So 
there is a tension.
    Mr. Foster. Okay.
    And the second thing, I guess for both of you, you had 
mentioned two metrics, the TED spread and the LIBOR-OIS spread, 
as ways to tell that you have really unlocked at least the 
interbank lending part of this thing. And there are problems 
with both of these as metrics. You know, the Treasury rate is 
being depressed by this flight to safety and so on.
    And I was wondering, is there really some combination of 
metrics that will give us a better feeling than these sort of 
simple things that we are talking about now?
    Mr. Dodaro. Yes, Congressman. I mean, actually, what we are 
developing is sort of a set of metrics where you can look at a 
number of them to draw some overall conclusions. And in 
addition to the ones that you mentioned, we are looking at 
foreclosure rates, for example, mortgage origination rates to 
see if there is new lending in the mortgage area. So we are 
going to be continuing to develop those sets of indicators. In 
our future 60-day reports, we expect to flesh those out more.
    Mr. Foster. Okay.
    And then my final question is about the municipal bond 
market. One of the most painful aspects of the shutdown is that 
this is $2.7 trillion of the whole size of the market, and 
hundreds of billions of dollars of what would be called 
stimulus projects--you know, these are things that 
municipalities want to spend money on--are being held up by the 
lock-up in the municipal bond market.
    And I was wondering if you have any specific ideas in mind 
about how you might go about helping to unlock this market?
    Mr. Kashkari. We have a team of folks who are looking at 
that market specifically, everything from looking at the 
insurance companies that provide reinsurance on these or 
insurance for these--
    Mr. Foster. Have you considered recapitalizing them, for 
example, or allowing them to sell insurance that has a 
government backing of some kind?
    Mr. Kashkari. There are proposals out there that we looked 
at in terms of recapitalizing them, proposals in terms of 
setting up new firms that don't have all of the tainted legacy 
business. There are some proposals out there on government 
guarantees.
    You know, the guarantee portion of the Troubled Asset 
Relief Program is we have an insurance program now. I am not 
sure that that would be the right vehicle to solve this 
problem. I think that there are a few ways you could go at it, 
and we do have people looking at it, because we hear the same 
thing you hear. It is a very important issue.
    Mr. Foster. Well, it strikes me as a very high-leverage 
application of your funds, because these things--you know, the 
frustrating thing is these things have a near-zero historical 
default rate, and there is no reason for these not to be 
trading. And it is very frustrating, and it seems like there is 
some hope that a very limited application of recapitalization 
might have a huge effect.
    Mr. Kashkari. It is a fair point. I think we share some of 
those views and are just trying to look at the details, and 
also in light of the available TARP capacity and the other 
projects that we are working on. We are putting together a 
suite of options. But we have people who are on it.
    Mr. Foster. Okay.
    And I just thought I would say I am tremendously impressed 
by both of your organizations. It is a heck of a situation we 
are in. And best of luck to you.
    Mr. Kashkari. Thank you.
    Mrs. Maloney. The gentleman's time has expired.
    I would like to be associated with the remarks of my 
colleague that underscores that, from the beginning, many 
members of this committee and in the Joint Economic Committee 
called upon Treasury to recapitalize the financial system, to 
protect the equity of taxpayers' funds with preferred stock, 
and that this was an alternative or the goal of many European 
countries during this crisis.
    The number-one question that I am asked--and I would like 
to conclude the hearing with this. I voted for the bailout 
because the Secretary of the Treasury and the Chairman of the 
Federal Reserve said that, if we did not vote for this bailout, 
or this rescue plan, that we would not stabilize our markets, 
that we confronted a possible failure of our financial 
institutions, and, really, the alternative was unacceptable, 
and the pain and suffering of taxpayers, our constituents, and 
the American public would be far greater.
    Yet the questions that are raised at this hearing today, 
that are continually raised by the press, or some of the press, 
and by the general public is that the rescue plan was not 
needed.
    Given the advantage of your position and what you continue 
to do and the startling fact that one weekend we had four 
investment banks, at the end of the weekend there were none 
remaining, and the fact that some of our major and most 
respected banks have failed or been forced into merger, I would 
like to ask the most often asked question I receive, whether it 
is in the grocery store, on the street, or from major media.
    What would have happened to our great country if this 
Congress had not supported the President of the United States 
and the Secretary of the Treasury, who called upon us to react 
with assistance to our financial institutions?
    I would like both of you to respond, starting with you, Mr. 
Kashkari.
    Mr. Kashkari. Congresswoman, it is a great question and 
very hard to answer. The best I can do is to try to give 
examples of what might have happened, examples I mentioned 
earlier.
    Imagine if your constituents couldn't get access to their 
401(k) plans, or they couldn't get money out of their checking 
accounts. It is possible, if their banks were failing. Their 
life savings could go way down, and just a complete freezing of 
the basic money flow in our economy. It could grind to a halt.
    I mean, the downside was enormous. It is easy to make hard 
decisions when the consequences of inaction are so great. And I 
don't know what else to say other than that.
    Mrs. Maloney. Mr. Dodaro?
    Mr. Dodaro. The focus of our efforts has been on how the 
TARP program has been implemented. We haven't looked at, as I 
mentioned earlier, the Federal Reserve's activities, because we 
are really not statutorily allowed to provide that oversight. 
So I am really not in a position to offer an informed view in 
that regard.
    Clearly, there were risks. Clearly, there were actions 
taken. Clearly, there were unanticipated events. And it is just 
not possible for me, at this point, to analytically provide an 
informed view.
    Mrs. Maloney. Well, I want to thank both of you for your 
testimony today and for your public service. I am deeply 
grateful, and I believe the American public is. So thank you 
very much.
    And, certainly, confronting the economic challenges of our 
country is a bipartisan--really the most critical issue that we 
confront in our country. I am proud of my colleagues on both 
sides of the aisle that supported President Bush, Secretary 
Paulson, the Chairman of the Federal Reserve, Mr. Bernanke, and 
many others who said, if we did not support this infusion of 
taxpayers' money, the consequences would have been 
unimaginable.
    Thank you for your service. Thank you for your testimony 
today.
    Our next panel consists of Elizabeth Warren, who is the 
Gottlieb Professor of Law, Harvard University, and Chair of the 
Congressional Oversight Panel under the Emergency Economic 
Stabilization Act. We welcome you today, and I have been told 
you were voted Chair of that oversight board. We look forward 
to your testimony.

 STATEMENT OF ELIZABETH WARREN, LEO GOTTLIEB PROFESSOR OF LAW, 
 HARVARD UNIVERSITY, AND CHAIR, CONGRESSIONAL OVERSIGHT PANEL 
         UNDER THE EMERGENCY ECONOMIC STABILIZATION ACT

    Ms. Warren. Thank you, Congresswoman. Chairwoman Maloney, 
Members of Congress, my name is Elizabeth Warren. In my real 
life, I am the Leo Gottlieb Professor of Law at Harvard. Two 
weeks ago, I became the Chair of the Congressional Oversight 
Panel. Mr. Damon Silvers from the panel was here earlier, but 
he was called away on panel business. Mr. Neiman, who is State 
banking regulator for the State of New York, couldn't be with 
us because he is off regulating banks. And Congressman 
Hensarling you have heard from, and I believe he has been 
called away. So I am your panel for now.
    You know the statutory history of this panel. It is yours. 
The panel was given power to hold hearings, to review official 
data, to write reports, to review the TARP program, and to 
provide regulations for regulatory reform. I just want to make 
clear as we start, we had our first meeting literally 2 weeks 
ago today. So we are a committee that is now 14 days old. I 
don't know if that is a special anniversary, but I at least 
want to make sure we are clear where we are on this timeline. 
At this moment, we are struggling even to get temporary office 
space and computers, phones, and fax machines up and running. 
But we have met with the representatives of the Treasury 
Department, the Treasury Inspector General, the Federal Reserve 
Bank, and the GAO. We have read documents, we have requested 
information, and we now have two things. We have our first 
report to Congress, trying to meet our statutory obligations to 
you, and we have a Web site. We have a Web site so that we can 
give American people a chance to participate in our 
investigation and our oversight activities.
    In the report, which all of you now have copies of, we ask 
a series of questions about the TARP program. These questions 
are not abstract. They are not complex. They are questions much 
like the questions you have been asking today. We asked them 
publicly. We lay them out there. We publish them. They are 
tough questions. The questions are our best effort to capture 
the very real concerns and skepticisms of the American people. 
I will tell you just the highlights. We have 10 questions. What 
is Treasury's overall strategy? Is the strategy working? How 
are taxpayer dollars being used? Are the banks actually lending 
or are they holding onto this money or buying things with it? 
Is the public receiving a fair deal? What is the Treasury 
Department doing to help the American family and small 
businesses, thinking about the connection between, as you 
described it, the real economy and what is happening with 
banks? Is Treasury imposing reforms on financial institutions 
that are taking taxpayer dollars? How is Treasury deciding 
which institutions get these dollars? What is the scope of 
Treasury's statutory authority? A lawyer's question.
    And the final one, is Treasury looking ahead, making any 
effort to prepare for the next economic difficulties over the 
timeline of days, weeks, or months? These questions drive our 
first report, and they also drive our work on behalf of 
families, workers, small businesses, and, most importantly, 
taxpayers. To that end, our first priority, along with issuing 
this report and trying to give another frame to the questions 
you have been so carefully asking, is this opening a line of 
communication for all Americans.
    Today is the day our Web site goes live. It is COP, which 
is C-O-P for the Congressional Oversight Panel, COP.Senate.gov. 
It is a rudimentary site. We haven't had time to put all the 
bells and whistles on it. So I ask people to bear with us. But 
it be will a place where we can post our reports and the data 
that we are able to collect. More importantly, it will be a 
place where people can talk back. They can explain how they are 
experiencing the current economy, what experiences they have 
when they are trying to borrow money. They can discuss the 
questions that we pose in the report. And they can pose their 
own questions, telling us what answers we should seek when we 
ask questions in their name. We expect our oversight to be 
stronger and more meaningful because of the input of people 
across the country.
    As we gather more information, we will issue two more 
reports in January. On January 9th, the oversight panel will 
release its next report on the administration of the TARP 
program. On January 20th, the oversight panel will release a 
report providing recommendations for reforms to the financial 
regulatory structure. In other words, we will be running very 
hard over the next 40 days, but this is your will under the 
statute.
    As you know, recent headlines show a grim economic picture. 
The recession has now visited every household in this country. 
The unemployment rate is the highest it has been in 14 years. 
One in 10 homeowners is now in default or foreclosure. Retail 
sales continue to fall. Credit card defaults are rising. And 
the savings rate is hovering near zero for individual families. 
More than 100,000 families last month headed into the 
bankruptcy courts.
    Over the past 2 months, Congress and the Administration 
have proposed and enacted a series of measures in an ongoing 
attempt to turn the tide in this crisis. Americans are watching 
Washington's every move with a mixture of great hope and great 
concern. We hope in this time of great crisis that your 
Congressional Oversight Panel can be helpful. I will take your 
questions in any way I can.
    Mrs. Maloney. First of all, I want to thank you for your 
testimony and your hard work, and for assuming this critically 
important oversight position. As you could tell, and I noticed 
you were here for the entire hearing--
    Ms. Warren. Yes, ma'am.
    Mrs. Maloney. --many of my colleagues, including myself, 
were very concerned about getting credit out into the 
community. We appear to have stabilized our financial markets. 
I would like your comments on whether or not you agree that we 
have accomplished that goal. And could you comment on programs 
or ways we can get credit out into Main Street? We have helped 
Wall Street. What are we doing to help people buy cars, and 
purchase homes? I like the proposal from Treasury that they are 
studying of a 4.5 percent interest rate over 30 years to start 
moving our housing program. I would like to hear your comments 
on that and any other ideas about getting credit into Main 
Street. They testified, and we need to work on really an 
accounting system so that we can understand where the money is 
going. We have put out $7.8 trillion, and still people say that 
interest rates for cars are at 14 percent, which is 
unaffordable for most Americans, and many people cannot get 
mortgages for their homes with a 30-year mortgage.
    Could you comment on steps we need to take now?
    Ms. Warren. It would be premature for me to make specific 
recommendations, but I would turn to page 19 of our report. We 
actually had a little bit to say about this. The reminder that 
our friends in Great Britain faced a similar problem, and they 
were quite explicit up front. The money was given to financial 
institutions in return for the financial institutions to lend 
to small- and medium-sized enterprises. It was an explicit quid 
pro quo from the beginning. There have been measurements of 
what was your lending a year ago at this point and what is your 
lending now. Recapitalized banks, as part of their obligation 
in receiving funds, have to turn around and put those funds 
back into the economy.
    I mention this by way of saying that is not an entirely 
novel idea. It is one that has been tested somewhere else and 
seems to be working at least with some success. So there are 
ways to measure this. It is not impossible to measure what is 
happening to lending volume and to put metrics in to compare 
lending volume now with lending volume by the same bank or per 
dollar capitalized in the past. And this may be something that 
it will be appropriate to at least continue to question 
Treasury vigorously about.
    Mrs. Maloney. Thank you. Debated before this committee was 
the wisdom of buying toxic assets. Many people believe that 
following the model in Great Britain of saving our financial 
institutions and recapitalizing was a better way to go, with 
preferred stock to protect taxpayers. One of the problems with 
buying the toxic assets is no one knows the value of them. And 
if no one wants to buy them, why in the world should the 
American taxpayer buy them? It appears to me that it would be 
wiser with this money to try to infuse lending and help the 
economy with lower car loan rates, with lower interest rates to 
refinance homes and to purchase homes. In other words, getting 
the money into the community, as opposed to buying toxic 
assets, that was by all accounts a mismanagement, in some cases 
abusive, scandalous practice that some of our financial 
institutions engaged in, creating and selling these assets.
    So could you comment on the policy of buying toxic assets? 
Are any of our European allies buying toxic assets during this 
global economic crisis?
    Ms. Warren. No, Congresswoman, but I want to actually seize 
on a central point that you make there. It is not possible to 
save banks if families and small businesses fail. The banks 
don't exist independently. There is no such creature. And so 
the idea that we focus exclusively on banks, without making 
this part of a more comprehensive plan to look at what is 
happening in the mortgage market, obviously, with foreclosures 
and how foreclosures are dragging down the whole economy, and 
what is happening in all other forms of the economic health of 
the American family.
    I recognize that Treasury has a limited portfolio. It has a 
limited number of dollars it can spend in targeted areas where 
it is authorized to spend it. Nonetheless, that is not a reason 
not to think through a more comprehensive way of thinking about 
the question of how we will make sure not just that credit 
flows to the American family and to small businesses, but that 
they are healthy, that they actually have an opportunity to 
borrow at reasonable rates, but that they also have manageable 
economic lives. If they do not, we cannot save banks without 
saving these families and businesses.
    I really want to emphasize that tie-in. I heard that in 
your question.
    Mrs. Maloney. Well, thank you very much. My time has 
expired.
    Congressman Mel Watt.
    Mr. Watt. Thank you, Madam Chairwoman. Thank you for being 
here, Professor Warren. Let me just ask a couple of technical 
questions first. I noticed that Representative Hensarling is on 
this oversight committee. I assume he is not going to be 
working at this full-time. Are any of the members of this 
oversight committee planning to do this full-time or is this a 
part-time job?
    Ms. Warren. Congressman Watt, I was told explicitly that 
this is a part-time job. And I believe that was the case for 
the other members of the committee.
    Mr. Watt. Then that raises the second question I have, is 
the extent to which this can be really taken seriously. So let 
me ask the question this way. We didn't seem to get many 
concrete responses to our inquiries as Members of Congress 
today. Have you all discussed what I anticipate will be a 
problem, what you will do if you don't get concrete answers to 
the questions that you have posed about this program?
    Ms. Warren. Well, Congressman, as I see it, this panel is--
we work for you, and if we don't get the answers we need--
    Mr. Watt. Statutorily, what authority do you have to insist 
on being taken seriously and on getting the kinds of answers to 
the questions that you have raised?
    Ms. Warren. Statutorily we can hold hearings and we can 
make requests. Otherwise, we can only come and talk to you.
    Mr. Watt. Subpoena power?
    Ms. Warren. I don't believe so.
    Mr. Watt. Okay. All right. On page 35 of your report you 
talk about some things, future oversight activities, and the 
final one of those is public participation and comment process. 
Let me ask whether you open the possibility there of this being 
simply a popularity contest, a public opinion poll, or, again 
in the context of being taken seriously as a serious oversight 
body, I hope we are not setting up a structure where basically 
people have the opportunity to vent about their pet peeves 
about the program as opposed to making a concrete effort to 
make the program work. What did you have in mind when you 
proposed this public participation and comment process?
    Ms. Warren. It is my understanding that Treasury said the 
one thing we need is more confidence. We need confidence so 
that the American people can believe we are back on the right 
track, that money is being spent in a responsible way, and that 
we can all get out there and do our jobs and borrow and buy and 
pay debt off and try to stabilize ourselves financially.
    Mr. Watt. That is all very good, but if the bulk of the 
oversight board's responsibility is to take and assess public 
comments, I can tell you I love public comments, I have an open 
phone policy in my office, so I probably get more of them than 
most people do, but it is very time-consuming and not always as 
substantive as--you know, people like to vent, and they will 
use this as an opportunity. So I want to make sure that the 
bulk of the oversight board's time is not being spent doing 
public relations as opposed to serious evaluation and analysis 
of what the Treasury and this Administration and the next 
Administration are doing with these funds as opposed to, you 
know, just kind of making people feel good, which serves an 
important purpose, but I would like--I think Congress viewed 
this as more a substantive role than a public opinion outreach 
process.
    So I will just leave you with that. That is not a 
criticism. I am just giving you a real concern that I have. And 
it probably doesn't even require a comment, but my time has 
expired and I will yield back.
    Mrs. Maloney. The Chair recognizes Congressman Miller from 
North Carolina.
    Mr. Miller of North Carolina. Thank you. Professor Warren, 
I earlier asked Mr. Kashkari about AIG, and to a lesser extent 
about Citigroup, but my questions have to go more broadly to 
transparency and accountability, the whole program, whether the 
American people really know how their money is being spent and 
whether it is being spent for a proper purpose. Mr. Kashkari 
said several times in his testimony that he believed that AIG 
would return--was viable, would return to profitability or 
solvency at least, and that we would get all of our money back. 
But when I asked about what kind of due diligence there had 
been, what we knew about the financial condition of the parent, 
the holding company, which seems to be where all the problems 
were, there wasn't a regulator to provide us any information at 
all. And he said there were two reasons for the companies that 
got the TARP funds. One was that they were viable, that they 
were healthy, that they could use the money to lend and 
encourage other economic activity; and then second is systemic 
risk. And it appears that AIG is all about systemic risk. That 
if they disappeared as a counterparty in derivative contracts 
and credit default swaps, which is a derivative contract, that 
there were lots of other financial institutions that would be 
out a lot. And it was really about helping them, not 
maintaining AIG as a viable business, that we intervened in 
AIG. I asked him about the financial institutions that were the 
counterparties. And he said essentially that we didn't know 
exactly who they were. Is that credible? Do you know who they 
were? And do you think we should know?
    Ms. Warren. I do think we should know. AIG must have 
records on to whom this money was paid, who the counterparties 
were. Now, I want to be fair, sometimes they are held in street 
names. It is not always entirely, entirely clear, but one can 
certainly make an inquiry in the initial transaction.
    Mr. Miller of North Carolina. Can you make that inquiry? 
Have you made that inquiry?
    Ms. Warren. Yes, sir.
    Mr. Miller of North Carolina. Will you make that inquiry?
    Ms. Warren. We will make that inquiry.
    Mr. Miller of North Carolina. Okay. The money that we have 
distributed, the capital infusion we have gotten something 
from. We were told, Congress was told, and we told the American 
people this was not a giveaway, this was a reluctant loan, it 
was an investment, and we meant to get our money back. If AIG 
is not realistically viable, if they are never going to return 
to solvency, if the real reason we are doing it is to pay off 
these credit default swaps, these derivatives, that feels like 
a giveaway. Should we be getting something from the businesses 
that are getting paid on derivative contracts?
    Ms. Warren. They certainly are profiting from our money, 
and I think it is an appropriate inquiry.
    Mr. Miller of North Carolina. As to Citigroup, I know that 
there was a regulator that we could rely upon for Citigroup, 
but the regulator initially urged $25 billion, and then 2 weeks 
after Secretary Paulson said that all the major financial 
institutions were now okay, there would be no others that would 
collapse, we had another one of those fevered weekends where we 
tried to strike a deal before the Asian markets opened and put 
another $20 billion into Citigroup and guaranteed $306 billion 
in troubled assets. Do you know what the assets were and why 
were they troubled?
    Ms. Warren. No, I do not. We will be asking.
    Mr. Miller of North Carolina. Okay. I yield back the 
balance of my time.
    Ms. Warren. Thank you.
    Mrs. Maloney. I thank the gentleman, and would like to note 
as to his question at the last hearing Chairman Bernanke said 
he would submit to this committee the counterparties for the 
AIG money. He also testified that in the swaps there are two 
types, one with assets, one that is basically just gambling, 
and that we should not in any way be, in my opinion, rewarding 
gambling. But he said there was no way for a distinction 
between those two--yes.
    Mr. Miller of North Carolina. Actually, I do have one more 
question. I know that I yielded back, but I would unyield. Do 
we know if AIG has stopped the business of writing derivative 
contracts or credit default swaps where no party to the 
transaction has an interest in the underlying asset?
    Ms. Warren. No, Congressman, we don't know that.
    Mr. Miller of North Carolina. There is no readily apparent 
social utility for that practice, at least to me. One of the 
tasks of your oversight panel is to look at reforming business. 
Do you see any value in their writing credit default swaps or 
other derivative contracts on--
    Mrs. Maloney. The gentleman's time has expired, but please 
respond, Professor Warren.
    Ms. Warren. I have a great deal of difficulty understanding 
the social utility of a credit default swap when there is no 
underlying transaction for which either party has any 
connection, any financial connection. I want to be educated in 
this area, but I confess to deep skepticism.
    Mr. Miller of North Carolina. Okay. Can you find out if 
they are still doing it?
    Ms. Warren. We certainly will. I will put it on the list.
    Mr. Miller of North Carolina. Thank you.
    Ms. Warren. Thank you, Congressman.
    Mrs. Maloney. And a further follow up is should taxpayers' 
money be spent for basically gambling on something that has no 
underlying asset?
    The Chair recognizes Mr. Cleaver for 5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman. Thank you, 
Professor, for being here. And it has been a long day for you.
    Ms. Warren. It has.
    Mr. Cleaver. When we designed the Emergency Economic 
Stabilization Act, we expanded the scope of the definition for 
financial institutions, and it was my interpretation of that 
expansion that we went beyond traditional banks, beyond credit 
unions. And I believed at the time that the bill had been 
drafted to include the automobile financing arms. In my 
district, I have two automobile manufacturing plants. It makes 
no difference if they have capital to continue to operate if no 
one is buying the cars. I know in your role, and I am thankful, 
as I hope all Americans are, for your service and your 
willingness to serve in this capacity at a time like this, but 
I am somewhat disappointed, and hopefully as you look at this 
through the Oversight Committee that you would seek to 
determine whether or not, in providing oversight, that 
attention is being given to what I think is rather explicit in 
the language of the legislation. Is it your understanding about 
the expansion of the definition, the scope of the definition?
    Ms. Warren. I have to say at this moment, Congressman, that 
this is one of the questions we have addressed. I think members 
of the panel may have very different views on this. But it is 
certainly a question we will be exploring. And that is the best 
I can do at this moment. We have only been here 14 days.
    Mr. Cleaver. No, I understand. I appreciate it.
    Ms. Warren. But I very much hear your point.
    Mr. Cleaver. Yes.
    Ms. Warren. I want you to know I am hearing.
    Mr. Cleaver. Thank you. I don't want to overstate it.
    Ms. Warren. No.
    Mr. Cleaver. I am just very, very concerned about what is 
going on with regard to the financing arms.
    Ms. Warren. I understand.
    Mr. Cleaver. If they don't finance the purchase of a car, 
we are in trouble. And most people right now can't get it. I 
have a friend who sells cars. He has been told, don't even 
submit an application of a score under 700.
    Ms. Warren. Wow. That is a very high number.
    Mr. Cleaver. And GMAC admitted to me that is exactly where 
they are.
    Ms. Warren. Yes, Congressman. I certainly hear the point.
    Mr. Cleaver. Thank you.
    Ms. Warren. Thank you.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    Mrs. Maloney. Thank you. We have been called for a vote. So 
the last question will be Congressman Foster.
    Mr. Foster. Thank you for hanging around for this. And I 
would like to say these are spectacular questions. You know, if 
the quality of the questions coming from this committee were a 
fifth the quality of these, I would be proud to be a 
Congressman. And let's see, one question, is the staffing 
situation and the support you are getting adequate for your 
job?
    Ms. Warren. Wonderful. We have received terrific support 
from the people here in Congress. It is literally just a 
problem of we were trying to write the report at the same time 
we were trying to buy the fax machine. You know, I feel like I 
am flying an airplane and trying to screw the wings on at the 
same moment.
    Mr. Foster. No complaints there. And you anticipate 
sunsetting this when the actual--when everything gets done, 
right? And so this will be the same time scale of the savings 
and loan bailout, it will be a decade if we are lucky?
    Ms. Warren. No, Congressman, I have not committed to a 
decade of this. As I understand it, by statute we expire, our 
panel expires in June of 2010. So we have about a year-and-a-
half with you.
    Mr. Foster. Okay. And are you going to get into the 
business of unwinding the securitization of the mortgage-backed 
securities? Because I see you have a lot of volunteer labor 
from Harvard law students. And if there was ever a need for 
bright new ideas, it seems like that is an issue that, you 
know, ideas would be appreciated in. And I guess that is just a 
comment.
    And then finally, your last question was the future and are 
they actually looking forward. I understand that they are still 
putting out fires right now. But you know, one of the things 
that occurs to me is that there is a significant downside risk 
that people don't like to talk about. You know, it is quite 
possible that real estate values are going to fall another 
factor of two. That is not inconsistent with historical values. 
And so I understand why Treasury would not be talking about 
this publicly, but I would be interested in some assurance that 
you can give us, either privately or publicly, that Treasury is 
actually looking at and planning for scenarios of how they 
might look at a significant downturn if really things, you 
know, things like the bottom drops out of the real estate 
market or other things. That at least--I would feel good to 
know that there are smart people thinking about that, even if 
they are not talking about it publicly. In the same sense you 
would like to see, you know, defense against terrorists thought 
about in great detail by smart people. And so that is one of 
the things I would appreciate your looking into.
    Ms. Warren. Yes, Congressman, we will be.
    Mr. Foster. I yield back.
    Mrs. Maloney. In line with the gentleman's question, would 
you comment on the proposal that Treasury is considering of 30-
year long-term loans at 4.5 percent interest rate for first-
time home buyers to shore up the housing market, housing values 
as a response to the concerns that the gentleman raised?
    Ms. Warren. Congresswoman, I just want to make this point 
about it. This looks like a very promising idea. But we cannot 
keep taking slices of approaches here. This, for example, will 
do nothing to help people who are losing their homes in 
foreclosure. And so you cannot refinance a house that is now at 
130 percent of loan-to-value ratio. You just can't do it. And 
so--
    Mrs. Maloney. Reclaiming my time--
    Ms. Warren. Of course.
    Mrs. Maloney. --as you heard in the hearing, a number of us 
are legislating that TARP money be used to support activities 
such as Sheila Bair, who is the Commissioner of the FDIC. She 
successfully saved many homeowners in the IndyMac situation. 
Citibank also is adopting her policies. So in conjunction, 
obviously, you heard we are going to legislate, requiring them 
to move with TARP money to help renegotiate these loans into 
long-term lower interest loans, as proposed by FDIC Chairwoman 
Sheila Bair.
    Ms. Warren. Yes. I should add, I understand that there is 
also at least on the table the possibility of amending the 
bankruptcy laws to provide for strip-down of these mortgages 
that are badly underwater. It is going to take a comprehensive 
solution and that no one--it is not even appropriate, in my 
view, to think about this as a one-piece. We have to think 
about the housing market together. Foreclosures and 
accelerating foreclosures are obviously, in my view, the huge 
driving problem right now. Then we have to think about the 
housing market in the context of the declining economic health 
of the American family. And until we think in a more 
comprehensive way we can't create solutions that will really 
make a difference. We end up pushing a little here, and then it 
squeezes out over there or it creates a different kind of 
problem.
    So I don't mean to be resistant on the news about 
supporting 4.5 percent mortgages, but I think we have to be 
very careful about thinking about where we want to spend our 
money and who will be the primary beneficiaries of being able 
to refinance their current mortgages or to buy new houses at 
4.5 percent versus the resources we may need to spend to deal 
with foreclosures. So it is only to make the point of the 
importance of a comprehensive solution.
    Mrs. Maloney. Well, I agree completely. Sheila Bair has 
asked for $25 billion. Many of us have supported her request. 
She believes she can keep 1.5 million people in their homes. 
But then there are many more that we must address.
    We are called to a vote. We have 5 minutes to vote. So I 
will be thanking you very much for your testimony today, and I 
would like to note that some members may have additional 
questions for the panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to 
Professor Warren and to place her responses in the record.
    The hearing is adjourned.
    [Whereupon, at 3:32 p.m., the hearing was adjourned.]


                            A P P E N D I X



                           December 10, 2008


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