[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
__________
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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.