[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
U.S. GOVERNMENT PRINTING OFFICE
46-596 PDF WASHINGTON DC: 2009
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
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
[GRAPHIC] [TIFF OMITTED] T6596.001
[GRAPHIC] [TIFF OMITTED] T6596.002
[GRAPHIC] [TIFF OMITTED] T6596.003
[GRAPHIC] [TIFF OMITTED] T6596.004
[GRAPHIC] [TIFF OMITTED] T6596.005
[GRAPHIC] [TIFF OMITTED] T6596.006
[GRAPHIC] [TIFF OMITTED] T6596.007
[GRAPHIC] [TIFF OMITTED] T6596.008
[GRAPHIC] [TIFF OMITTED] T6596.009
[GRAPHIC] [TIFF OMITTED] T6596.010
[GRAPHIC] [TIFF OMITTED] T6596.011
[GRAPHIC] [TIFF OMITTED] T6596.012
[GRAPHIC] [TIFF OMITTED] T6596.013
[GRAPHIC] [TIFF OMITTED] T6596.014
[GRAPHIC] [TIFF OMITTED] T6596.015
[GRAPHIC] [TIFF OMITTED] T6596.016
[GRAPHIC] [TIFF OMITTED] T6596.017
[GRAPHIC] [TIFF OMITTED] T6596.018
[GRAPHIC] [TIFF OMITTED] T6596.019
[GRAPHIC] [TIFF OMITTED] T6596.020
[GRAPHIC] [TIFF OMITTED] T6596.021
[GRAPHIC] [TIFF OMITTED] T6596.094
[GRAPHIC] [TIFF OMITTED] T6596.022
[GRAPHIC] [TIFF OMITTED] T6596.023
[GRAPHIC] [TIFF OMITTED] T6596.024
[GRAPHIC] [TIFF OMITTED] T6596.025
[GRAPHIC] [TIFF OMITTED] T6596.026
[GRAPHIC] [TIFF OMITTED] T6596.027
[GRAPHIC] [TIFF OMITTED] T6596.028
[GRAPHIC] [TIFF OMITTED] T6596.029
[GRAPHIC] [TIFF OMITTED] T6596.030
[GRAPHIC] [TIFF OMITTED] T6596.031
[GRAPHIC] [TIFF OMITTED] T6596.032
[GRAPHIC] [TIFF OMITTED] T6596.033
[GRAPHIC] [TIFF OMITTED] T6596.034
[GRAPHIC] [TIFF OMITTED] T6596.035
[GRAPHIC] [TIFF OMITTED] T6596.036
[GRAPHIC] [TIFF OMITTED] T6596.037
[GRAPHIC] [TIFF OMITTED] T6596.038
[GRAPHIC] [TIFF OMITTED] T6596.039
[GRAPHIC] [TIFF OMITTED] T6596.040
[GRAPHIC] [TIFF OMITTED] T6596.041
[GRAPHIC] [TIFF OMITTED] T6596.042
[GRAPHIC] [TIFF OMITTED] T6596.043
[GRAPHIC] [TIFF OMITTED] T6596.044
[GRAPHIC] [TIFF OMITTED] T6596.045
[GRAPHIC] [TIFF OMITTED] T6596.046
[GRAPHIC] [TIFF OMITTED] T6596.047
[GRAPHIC] [TIFF OMITTED] T6596.048
[GRAPHIC] [TIFF OMITTED] T6596.049
[GRAPHIC] [TIFF OMITTED] T6596.050
[GRAPHIC] [TIFF OMITTED] T6596.051
[GRAPHIC] [TIFF OMITTED] T6596.052
[GRAPHIC] [TIFF OMITTED] T6596.053
[GRAPHIC] [TIFF OMITTED] T6596.054
[GRAPHIC] [TIFF OMITTED] T6596.055
[GRAPHIC] [TIFF OMITTED] T6596.056
[GRAPHIC] [TIFF OMITTED] T6596.057
[GRAPHIC] [TIFF OMITTED] T6596.058
[GRAPHIC] [TIFF OMITTED] T6596.059
[GRAPHIC] [TIFF OMITTED] T6596.060
[GRAPHIC] [TIFF OMITTED] T6596.061
[GRAPHIC] [TIFF OMITTED] T6596.062
[GRAPHIC] [TIFF OMITTED] T6596.063
[GRAPHIC] [TIFF OMITTED] T6596.064
[GRAPHIC] [TIFF OMITTED] T6596.065
[GRAPHIC] [TIFF OMITTED] T6596.066
[GRAPHIC] [TIFF OMITTED] T6596.067
[GRAPHIC] [TIFF OMITTED] T6596.068
[GRAPHIC] [TIFF OMITTED] T6596.069
[GRAPHIC] [TIFF OMITTED] T6596.070
[GRAPHIC] [TIFF OMITTED] T6596.071
[GRAPHIC] [TIFF OMITTED] T6596.072
[GRAPHIC] [TIFF OMITTED] T6596.073
[GRAPHIC] [TIFF OMITTED] T6596.074
[GRAPHIC] [TIFF OMITTED] T6596.075
[GRAPHIC] [TIFF OMITTED] T6596.076
[GRAPHIC] [TIFF OMITTED] T6596.077
[GRAPHIC] [TIFF OMITTED] T6596.078
[GRAPHIC] [TIFF OMITTED] T6596.079
[GRAPHIC] [TIFF OMITTED] T6596.080
[GRAPHIC] [TIFF OMITTED] T6596.081
[GRAPHIC] [TIFF OMITTED] T6596.082
[GRAPHIC] [TIFF OMITTED] T6596.083
[GRAPHIC] [TIFF OMITTED] T6596.084
[GRAPHIC] [TIFF OMITTED] T6596.085
[GRAPHIC] [TIFF OMITTED] T6596.086
[GRAPHIC] [TIFF OMITTED] T6596.087
[GRAPHIC] [TIFF OMITTED] T6596.088
[GRAPHIC] [TIFF OMITTED] T6596.089
[GRAPHIC] [TIFF OMITTED] T6596.090
[GRAPHIC] [TIFF OMITTED] T6596.091
[GRAPHIC] [TIFF OMITTED] T6596.092
[GRAPHIC] [TIFF OMITTED] T6596.093
[GRAPHIC] [TIFF OMITTED] T6596.095
[GRAPHIC] [TIFF OMITTED] T6596.096
[GRAPHIC] [TIFF OMITTED] T6596.097
[GRAPHIC] [TIFF OMITTED] T6596.098
[GRAPHIC] [TIFF OMITTED] T6596.099
[GRAPHIC] [TIFF OMITTED] T6596.100
[GRAPHIC] [TIFF OMITTED] T6596.101
[GRAPHIC] [TIFF OMITTED] T6596.107
[GRAPHIC] [TIFF OMITTED] T6596.108
[GRAPHIC] [TIFF OMITTED] T6596.109
[GRAPHIC] [TIFF OMITTED] T6596.110
[GRAPHIC] [TIFF OMITTED] T6596.111
[GRAPHIC] [TIFF OMITTED] T6596.112
[GRAPHIC] [TIFF OMITTED] T6596.113
[GRAPHIC] [TIFF OMITTED] T6596.114
[GRAPHIC] [TIFF OMITTED] T6596.115
[GRAPHIC] [TIFF OMITTED] T6596.116
[GRAPHIC] [TIFF OMITTED] T6596.117
[GRAPHIC] [TIFF OMITTED] T6596.118
[GRAPHIC] [TIFF OMITTED] T6596.119
[GRAPHIC] [TIFF OMITTED] T6596.120
[GRAPHIC] [TIFF OMITTED] T6596.121
[GRAPHIC] [TIFF OMITTED] T6596.122
[GRAPHIC] [TIFF OMITTED] T6596.123
[GRAPHIC] [TIFF OMITTED] T6596.124
[GRAPHIC] [TIFF OMITTED] T6596.125
[GRAPHIC] [TIFF OMITTED] T6596.126
[GRAPHIC] [TIFF OMITTED] T6596.127
[GRAPHIC] [TIFF OMITTED] T6596.128
[GRAPHIC] [TIFF OMITTED] T6596.129
[GRAPHIC] [TIFF OMITTED] T6596.130
[GRAPHIC] [TIFF OMITTED] T6596.131
[GRAPHIC] [TIFF OMITTED] T6596.132
[GRAPHIC] [TIFF OMITTED] T6596.133
[GRAPHIC] [TIFF OMITTED] T6596.134
[GRAPHIC] [TIFF OMITTED] T6596.135
[GRAPHIC] [TIFF OMITTED] T6596.136
[GRAPHIC] [TIFF OMITTED] T6596.137
[GRAPHIC] [TIFF OMITTED] T6596.138
[GRAPHIC] [TIFF OMITTED] T6596.139
[GRAPHIC] [TIFF OMITTED] T6596.140
[GRAPHIC] [TIFF OMITTED] T6596.141
[GRAPHIC] [TIFF OMITTED] T6596.142
[GRAPHIC] [TIFF OMITTED] T6596.143
[GRAPHIC] [TIFF OMITTED] T6596.102
[GRAPHIC] [TIFF OMITTED] T6596.103
[GRAPHIC] [TIFF OMITTED] T6596.104
[GRAPHIC] [TIFF OMITTED] T6596.105
[GRAPHIC] [TIFF OMITTED] T6596.106