[Senate Hearing 110-885]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 110-885


                     NOMINATION OF NEIL M. BAROFSKY

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   ON

                             NOMINATION OF

    NEIL M. BAROFSKY, OF NEW YORK, TO BE SPECIAL INSPECTOR GENERAL, 
                     TROUBLED ASSET RELIEF PROGRAM

                               __________

                           NOVEMBER 19, 2008

                               __________

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


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                            senate05sh.html



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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware           CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey          JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii              MIKE CRAPO, Idaho
SHERROD BROWN, Ohio                  ELIZABETH DOLE, North Carolina
ROBERT P. CASEY, Pennsylvania        MEL MARTINEZ, Florida
JON TESTER, Montana                  BOB CORKER, Tennessee

                      Shawn Maher, Staff Director
        William D. Duhnke, Republican Staff Director and Counsel
                       Amy Friend, Chief Counsel
                Mark Oesterle, Republican Chief Counsel
                       Dawn Ratliff, Chief Clerk
                      Devin Hartley, Hearing Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor

                                  (ii)










                            C O N T E N T S

                              ----------                              

                      WEDNESDAY, NOVEMBER 19, 2008

                                                                   Page

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

Opening statements, comments, or prepared statements of:
    Senator Schumer..............................................     3
    Senator Shelby...............................................     4
    Senator Brown................................................     5
    Senator Bunning..............................................     6
    Senator Reed.................................................     7
    Senator Corker...............................................     8
    Senator Tester...............................................     8
    Senator Menendez.............................................     9

                                NOMINEE

Neil M. Barofsky, of New York, to be Special Inspector General, 
  Troubled Asset Relief Program..................................    10
    Prepared statement...........................................    30
    Biographical sketch of nominee...............................    31

              Additional Material Supplied for the Record

EESA Legislation Section Creating the Special Inspector General..    37

                                 (iii)

 
                             NOMINATION OF:

                     NEIL M. BAROFSKY, OF NEW YORK,

                    TO BE SPECIAL INSPECTOR GENERAL,

                     TROUBLED ASSET RELIEF PROGRAM

                              ----------                              


                      WEDNESDAY, NOVEMBER 19, 2008

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:10 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Christopher J. Dodd (Chairman 
of the Committee) presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. The Committee will come to order, and I 
apologize to the witness and to my colleagues and others for 
being a little delayed this morning in getting going with the 
hearing. We had a meeting with the Leader, Senator Levin and I 
did, on the auto issue, and so we got delayed a little bit this 
morning talking about that. But let me welcome our witness to 
the Committee and let me make some opening comments. Then I 
will turn to my friend and colleague from Alabama for any 
opening comments he may have, and my colleagues as well, and 
then we will turn to our witness and swear you in and listen to 
your testimony and raise some issues with you this morning.
    Today the Committee will meet in open session to consider 
the nomination of Neil Barofsky--did I pronounce that 
correctly?--to be the Special Inspector General for the 
Troubled Asset Relief Program, or TARP. The current turmoil in 
the U.S. economy is real and daunting. I think everyone knows 
that, certainly living it every single day. In enacting the 
Emergency Economic Stabilization Act and the TARP, the Congress 
responded with remarkable speed to meet this rising and ever 
changing challenge.
    Under the TARP, the Treasury Secretary has the authority to 
spend some $350 billion, an amount that can be increased on 
relatively short notice to $700 billion, albeit though a vote 
by the Congress would be certainly not only allowable under the 
expedited procedures but would occur, to stabilize the 
financial system. The Secretary has already committed, as we 
all know, some $250 billion to the capital purchase program 
which provides direct equity injections into banks, another $40 
billion to aid AIG.
    Let me add as an editorial note here that one I have deep 
trouble with and difficulty with, but, nonetheless, it has 
happened.
    The initial request from the administration was a scant 
three-page bill, as you will recall, granting the Treasury 
Department unprecedented and unchecked discretion to spend up 
to $700 billion in taxpayer dollars to rescue the economy. 
Congress agreed with the administration on the need to act with 
urgency; however, in crafting the final legislation, the 
Congress, and Members of this Committee in particular, worked 
to add aggressive oversight tools as a check on this broad 
spending authority--among other things, by the way, that I will 
not go into this morning, but the oversight tools were very, 
very important to even people who did not support this 
ultimately. I think all felt that was an essential ingredient 
of this proposal if it was going to go forward.
    You need only look as far as the eight congressional 
committees to which the Special IG's office will be issuing 
reports to notice how seriously Congress takes this 
responsibility to safeguard taxpayer dollars. To properly 
discharge its oversight responsibilities, the Special Inspector 
General must work effectively with a range of offices, 
including the Office of Financial Stability within the 
Treasury, the Inspector General for the Treasury, the 
Congressional Oversight Board, and the Government 
Accountability Office. Moreover, a significant challenge for 
the Special IG is to provide meaningful oversight of a program 
that is continuously evolving to address the changing needs of 
the financial system and an economy in distress.
    As my good friend Bob Corker just pointed out, we have 
moved away from the TARP largely, although I think there may be 
some occasions when the TARP would be used, but obviously 
moving to an equity position rather than acquiring assets is, I 
think, a welcome change by the way; I feel it is certainly. 
But, still, I believe the role that the Inspector General can 
play is still very, very critical overseeing and overlooking 
all of that as well.
    A key part of the role of the Special IG would involve 
significant management responsibilities. The Special IG has an 
operating budget of $50 million. In a relatively short 
timeframe, the Special IG must hire and oversee a staff, retain 
a variety of contractors, and begin issuing reports within 120 
days. And while Treasury has informed the public of its 
transactions under the TARP, as required by statute, we are 
relying on the Office of the Special IG to use the tools it has 
been given to drill down and certify that these decisions are 
being made in the best possible interest of taxpayers and 
consistent with the letter and spirit of the law.
    I would note here I think one of the reasons we feel so 
strongly about this and requiring these reports as rapidly as 
we are going to seek them is, having been through the 
experience with the contract issues in Iraq where we only got 
reports long after the fact, Members on both sides of the aisle 
were deeply distressed not to know more as these events were 
unfolding. And so the requirements here will require far more 
aggressive and expeditious reporting requirements.
    In order for this legislation to work properly, the public 
needs to be reassured that its money is being spent wisely and 
that that is why the role of the Special Inspector General is 
crucial to the process. The Special Inspector General's office 
will be expected to conduct oversight and audits of every 
aspect of this, and with this job comes awesome authority and 
awesome responsibility.
    I would like to take a moment to introduce Neil Barofsky, 
if I can, of New York who has been nominated--in fact, let me 
turn to my colleague from New York to do that. I have some 
comments here, but let me turn to my colleague from New York.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Well, thank you, Mr. Chairman, and it is 
my honor to introduce our witness, who is a fellow New Yorker. 
He is a Yankees fan, although I am told----
    Chairman Dodd. Immediately in trouble here. Immediately in 
trouble here.
    Senator Schumer. Although I am told he is not a Giants fan. 
He roots, he told me, for the Miami Dolphins. Where is 
Martinez? He is not here.
    Anyway, more importantly, he is extremely well qualified 
for the post of Special Inspector Attorney General for the TARP 
program, and we all know his positions will be critical over 
the coming months and years as we continue to monitor the 
implementation of such a vast program involving a huge taxpayer 
investment.
    Mr. Barofsky is a former colleague of my chief counsel, 
Preet Bharara, at the U.S. Attorney's Office. During his 8-year 
tenure as an Assistant U.S. Attorney in the Southern District 
of New York, Mr. Barofsky has been involved in a number of 
cases that related to the current economic crisis. He served as 
part of a group of attorneys working on mortgage fraud 
investigations, which is one of the things we have to look at 
here. He prosecuted the former Refco officers, a big, important 
company in trading commodities, for their participation in a 
$2.4 billion accounting fraud. And last year, he won the 
Attorney General's John Marshall Award for Outstanding Legal 
Achievement for Asset Forfeiture. So all of these are very much 
related to his job as Inspector General, should he be 
confirmed, and I think as important.
    Some may say it takes a great deal of personal courage for 
Mr. Barofsky to sign up for the job after seeing some of the 
hearings we have had here. But we already know that he does not 
have to worry about bravery because Mr. Barofsky demonstrated 
great bravery when he investigated the Revolutionary Armed 
Forces of Colombia. That is the narco-terrorist group that 
controlled more than half the world's annual cocaine 
production. He successfully indicted 50 of FARC's top leaders. 
It was at great risk to his own personal safety. If he can take 
on the FARC, I am sure he can handle a few Wall Street bankers 
while making sure that taxpayer money is being spent wisely and 
legally.
    So his experience and his academic credentials show him 
extremely well qualified for the position. I think he is the 
right guy for the job. I did not know him before he was 
nominated, but meeting him and reviewing his credentials and 
history, he is.
    I would just like to make a few quick points related to 
that. First, I think three suggestions.
    One, Mr. Barofsky, you should apply some scrutiny to the 
decisionmaking process that the Department used to develop the 
term sheet that applies to the Capital Purchase Program. I 
think in Treasury's zeal to include the major banks, it made 
the terms too weak to make the program effective. Without 
including some lending requirements and strong restrictions on 
dividends, banks are too tempted to hoard the capital rather 
than lend it to consumers and businesses that need credit. 
There are important questions that should be asked about the 
decisions. Was there any analysis of how the capital would be 
used by the banks under these terms? Was there any analysis of 
the likely outcomes of using stronger terms?
    Second, I would ask you to look into how banks are spending 
the money they receive from TARP. While ordinarily the 
Government has no say in how a private company chooses to 
operate--and it should not--when taxpayer dollars are being 
used, it is important we ensure they are used in a way 
consistent with our goals. The money should not be hoarded or 
used for outsized compensation packages. Under the IG's 
authority to oversee the management of the Government 
investment, it is critical we have a clear understanding of how 
the money is being spent.
    And, finally, the office should examine the process by 
which Treasury is allowing entities that were not originally 
eligible to receive TARP funds to now be eligible. The Federal 
Reserve has received many requests from financial firms to 
become bank holding companies. In one of today's papers, they 
said large insurance companies are buying tiny little banks so 
they can come to the window. I do not want to delay the process 
of distributing assistance to companies that need it. It is 
important that we in the markets have a clear understanding of 
how the program is going to be implemented.
    Mr. Chairman, I thank you. I am going to apologize. When we 
changed the time of this hearing, I am involved in the 
bankruptcy hearing in Judiciary, but I want to thank you for 
the opportunity to introduce somebody who I believe will be an 
outstanding person and fits the needs and bill for this job.
    Thank you.
    Chairman Dodd. Senator, thank you very much, and thank you 
for that very comprehensive introduction of our witness as 
well. I appreciate it. In particular, I did not know about the 
FARC. I would love to talk to you just about that at some point 
and your work on that.
    Let me turn to Senator Shelby, and then I have to take a 
call outside. But what I would like to do is offer any other 
Members who would like to make some opening comments briefly, 
and then we will swear in the witness and hear you. But I will 
be out for 1 second and then come back.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman.
    In creating the Troubled Asset Relief Program that we call 
``TARP,'' Congress delegated a considerable amount of authority 
and discretion to the Secretary of the Treasury. With this 
significant grant of discretion I believe comes the need for 
oversight and accountability. The Office of the Special 
Inspector General will conduct that oversight and be the first 
line of defense in protecting the taxpayer from the type of 
waste, fraud, and abuse that $700 billion is likely to attract. 
Therefore, I believe it is important that we report this 
nomination as quickly as possible.
    Mr. Barofsky, I appreciate you taking this position. This 
is a tough job you are going to undertake. A lot of us are very 
concerned about the lack of accountability here. This bailout 
was pushed fast. I did not support it, and I am proud that I 
did not. But there has been no transparency. We do not know who 
is benefiting from this, where the money is going, and I 
believe we on this Committee need to know and the American 
people need to know. Seven hundred billion dollars is a heck of 
a lot of money, and you are going to be right in the center of 
it. And the sooner we get you there, I think the better off we 
will be.
    Thank you very much.
    Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Senator Shelby.
    Thank you, Mr. Barofsky, for joining us. I thank Senator 
Dodd, Chairman Dodd, for bringing this nomination forward. 
Thank you for your willingness to take on this enormous task. 
We are counting on you, of course.
    There is little precedent in our Nation's history, as we 
know, for this undertaking. In the space of about a month, the 
Treasury Department has committed close to $300 billion, 
something like $10 billion every single day of the week. The 
Federal Reserve, which is not subject to the oversight of this 
position, has committed a reported $2 trillion to stabilization 
efforts, as you know.
    Probably the closest thing we have in scale to this effort 
was the mobilization for World War II when our country went 
deep into debt to become the arsenal of democracy. The threat 
then was military, not economic. The Government engaged in 
massive spending in a short period of time, as we know, to 
counter a grave danger to our Nation and the world. Even as 
Hitler threatened the free world, Senator Harry Truman and his 
Committee found that some of their fellow citizens were all too 
eager to put their pocketbooks and personal gain ahead of their 
patriotism.
    So while I am hopeful that every single dollar of the $700 
billion will be well spent, I think it is vital we have the 
vigorous oversight of the actions of the Government and the 
private sector.
    Congress took an enormous leap of faith in providing the 
authority to the executive branch under EESA. Well, we will 
know before long whether this leap of faith was justified. 
Right now that faith is being tested. Three hundred billion 
dollars has been committed to banks, but it is not clear 
whether banks are committed to the purposes and the 
congressional intent of this statute. This money was authorized 
to address the credit crunch, not fund bank mergers. The 
housing market, clearly the root cause of our economic crisis, 
is still being ignored. Despite ample authority in EESA Section 
109, the administration refused to invest even a small portion 
of the rescue funds in the kinds of wholesale loan modification 
necessary to address the housing crisis.
    The auto industry is in dire straits. We had a hearing here 
yesterday. But it seems it will get no help from this 
administration. And the transparency and accountability that 
the administration committed to provide to Congress and the 
public have been spotty, at best.
    About 4 weeks ago, National City Bank, one of the largest 
banks in the country, located in Cleveland in my State, was 
forced by the administration into a fire sale to PNC Bank in 
Pittsburgh. For more than 160 years, National City has been an 
important asset to Ohio. By the end of the year, it will likely 
be an asset of PNC. That sale is being financed by taxpayers, 
but taxpayers are being stiffed when it comes to getting 
answers.
    Three weeks ago, I asked Treasury to respond to questions 
about the proposed transaction. I am still waiting, and I 
believe this Committee is also waiting for answers to questions 
that arose out of the Committee's hearing on October 23rd. That 
clearly is unacceptable. I hope our nominee will commit to 
doing a far better job than the administration has to date.
    Thank you.
    Senator Bunning is recognized.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you. I want to thank the Chairman 
for scheduling this hearing.
    One of the Nation's elite prosecutors in the Southern 
District of New York, Mr. Barofsky must be very familiar with 
the criminal laws that pertain in this area. The bailout law 
also allows $50 million for your office, and so you will have a 
very ample amount of resources. But I have serious concerns 
with your nomination.
    The nominee may be a dedicated public servant. He appears 
to be a skilled prosecutor and a man of integrity. But I wonder 
why taxpayers should have to pay $50 million to a watchdog who 
will have nothing to watch. How will the IG perform his 
statutory role when the Secretary has rewritten the law already 
less than 2 months after it was enacted?
    As you know, Mr. Chairman, I opposed the plan to bail out 
grown-up investors who bought these high-risk mortgages, and I 
am glad the Secretary has abandoned it. One hundred and fifty 
economists from all over the world expressed concern about the 
plan's fairness, its ambiguities, and its long-term effect. 
They urged Congress to go slow and to hold hearings. We never 
held them. These events later proved the Paulson plan did not 
save us from a worsening financial situation, but it is 
expected to contribute to a deficit of over $1 trillion next 
year.
    The bill authorized the Treasury Secretary to purchase 
troubled assets, and it created this Special IG position to 
oversee the purchase and management of these assets. The IG was 
supposed to assure that the process was fair and free of 
conflict of interest.
    Last week, however, the Secretary informed the press that 
he has no plans--and I emphasize no plans--to purchase troubled 
assets. He has already used $290 billion to provide capital to 
banks and to AIG. In other words, he used the money to buy new 
bank equity, not mortgage-backed securities and other existing 
financial instruments held by the banks--money Congress 
appropriated for one purpose, the purpose he described, and 
used it for something else.
    If the Treasury is going to rewrite the law as it goes 
along, we might as well go home.
    In his testimony earlier this week, Mr. Barofsky did not 
question Secretary Paulson's unlikely interpretation of the 
bailout law. Now, that is the money that is spent. If he does 
not question it, he will have little to do but watch the 
preferred stock positions mature. The real purchasing of so-
called toxic waste debt is taking place within Fannie Mae and 
Freddie Mac, hidden from the public view and outside of your 
jurisdiction. Why should taxpayers have to pay $50 million for 
your office as well?
    Ultimately, I believe Mr. Barofsky, with his impressive 
legal skills, can serve the public far better in the Southern 
District of New York where he can continue to prosecute 
mortgage fraud.
    Thank you again, Mr. Chairman, for holding this hearing. I 
look forward to Mr. Barofsky's testimony.
    Chairman Dodd. Thank you very much, Senator.
    I lost track here. Sherrod, who is--Senator Tester, have 
you had--oh, Senator Reed. Excuse me. Then Senator Tester.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you, Mr. Chairman, and welcome, Mr. 
Barofsky. Thank you for your willingness to serve in what I 
think will be a very important, critical position.
    There are many areas that are evolving under this program. 
Three, in particular, I think have to be highlighted.
    First, under the authority of the TARP program, the 
Treasury can participate in the equity of companies with 
preferred stock and with warrants. It is essential that they 
set appropriate values in these instruments so that the 
taxpayers will maximize their return in the future, and that is 
an area I would hope that you and your colleagues would look at 
very closely to make sure that the system is in place and the 
pricing is in place to ensure that taxpayers do get the value 
of their investment in these institutions.
    Second, Senator Brown mentioned it, and I think it is very 
important: mortgage modifications. The fundamental assumption 
economically that every American I think has made in the last 
20 years is home value do not go down. And when those value 
fall, as they are, then the economic calculation of not just 
Wall Street but of Main Street is absolutely distorted. We are 
seeing that now. We have to do more on modifications. The 
authority is there. I know you do not have a policy position, 
but you should exert every bit of your authority and persuasive 
ability, I think, to help get the administration moving forward 
on loan modifications.
    And then there is a judgment that the Treasury has to make 
about which institutions it will invest in. That has to be 
done, I think, impartially based upon the viability of the 
institutions, and I think that is something, too, that your 
office has to be conscious of.
    And with any Inspector General, most of the real issues 
emerge when you get on the job. We do not anticipate them, but 
sitting there watching carefully and objectively about the 
operation of this program, issues will come to mind. You have 
to make very careful judgments about prioritizing these and 
moving very aggressively to ensure this program is effectively 
and fairly administered by the Treasury Department and other 
agencies.
    So I think you have a critical job, and I wish you well. 
Thank you.
    Chairman Dodd. Thank you very much, Senator.
    Senator Corker.

                STATEMENT OF SENATOR BOB CORKER

    Senator Corker. Thank you, Mr. Chairman, and I will be very 
brief.
    I agree, I think you have a very important job, and it 
looks like to me your credentials are impeccable. It looks like 
you are a tough character, and I think that is needed in 
overseeing a program like this.
    On the other hand, I do think some of the comments Senator 
Bunning made regarding the fact that we are not pursuing these 
toxic assets right now does change things a little bit. We have 
no idea how the second tranche will be spent, if it is spent, 
and it is possible that some of that does go for those types of 
assets. From the comments that have been made, I think we would 
have been far better off buying senior preferred shares in this 
initial outgo. And I think it is a far more prudent route for 
us to take. But I hope that during your testimony--and I have 
got to step out, but certainly will be watching from other 
rooms. I hope you will address the questions of cost. I do 
think that maybe because of the way things are evolving, it 
might not be necessary to do some of the staffing that might 
otherwise have occurred, because we are not doing those toxic 
assets.
    But, welcome; you seem incredibly prepared for this, and I 
think we all look forward to working with you.
    Chairman Dodd. Thank you, Senator.
    Senator Tester.

                STATEMENT OF SENATOR JON TESTER

    Senator Tester. Thank you, Chairman Dodd, and as always, 
thank you and Ranking Member Shelby for holding this hearing. I 
want to thank Mr. Barofsky for being here.
    As has been said in earlier opening statements, you are, I 
think, incredibly qualified for the position. It is a position 
that is an interesting one because it is not your ordinary type 
of situation with the oversight you are going to be applying on 
$700 billion.
    I am going to save most of my time for the questions at the 
end, but I will just tell you this: I think that as you are 
confirmed and you go through with this program's Inspector 
General on the $700 billion rescue package that was put out, I 
think what is going to be critically important is communication 
and timely communication so that we can get a handle on what is 
going on. I think what we have heard here already today is the 
fact that the program has changed in the last 6 weeks, and we 
had really no say--at least I can speak for myself; I had no 
say in how this program was changed. And I have got a feeling 
it is Senate-wide.
    And so the question is that, you know, how are you going to 
handle that if it changes again. How would you deal with those 
kind of situations? And do you think they are proper? But we 
will hold most of those for the questions.
    I just want to thank you for being here, and I want to 
thank you for putting up somebody with such an impressive 
resume for, number one, public scrutiny and then public 
service. So thank you very much.
    Chairman Dodd. Bob Menendez.

              STATEMENT OF SENATOR ROBERT MENENDEZ

    Senator Menendez. Thank you, Mr. Chairman.
    Very briefly, with almost $300 billion of the rescue plan 
already spent, we cannot afford to wait any longer for a strong 
and effective Inspector General to monitor the process and 
ensure taxpayers are protected. And I want to join the chorus 
of voices, Mr. Barofsky, who want to thank you for your 
willingness to serve. I want to commend you on the work you 
have been doing on combating mortgage fraud, which is something 
that I care about very much. And, if confirmed, you face a 
daunting challenge that even the Treasury Department's present 
Inspector General simply called, ``It is a mess.'' And he said 
that as someone who has been trying to work to oversee the 
bailout program until your position is finally filled. I do not 
think he said anyone understands right now how we are going to 
do proper oversight of this thing, and that, of course, makes 
me concerned. So I am looking forward to hearing what your 
testimony is going to be as to what you think the proper 
oversight is.
    I look forward in the question period to asking you your 
understanding of congressional intent, as we put it out there, 
as well as your authorities and the scope of those authorities, 
because your understanding of that and how you use it is going 
to be critical to the successful implementation of your job and 
your mission.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you. Thank you very much, Senator.
    Mr. Barofsky, welcome to the Committee. I am going to ask 
you to rise, if you would, and raise your right hand while I 
administer the oath to you. Do you swear or affirm that the 
testimony that you are about to give is the truth, the whole 
truth, and nothing but the truth, so help you God?
    Mr. Barofsky. I do.
    Chairman Dodd. Do you agree to appear and testify before 
any duly constituted Committee of the U.S. Senate?
    Mr. Barofsky. I do.
    Chairman Dodd. I thank you for that, and I appreciate your 
willingness to take on this responsibility. I want to echo the 
comments of my colleagues. This is a tough area we are all 
involved in here, as you have heard from Senator Bunning and my 
other colleagues. We admire people who are willing to come and 
take these jobs on, so let me begin by expressing my gratitude 
to you for doing so.
    And with that, let us hear any opening comments or 
statements you may have, and we will take your full statement, 
obviously, and any supporting documents and so forth that you 
think might be helpful. But with that, the floor is yours, and 
then we will engage in a little question-and-answer period.
    Let me just say to my colleagues as well, my intent here is 
to move this as rapidly as we can. I will be in contact, 
obviously, with the Leader's office and the Minority Leader's 
office, the Republican Leader's office, to find out how quickly 
we can move this along. Very clearly, we want to have you on 
the job as fast as we can. I think all of us agree on that 
point.
    So we are happy to receive your testimony.

          STATEMENT OF NEIL M. BAROFSKY, OF NEW YORK,
 TO BE SPECIAL INSPECTOR GENERAL, TROUBLED ASSET RELIEF PROGRAM

    Mr. Barofsky. Thank you. Chairman Dodd, Senator Shelby, 
Members of the Committee, I am honored to appear before you as 
the President's nominee to be Special Inspector General, the 
Troubled Asset Relief Program. I am grateful to this Committee 
for taking the time to consider my nomination, and it is indeed 
humbling to be considered for such an important, vital position 
at this moment in our Nation's history. If confirmed, I look 
forward to working closely with the Members of this Committee 
and your respective staffs, as well as the other committees 
that will be overseeing the program and carrying out my 
responsibilities as Special Inspector General.
    If I may, I will take a moment to share with you my 
professional background and why I think it prepares and 
qualifies me for this position.
    The past 8 years I have served as an Assistant United 
States Attorney in the Southern District of New York. My 
experience as an AUSA has reaffirmed to me the importance and 
rewards of public service, and if confirmed, I look forward to 
the opportunity to provide greater service to this country at a 
most serious time.
    This past summer, our United States Attorney, Michael 
Garcia, asked me to supervise a newly created Mortgage Fraud 
Group that responds to the havoc that mortgage fraud has 
created in our district to homeowners and to lenders. Drawing 
on an amazingly talented group of prosecutors of different 
levels of experience and expertise in areas such as Securities 
Fraud, Organized Crime, Major Bank Fraud, Asset Forfeiture and 
Civil Fraud, we have attacked at the root those who have 
contributed significantly to the current housing and financial 
crisis through the wholesale fraud of homeowners, lenders, and 
investors. We have focused on crimes committed by those who 
have tricked lenders into making loans that were never intended 
to be repaid, those who have engaged in predatory lending 
practices by tricking homeowners into applying for mortgages 
that they can never afford, and the criminals who have engaged 
in schemes where they literally steal the homes out from under 
citizens who found themselves in default on mortgages.
    I have also supervised our office's joint investigation 
into the vast credit default swaps market with the office of 
the New York State Attorney General. I believe that my 
experience as the head of the Mortgage Fraud Group and my role 
in both supervising and participating in these investigations 
has given me a vital education in understanding some of the 
root causes of the current financial crisis, as well as the 
securities and derivative instruments whose decline in value 
has been such an important part of it.
    It has also given me the tools to identify the markers of 
fraud throughout the financial industry, the necessary 
expertise in investigating such frauds, and, of course, the 
experience of establishing a plan of attack on those committing 
these frauds.
    While an AUSA, I was also one of the lead prosecutors in 
the investigation and prosecution of those criminally 
responsible for the $2.4 billion fraud committed at Refco, 
Inc., the commodities giant that collapsed in October of 2005, 
just months after the company went public. This investigation 
and trial has given me the experience to understand and detect 
complex billion-dollar frauds and an understanding of the 
financial audits and where they can fail.
    Over the last few weeks, as many Americans, I have been 
closely following the current financial crisis and the 
Government's response and, in particular, the creation and 
execution of the TARP. If confirmed, I look forward to 
contributing to the oversight that Congress has established to 
protect the taxpayers' $750 billion investment and fulfilling 
the duties of the Special Inspector General as outlined in the 
relevant governing statute.
    My goal as Special Inspector General of the TARP would be 
to make sure that its rules and regulations are followed and to 
prevent waste, fraud, and abuse. We will need to establish an 
efficient and effective audit program, and, of course, we will 
need to establish an investigative arm. And I can assure this 
Committee that we will tirelessly investigate and refer for 
prosecution any individual or entity that tries to criminally 
profit from this program.
    I intend to work very closely with each of you, your 
colleagues on the other committees, your staffs, GAO, and all 
others who are charged with overseeing this historic program. I 
am accountable to you, the Congress, and the American people. I 
fully intend accordingly to keep you fully informed and 
promptly apprised of all significant findings and concerns that 
come across my desk, if confirmed.
    Mr. Chairman, Senator Shelby, Members of the Committee, I 
want to thank you for this opportunity to appear before you, 
and I look forward to answering any questions that you may 
have.
    Chairman Dodd. Well, thank you very much. I should have 
noted, by the way, I do not know if you brought any family with 
you down here today. Is there anyone in the audience that you 
wanted to recognize?
    Mr. Barofsky. Not today, Mr. Chairman.
    Chairman Dodd. Very well. Let me begin and just ask you 
sort of some basic fundamental questions. I am just curious as 
to how it was you were offered this position and why you chose 
to accept it.
    Mr. Barofsky. Mr. Chairman, I guess about a month ago, our 
U.S. Attorney, Michael Garcia, called me into his office, gave 
me a copy of the statute, gave me a copy of specifically the 
Special Inspector General section of that statute, explained to 
me what it was, and asked me if I would be interested in the 
job. Frankly, although I was aware of the bailout program, I 
was not aware of that position until that time. And I went 
home, I talked to my wife, and we discussed whether or not I 
wanted to be put forward to apply for such a position.
    The next day I told him yes, and then the process was that 
the White House scheduled an interview with me, and I spoke 
with individuals in the White House and at Treasury and then 
was told that they would recommend me to the President for 
nomination for this position.
    Chairman Dodd. And tell me your thought process on why to 
accept it. As you heard, there is a lot of controversy around 
all of this, and the TARP has changed dramatically, even in 
just the last few days. So tell me your thought process and why 
you decided to do this. And, by the way, I commend you as well 
for what you have been doing on the mortgage fraud area. I 
cannot thank you enough. It angers all of us to see what has 
happened to innocent people out there as a result of predators 
taking advantage of people, so we commend you for that effort.
    Mr. Barofsky. Well, thank you, and because of my work, it 
was a difficult decision. I love my current job. I think I have 
one of the greatest jobs a lawyer can have in this country in 
serving the American people the way I do.
    But when asked, when Michael Garcia asked me and pointed 
out to me that I spent the last 8 years serving this country 
and serving the taxpayers, and this responsibility and this job 
is a level of service that is even greater than the one I have 
had, and it is very, very difficult, I think, for a patriotic 
American who has benefited so much from the opportunity of the 
last 8 years and the training I received, and to be offered the 
opportunity to take that training and that experience and to 
serve the people and to protect $700 billion, it is a 
staggering and humbling sum. After I discussed it with my wife, 
there really was no way that I could say no.
    Chairman Dodd. Let me ask you sort of two questions 
related. One, as you have looked over the statute and you have 
looked over the issue so far, what are your priorities, number 
one? And, second, the statute requires the Secretary of the 
Treasury to public conflicts-of-interest standards, which he 
has done. As Special IG, would you pay particular attention to 
the observance and appropriate conflict standards and, if 
appropriate, make recommendations to the Secretary on 
improvements of such standards? This is a matter of great 
interest to people. We are talking about a community that goes 
back and forth and who is going to be handling these assets? To 
the extent they are involved in that part of the program, are 
there people who are directly conflicted, would be because of 
their present positions or positions they have been in? And it 
is a matter of some concern. If this was going to pass the 
smell test, what we are doing, and the credibility of the 
American public, they have got to be satisfied that they are 
not people enriching themselves at the expense of the American 
taxpayer.
    And so I do not mean to preempt your answer by asking you 
what you think the highest priority is and then obviously 
focusing on the conflicts-of-interest section, but I think that 
is an important section. But I want to hear from you what you 
think the priorities ought to be as Inspector General.
    Mr. Barofsky. I think conflict of interest is obviously of 
critical importance to the job of Special Inspector General. 
There are many areas within this program for conflicts of 
interest, starting at the very top with Treasury officials, 
based on former employment or future employment, going down--
and I think it is very, very sensitive. It is with the 
contractors, the asset managers who have not yet been selected, 
the already existing contractors. There must be very strong and 
stringent conflict-of-interest provisions.
    I understand that there have been mitigation plans that 
have been submitted by the existing contractors. I have not 
seen those. Obviously, as future contractors are selected, 
they, too, will be submitting mitigation plans. And, of course, 
with conflict of interest, the devil is in the details. And 
assessing the strength of those plans, making sure that they 
are strong enough to, one, avoid any conflict of interest and, 
two, as you said, Mr. Chairman, making sure that we can give 
some assurance to the American people that those conflicts of 
interest are being monitored very closely. And I think it will 
be a top priority, if I am confirmed, to make sure that there 
is strong and vigorous enforcement of the conflict-of-interest 
provisions and to make sure that those provisions are 
sufficient.
    Chairman Dodd. I thank you for that.
    Let me turn to Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    Mr. Barofsky, you will be required, as I understand, by 
statute not later than 60 days after your confirmation to 
submit to the Congress, to this Committee, a report of all the 
TARP activities. This report will likely be Congress' primary 
source of objective information in evaluating the progress of 
TARP.
    Do you believe, sir, that you will have the resources 
necessary to complete this report in 60 days?
    Mr. Barofsky. Senator Shelby, I intend, if confirmed, to 
submit a report within 60 days.
    Senator Shelby. I hope you do because we have no 
information on who is getting what or how the money is being 
spent, who is benefiting from it, and so forth. It is a big 
mystery to all of us, and it should not be.
    One of your primary duties as the Inspector General would 
be to report to Congress the Treasury Secretary's explanation 
for the necessity of purchase for each asset required. I am 
getting into the little details here. Thus far, I believe the 
Treasury Secretary has not clearly articulated to Congress his 
decisionmaking under the TARP activities.
    Given the lack of debate during the passage of TARP, I am 
concerned that the Treasury's decisions continue to be made in 
an ad hoc manner with little direction and spending a lot of 
money.
    Could you explain to the Committee the process that you 
envision as the Inspector General for your reporting of the 
Treasury Secretary's decisions to Congress?
    Mr. Barofsky. Obviously, this would be an area of great 
importance. As you noted, Senator, it is part of the statutory 
requirements of the Special Inspector General to report back on 
the reasons for each purchase of assets, and I would certainly 
intend to vigorously pursue and fulfill that obligation by 
sitting down with the relevant staff and getting the full and 
complete answer to your question. And I will work with 
Treasury, with the Secretary, and with your Committee and your 
staff to make sure that we bring the answers to those questions 
in our reporters.
    Senator Shelby. One of your other functions, I think a very 
important function to be an Inspector General, will be to 
evaluate the impact of the program activities on the 
marketplace. And while it is vital to know who is receiving the 
funds under the program, I believe it is even more important to 
know what the recipients are doing with the funds and the 
details of where this money is going.
    Do you plan to detail this to the Committee and the 
Congress?
    Mr. Barofsky. Senator, there are obviously certain 
requirements under the statute and under the contracts of how 
this money is spent. There are other areas that are not 
addressed in the contracts and in the statute. I would intend 
to work, again, closely with this Committee and your staffs and 
would work hard to do the best that I can to bring that 
information that this Committee requests, that other committees 
request, and to report on it.
    Senator Shelby. Do you believe the American people need to 
know, should know where this money is going, who is benefiting 
from it, how it is being spent, all through this, since 
ultimately it is their money?
    Mr. Barofsky. And, Senator, it is an absolute requirement, 
I think, under the statute for the Special Inspector General to 
report where this money is going.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much.
    I will turn to Senator Tester.
    Senator Tester. Thank you, Mr. Chairman, and thank you once 
again for being here.
    Do you feel it is within the scope of the IG to ensure that 
the Treasury Secretary makes investments from the TARP funds 
that are true to the mission and goal of the program?
    Mr. Barofsky. Senator, I think it is absolutely clear from 
the statute that there are certain considerations that must be 
made by the Secretary and by Treasury in administering the 
TARP. And I think it is an appropriate role for the Special 
Inspector General to ensure that the statute is being followed 
and that there is consideration given to the purposes that are 
set forth in that statute.
    Senator Tester. So let's take into consideration an area 
that I have serious reservations about, and that is executive 
compensation decisions as they relate to AIG and something that 
Senator Brown brought up as far as bank consolidations being 
funded by TARP. Those were not--in fact, some of those were 
specifically addressed as far as congressional intent, the 
executive compensation, and we have kind of rolled into a new 
area with banks being given money and allowing banks to take 
that money and buy up other banks.
    How would you respond to those concerns?
    Mr. Barofsky. I think each concern obviously has to be 
addressed separately. I think executive compensation is 
obviously of vital importance. It is of vital importance 
because it is in the statute. It is part of the regulations. It 
is part of the agreements. And it is something that, again, as 
I have been following what is going on from an outsider's 
perspective, one of the most important things is the optics of 
the entire TARP. And if confirmed as Special Inspector General, 
I would work tirelessly not only with my office but with the 
other offices of oversight to make sure that the regulations, 
the contractual terms, are being honored by those who are 
receiving Treasury funds and auditing and, if necessary, 
investigating if the audits show that those funds are being 
misused and inconsistent with the way that that money is 
supposed to be spent.
    Senator Tester. What about the monies given to banks and it 
is being used for bank consolidation?
    Mr. Barofsky. Senator, I would have to look more deeply 
into that issue. I am not entirely familiar. You mentioned that 
as part of the legislative intent. I am not familiar with the 
details of that. But with any concern of this Committee or 
another committee of the Senate or Congress, we are going to 
take a good, hard look and analysis at any issue that is 
raised.
    Senator Tester. OK. You are coming into this, and it is 
through no fault of your own, at a point at which $300 billion, 
approximately, has already been spent. Ranking Member Shelby 
talked about there is a report-back period of 60 days and 120 
days.
    If you find something that you have serious reservations 
with, are you limited by those dates, or can you go directly to 
Chairman Dodd or Chairman Baucus and talk about your concerns 
immediately?
    Mr. Barofsky. I am a newcomer to the job, so I would have 
to consult with counsel. But my instinctive reaction--and I 
probably should not go with my instinctive reaction--would be 
that I would not wait at all. If there is a serious concern 
that is impacting the American people and the spending of their 
money, absolutely we would have to bring sunshine to that.
    Senator Tester. OK. The legislation as it was originally 
written lists a series of duties for you, the Inspector 
General, and most of those deal with the troubled assets that 
were supposed to be purchased or procured by the Secretary of 
the Treasury. Do you feel that we need to rewrite the law now? 
Because he has already said that he is not going to do that 
anymore.
    Mr. Barofsky. I believe that the jurisdiction and authority 
that is set orth in the statute for the Special Inspector 
General absolutely applies to the Capital Purchase Program. I 
believe that under the statutory definition of ``troubled 
assets,'' it includes the equity position, the preferred 
shares, the warrants that are being acquired by the Treasury. 
That is my first reading. I have not done a full statutory 
analysis.
    It is my understanding that Treasury views it that way as 
well. So I do believe that to the extent the Capital Purchase 
Program--I also believe, similarly, the investment in AIG also 
qualifies as a troubled asset purchase and would be fully 
within the jurisdiction of the Special Inspector General.
    Senator Tester. All right. Good. What do you--well, let us 
start out this way: Do you intend to look at all monies that 
have been appropriated from this $700 billion? And what I am 
getting specifically at is the $300 billion that has already 
been appropriated and spent. Do you intend to look into those 
dollars to see if they were spent appropriately?
    Mr. Barofsky. Yes, Senator. I mean, it is--of course, one 
does not know what is going to happen with the other $350 
billion at this time, but the role of the Special Inspector 
General is to provide oversight for the spending of that money.
    Senator Tester. So even if the money has already been 
spent, you intend to go back and look and----
    Mr. Barofsky. I am sorry, sir. I did not understand your 
previous question. Absolutely. I think that it is--a vital part 
of the role of the Special Inspector General is to look back as 
well as to look forward, particularly with the processes that 
have already occurred. And Senator Schumer in his comments 
talked about some of the looking back on decisions that have 
already been made. The only way to assure that everything goes 
appropriately in the future is to look back on how the 
decisions were previously made.
    Senator Tester. All right. Thank you very much. Thanks for 
your honesty. I appreciate you once again putting yourself into 
this position. I think you are doing a great job.
    One more question. Just 50 million bucks, how many people 
are you going to hire?
    Mr. Barofsky. I do not know, Senator. I think one of the 
first things that I would do is meet with Inspector General 
Thorson, who estimated recently, I noticed in the press, that 
there would be a need for as many as 100 people on staff. But 
as I sit here, until I build--my first step would be to talk to 
him and figure out where he got those numbers. Then I would 
start building my own core management staff and then build out 
from there. But it is difficult for me at this time to estimate 
the exact number of individuals.
    I will tell you, though, that $50 million is a large 
number. It does not mean that we are going to spend $50 
million.
    Senator Tester. And I appreciate that, too. How long do you 
think it is going to take for you to get your staff up fully 
functioning?
    Mr. Barofsky. Again, it is very difficult for me to say 
that now because, among other things, it is an evolving 
process. And one of the things I read in the paper is that 
Senator Paulson is going to--I am sorry.
    Senator Tester. Secretary Paulson.
    Mr. Barofsky. Secretary Paulson is not planning on 
immediately spending the other half, and that he is going to 
defer that to the next administration. And, obviously, how that 
money is spent will impact how we build our office, if I am 
confirmed.
    Senator Tester. Yes. What I would also encourage, as in the 
previous question that I asked, is, you know, $300 billion has 
already been spent, so whether they spend the next tranche 
immediately or not is, I think, irrelevant at this point in 
time as far as your position is concerned.
    Mr. Barofsky. And I just want to stress that on day one, if 
I am confirmed, I am not going to wait until my staff is 
completely built up and in place before oversight begins. It 
begins on day one.
    Senator Tester. Thank you.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much.
    Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    Mr. Barofsky, from your present statements, you are totally 
familiar with the Capital Purchase Program?
    Mr. Barofsky. I would not say that I am totally familiar 
with it. I have reviewed the publicly available information on 
the website.
    Senator Bunning. OK. According to the minutes, of which I 
have a copy, of October 7th, which was 3 days--or actually 4 
days after the law was passed, the Oversight Board created by 
the law debated whether the bailout bill gave the Secretary the 
authority to provide capital to banks through this program. And 
there was as pretty thorough discussion about it, and there was 
enough counsel people there--by that, I mean there was counsel 
to the Assistant Secretary of the Treasury, the counsel for the 
Secretary, Department of the Treasury, senior counsel to the 
Department of the Treasury, and on down the line, along with 
Mr. Bernanke, Mr. Paulson, Mr. Cox, Mr. Preston, and Mr. 
Lockhart were the principals of this meeting. And they read the 
law as though they had the right to go in and purchase assets 
from banks or create new assets and purchase them. They were 
not sure that the law gave them that authority. So they had to 
get someone to say, OK, you can do it. So they got this piece 
of paper, and in the minutes of the Financial Stabilization 
Oversight Board meeting, they made the determination that they 
could do that.
    What is your understanding of the statute and its purpose? 
Is the intent relative, or is the Secretary free to use the 
$700 billion as he sees fit?
    Mr. Barofsky. It is my opinion that the Secretary is not 
entitled to use the $700 billion as he sees fit without having 
authorization within the statute. I think that----
    Senator Bunning. Well, that is what my question is to you.
    Mr. Barofsky. And my answer is it has to be within statute, 
or he would not have authority to do so.
    Senator Bunning. And who is going to make that 
determination? You as the IG?
    Mr. Barofsky. If a plan or proposal is put up and it is 
outside the scope of the statute, we would certainly let the 
Secretary know and we would let this Committee know.
    Senator Bunning. Let me read the statute to you, then, 
because I am not--as my Ranking Member says, I am not blessed 
with being a legal eagle, a lawyer. I have got enough of them 
in my family.
    Mr. Barofsky. Senator, may I ask what section here?
    Senator Bunning. Yes, it is Section 9, Troubled Assets. The 
term ``troubled assets'' means, ``(A) residential or commercial 
mortgages and any securities, obligations, or other instruments 
that are based on or related to such mortgages, that in each 
case was originated or issued on or before March 14, 2008, the 
purchase of which the Secretary determines promotes financial 
market stability; and (B) any other financial instrument that 
the Secretary, after consultation with the Chairman of the 
[Board of Governors] of the Federal Reserve System, determines 
the purchase of which is necessary to promote financial market 
stability, but only upon transmittal of such determination, in 
writing, to the appropriate committees of Congress.''
    We do not have that. We have not got any of that. This 
Committee has never received any of that. So how in the world 
could the Secretary of the Treasury go out and create new 
securities and use that money to purchase them?
    Mr. Barofsky. Senator Bunning, obviously, as an outsider, I 
am not aware of what internal reports may have been made by 
Treasury----
    Senator Bunning. Well, we are telling you. You are here as 
a witness. We are telling you this Committee has not received 
one piece of paper documenting any of these things.
    Mr. Barofsky. I think it is very clear from the portion of 
the statute that you just read that that is a requirement under 
the statute.
    Senator Bunning. Thank you. With all due respect, your 
office is a perfect example of why the Government should not be 
managing private sector financial institutions or other private 
sector businesses. As you know, Secretary Paulson made it clear 
last week and yesterday to our caucus that he has no plans to 
use TARP money to purchase troubled assets, as Congress 
intended by the statute I just read to you. Instead, he has 
used nearly all of the funds available to him, a total of $290 
billion so far, to provide capital to financial institutions, 
some of which are not troubled--some of which are not troubled 
and said, ``We do not want the money.'' But he said, ``You have 
got to take it because that gives confidence to the others that 
need it.'' I can get you chapter and verse on that if you would 
like, some of which he said--he has, in fact, put pressure on 
some banks to accept Government capital when they had access to 
other capital and did not want a Government investment.
    Your office was created to oversee the management of 
troubled assets, which Congress understood to mean mortgage-
backed securities. Do you have any authority to oversee the 
management of troubled assets purchased by Fannie Mae or 
Freddie Mac under this current statute?
    Mr. Barofsky. My reading of the current statute is that the 
responsibility of the Special Inspector General would be on 
assets that are purchased under the Troubled Asset Relief 
Program.
    Senator Bunning. Not under the passed act that we put $300 
billion into FHA and gave an unlimited amount of money to 
Fannie and Freddie, to the Treasury to purchase their troubled 
assets. You would not be involved in that.
    Mr. Barofsky. I would have to do a much more detailed 
statutory analysis, but my initial impression is that you are 
correct. I think that as Special Inspector General, I think we 
would be working with other agencies involved in relief efforts 
to the extent that they intersect and are interrelated, and 
with the Inspector Generals of those relevant entities.
    Senator Bunning. Thank you very much. My time has expired.
    Chairman Dodd. Let me just say to my colleague as well 
here, I was going to ask staff--because it is a good question 
you have raised--as to whether or not we have received any 
documentation. And, granted, we have a lot more to get, I would 
say to my friend from Kentucky. But the Treasury Department did 
transmit letters to us notifying us that, in consultation with 
the Chairman of the Federal Reserve, equity injections in banks 
was necessary. So we have received at least some documentation.
    Senator Bunning. From this special----
    Chairman Dodd. Yes. But the point my colleague is making is 
certainly -I do not want to suggest to you that that is 
adequate, and that is the reason we need to get these offices 
up and running so we can have actually an office that is 
responsible for doing exactly what the Senator is talking 
about, getting us that material. So I appreciate the question 
because it is an important one, but just for the purposes of 
clarity, there has been some communications already, which we 
are happy to share with my colleagues, by the way.
    Senator Bunning. But not to the Members, just to the 
Chairman and Ranking Member?
    Chairman Dodd. Well, it is to the Members as well. At any 
point we should see that you are getting whatever--this does 
not come to me alone. Every Member of this Committee has a 
right to see these letters and documentation, so we will make 
sure----
    Senator Bunning. But they were not sent.
    Chairman Dodd. They were not sent to?
    Senator Bunning. To Members.
    Chairman Dodd. Well, I do not know. Were they?
    We will make sure they are available. We thought maybe they 
were sent to all Members, anyway. We will make sure that 
happens.
    Senator Bunning. Thank you.
    Chairman Dodd. Senator Reed.
    Senator Reed. Well, thank you, Mr. Chairman. As has been 
noted, the nature of the program has changed since the initial 
outline discussed by Secretary Paulson. In that sense, do you 
think it is incumbent initially to review the initial contracts 
that were drafted with the notion of an asset acquisition 
program to ensure that those contracts still are returning 
value to the Treasury?
    Mr. Barofsky. Yes.
    Senator Reed. And that is going to be one of your major 
initiatives initially?
    Mr. Barofsky. We are going to be reviewing--if I am 
confirmed, I believe it is important for the Special Inspector 
General to review all the existing contracts and to evaluate 
what the decisionmaking process was to make sure that it was 
done appropriately, absolutely.
    Senator Reed. And this goes to the organization of your 
office. I would presume that you will be retaining accountants 
and people skilled in financial transactions, not just 
attorneys or legal experts.
    Mr. Barofsky. Yes, Senator. In building my staff, if I am 
confirmed, I would seek to complement my skills and my 
background, which is legal and investigative, with those with 
accounting expertise, and in particular audit expertise. I 
think that will be vital to building an Office of the Special 
Inspector General.
    Senator Reed. You know, one of the realities of our present 
dilemma is that these products that are at the heart of this 
crisis are so complicated that even the most expert people 
sometimes look at them and say, ``I do not know what is going 
on.'' I just get a sense that you are going to have to make a 
judgment about how specialized and how detailed your staff will 
be, and just if you want to comment on that point about 
anticipating the complexity you might face or the special 
resources you might need.
    Mr. Barofsky. Well, Senator, obviously the statute gives us 
a great deal of latitude in addressing those concerns, and 
through my previous experience, I have had experience in 
investigating some of the most complex of these instruments. 
And they are complex, and even within the industry they are 
very complex, and understanding can be limited.
    But ultimately I am extremely confident that, if 
appointed--I am sorry, if confirmed, we would take whatever 
steps are necessary to make sure that we understand the 
instruments before we try to audit and investigate them. 
Otherwise, it would be a waste of resources.
    Senator Reed. And this goes to the question that has also 
been raised, I think particularly by Senator Bunning, about the 
total resources available is $50 million. Do you anticipate now 
that you will use that? Or how fast will you use it, I guess is 
the question? Do you have any idea of that?
    Mr. Barofsky. It is very difficult for me to give an answer 
to that question at this time as to what the timeframe is. It 
is a lot of money. You know, I believe it probably exceeds, 
although I do not know the details, the annual budget of my 
current U.S. Attorney's Office, which is a large office.
    It is not all going to be spent right away, and I think it 
is very important that philosophically, as the role of the 
Special Inspector General whose job and mandate is to promote 
efficiency and avoid waste, we have to be very, very vigilant 
in how we spend the money, because nothing would be more ironic 
and just wrong, frankly, if we are not efficient in the way we 
spend the money.
    So I intend, if confirmed, to be not only a watchdog for 
the $700 billion, but included in that, of course, is the $50 
million that would go to this office. I can assure this 
Committee that, if confirmed, I would be extremely vigilant.
    Senator Reed. Let me ask a final question. In your mind, 
are there established channels of communication if you find 
wrongdoing? And could you kind of describe your concept today 
of how you would report a discovery of significant wrongdoing 
or significant deviation from policy that required correction?
    Mr. Barofsky. Well, certainly I think it is very clear, if 
there is criminal conduct, the Special Inspector General's 
office would investigate that, and if we found criminal 
conduct, we would refer it to the Attorney General. I think 
that is very clear from the statute.
    Senator Reed. What about just the kind of irregularities 
that are not criminal but that go to the efficiency and the 
appropriateness of the program? Are you clear who would you 
would report to? And are they clear that they are supposed to 
act?
    Mr. Barofsky. Well, I am only the nominee at this point, so 
I have not had any detailed conversations with those in 
Treasury how the system would work. But, obviously, if we found 
something that raised a concern, we would immediately go to the 
Secretary or whoever is directing the TARP activities.
    Senator Reed. I think there is another aspect to this, and 
this is appropriately communicating to this Committee and to 
the public at large, because that has to be a key element of 
the IG. I hope you agree with that.
    Mr. Barofsky. Senator, as I said in my opening comments, I 
think that the way the statute is drafted makes that very, very 
clear. This is an Inspector General that reports to the 
Congress and to the American people to the eight oversight 
committees, the eight Senate congressional committees that are 
providing oversight, and, obviously, to this one, which has 
primary jurisdiction. So, absolutely, we will take--if I am 
confirmed, our reporting requirements we will take very 
seriously, and this Committee will know if we are having 
problems or issues.
    Senator Reed. Well, let me finally, finally open up just 
another category; that is, I have found in my experience in 
other institutions and the military that the IG functions best 
when there is a sense that people within the organization who 
might be aware of issues that are rising feel that they can 
come and that they will not be punished or in any way 
ostracized, or whatever, by their--is that going to be your 
policy, too? And will you do that in a formal way?
    Mr. Barofsky. I have given some thought to this issue, and 
one of the things I would do, if confirmed, is to go and look 
at other examples as to how write the procedures and policies, 
but a vigorous whistleblower strategy complete with a hotline, 
I think we are going to establish, or I would establish it on 
the website to provide for those types of referrals. And then I 
would work and take a look how other organizations have dealt 
with that to help design the right protection for potential 
whistleblowers. But that is a vital, vital concern, and it is 
one I have given a lot of thought to.
    Senator Reed. Thank you very much.
    Chairman Dodd. Thank you, Senator, very much.
    Senator Brown.
    Senator Brown. Well, thank you, Mr. Chairman. Just a couple 
of questions.
    On September 30th, the Treasury Department announced that 
banks could begin to recognize the losses of banks they 
purchased, a change that may cost taxpayers as much as $140 
billion. How does the same Legal Department rewrite the Tax 
Code 1 week, but then argue a few weeks later that it is 
prevented from helping homeowners or the auto industry?
    Mr. Barofsky. Senator, your question addresses sort of the 
internal deliberations of, I guess, the Legal Department at 
Treasury. As an outsider who has just been nominated, I have 
not had any conversations with them on how they have come to 
those policies. So I really cannot tell you what went on in 
that deliberative process.
    Senator Brown. Do you remember your reaction when you saw 
that when one bank can buy another, it can takes its 
liabilities and save billions of dollars in taxes? Do you 
remember your reaction when you saw that, if there was 
precedent, if it surprised you, if it was something that you 
had never seen before?
    Mr. Barofsky. Senator, one of the things I have learned as 
a prosecutor is that sometimes anybody's initial reaction needs 
to be tested with research, statutory interpretation, and in my 
job, reference to case law. So whatever my initial reaction may 
have, as Special Inspector General that--of course, your 
initial reaction guides your subsequent conduct, but I have not 
thoroughly researched this issue and its appropriateness. So, 
therefore, I feel a little bit uncomfortable, especially in 
this setting to give you an uninformed opinion.
    Senator Brown. OK, fair enough, and I expected that. I just 
remember when I--this case, as I mentioned earlier, of National 
City in Cleveland and PNC in Pittsburgh, PNC not only got TARP 
funds, National City didn't--National City has clearly made bad 
management decisions, and it is a bank that was struggling and 
in some significant amount of trouble. But that PNC both got 
TARP funds, and National City didn't, and then PNC was given--
basically promised a tax break from debt that National City 
held was an interesting interpretation and a great surprise, I 
would assume, to--I will not speak for others, but certainly a 
surprise for many of my colleagues, if not almost all of us, 
that the Secretary of the Treasury could make that kind of 
determination. So I know that is something you will look at, 
and that is a huge expenditure of taxpayer dollars. It also 
builds a more uneven playing field, if you will, in some of 
these purchases that Senator Tester talked about, and others. 
So I am sure you will look at that, but I implore you to do 
that.
    My other question, would you within a week of taking 
office, and to the best of your ability, provide the 
information to the Committee with answers to questions 
surrounding the proposed acquisition of National City? I have 
sent a letter to Treasury. I have spoken to several at 
Treasury, including the Secretary. We have asked in this 
Committee for answers to some of these questions about, in 
fact, how troubled National City was and was this necessary to 
allow PNC with the incentives PNC was given to purchase this 
bank. None of those questions have been answered from Treasury, 
either from my direct questions on the phone or my written 
questions, or the questions coming out of this Committee on 
National City. And I would ask that you commit to us to answer 
that, preferably within a week, if at all possible, of your 
swearing-in.
    Mr. Barofsky. Senator, if confirmed, I would certainly work 
with Treasury to get answers to the relevant questions.
    Senator Brown. OK. That is all I can ask. Thank you.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator Brown.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Barofsky, at the Finance hearing on Monday, in response 
to a question about the intent of Congress, you seemed to 
waiver, primarily for necessarily lack of knowledge, it sounded 
to me like. I think that might be a fair characterization of 
what it was. And I just want to read to you the first page of 
the legislation of the intent of Congress, which was pretty 
well stated clearly. It reads that, ``The purposes of this Act 
are to restore liquidity and stability,'' and ``to ensure that 
such authority and such facilities are used in a manner that, 
(A) protects home values, college funds, retirement accounts, 
and life savings; (B) preserves homeownership and promotes jobs 
and economic growth; (C) maximizes overall return to the 
taxpayers of the United States; and (D) provides public 
accountability for the exercise of such authority.''
    Now, do you have a difference of opinion with reference to 
what the congressional intent was?
    Mr. Barofsky. I am sorry, Senator. I think that the 
purposes of the statute are clearly set out. I certainly do not 
disagree that these are the purposes of the statute, if that is 
your question.
    Senator Menendez. OK. And the reason I read them is because 
when you were before the Finance Committee, your answer was, 
``I do not know the details of the policy decisions that went 
into the creation of the statute,'' and I understand that. But 
the purposes are clearly stated out, and the reason that that 
is so important is because where you go in terms of pursuing 
your authority is going to be important in terms of where the 
purposes are, because some of us have real concerns that this 
program has been taken in a direction in which these purposes, 
as determined by the Congress as it relates to its intent, has 
not been pursued. Or they may be outside of the ambit of that 
pursuit.
    So I just want to make sure that we are in sync about what 
is the congressional intent. You have no dispute of what is 
actually written in the legislation?
    Mr. Barofsky. No, Senator, nor do I think it would be my 
place to have such a dispute.
    Senator Menendez. And so, if confirmed. would you ensure 
that your role and actions as Inspector General fall in line 
with these purposes as expressed by the Congress in the 
legislation?
    Mr. Barofsky. Yes, Senator.
    Senator Menendez. OK. Now, in light of--and I think you 
were somewhat asked this before, but I just want to get it 
straight on. In light of the fact that Treasury has shifted its 
focus from purchases of troubled assets to capital injections 
into companies, the position to which you are nominated has 
maybe shifted as well. And there are some reports out there 
suggesting you may not have the authority that you need to 
pursue it.
    Do you believe that under the law, as it exists now, you 
have the authority needed in this legislation to monitor the 
way the program has been directed up to this point?
    Mr. Barofsky. I do believe that, as I mentioned earlier--I 
know there were some suggestion at some point that the 
purchases under the Capital Purchase Program might not be 
within the jurisdiction of the Special Inspector General. I do 
not read the statute that way. I think, based on the provision 
that Senator Bunning read earlier, that they fall within the 
definition of ``troubled assets,'' and I believe that the 
provision that empowers the Special Inspector General very 
clearly encompasses those. So I do believe we----
    Senator Menendez. So your pursuit of uncovering waste, 
fraud, and abuse concerning capital injections is clearly 
within your parameters?
    Mr. Barofsky. That is certainly my understanding.
    Senator Menendez. Now, if perchance when you get there and 
if there arises a dispute of what powers you have, would you 
come quickly to the Congress if you felt that you needed any 
additional powers in order to pursue the intent of the Congress 
in the creation of a Special Inspector General position?
    Mr. Barofsky. With no delay.
    Senator Menendez. OK. Can you give me an example of what 
your first steps, if confirmed, would be as Inspector General?
    Mr. Barofsky. The first thing I would do on day one is 
obviously to sit down with Inspector General Thorson, who is 
currently on an interim basis providing that oversight. I think 
that meeting will be very instructive in finding out, one, what 
has been done up until this point; two, what the challenges 
are; to the extent that there have been any problems that he 
foresees. And I think that meeting will be one of the first 
things to do if confirmed.
    Second, of course, I would go and talk to those running the 
program and begin the process of getting all of the relevant 
information that, again, as someone reviewing the website has 
not had; and then with that information, of course, building a 
staff. That is going to be one of the most important things I 
need to do from day one, is quickly and efficiently putting 
together a management staff so we can start building this 
office. And, of course, based on my meetings with the TARP 
personnel and Treasury personnel and with Inspector General 
Thorson, begin oversight, begin becoming part of the process 
and reviewing the process from day one.
    Senator Menendez. Now, there is no question about your 
legal ability or your investigative ability. Give me a little 
sense of your management ability.
    Mr. Barofsky. Senator, I would start most recently with my 
management of the Mortgage Fraud Group where we created a group 
that did not exist and supervising a group of approximately 
eight AUSAs, staff, and also, although not directly 
supervising, but managing and coordinating the FBI agents, 
several FBI groups that we work with.
    Similarly, before that, on the Refco prosecution, there it 
was--again, we had our team of AUSAs, our team of law 
enforcement agents, our support staff, but also coordinating 
and managing a lot of other entities that provided support and 
directing in that investigation. Of course, I am referring to 
the myriad of victims, witnesses, the company itself, 
coordinating with the bankruptcy trustee, with counsel, with 
forensic accountants, audit accountants, with the SEC, with the 
CFTC, with all of these different entities, and sort of 
directing and coordinating toward the common goal.
    Before that, as Senator Schumer referred to, is my 
leadership in the investigation of the Revolutionary Armed 
Forces of Colombia. There again we had our own prosecutorial 
team. We also had two separate DEA task force groups--one 
stationed in New York City, one in Bogota, Colombia--all of 
those resources; in addition, our incredible efforts of our 
partners down in Colombia and working and coordinating with the 
Colombia national police, with the Colombian military, with 
Colombia military intelligence, the Colombia secret police, the 
prosecutor's office down there, as well as our U.S. law 
enforcement and U.S. Intelligence Agency, coordinating all of 
that information--the phrase is ``herding all of those cats.'' 
I think that that experience is going to serve me well if I am 
fortunate enough to be confirmed.
    With all of that said, I do recognize that I have not run 
an office that--if it does become 100 persons. One of the 
things that I would focus on is bringing somebody on board who 
does have that experience, particularly a Government entity, 
and being able to complement my skills and my experience and my 
management experience with someone who may have a greater 
degree of familiarity with all the rules and regulations that 
are involved in building a Government Federal agency from 
ground zero.
    Senator Menendez. Mr. Chairman, if I may ask two last 
questions.
    When you testified before the Finance Committee Monday, you 
said you were only able to assume that the bill gave you the 
authority to access and review Treasury documents and books. 
Assuming that that still would be the answer if I asked you----
    Mr. Barofsky. I have reviewed the statute since then. I do 
believe that the Special Inspector General would have full and 
complete access to any document that Treasury had.
    Senator Menendez. Well, good, because that is my view of 
it, and I would hope that you would not be shy to use that 
authority.
    Mr. Barofsky. I have gone back to the statute, in 
particular to the Inspector Generals Act of 1978, after the 
Committee hearing, and I believe that that power and authority 
is set forth pretty clearly in that statute.
    Senator Menendez. And my final question is in terms of 
monitoring these injections both that have taken place of 
money, of capital, as well as that may take place in the next 
tranche in the future, how will you ensure real-time data and 
make sure that we do not discover too far down the line that 
these funds might have been--might be misused?
    Mr. Barofsky. The best way to make sure that the timeframe 
of reporting of what is going on with the money would be, 
again, to reach out to those who are running the TARP as well 
as the contractors whose responsibility it is to oversee that 
information, whether it is the asset managers or the custodian. 
And one of the many first things that I would be doing would be 
getting in touch with those contractors who are in place to 
make sure that we could get that type of real-time information.
    Senator Menendez. All right. Thank you, Mr. Chairman. I 
look forward to supporting your nomination.
    Chairman Dodd. Thank you very much, Senator. I appreciate 
it.
    Let me pick up on--Senator Menendez and I always accuse 
each other of having mental telepathy back and forth around 
questions, and his question regarding the----
    Senator Menendez. I like to say great minds think alike, 
Mr. Chairman. In your case, it would be true. In my case----
    [Laughter.]
    Chairman Dodd. I appreciate that. The Capital Purchase 
Program, while we are here to ask you questions, my sense--and 
I guess it is as maybe Chair of the Committee--I believe you 
have that authority. Clearly, the program has shifted, as it 
could have. We anticipated when we wrote the statute, despite 
what the Treasury wanted--the Treasury, as my colleagues 
Senator Bunning and Senator Menendez here will recall, that 
three-page bill that was sent up only allowed the Treasury 
Secretary to have a disposition of assets. That is all they 
requested. We in the Congress decided that it was far more 
important after the hearings to give broad latitude so that we 
could utilize a lot of vehicles, including the Capital Purchase 
Program, to go forward. And that was done intentionally so. We 
wanted to make sure there was the flexibility to respond to 
this crisis that we are in.
    And so I want to use the opportunity of your confirmation 
hearing to say to you, Mr. Barofsky, that I believe you have 
that authority to get into this. I would not want you to take 
on this responsibility and then be informed by the Treasury 
that this job was only to look at the TARP, a program that is 
of minimal significance at this point. And so I would not want 
you leaving here or the Treasury officials or others to in any 
way constrain your ability to do your job when it comes to this 
program.
    So while I appreciate your answer to Senator Menendez's 
question, I will utilize this hearing as an opportunity to tell 
you I believe you have that authority, and you should exercise 
that authority. And if someone tells you you do not have that 
authority, you let me know immediately in this Committee, and I 
think we will respond accordingly that we want you to be able 
to have the ability to do that.
    Which raises the second question for me, because it has to 
do with a point, and that is, regarding this Capital Purchase 
Program, bank regulators are recommending to Treasury which 
banks, obviously, should be eligible to participate in the 
program. And these regulators are rightfully reluctant--and I 
understand it--to discuss conditions of specific banks in 
public. And I am sensitive to that point.
    However, I believe that Congress and the public have a 
right to know how these institutions are being selected and 
whether the selection criteria are being applied evenly by the 
agencies. And that is something you cannot have access to, and 
you ought to be letting us know about that as well.
    So I am asking the question: Are you authorized by statute 
to determine how the banking regulators are making their 
decisions? I will ask you to answer that question, but I have 
my own strong opinion. What is your opinion?
    Mr. Barofsky. I believe that the statute--and I think that 
it is quite clear, that the role of the Special Inspector 
General is to examine the process under which banks are 
selected, or any participant in the Troubled Asset Relief 
Program is selected to be a beneficiary of any type of money, 
including under the Capital Purchase Program.
    Chairman Dodd. Well, it is a very important issue for us 
because, as this program has shifted, and as Senator Bunning 
raised the issue I think earlier, at least indirectly about 
this, this is a very important issue for us. We are trying to 
encourage the banks, obviously, to lend, to get money moving, 
to get the credit crisis unclogged, so to speak, and opened up. 
And, obviously, this is an important element. And I understand 
it cannot happen overnight, that immediately by putting capital 
in, you immediately get the flow occurring. But it is very 
important to understand why institutions were chosen and what 
is occurring in that regard. This is going to be a major point 
in terms of the success or failure of this effort.
    So I hope you will--again, I will ask this question: Can 
you and will you talk to the banks to see how they are using 
this money?
    Mr. Barofsky. Obviously, part of the role of the Special 
Inspector General is to report back on how the money is being 
used. I do not see how a Special Inspector General could do 
their job under the statute and ensuring that the--and fulfill 
his or her mandate without speaking to the people who received 
the capital.
    Chairman Dodd. All right. I appreciate that as well. And, 
again, with the statute, there is a--several of our colleagues 
have raised issues about getting staff up and moving, and you 
have made the point yourself as well. Senator McCaskill of 
Missouri has raised with me some concerns about whether or not 
we are providing enough authority for you to get the people in 
place and do the job. And we are looking at that. I believe we 
have, but we want you to get moving on this. But I also would 
caution, while we have provided $50 million here, a lot of that 
was to deal with what would have been massive asset 
acquisition. In a sense, you could almost make a case that that 
amount of resources were probably necessary if we would be 
purchasing literally millions of assets, potentially. This is 
still a very large task we are asking you to perform, but I 
would urge you, as I am sure you will, to be cautious about the 
expenditure of those dollars. There is no requirement under law 
that you spend all that money. It is a ceiling not a floor. So 
I hope you will exercise caution in how those dollars are being 
spent in putting your team together.
    Mr. Barofsky. Absolutely, Senator.
    Chairman Dodd. Senator Bunning, yes.
    Senator Bunning. One last question, please.
    Mr. Barofsky, I am very impressed with your credentials as 
a prosecutor in the Southern District of New York, but I wonder 
what experience you have had with Federal contracting matters, 
administrative law, the separation of powers. The statute we 
enacted to create your office calls for someone who 
demonstrates a background in public administration. What is 
your background in these areas?
    Mr. Barofsky. I believe, Senator, respectfully that the 
statute calls for someone with demonstrated integrity and then 
specialty in----
    Senator Bunning. I did not question that.
    Mr. Barofsky. No, no. And, in addition, in a variety of 
different areas, including expertise in investigations, in law 
enforcement, and in law, in addition to those other concerns.
    Senator Bunning. But to make the office work properly, and 
in talking with Senator Menendez, you have stated that there 
were certain essentials necessary for you to get your office up 
and running properly. And if you cannot deal with someone in 
public administration particularly, the public administration 
would be dealing with our Committee to make sure that we 
understand what you are trying to accomplish by going to a bank 
and saying, ``What in the world are you doing with this 
money?''
    Mr. Barofsky. And, Senator, as I mentioned to the other 
Senator, that is why, if confirmed, I would seek to fulfill my 
staff with people that can complement my set of skills. And I 
think it would be absolutely essential, and I agree with you 
100 percent, that part of our core management staff has to be 
those who have experience so we can cover every one of those 
qualifications, including public administration, including 
legislative affairs, including an audit function. And I 
certainly have a good deal of experience of reviewing audits 
where they failed, but I would want to bring someone on who has 
experience in establishing audits.
    Senator Bunning. I just am so concerned about this law that 
we created because the--I do not know if you know the CQ 
magazine or not, the quarterly that comes out, or the weekly 
that comes out, but they are not a partisan magazine by any 
stretch, Republican or Democrat. They are straight down the 
middle. And they talk about the bait and switch that was done 
in this law, that the Secretary of the Treasury and the 
Chairman of the Federal Reserve came and baited us with certain 
issues that they were going to do; when they got the money, 
they switched to other issues that were not very mentioned--
very lightly in our questioning what they were going to do with 
the $700 billion.
    Now, I do not want that to happen to you as an Inspector 
General that you will get stuck by Treasury saying, I am sorry, 
you do not have any jurisdiction in this place. What are you 
doing sticking your nose in? You do not have anything to do 
with Freddie and Fannie and the money that we have spent there, 
even though it is directly tied into this law, and just because 
the Treasury Department says, no, you are not involved, and 
even the IG for the Treasury Department says you are not 
directly involved, you ought to come to this Committee and make 
sure that you have the right and the duty to see what is 
happening with the $700 billion. And if you are not going to do 
that, you will never get my support for this job.
    Mr. Barofsky. Senator, if I were not going to do that, I 
would not be sitting here. I would not leave my job in the 
Southern District of New York to come here to do a job where I 
would not have the authority and ability to be a complete and 
comprehensive watchdog of this $700 billion. And I believe that 
I do have the authority and ability to fulfill that job based 
on my----
    Senator Bunning. Well, what I am saying to you is if you do 
not think so----
    Mr. Barofsky. In a second, Senator.
    Senator Bunning. ----and you get stonewalled at certain 
areas, you make sure you come to whoever sits in that chair 
right up there. And I do not know if it will be the current man 
or not, because he is--well, that is great--or anybody else. 
But the fact of the matter is you ought to have the authority 
to get the job done, and if you do not, come to us and you will 
get it.
    Mr. Barofsky. Senator, no one has ever accused me of being 
a shrinking violet, and I certainly would not start with this 
job. I can assure you of that, and I would not hesitate for a 
second if I believed--if I am confirmed, if I believed that I 
am being stonewalled or denied access to information that is 
necessary to perform the oversight set forth by this Congress.
    Senator Bunning. Here is the article I was speaking about 
on the back page of the CQ, and it outlines exactly what has 
happened up until now. I am afraid--I do not want to see you in 
the last four paragraphs in 3 weeks saying that, oh, by the 
way, he is the IG but he cannot do a damn thing about it.
    Chairman Dodd. Thank you, Senator.
    And, last, just a comment. I mentioned Senator McCaskill 
earlier, and there is some suggestion as to whether or not 
under the statute we have provided emergency authority for 
hiring purposes or the normal processes may delay because it 
takes time, obviously, to go through the tradition. If this 
were just a normal process, it can be a longer process to put 
people in place. And that I think is the point that was raised.
    There is nothing we can do about that now. I do not believe 
we are going to be here legislating over the next few weeks, 
but I would like to be informed as to whether or not there is 
any significant delay putting people in place. And if that is 
the case, then we will be back early in January and possibly 
declare some additional action by Congress to allow for 
emergency authority so that we can expedite the hiring. So I 
would like to be informed as to whether or not that is the 
case. Very quickly, by the way, we need to know that. That has 
been an early suggestion to us.
    With that, we thank you again for your willingness to take 
on this responsibility. This Committee will try and deal with 
this as quickly as we can. I do not know quite how we do this, 
but we are going to try and see if we cannot get an action by 
the Committee, require maybe some consent for us to waive 
certain requirements in terms of time, and then see if we 
cannot get this matter up on the consent calendar before the 
Senate to be able to have your confirmation confirmed. I intend 
to be very supportive of your nomination, and I am confident my 
colleagues will as well. And so we look forward to working with 
you, Mr. Barofsky.
    Mr. Barofsky. Thank you, Mr. Chairman, and thank you for 
your time today.
    Chairman Dodd. Thank you very much.
    This Committee will stand adjourned.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketch of nominee, and 
additional material supplied for the record follow:]
                 PREPARED STATEMENT OF NEIL M. BAROFSKY
                    To Be Special Inspector General,
                     Troubled Asset Relief Program
                           November 19, 2008
    Chairman Dodd, Senator Shelby, and Members of the Committee, I am 
honored to appear before you as the President's nominee to be the 
Special Inspector General for the Troubled Asset Relief Program (TARP). 
I am grateful to this Committee for taking the time to consider my 
nomination, and it is indeed humbling to be considered for such an 
important and vital position at this moment in our nation's history. If 
confirmed, I look forward to working closely with the Members of this 
Committee and your respective staffs, as well as the other Committees 
that will be overseeing the program in carrying out my responsibilities 
as Special Inspector General.
    If I may, I will take a moment to share with you my professional 
background and why I think it prepares and qualifies me for this 
position. For the past eight years I have served as an Assistant United 
States Attorney in the Southern District of New York. My experience as 
an Assistant United States Attorney has reaffirmed to me the importance 
and rewards of public service, and if confirmed, I look forward to the 
opportunity to provide greater service to this country at a most 
serious time.
    This past summer, our United States Attorney asked me to supervise 
a newly created Mortgage Fraud Group to respond to the havoc that 
mortgage fraud has caused to countless homeowners and lenders in our 
District. Drawing on an amazingly talented group of prosecutors of 
different levels of experience and expertise in such areas as 
Securities Fraud, Organized Crime, Major Bank Fraud, Asset Forfeiture 
and Civil Fraud, we have attacked at the root those who have 
contributed significantly to the current housing and financial crisis 
through wholesale fraud of homeowners, lenders, and investors. We have 
focused on crimes committed by those who have tricked lenders into 
making loans that were never intended to be repaid; those who have 
engaged in predatory lending practices by tricking homeowners into 
applying for mortgages that they never could afford; and the criminals 
who have engaged in schemes in which they literally steal the homes 
from citizens who found themselves in default on their mortgages. I 
have also supervised our office's joint investigation into the vast 
Credit Default Swaps market with the Office of the New York State 
Attorney General. I believe that my experience as the head of the 
Mortgage Fraud Group, and my role in both supervising and participating 
in these investigations has given me a vital education in understanding 
some of the root causes of the current financial crisis, as well as the 
securities and derivative instruments whose decline in value has been 
such an important part of it. It also has given me the tools to 
identify the markers of fraud throughout the financial industry, the 
necessary expertise in investigating such frauds, and, of course, the 
experience of establishing a plan of attack on those committing these 
frauds.
    While an Assistant United States Attorney, I was also one of the 
lead prosecutors in the investigation and prosecution of those 
criminally responsible for the $2.4 billion fraud that was committed at 
Refco, Inc., the commodities giant that imploded in October 2005, just 
months after the company went public. This investigation and trial has 
thus given me the experience to understand and detect complex billion 
dollar frauds and an understanding of financial audits and where they 
can fail. Over the last few weeks, as have many Americans, I have been 
closely following the current financial crisis and the Government's 
response, and in particular the creation and execution of the TARP. If 
confirmed, I look forward to contributing to the oversight that 
Congress has established to protect the tax payers' $700 billion 
investment and fulfilling the duties of the Special Inspector General, 
as outlined in the relevant governing statutes.
    My overriding goal as Special Inspector General for the TARP would 
be to make sure that its rules and regulations are followed and to 
prevent waste, fraud, and abuse. We will need to establish an efficient 
and effective audit program. And of course, we will need to establish 
an investigative arm, which I can assure this Committee will tirelessly 
investigate and refer for prosecution any individual or entity that 
tries to criminally profit from the Program. I intend to work closely 
with each of you, your colleagues on the other committees that are 
overseeing the program, your staffs, GAO, and all others who are 
charged with overseeing this historic program. I want to emphasize to 
you that I fully understand and appreciate that, if confirmed, I am 
accountable to you, the Congress and the American people. I fully 
intend, accordingly, to keep you fully and promptly apprised of 
significant findings and concerns.
    Mr. Chairman, Senator Shelby, and Members of the Committee, I want 
to thank you for this opportunity to appear before you. I would be 
pleased to respond to any questions that you may have.












              Additional Material Supplied for the Record
    EESA LEGISLATION SECTION CREATING THE SPECIAL INSPECTOR GENERAL
SEC. 121. SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF 
        PROGRAM.
    (a) Office of Inspector General--There is hereby established the 
Office of the Special Inspector General for the Troubled Asset Relief 
Program.
    (b) Appointment of Inspector General; Removal--(1) The head of the 
Office of the Special Inspector General for the Troubled Asset Relief 
Program is the Special Inspector General for the Troubled Asset Relief 
Program (in this section referred to as the `Special Inspector 
General'), who shall be appointed by the President, by and with the 
advice and consent of the Senate.
        (2) The appointment of the Special Inspector General shall be 
        made on the basis of integrity and demonstrated ability in 
        accounting, auditing, financial analysis, law, management 
        analysis, public administration, or investigations.
        (3) The nomination of an individual as Special Inspector 
        General shall be made as soon as practicable after the 
        establishment of any program under sections 101 and 102.
        (4) The Special Inspector General shall be removable from 
        office in accordance with the provisions of section 3(b) of the 
        Inspector General Act of 1978 (5 U.S.C. App.).
        (5) For purposes of section 7324 of title 5, United States 
        Code, the Special Inspector General shall not be considered an 
        employee who determines policies to be pursued by the United 
        States in the nationwide administration of Federal law.
        (6) The annual rate of basic pay of the Special Inspector 
        General shall be the annual rate of basic pay for an Inspector 
        General under section 3(e) of the Inspector General Act of 1978 
        (5 U.S.C. App.).
    (c) Duties--(1) It shall be the duty of the Special Inspector 
General to conduct, supervise, and coordinate audits and investigations 
of the purchase, management, and sale of assets by the Secretary of the 
Treasury under any program established by the Secretary under section 
101, and the management by the Secretary of any program established 
under section 102, including by collecting and summarizing the 
following information:
                (A) A description of the categories of troubled assets 
                purchased or otherwise procured by the Secretary.
                (B) A listing of the troubled assets purchased in each 
                such category described under subparagraph (A).
                (C) An explanation of the reasons the Secretary deemed 
                it necessary to purchase each such troubled asset.
                (D) A listing of each financial institution that such 
                troubled assets were purchased from.
                (E) A listing of and detailed biographical information 
                on each person or entity hired to manage such troubled 
                assets.
                (F) A current estimate of the total amount of troubled 
                assets purchased pursuant to any program established 
                under section 101, the amount of troubled assets on the 
                books of the Treasury, the amount of troubled assets 
                sold, and the profit and loss incurred on each sale or 
                disposition of each such troubled asset.
                (G) A listing of the insurance contracts issued under 
                section 102.
        (2) The Special Inspector General shall establish, maintain, 
        and oversee such systems, procedures, and controls as the 
        Special Inspector General considers appropriate to discharge 
        the duty under paragraph (1).
        (3) In addition to the duties specified in paragraphs (1) and 
        (2), the Inspector General shall also have the duties and 
        responsibilities of inspectors general under the Inspector 
        General Act of 1978.
    (d) Powers and Authorities--(1) In carrying out the duties 
specified in subsection (c), the Special Inspector General shall have 
the authorities provided in section 6 of the Inspector General Act of 
1978.
        (2) The Special Inspector General shall carry out the duties 
        specified in subsection (c)(1) in accordance with section 
        4(b)(1) of the Inspector General Act of 1978.
    (e) Personnel, Facilities, and Other Resources--(1) The Special 
Inspector General may select, appoint, and employ such officers and 
employees as may be necessary for carrying out the duties of the 
Special Inspector General, subject to the provisions of title 5, United 
States Code, governing appointments in the competitive service, and the 
provisions of chapter 51 and subchapter III of chapter 53 of such 
title, relating to classification and General Schedule pay rates.
        (2) The Special Inspector General may obtain services as 
        authorized by section 3109 of title 5, United States Code, at 
        daily rates not to exceed the equivalent rate prescribed for 
        grade GS-15 of the General Schedule by section 5332 of such 
        title.
        (3) The Special Inspector General may enter into contracts and 
        other arrangements for audits, studies, analyses, and other 
        services with public agencies and with private persons, and 
        make such payments as may be necessary to carry out the duties 
        of the Inspector General.
        (4)(A) Upon request of the Special Inspector General for 
        information or assistance from any department, agency, or other 
        entity of the Federal Government, the head of such entity 
        shall, insofar as is practicable and not in contravention of 
        any existing law, furnish such information or assistance to the 
        Special Inspector General, or an authorized designee.
                (B) Whenever information or assistance requested by the 
                Special Inspector General is, in the judgment of the 
                Special Inspector General, unreasonably refused or not 
                provided, the Special Inspector General shall report 
                the circumstances to the appropriate committees of 
                Congress without delay.
    (f) Reports--(1) Not later than 60 days after the confirmation of 
the Special Inspector General, and every calendar quarter thereafter, 
the Special Inspector General shall submit to the appropriate 
committees of Congress a report summarizing the activities of the 
Special Inspector General during the 120-day period ending on the date 
of such report. Each report shall include, for the period covered by 
such report, a detailed statement of all purchases, obligations, 
expenditures, and revenues associated with any program established by 
the Secretary of the Treasury under sections 101 and 102, as well as 
the information collected under subsection (c)(1).
        (2) Nothing in this subsection shall be construed to authorize 
        the public disclosure of information that is--
                (A) specifically prohibited from disclosure by any 
                other provision of law;
                (B) specifically required by Executive order to be 
                protected from disclosure in the interest of national 
                defense or national security or in the conduct of 
                foreign affairs; or
                (C) a part of an ongoing criminal investigation.
        (3) Any reports required under this section shall also be 
        submitted to the Congressional Oversight Panel established 
        under section 125.
    (g) Funding--(1) Of the amounts made available to the Secretary of 
the Treasury under section 118, $50,000,000 shall be available to the 
Special Inspector General to carry out this section.
        (2) The amount available under paragraph (1) shall remain 
        available until expended.
    (h) Termination--The Office of the Special Inspector General shall 
terminate on the later of--
        (1) the date that the last troubled asset acquired by the 
        Secretary under section 101 has been sold or transferred out of 
        the ownership or control of the Federal Government; or
        (2) the date of expiration of the last insurance contract 
        issued under section 102.
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