[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                        TARP ACCOUNTABILITY: USE
                        OF FEDERAL ASSISTANCE BY
                       THE FIRST TARP RECIPIENTS

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS
                             FIRST SESSION

                               ----------                              

                           FEBRUARY 11, 2009

                               ----------                              

       Printed for the use of the Committee on Financial Services

                            Serial No. 111-4










                        TARP ACCOUNTABILITY: USE
                        OF FEDERAL ASSISTANCE BY
                       THE FIRST TARP RECIPIENTS

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 11, 2009

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 111-4






                  U.S. GOVERNMENT PRINTING OFFICE
48-675                    WASHINGTON : 2009
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office  Internet: bookstore.gov Phone: toll free (866) 512-1800 
Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 20402-0001





                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel













                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 11, 2009............................................     1
Appendix:
    February 11, 2009............................................   105

                               WITNESSES
                      Wednesday, February 11, 2009

Blankfein, Lloyd C., Chief Executive Officer and Chairman, 
  Goldman Sachs & Co.............................................     9
Dimon, James, Chief Executive Officer, JPMorgan Chase & Co.......    11
Kelly, Robert P., Chairman and Chief Executive Officer, Bank of 
  New York Mellon................................................    12
Lewis, Kenneth D., Chairman and Chief Executive Officer, Bank of 
  America........................................................    14
Logue, Ronald E., Chairman and Chief Executive Officer, State 
  Street Corporation.............................................    15
Mack, John J., Chairman and Chief Executive Officer, Morgan 
  Stanley........................................................    16
Pandit, Vikram, Chief Executive Officer, Citigroup...............    18
Stumpf, John, President and Chief Executive Officer, Wells Fargo 
  & Company......................................................    20

                                APPENDIX

Prepared statements:
    Bachmann, Hon. Michele.......................................   106
    Castle, Hon. Michael N.......................................   107
    Kanjorski, Hon. Paul E.......................................   108
    Perlmutter, Hon. Ed..........................................   109
    Peters, Hon. Gary C..........................................   110
    Price, Hon. Tom..............................................   111
    Wilson, Hon. Charlie.........................................   112
    Blankfein, Lloyd C...........................................   113
    Dimon, James.................................................   120
    Kelly, Robert P..............................................   125
    Lewis, Kenneth D.............................................   129
    Logue, Ronald E..............................................   134
    Mack, John J.................................................   139
    Pandit, Vikram...............................................   142
    Stumpf, John.................................................   189

              Additional Material Submitted for the Record

Responses to questions submitted for the record from:
    Blankfein, Lloyd C...........................................   194
    Dimon, James.................................................   200
    Kelly, Robert P..............................................   218
    Lewis, Ken...................................................   229
    Logue, Ronald E..............................................   246
    Mack, John J.................................................   256
    Pandit, Vikram...............................................   264
    Stumpf, John.................................................   317
Frank, Hon. Barney:
    Letter from Andrew M. Cuomo, Attorney General, State of New 
      York, dated February 10, 2009..............................   329
    Written statement of the RainbowPUSH Coalition...............   332
    Office of Thrift Supervision News Release, entitled, ``OTS 
      Urges Temporary Halt to Foreclosures,'' dated February 11, 
      2009.......................................................   334
Ellison, Hon. Keith:
    Article by Adam J. Levitin, entitled, ``Rein in the credit 
      card games,'' dated November 28, 2008......................   335
    Letter to Hon. Steve Bartlett, President and CEO, The 
      Financial Services Roundtable, from Change to Win, dated 
      February 10, 2009..........................................   337
Garrett, Hon. Scott:
    ``Wall Street Journal Op-Ed: Don't Push Banks to Make Bad 
      Loans,'' by Bert Ely.......................................   350

 
                        TARP ACCOUNTABILITY: USE
                        OF FEDERAL ASSISTANCE BY
                       THE FIRST TARP RECIPIENTS

                              ----------                              


                      Wednesday, February 11, 2009

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10 a.m., in room 
2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Kanjorski, Waters, 
Maloney, Gutierrez, Velazquez, Watt, Ackerman, Sherman, Meeks, 
Moore of Kansas, Capuano, Hinojosa, Clay, McCarthy of New York, 
Baca, Lynch, Miller of North Carolina, Scott, Green, Cleaver, 
Moore of Wisconsin, Hodes, Ellison, Klein, Wilson, Perlmutter, 
Donnelly, Foster, Carson, Speier, Minnick, Adler, Kilroy, 
Driehaus, Kosmas, Grayson, Himes, Peters, Maffei; Bachus, 
Castle, King, Royce, Manzullo, Jones, Biggert, Miller of 
California, Capito, Hensarling, Garrett, Barrett, Neugebauer, 
Price, McHenry, Marchant, McCotter, McCarthy of California, 
Posey, Jenkins, Paulsen, and Lance.
    The Chairman. The hearing will come to order.
    Before the clock starts, let me make some procedural 
announcements. I don't know why I said, ``let me.'' Since I am 
in charge, I will just do it.
    First of all, this is not an audience participation event. 
There are police officers here. We expect this to go well, but 
we will not have disruptions.
    I am a great believer in free speech, but there are time 
and place restrictions that are totally consistent with a free-
speech absolutist position. Interruptions and shouts will 
interfere with the discussion. People are totally free to go 
outside and to other places during the meeting time and say 
rude things about any or all of us, but not during the hearing, 
and I will enforce that.
    I also will urge people to withhold applause, forced 
laughter, and other interjections, in part because this is a 
larger committee than I wish that it was, and we have a great 
deal of interest in this subject, and I do not want to lose 
time that we would otherwise be able to put to these 
constructive purposes. I regret the fact that I have to take up 
this time now.
    I will also make the members aware that I am going to be 
enforcing the 5-minute rule; and this means the following. 
After yesterday, I remind you of this: Members are entirely 
free in their use of the 5-minute rule to use 4 minutes and 54 
minutes speaking, and then announcing at minute 4, seconds 55, 
that they have a question, but do not expect an answer. If you 
leave 8 seconds for a complicated answer, you probably won't 
get it here.
    I will say, in defense of some of the witnesses, it may be 
necessary, if it appears you are unable to answer the 
questions, it will be because haven't left the time to do it. 
We will, of course, take those answers in writing.
    So I would urge members, if you are asking a question to 
which you want an answer, please leave some time for there to 
be an answer. If you just want to say something and ask a 
rhetorical question, that is your right. It is in the House 
rules. But I do want to explain that I am not going to be 
allowing people to extend their time by leaving a question of 
some complexity with only a couple of seconds to be answered.
    With that, we will begin. I will now start the clock for my 
own strictly enforced 5 minutes.
    The separation of powers becomes relevant here. There is a 
great deal of anger in the country, much of it justified, about 
past practices, and a number of people can legitimately be 
criticized. There is also a concern that there may have been 
things done for which there should be some action, civil 
recoveries. In some cases, people have been talking about 
prosecution, although I do not mean to imply that anyone here 
faces that.
    The role of the Congress, however, is different. We are not 
the Executive Branch with enforcement powers. We are not the 
Securities and Exchange Commission or the Comptroller of the 
Currency. We are not ourselves regulated.
    We formulate regulatory policy. I believe our major 
function and the purpose of this hearing is to help formulate 
policy going forward. Understanding what happened, why it 
happened, and what didn't happen are essential elements of 
formulating policy going forward. So, yes, this hearing will 
focus on what has happened, but that is in the context, I 
believe, given our legislative function, of trying to devise 
what we do going forward.
    Now, we have this dilemma. Because I believe an absence of 
sensible regulation--not deregulation, but non-regulation--a 
series of new financial activities and, in some cases, entities 
grew up in our country, and those activities did a lot of good. 
But as will happen when you have a total absence of regulation, 
they also did some harm, more harm than almost anybody had 
anticipated. In consequence, we are now in a very serious 
negative economic situation.
    We have two roles. One is to adopt rules that will make it 
much less likely that we will have a repeat of this, and I 
think that is the easier job, intellectually, and I even think 
politically, because of the view in the country.
    But we have to get out from under where we are now, and 
here is the dilemma: There is in the country a great deal of 
anger about the financial institutions, including those 
represented here. There is anger about us. There is anger about 
the Executive Branch. There is a great deal of anger.
    We have this dilemma. It is essential if we are to reverse 
the economic negativism that we now confront that we, among 
other things, get the system of extending credit back into its 
fullest operation.
    I suppose, theoretically, you could junk the current system 
and start a whole new one. The amount of time and effort that 
would take would, obviously, make that totally impractical. We 
have no option if we are to get credit flowing again in this 
country other than to work with the existing institutions, not 
every institution as it was originally constituted but with the 
existing institutions. And the problem is that there is a great 
deal of anger at the institutions, and it is impossible to get 
the credit system working again without doing some things that 
will be seen to benefit the institutions.
    I have said this is the opposite of that terrible problem 
in warfare of collateral damage, when innocent people are 
injured in the course of trying to obtain a military objective. 
One of the problems we have, gentlemen, is that you are the 
recipients of collateral benefit. That is, in an effort to get 
the credit system functioning, things will be done that will be 
to the benefit of the institutions over which you preside 
because there is no alternative.
    But you need to understand, as I think many of you do, how 
angry that makes people, and in the interests of getting the 
system working again, I urge you strongly to cooperate with us, 
not grudgingly, not doing the minimum, but understanding that 
there is a substantial public anger. And alleviating that 
public anger not with mumbo jumbo but with reality is essential 
if we are going to have the support in the country to take the 
right steps.
    I admired much of Secretary Paulson's tenure. But beginning 
last September when he asked us for the $700 billion 
authorization, and I raised the compensation issue, he was very 
resistant, and I must tell you that he blamed you to some 
extent, not you individually, but you as a profession. He said 
that if we put strict compensation restrictions on people, they 
won't cooperate.
    I hope that is not true. I hope the argument that people 
would put their own economic self-interest in the narrow term 
ahead of a necessary program to get the country back isn't the 
case. We need to look at that. We need to talk about it. I 
think some of you have been laggard in understanding that.
    I urge you going forward to be ungrudgingly cooperative and 
understand that these are extraordinary times. We are going to 
be taking and have been taking extraordinary measures which 
will be to the benefit of some of the institutions or all of 
the institutions over which you preside. There has to be on the 
sense of the American people that you understand their anger, 
their frustration, and that you willingly cooperate and in fact 
are willing to make some sacrifices so that we can get this 
whole thing working.
    The gentleman from Alabama.
    Mr. Bachus. Thank you, Mr. Chairman.
    Gentlemen, we in Congress, I think, have screwed up health 
care pretty badly, and K through 12 through our involvement, 
and now we are turning our attention to you, and may God help 
us and help you and all the American people as we do that.
    I think that together it is important that we don't engage 
in name calling or the blame game, that we take a forward look 
and that we together try to do what is best for the American 
people. And to a certain extent that is going to be on your 
part and our part, as the chairman said, winning back their 
trust and their confidence, and we can best do that by doing it 
as partners. I hope that the questions focus on how we can get 
this economy moving and what your institutions can do.
    I do want to say this as a word of caution. These are 
several different institutions, eight different institutions. 
Some wanted the money. Some didn't want the money. I am not 
sure the American people, I think they are going to look at you 
as a unit, but I hope they don't do that, because that would be 
a mistake. Because you are all in a different situation. Your 
financial condition is different, and you should not be treated 
as one.
    I think you and I both agree that we need to get the 
government and government investment out of the banks as soon 
as we can and get about the business of you doing what you do 
well and with a minimum of unnecessary influence and 
interference from us.
    Thank you very much for your presence.
    The Chairman. I used 5 minutes. The gentleman used 2 
minutes. Do you want to go to Mr. Royce? A minute-and-a-half.
    Mr. Royce. Thank you, Mr. Chairman.
    In the United States, the mortgage-backed securities market 
was kick-started and has been sustained here by the activities 
of what we call government-sponsored enterprises. And the first 
Ginnie Mae guaranteed mortgage-backed security was issued back 
in 1970, Fannie Mae securitized its first pool in 1981, and 
Freddie Mac issued the first CMO backed by 30-year-fixed 
mortgage rates in 1983. Now, the pool was refinanced with the 
issue of three classes of securities that matured sequentially.
    We have all watched this evolution as we watched the 
leveraging of 100 to 1 by these institutions and the warnings 
to us by the Federal Reserve that something had to be done, 
otherwise, it was going to create systemic risk. Indeed, we 
have also watched the demand on these institutions, the 10 
percent of that $1.5 trillion going to loans to people who 
wouldn't have the capacity to pay them back, and, indeed, we 
had at least a trillion lost out of Fannie Mae and Freddie Mac 
just out of that.
    National mortgage conduits such as Fannie Mae and Freddie 
Mac do not exist in Europe, and without depth and liquidity of 
MBS, ABS, asset-backed markets, securitization is not as 
valuable. It cannot be as popular, especially when banks have 
alternative techniques for refinancing their mortgage 
portfolios there.
    For example, in the U.K., it strikes me that is the largest 
market in Europe, for these types of securities, 6 percent of 
U.K. mortgages are securitized. In the United States, right 
now, it is 60 percent--60 percent. And one of the questions I 
have, and we will listen to the testimony here, but to what 
extent was the securitization process--
    The Chairman. The time allocated--let me be clear. This is 
an allocation that the Minority gave me. The gentleman was 
given a minute-and-a-half. I cleared this with the Minority. 
This is not arbitrary. He has other people he wants to deal 
with. When I do rap the gavel, I hope people will understand we 
are operating within the limits of other members getting a fair 
chance.
    So the gentleman's time has expired. The gentleman used an 
extra 38 seconds.
    I will now recognize the gentleman from Pennsylvania for 2 
minutes.
    Mr. Kanjorski. Mr. Chairman, today we will learn how some 
of the richest and most powerful men in America are spending 
billions of dollars of taxpayer money. Because some of my 
colleagues will probably ask our witnesses to explain their 
enormous bonuses being issued in a time of great national 
suffering, I will not do so.
    And because my colleagues will likely inquire as to their 
ownership of numerous vacation homes while millions of 
Americans face foreclosure on the only home they have, I will 
leave that subject alone.
    Because some of the members will undoubtedly seek to 
understand how you can underwrite frivolous junkets when most 
Americans would almost do anything to get a job, let alone a 
vacation, I will defer that question, too.
    Instead, I want to know where the money has gone and why it 
went there. My constituents in Pennsylvania regularly ask me 
why you needed their money and how you are using it. This is 
your opportunity to explain to them just exactly what you are 
doing, and for anyone who contends that you do not need the 
money and that you did not ask for it, please find a way to 
return that money to the Treasury before you leave town.
    As executives at large companies, you once lived in a one-
way mirror, unaccountable to the public at large and often 
sheltered from shareholder scrutiny. But when you took taxpayer 
money, you moved into a fishbowl. Now everyone is rightly 
watching your every move from every side. Millions are watching 
you today, and they would like some degree of explanation and 
responsibility. I do, too.
    The Chairman. The gentleman from Texas, Mr. Hensarling, is 
recognized for 1\1/2\ minutes.
    Mr. Hensarling. Thank you, Mr. Chairman.
    I believe I will have plenty of opportunities to disagree 
with our President in the next several years, not the least of 
which is a piece of legislation known as the stimulus package 
that I believe will stimulate big government much more so than 
the economy. But let me make a point where I do agree with our 
President.
    In announcing the executive compensation limits, our 
President said, ``This is America. We don't disparage wealth, 
we don't begrudge anybody for achieving success, and we believe 
success should be rewarded. But what gets people upset, and 
rightfully so, are executives being rewarded for failure, 
especially when those rewards are subsidized by the U.S. 
taxpayers.''
    I hope that this committee hearing does not turn out to be 
a time for class warfare, but I do hope it becomes a time and 
an opportunity for taxpayer accountability and taxpayer 
transparency. I believe in the hours to come that you gentlemen 
before me will certainly have lots of opportunities to be 
criticized, castigated, second-guessed, and otherwise publicly 
pillared.
    I have a couple of observations. Number one, some of that 
will be richly deserved. My other observation is that many who 
dish it out to you are also partially responsible for the mess 
in which we find ourselves now. Outside of the soft money 
actions of the Federal Reserve, no matter how noble the 
intentions, Federal registration--
    The Chairman. I thank the gentleman.
    Mr. Hensarling. I took the chairman at his word.
    The Chairman. Well, I certainly don't want to discourage 
that as a precedent, so I thank the gentleman.
    The gentlewoman from California for 2 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    This is an important hearing today. The question has been 
asked over and over again, what did the banks do with the 
taxpayers' money? The taxpayers of America are very, very upset 
about the fact that they allowed the banks to borrow their 
money, the taxpayers' money, in unprecedented amounts, billions 
of dollars, and when the taxpayers went back to the banks to 
say, may I have a loan, may I have a loan to buy a car, may I 
have a loan to pay my student fees, may I have a loan for a 
mortgage, the banks are saying no.
    To add insult to injury, the banks have sent out notices to 
credit card holders, taxpayers again who have loaned money to 
the big banks, the banks are saying to the credit card holders, 
oh, we are going to increase your interest rates. We know you 
were paying 13, 14, 15 percent already, but now it is going to 
cost you 18, 19, 20 percent.
    So the taxpayers have lent their money to the big banks, 
who are supposed to be big business persons, expertise in 
business management, who are failing. They have gone back to 
ask for some assistance. They are being denied.
    In addition to that, Mr. Chairman, I want to talk a little 
bit later on when I question about the fact that these banks 
not only took huge amounts of money from the taxpayers under 
the banner of TARP, they then charged and made money, the 
banks, on the money that we gave them, in fees. We have not 
talked about the fees that these banks have made as they 
processed our money, but I am going to reveal here today that 
they took the money and they earned more money on the money 
that we gave them, instead of allowing that money to be managed 
by others who were waiting to participate.
    I yield back.
    The Chairman. I thank the gentlewoman. She almost met the 
gentleman from Texas' standard. Very close.
    The gentleman from South Carolina, Mr. Barrett, for a 
minute-and-a-half.
    Mr. Barrett. Thank you, Mr. Chairman.
    Gentlemen, normally, I would strongly oppose the nature of 
this hearing. There are few things more dangerous to me than 
letting government run our banks or having a bunch of 
politicians make your business decisions. But now that you have 
received hard-earned taxpayer money, you owe my constituents 
some explanation on how you have gotten yourselves into this 
position and how you spent their money.
    Like other States, South Carolina is struggling and too 
many of my people are losing their jobs due to your actions 
which have driven this economy into the ground. Small 
businesses back home, people I know, friends I go to church 
with, are closing their doors, losing their jobs, and they are 
not getting bailed out. My folks simply haven't seen the 
evidence that the money that you were given is working or 
making their lives better.
    So I look forward to this hearing today, and I hope that 
you gentlemen will provide us the answers that we all need.
    Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from Illinois for a minute- 
and-a-half.
    Mrs. Biggert. Thank you, Mr. Chairman, and thank you for 
holding today's very important hearing.
    Last year, in December, nearly 2 months ago to the day, I 
joined Republican Leader Boehner and 81 other House Republicans 
and signed a letter requesting this hearing. I am glad that 
this has finally happened.
    We should have had a hearing before passing legislation on 
the Floor to reform TARP. TARP was a rush job. When Congress 
passed the financial rescue passage, it was to stave off a dire 
and immediate threat to our entire economy, and we are by no 
means out of the woods yet.
    Treasury needs to provide much greater transparency and 
show us where the American taxpayers' money is going before 
requesting more and before rolling out a new plan to use 
trillions, let me repeat, trillions, more of taxpayer dollars.
    Have the funds been used to get credit flowing again, not 
just to financial institutions but to consumers and small 
businesses? How do we know additional TARP money is needed? Who 
needs it? How much more will be used?
    Only today, for the first time, have we had the opportunity 
to publicly hear about the first $350 billion that was used by 
the aid of the 362 firms, excluding two of the big three auto 
companies across the country that received taxpayer TARP funds. 
What went wrong? Who is to say that we are not putting good 
money after bad? I hope today's witnesses will shed some light 
on these looming questions.
    And let me be frank: My constituents in Illinois are angry, 
and so am I. We don't believe that taxpayer money has been 
spent wisely. We don't have the answers that we need.
    Thank you, and I yield back.
    The Chairman. The gentleman from Georgia, Mr. Scott, for 1 
minute.
    Mr. Scott. Thank you very much, Mr. Chairman.
    I think it is very important that you gentlemen represent 
the heart of our system, the very foundation of our system, and 
it is shaking at the roots. The confidence of the American 
people is at a low ebb. I think if there is one thing that you 
gentlemen can do today it is to illustrate very firmly that 
what has happened in the past, $18 billion of this money, of 
taxpayer money going out to you, is an aberration and to send a 
very important message to the American people that you 
understand this is not the Congress' money, it is not your 
money, this is money that is coming directly from the pockets 
of American taxpayers, but, more importantly, it is coming from 
our grandchildren and our children's indebtedness.
    The future foundation of our economic system is going to 
weigh on this hearing today. Because at the heart of it is 
confidence. If we leave here today knowing that we have 
restored the confidence of the American people, then this 
hearing will be most certainly worth it.
    Thank you.
    The Chairman. The gentleman's time has expired.
    The gentlewoman from Kansas for 1\1/2\ minutes.
    Ms. Jenkins. Thank you, Mr. Chairman.
    Our economy continues to lag. Every day, Americans struggle 
to pay their mortgages and put food on the table while their 
home values drop. Businesses have had to scale back, forcing 
massive layoffs and furloughs. There is no question times are 
tough.
    Congress has had to act quickly to make difficult policy 
decisions in uncharted territory, yet those circumstances do 
not give government a blank check. Times like these call for 
increased scrutiny before rushing to spend billions of hard-
earned taxpayer dollars on programs which may not effectively 
address the root of the problems we face.
    Today, we will hear from institutions that received 
billions in government aid. The question remains, was $700 
billion in TARP funds a wise use of taxpayer dollars and 
effective in its mission to return stability to financial 
markets, and this on top of actions by the Federal Reserve, the 
FDIC, and others with a price tag well into the trillions?
    My constituents in Kansas sent me to Washington with a 
clear mandate to protect the dollars they send to Washington. 
Being tight-fisted with taxpayer dollars should not lead to 
inaction but to increased accountability, transparency and 
scrutiny. Congress injected hundreds of billions in TARP 
dollars. I am eager to hear from today's witnesses on progress 
or lack thereof on reviving our struggling economy and 
financial markets.
    I yield back the balance of my time. Thank you.
    The Chairman. The gentleman from Texas is recognized for 1 
minute.
    Mr. Neugebauer. I thank the chairman.
    I look forward to this panel today. I think I can maybe 
call this a shareholders meeting, because, although I didn't 
vote for the TARP program, the American taxpayers have put 
money into your entities. So I think what they are going to be 
looking forward to hearing from the CEO's who are managing 
their money is how are we doing.
    I think one of the things that concerns me is that there 
was a lot of criticism of the GSE format in our country of 
government-sponsored entities, where we had basically competing 
interests. We had shareholders, and we had basically political 
interests. Unfortunately, that was a flawed model, but yet we 
have now employed that model for the rest of the financial 
industry.
    So instead of calling you GSEs, I am going to call you 
TSEs, and that is taxpayer-supported entities. I don't support 
that model. I think it is a flawed model because it is a 
competing interest. But now that the American people are your 
shareholders there is a new accountability structure that will 
come, and I hope today you will be able to articulate how this 
money that the American people have invested in your entities 
has benefited you. But, more importantly, what they want to 
hear is what it is doing for them. So I look forward to the 
testimony today.
    The Chairman. Finally, I ask for a unanimous consent 
request for the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    I ask by unanimous consent that H.R. 387 be placed in the 
record, the TARP Accountability Act, which will deal with 
transparency in lending as it relates to the TARP funds.
    The Chairman. Without objection, it is so ordered.
    That I believe is the bill that passed as an amendment 
before the House by the gentleman, Mr. LaTourette.
    Mr. Green. Yes, Mr. Chairman, that is correct.
    The Chairman. We will now hear from our witnesses.
    I will begin--I don't know what order. It appears to be 
alphabetical. Yes, it appears to be alphabetical, so no one 
will read any significance into it.
    I will begin at the top of the alphabet with Mr. Blankfein.

 STATEMENT OF LLOYD C. BLANKFEIN, CHIEF EXECUTIVE OFFICER AND 
                 CHAIRMAN, GOLDMAN SACHS & CO.

    Mr. Blankfein. Chairman Frank, Ranking Member Bachus, and 
members of the committee, I appreciate the opportunity to 
appear before you.
    It is abundantly clear that we are here amidst broad public 
anger at our industry. Many people believe, and in many cases 
justifiably so, that Wall Street lost sight of its larger 
public obligations and allowed certain trends and practices to 
undermine the financial system's stability. We have to regain 
the public's trust and do everything we can to help mend our 
financial system to restore stability and vitality. Goldman 
Sachs is committed to doing so.
    We take our responsibility as a recipient of TARP funds 
very seriously. We view the TARP as important to the overall 
stability of the financial system and, therefore, important to 
Goldman Sachs.
    We serve a number of important roles, including that of 
advisor, financier, market maker, asset manager, and co-
investor. Our business is institutionally dominated, with the 
vast majority of our capital commitments made on behalf of 
corporations and institutional investors. We are not engaged in 
traditional commercial banking and are not a significant lender 
to consumers.
    As a financial institution focused on this wholesale client 
base, Goldman Sachs actively provides liquidity to institutions 
which helps the capital markets function. In short, our 
businesses require that we commit capital, and our ability to 
do so has been enhanced since receiving this investment under 
the Capital Purchase Program.
    As a financier, clients frequently expect our advice to be 
accompanied by access to the capital necessary to make that 
advice actionable and practical. For instance, we often provide 
backstop or contingent credit, such as a commitment to make a 
bridge loan, until other sources of more permanent capital can 
be arranged.
    Since receiving the $10 billion of capital on October 27th 
and through January, 2009, Goldman Sachs has committed over $13 
billion in new financing to support our clients. This compares 
with $4.5 billion in the 3 months prior to receiving the 
government's investment.
    For example, we put our capital to work on behalf of Sallie 
Mae to allow them to provide more than $1.5 billion of student 
loans. We made a significant investment in the C.J. Peete 
Department's housing complex, a mixed-income housing project in 
New Orleans. We also committed capital to Verizon Wireless, 
Pfizer, and a number of other significant corporations.
    As a market maker, we provide the necessary liquidity to 
ensure that buyers and sellers can complete their trades. In 
dislocated markets we are often required to deploy our capital 
to hold client positions over longer term while the transaction 
is completed. Last month, for instance, we provided short-term 
liquidity to a portion of the mortgage market through a large 
agency mortgage transaction. This significant extension of our 
capital helped keep mortgage rates from increasing by allowing 
billions of dollars of mortgage securities to be financed.
    We also are an active co-investor with our clients. Over 
the summer, we established a $10.5 billion senior loan fund 
which makes loans to companies in need of capital. The fund 
invests both our own capital and that of our clients. Already, 
it has made approximately $5 billion in commitments.
    The committee has also asked us to address our compensation 
policies and practices. Since we became a public company, we 
have had a clear and consistent compensation policy. We pay our 
people based on three factors: the performance of the firm; the 
performance of the business unit; and the performance of the 
individual. We believe this approach has incentivized our 
people to act in a way that supports the firm as a whole and to 
not be narrow-minded about their specific division or business 
unit.
    More broadly, it has produced a strong relationship between 
compensation and performance. From 2000 to 2007, Goldman Sachs' 
earnings grew twice as fast as our aggregate compensation 
expenses. For our 9 full years as a public company, which 
includes an exceptionally difficult 2008, the firm generated an 
average return on equity of 21 percent for our shareholders.
    While the firm produced a profit of $2.2 billion in 2008, 
our revenues were down considerably. End-of-year bonuses were 
down an average of 65 percent. Our most senior people, the 
firm's 417 partners, were down 75 percent. The bulk of 
compensation for our senior people is in the form of stock 
which vests over time.
    I would also note that Goldman Sachs has never had golden 
parachutes, employment contracts, or severance arrangements for 
its executive officers.
    We also recognize that having TARP money creates an 
important context for compensation. That is why in part our 
executive management team requested not to receive a bonus in 
2008, even though the firm produced a profit.
    Mr. Chairman, our firm recognizes the extraordinary support 
the government has provided to the financial markets and to our 
industry. We will live up to the spirit and letter of the 
responsibilities our regulators, the Congress and the public 
expect of us, and we will do so whether we still have TARP 
funds or not.
    We appreciate that the TARP funds were never intended to be 
permanent capital. When conditions allow and with the support 
of our regulators and Treasury, we look forward to paying back 
the government's investment so that money can be used elsewhere 
to support our economy.
    Thank you.
    [The prepared statement of Mr. Blankfein can be found on 
page 113 of the appendix.]
    The Chairman. Next, Mr. Dimon.

  STATEMENT OF JAMES DIMON, CHIEF EXECUTIVE OFFICER, JPMORGAN 
                          CHASE & CO.

    Mr. Dimon. Chairman Frank, Ranking Member Bachus, and 
members of the committee, my name is Jamie Dimon. I am the 
chairman and CEO of JPMorgan Chase. I look forward to today's 
discussion and ask that my complete written statement be 
entered into the hearing record.
    The Chairman. Without objection, all statements and any 
supporting material from any of the witnesses will be made a 
part of the record.
    Mr. Dimon. I would like to highlight a few key points to my 
written testimony.
    First, JPMorgan is lending. Through our 5,000 branches in 
23 States, we continue to provide credit to tens of millions of 
customers, including individual customers, nearly 2 million 
small business clients, large corporations, other banks, not-
for-profits and States and municipalities.
    While we did not seek the $25 billion TARP funds we 
received on October 28, 2008, it strengthened our already 
strong capital base which is the foundation of all of our 
lending activities. We are putting that money to use in a way 
that respects the spirit of TARP while maintaining the safe and 
sound lending practices and strong balance sheet that has 
helped to make and to keep JPMorgan a healthy and vibrant 
company, a company that employs 224,000 people worldwide, gives 
away $100 million a year to charity, and pays approximately $10 
billion in tax to State, local, and the Federal Government over 
the last 10 years each.
    Over 50 million Americans own our stock, and our 
stockholders include people from all walks of life: retirees; 
teachers; union members; and our own employees. We feel a deep 
obligation to honor this faith in us, including the investment 
the government made to us in TARP, by maintaining prudent 
underwriting standards.
    In the fourth quarter, despite reduced customer demand for 
credit, we made over $150 billion in new loans. In addition, we 
lent an average of $50 billion every night to other banks.
    Also during the fourth quarter, we purchased almost $60 
billion of mortgage-backed and asset-backed securities, which 
had the benefit of supporting the agency debt markets and 
promoting liquidity in the housing capital markets.
    Overall, in the fourth quarter, our consumer loan balances 
increased by 2.1 percent compared to the third quarter, while 
overall personal consumption expended in the country decreased 
by 2.3 percent. That is to say we lent more even as customers 
were cutting back their spending during the quarter.
    Second, JPMorgan is committed to keeping borrowers in their 
homes by making sustainable, properly underwritten loan 
modifications, in some instances even before a default occurs. 
We have extended our modification efforts to cover not only the 
mortgages we own but also the investor-owned loans that we 
service, about $1.1 trillion of loans. We believe we will avert 
650,000 foreclosures by the end of 2010.
    We believe it is the right approach to the consumer and for 
the stability of our financial system as a whole. Homeowners 
should have equal access to a sustainable mortgage modification 
without having to resort to bankruptcy and put their credit 
histories at risk. We urge Congress and the Administration to 
help adopt a uniform national standard for loan modification 
programs.
    Third, JPMorgan has been willing to take very significant 
actions to help stabilize the financial system, and we stand 
ready to do our part going forward. In March of 2008, at the 
request of the U.S. Government, we worked to prevent an 
uncontrolled collapse of Bear Stearns. In September of 2008, we 
were the only bank prepared to acquire the assets of Washington 
Mutual after the FDIC seized that institution. Taken together, 
these two transactions saved nearly 40,000 jobs and prevented 
further market instability.
    Finally, it must be said that today's economic crisis is 
the result of a lot of mistakes made by a lot of people and all 
of us who are here today, and many who are not here, bear some 
measure of responsibility for the current state of the 
financial markets. The ongoing financial crisis exposed 
significant deficiencies in our current regulatory system which 
is fragmented and overly complex. There is a great deal we need 
to address to overcome these weaknesses.
    We agree with Chairman Frank that Congress and the 
President should move ahead quickly to establish a systematic 
risk regulator. In the short term, this will allow us to 
address in our system and fill the gaps in regulation that 
contributed to the current situation.
    There are tremendous challenges facing the financial 
services industry and the American economy, but the United 
States has faced serious problems before. The measure of 
strength for a country and a company is not whether or not 
there are problems. It is how they deal with those problems, 
overcome them, identify them, and move on. I am confident that 
we will do this again and we will all emerge better because of 
it.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Dimon can be found on page 
120 of the appendix.]
    The Chairman. Next, Mr. Robert Kelly.

  STATEMENT OF ROBERT P. KELLY, CHAIRMAN AND CHIEF EXECUTIVE 
                OFFICER, BANK OF NEW YORK MELLON

    Mr. Kelly. Mr. Chairman, Ranking Member Bachus, and members 
of the committee, my name is Bob Kelly. I am chairman and CEO 
of The Bank of New York Mellon. I appreciate the opportunity to 
speak with you about our participation in the Capital Purchase 
Program.
    The business model of The Bank of New York Mellon is quite 
different from a traditional retail or commercial or investment 
bank. In contrast to most of the companies here today, our 
business model does not focus on the broad retail market or 
commercial banking or investment banks, and we don't focus on 
mortgages, credit cards, or auto loans. In fact, we don't do 
typical lending to corporate businesses.
    A good way to think of The Bank of New York Mellon is we 
are a bank for banks. We are an infrastructure bank. The lion's 
share of our business is dedicated to helping other financial 
institutions be more successful around the world. We invest 
mutual fund and pension monies, and we administer the complex 
back-office processes. We also provide critical infrastructure 
for the global financial markets by facilitating the movement 
of money and securities through the markets. Finally, we 
provide some financing to other banks so they can make 
mortgages and other loans and other instruments available to 
consumers and businesses.
    You should know that we were profitable every quarter last 
year, and we paid over $4 billion in income and other taxes 
globally. While some of our assets were invested in mortgage-
backed securities which did incur losses, they have been more 
than offset by our profits throughout the year. We continue to 
have the highest debt ratings of U.S. banks rated by Moody's, 
and we have the second highest rating by Standard and Poor's.
    In October, the Treasury allocated to us $3 billion of the 
$350 billion allocated to date. The financial markets were very 
dangerously in total gridlock at the time and deteriorating 
rapidly. We were in a deep financial crisis at that time. We 
understood that a clear goal at the time was to have a range of 
institutions, including relatively healthy companies like The 
Bank of New York Mellon, participate in the Capital Purchase 
Program, removing any stigma that might be associated with 
accepting Treasury capital and helping reassure the markets of 
the stability of the financial system. We were strongly 
encouraged to participate, and we did very quickly.
    In exchange for the $3 billion investment, the U.S. 
Government received preferred stock and warrants, and we agreed 
to pay the government $150 million a year in dividends until we 
repaid the $3 billion. The $3 billion in capital that we 
received from Treasury allowed us to do quite a bit more than 
we would have otherwise to improve the movement of funds in the 
financial markets.
    We purchased $1.7 billion in mortgage-backed securities and 
debentures issued by the U.S. Government through the 
government-sponsored agencies. This helped to increase the 
amount of money to lend to qualified borrowers in the 
residential housing market.
    We purchased $900 million of debt securities of other 
healthy financial institutions to improve liquidity and help 
them lend to consumers and businesses.
    And we used the remaining $400 million for interbank 
lending to other healthy financial institutions. Again, it was 
both liquidity, funding, and stability.
    We have not used any of the funds to pay dividends, 
bonuses, or compensation of any kind, nor will we. In fact, we 
will not use any of the funds to make acquisitions either.
    We still have a long way to go to get the credit markets 
and the U.S. economy functioning properly again. Bank capital 
must be rebuilt, low-quality assets must be sold or written 
off, sound lending must occur, and confidence in our system 
must be restored. The Bank of New York Mellon will not only 
repay the $3 billion to the Treasury, but we also fully intend 
to deliver a very good return on investment for taxpayers.
    Thank you.
    [The prepared statement of Mr. Kelly can be found on page 
125 of the appendix.]
    The Chairman. Mr. Lewis.

 STATEMENT OF KEN LEWIS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 
                        BANK OF AMERICA

    Mr. Lewis. Thank you, Mr. Chairman, Congressman Bachus.
    I would like to start by making two key points: First, all 
of us at Bank of America understand the responsibilities that 
come with access to public funds. Taxpayers want to see how we 
are using this money to restart the economy and want us to 
manage our expenses carefully. These expectations are 
appropriate, and we are working to meet them.
    Second, as we manage our business going forward, we are 
doing our best to balance the interests of customers, 
shareholders, and taxpayers. But the fact is, it is in all of 
our interests that banks lend as much as we responsibly can, 
maximizing credit while minimizing future losses. That is how 
consumers and businesses can prosper. It is how investors, 
including taxpayers, can earn returns.
    Bank of America serves more than half of all U.S. 
households and millions of businesses. We know that the health 
and strength of our company depends on the health and strength 
of the U.S. economy. We have every incentive to lend and, 
despite recessionary headwinds, we are lending.
    In the fourth quarter alone, we made more than $115 billion 
in new loans to consumers and businesses. We also renewed about 
$70 billion in credit lines and made some bulk purchases of 
loans to reach a total of $181 billion in total lending 
activity, which was included in our TARP report. We also 
reaffirmed three 10-year, nationwide goals that are critical to 
the health of our communities: $1.5 trillion for community 
development lending, $2 billion in philanthropic giving, and 
$20 billion in environmental lending and investment.
    We are working to keep people in their homes. While Bank of 
America exited subprime lending in 2001, we inherited a 
substantial portfolio when we acquired Countrywide. We modified 
230,000 loans in 2008 and have more than 5,000 associates 
working full time with homeowners to meet our target of up to 
630,000 loan modifications. We remain committed to investing in 
our communities and are proud of our six consecutive CRA 
outstanding ratings.
    Last fall, at the urging of the U.S. Government, Bank of 
America accepted $15 billion in TARP money. Additionally, the 
government agreed to provide $10 billion to Merrill Lynch and 
an additional $20 billion to enable the closing of our 
acquisition and thereby prevent another shock to the financial 
system. We will make our first dividend payment to the Treasury 
of more than $400 million next week, we will pay about $2.8 
billion in interest for the year, and we intend to pay all the 
TARP funds back as soon as possible.
    But we understand that taxpayers are angry, and they 
deserve to know how their funds are being used. We recently 
announced that we will regularly make a full report to the 
public about our business activities in 10 categories that are 
important to the Nation's economic recovery. The $115 billion 
in new loans we made last quarter is a good example. But it is 
obviously not the whole story.
    The real issue I believe is this: Taxpayers feel, and 
rightfully so, that if a bank is receiving public money, all 
its financial decisions should signal a conservative, sober, 
and frugal approach to the financial health of the company.
    I will simply say this: Bank of America has for years been 
the most financially efficient large bank in the country. When 
we expend resources, we do so only after careful analysis of 
how that expenditure will strengthen our business and generate 
returns for investors, now including U.S. taxpayers. Our core 
business is strong. Even in the midst of a deepening recession, 
we earned more than $4 billion last year. Even so, that 
performance was disappointing, and I therefore recommended to 
our Board of Directors, and they agreed, that we would pay no 
year-end compensation to me or any of our most senior 
executives for 2008. Executives at the next tier down had their 
year-end incentive payments cut by an average of 80 percent.
    The financial services industry is undergoing wrenching 
change. Now is a good time to remind ourselves that we play a 
supporting role in the economy, not a lead role. Our job is to 
help the real creators of economic value--people who make 
things and people who use them--get together and do business. 
We bankers should find some humility in that.
    This is also a time for getting out there in the 
marketplace and making every good loan we can to boost the 
economy and restore confidence to the markets. It is a time for 
determination in the face of our generation's greatest economic 
challenge.
    Thank you.
    [The prepared statement of Mr. Lewis can be found on page 
129 of the appendix.]
    The Chairman. Mr. Logue.

  STATEMENT OF RONALD E. LOGUE, CHAIRMAN AND CHIEF EXECUTIVE 
               OFFICER, STATE STREET CORPORATION

    Mr. Logue. Mr. Chairman, Ranking Member Bachus, and members 
of the committee, thank you for inviting me here to testify 
today. I appreciate this committee's critical role in 
overseeing the taxpayers' investment in State Street, and we 
are pleased to have an opportunity to describe our use of that 
investment.
    State Street Corporation is one of the world's largest 
providers of services to institutional investors such as mutual 
funds, pension funds, endowments, and foundations. Unlike more 
traditional banks, we do not directly provide ordinary retail 
banking services, including mortgages, credit cards, or other 
consumer credit. We have no retail branches.
    Our loan activity primarily relates to the provision of 
credit and liquidity to our core customer base of institutional 
investors. Our role enables the investment process to run 
smoothly and as intended and ultimately to help our customers' 
customers, citizens with savings, average Americans, to be able 
to access their investments when they need to.
    With this unique role, even prior to the receipt of the 
Capital Purchase Program funds, we were responding to the 
market turmoil following the collapse of Lehman Brothers in 
September by increasing our provision of liquidity and credit 
to our core institutional investor customer base. And even with 
the increased challenges presented to the post-Lehman financial 
markets, State Street was profitable in all four quarters of 
2008, and we also expect to be profitable in 2009.
    I believe State Street was asked to be one of the first 
banks to participate in the Capital Purchase Program because of 
our unique and critical role as the back office for the global 
securities industry. Our $2 billion investment from the Capital 
Purchase Program was announced on October 14th, and shortly 
afterwards, I set a goal to immediately deploy $2 billion in 
additional capacity to our institutional investor customers.
    For example, following the collapse of Lehman Brothers, 
many mutual funds faced increased demands for redemptions. Our 
provision of liquidity to these funds helped to ensure that 
investors in these funds had access to their money when they 
needed it. As of the end of January, we have approved more than 
$1.5 billion in liquidity requests for 19 customers 
representing hundreds of mutual funds, and we can and do 
account for every dollar.
    Let me state categorically that we have not used Capital 
Purchase Program funds for employee compensation or dividend 
payments. We have also implemented all applicable executive 
compensation restrictions and requirements. In recognition of 
the unprecedented circumstances the industry is facing, I am 
foregoing incentive compensation for 2008 along with six other 
members of our leadership team. We have also imposed a salary 
freeze and reduced by 50 percent overall incentive compensation 
for all but our most junior employees.
    In conclusion, we believe our use of the Capital Purchase 
Program funds follows the intent of Congress consistent with 
our role in the marketplace. Specifically, we focused on 
providing badly needed credit and liquidity to our core 
institutional customer base, which in turn helps to enable 
individuals to have access to their investments or retirement 
funds during this time of unprecedented turmoil.
    I would be pleased to answer any questions.
    [The prepared statement of Mr. Logue can be found on page 
134 of the appendix.]
    The Chairman. Mr. Mack.

    STATEMENT OF JOHN J. MACK, CHAIRMAN AND CHIEF EXECUTIVE 
                    OFFICER, MORGAN STANLEY

    Mr. Mack. Mr. Chairman, Ranking Member Bachus, and members 
of the committee, I appreciate the opportunity to speak to you 
today about our role in the TARP program--
    The Chairman. Could you turn your microphone on?
    Mr. Mack. I was trying to pull a fast one. I am sorry. I 
will skip the prelims then.
    Thank you for having me here. I look forward to answering 
questions and really talk about how we use our TARP capital 
with this credit squeeze that is hitting the American economy. 
Also, I would like to discuss some of the changes we are making 
at Morgan Stanley as well as the broader reforms we would urge 
you to restore confidence in our industry and the markets.
    The events of the past months have shaken the foundation of 
our global financial system, and they have made clear the need 
for profound changes to that system. At Morgan Stanley, we have 
dramatically brought down leverage, increased transparency, 
reduced our level of risk, and made changes to how people are 
paid.
    We have maintained a high level of capital through the 
crisis. Before the TARP investment, our Tier 1 capital ratio, a 
key measure of regulatory capital, was approximately 15 
percent, one of the highest in the industry. We also delivered 
positive results for 2008 to our shareholders.
    But we didn't do everything right. Far from it. And make no 
mistake, as head of the firm, I take responsibility for our 
performance. I believe that both our firm and our industry have 
far to go to regain the trust of taxpayers, investors, and 
public officials. As a recipient of an investment from the U.S. 
Government, we recognize our serious responsibilities to the 
American people. It is our goal and our desire to repay the 
taxpayers in full as soon as possible.
    Morgan Stanley's business, in contrast to some of our 
peers, has always been focused primarily on institutional and 
corporate clients, and our business model is less about lending 
than about helping companies raise debt and equity in the 
capital markets.
    Between October and December, we increased the total debt 
raised for clients as lead manager nearly fourfold. Indeed, 
during the fourth quarter, we helped clients raise $56 billion 
in debt to invest in their business, including American 
companies like Pepsi and Time Warner Cable. We have also helped 
clients raise $40 billion in equity to fund their businesses, 
including a major capital raise for GE, and we made $10.6 
billion in new commercial loans. In our much smaller retail 
business, Morgan Stanley made $650 million of commitments to 
lend to consumers during the last 3 months of 2008.
    I have told you how we are putting TARP capital to work, 
and we are also filing monthly reports with Treasury detailing 
our use of capital. But I should also tell you what we haven't 
done with TARP funds. We have not used it to pay compensation, 
nor did we use it to pay any dividends or lobbying costs.
    I know the American people are outraged about some 
compensation practices on Wall Street. I can understand why, 
and I couldn't agree more that compensation should be closely 
tied to performance.
    At Morgan Stanley, the most senior members of the firm, 
including myself, did not receive any year-end bonus in 2008. I 
did not receive a bonus in 2007 either, and I have never 
received a cash bonus since I have been the CEO of Morgan 
Stanley. The only year-end compensation I have ever received 
was paid in Morgan Stanley equity, so my interests are aligned 
with shareholders.
    We also were the first U.S. bank to institute a 
``clawback'' provision that goes beyond TARP requirements. It 
allows us to reclaim pay from anyone who engages in detrimental 
conduct or causes significant financial loss to our firm, and 
we are tying future compensation more closely to multiyear 
performance.
    We have much work to do in our industry and across the 
markets. Real problems remain that are preventing economic 
recovery. We need to find ways to increase lending and restore 
consumer and market confidence. Perhaps most importantly, we 
need to enact reforms to the most fundamental issues laid bare 
by the recent turmoil:
    First, we need to fundamentally improve systemic 
regulation. Our fragmented regulatory structure simply hasn't 
kept pace with the increasingly complex and global market. I 
agree with your proposal, Mr. Chairman, to create a systemic 
risk regulator.
    Second, we need greater transparency in our financial 
markets, both for investors and regulators. To regain trust in 
the markets, investors and regulators need a fuller and clearer 
picture of the risks posed by increasingly complex financial 
instruments.
    Morgan Stanley shares your desire to restore faith in our 
financial markets and get the American economy going again. We 
know that won't be easy, and we know it will take time, but we 
are committed to working closely with you as well as our 
regulators and other market participants to achieve these 
important goals.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Mack can be found on page 
139 of the appendix.]
    The Chairman. Mr. Pandit.

 STATEMENT OF VIKRAM PANDIT, CHIEF EXECUTIVE OFFICER, CITIGROUP

    Mr. Pandit. Mr. Chairman, Ranking Member Bachus, and 
members of the committee, I am Vikram Pandit, chief executive 
officer of Citigroup, and I appreciate this opportunity to 
speak with you today.
    Americans from all walks of life are facing crippling 
economic hardship. Foreclosures, lost savings, and widespread 
layoffs are having a devastating impact on millions of 
Americans. Institutions are searching for ways to respond to 
this crisis.
    Against that backdrop, the American people are right to 
expect that we use the TARP funds responsibly, quickly, and 
transparently to help Americans. They also have a right to 
expect a return on this investment.
    I know that the TARP funding decision was difficult for 
Congress, but I intend to make sure that, when it comes to 
Citi, you will look back on it and know that it was the right 
decision for the Nation and also for the American taxpayers.
    Last week, we published this report. This describes exactly 
how we are using TARP funds to expand the flow of credit. We 
posted the report on online, and we will update it each 
quarter.
    In late December, utilizing TARP capital, we authorized our 
line businesses to provide $36.5 billion of new lending 
initiatives and new programs. These programs are expanding 
mortgages, personal loans, lines of credit for individuals, 
families and businesses, and creating liquidity in the 
secondary markets. Our TARP report explains these efforts in 
detail, and I would ask to submit it as an addendum to this 
testimony.
    More generally, in the fourth quarter of 2008, we provided 
approximately $75 billion in new loans to U.S. consumers and 
businesses, a significant commitment given the difficult 
economic environment, and we will continue our lending 
activities in 2009 in a responsible and disciplined way.
    Since the start of the housing crisis in 2007, we have 
worked successfully with approximately 440,000 homeowners to 
help them avoid foreclosures. We are also adopting the FDIC's 
streamlined model for loan modification programs. In the last 
year, we have kept approximately 4 out of 5 distressed 
borrowers in their homes. We have extended our foreclosure 
moratorium to help millions of other eligible homeowners whose 
mortgages we service, and we continue to reach out to 
homeowners who may be experiencing financial difficulty despite 
being current on their payments.
    These efforts demonstrate that we are committed to 
supporting American businesses and helping families stay in 
their homes.
    Equally important, we are committed to providing the 
American public with a return on its investment in Citi. We 
will pay the U.S. Government $3.4 billion in annual dividends 
on that investment, and our goal, my goal, is to make this a 
profitable investment for the American people as soon as 
possible. The best way for us to make this happen is to return 
our company to profitability.
    When I became CEO a little bit more than a year ago, I 
demanded accountability. I removed the people responsible for 
Citi's financial distress. I formed a new management team. I 
restructured the company. I streamlined our core businesses. I 
installed new risk processes and new risk personnel. And I will 
continue to make the decisions necessary to put the company on 
a strong footing.
    Mr. Chairman, the world is changing very fast, and we need 
to acknowledge and embrace this new world very quickly. We 
understand that the old model no longer works and the old rules 
no longer apply.
    I would also like to say something about the airplane that 
was in the news. We did not adjust quickly enough to this new 
world, and I take personal responsibility for that mistake. In 
the end, I canceled delivery. We need to do a better job of 
acknowledging and embracing the new realities. Let me be clear 
with the committee, I get the new reality, and I will make sure 
Citi gets it as well.
    One final note, Mr. Chairman. Our responsibility is to 
promote the recovery of our financial system and benefit our 
shareholders. We will continue to do everything we can in that 
regard at this critical moment in history. We will hold 
ourselves accountable, and that starts with me. I am personally 
accountable. My goal is to return Citi to profitability as soon 
as possible, and I have told my board of directors that my 
salary should be $1 per year with no bonus until we return to 
profitability.
    Thank you, Mr. Chairman. I look forward to your questions.
    [The prepared statement of Mr. Pandit can be found on page 
142 of the appendix.]
    The Chairman. Mr. Stumpf.
    Before the gentleman--this is a very important subject. We 
are getting kind of a buzz of conversation. It accumulates. I 
would ask people to please keep down the conversation. I am 
talking about us up here. If you have to talk, go somewhere 
else. It is getting a little distracting.
    Mr. Stumpf?

    STATEMENT OF JOHN STUMPF, PRESIDENT AND CHIEF EXECUTIVE 
                 OFFICER, WELLS FARGO & COMPANY

    Mr. Stumpf. Mr. Chairman, Ranking Member Bachus, and 
members of the committee, I am John Stumpf, president and CEO 
of Wells Fargo & Company.
    Our company has been serving customers for going on 158 
years. We are virtually in all businesses, and our team members 
are in all different States of the United States. We are a 
community bank. We have 281,000 team members. They live and 
work in thousands of communities, big and small, across North 
America. I have been a community banker with our company for 
almost 3 decades. I personally have lived and worked in places 
in Minnesota, Colorado, Texas, and now California.
    Across the country, many of our customers are facing 
difficult times. We are very proud that Wells Fargo has been 
open for business for our customers. In the last 18 months, 
when many of our competitors retrenched, Wells Fargo made $540 
billion in new loan commitments and mortgage originations. Last 
quarter alone, we made $22 billion in new loan commitments and 
$50 billion in new mortgages, a total of $72 billion in new 
loans. That is almost 3 times what the U.S. Treasury invested 
in Wells Fargo.
    With the merger, we have reopened lines of credit to some 
Wachovia customers who previously had been denied credit. We do 
business and lend money the old-fashioned way: responsibly and 
prudently. As a result, we earned a profit last year of almost 
$3 billion.
    We understand the very important responsibility that comes 
with receiving public funds. We are always careful stewards of 
our shareholders' money. The investment by the government is 
being used in the same prudent way. We have never been 
wasteful. We spend money to support business and make profit 
for our investors, and we are frugal.
    Last year, our overall corporate expenses actually declined 
1 percent while our revenue rose by over 7 percent. We said 
from the start that we will use the government's investment to 
help make more loans to credit-worthy customers. We said we 
would use the funds to find solutions for our mortgage 
customers who are late on their payments or facing foreclosure 
so they can stay in their homes. We also said we would report 
on our progress. We have done just that.
    We recently announced our first dividend payment to the 
taxpayers of more than a third of a million dollars. We are 
Americans first, and we are bankers second. So we see this 
taxpayer investment first and foremost as an investment in the 
future economic growth of our country. We are proud to be an 
engine for that growth. In the last quarter of 2008, we had 
double-digit loan growth in areas like student loans, 
agricultural loans, middle market commercial loans, SBA or 
Small Business Administration loans, and commercial real estate 
loans.
    Now, as to mortgages, last year we made $230 billion in 
mortgage loans to 1 million customers--half for purchases and 
half for refinances to lower mortgage payments. At year end, we 
had $71 billion of mortgages still in process, up three-fold 
annualized from the third quarter, a sign of strong momentum 
going into 2009.
    Our mortgage lending is built on solid underwriting and 
responsible servicing. Because of that, 93 out of every 100 of 
our mortgage customers are current on their mortgage payments. 
That performance is consistently better than the industry 
average.
    In 2008, we nearly doubled our team dedicated exclusively 
to helping customers stay in their homes, which improved our 
outreach. Because of that, we were able to contact 94 of every 
100 customers who are 2 or more payments past due on their 
mortgages. Of those we contacted, we were able to work out a 
solution for 7 out of 10 of those we contacted.
    This resulted in our being able to deliver 706,000 
solutions to Americans, avoiding foreclosure, during the last 
year-and-a-half alone. That is 22 percent of the 3.2 million 
solutions reported by the industry. Last quarter alone, we 
provided 165,000 solutions to our mortgage customers. That was 
3 times as many as the last quarter of 2007.
    Across the country, we are partnering with real estate 
agents, cities, and nonprofits to speed up the selling of bank-
owned properties so they can become once again owner-occupied.
    Mr. Chairman, and members of the committee, thank you, and 
I would be happy to answer your questions.
    [The prepared statement of Mr. Stumpf can be found on page 
189 of the appendix.]
    The Chairman. Mr. Stumpf, before my time starts, let me 
just--I think you said a third of a million and you meant a 
third of a billion.
    Mr. Stumpf. A billion.
    The Chairman. It was $371 million. Let me just make sure we 
have that corrected.
    Let me announce before, again, I get to my questions, I 
think this will be as important today in dealing with the 
economy of this country as we are likely to have, in many ways, 
short of voting on major things. I am, therefore, going to ask 
the witnesses--my intention would be--it is a large committee, 
there is a great deal of interest. I appreciate the forthcoming 
nature of the testimony. My intention would be to take a break 
at about 12:30 to 1:15 and then ask people to come back and 
stay. I mean, I assume, from your standpoint, the day is shot 
anyway. And if you could come back, and maybe we can stay till 
5 o'clock. It may be an imposition, but I think, given the 
importance of what we are all trying to do together, that is 
justified. And I want to maximize the ability of my colleagues 
to be able to ask questions.
    So, with that, I will now--one other thing. We have a 
statement submitted to me by the Reverend Jesse Jackson on 
behalf of the RainbowPUSH Coalition--I ask unanimous consent to 
put it into the record--talking about the need for home 
foreclosure, for opening the credit markets, for student loans 
and minority participation. And I ask that this be made a part 
of the record. Without objection, it will be made a part of the 
record.
    Now, as to my questions, let me begin--and this is 
something I discussed with my colleague from Ohio, Mr. 
Driehaus.
    Mr. Dimon, you said that you hoped the Administration will 
be adopting a uniform mortgage modification program. Mr. 
Geithner had said that he plans to do that. Let me say this. I 
have been unwilling to join in general calls for moratoria on 
foreclosures when they were open-ended because I wasn't sure 
that they would be helpful or even applicable. We wouldn't know 
who they would be applicable to.
    But it does seem to me here we have the commitment of 
Secretary Geithner that he will be putting at least $50 
billion, in addition to other resources that are already 
available--Fannie Mae, Freddie Mac, and IndyMac, etc.--at least 
$50 billion additional funding into a sort of system-wide 
effort to do mortgage modification. I believe that we are going 
to be pushing for even more. If that works, there could be 
more.
    I would ask all of you now to please make sure that we have 
a moratorium in effect until we get that program and until you 
know if people can qualify. We know the tragedy of the people 
who get killed or injured in a war after a ceasefire. Having 
someone suffer foreclosure because 2 weeks hadn't gone by for 
this program would be unacceptable. So I urge you and I will 
urge everybody who is in this business to withhold foreclosure 
until we get Mr. Geithner's program. And then we can--and, 
again, I would assume no one would be foreclosed who could meet 
that.
    The second point I want to make--and I understand that not 
everybody volunteered for the money. In some cases--let me 
acknowledge, Bank of America, I understand an administration 
which was, I think, severely affected by the negative reaction 
to their allowing Lehman Brothers to go under, I understand 
they were eager for you to go ahead with the Merrill Lynch 
purchase. And I do think it is fair to note that the second 
round of TARP funding was in conjunction with your taking on a 
purchase that they very much wanted you to do.
    But we are now talking about some restrictions, and 
including--and I hope you will--you know, legally, there are 
limitations on what we can do retroactively, but there are no 
limitations on what you can voluntarily do retroactively. We 
are going to be imposing some restrictions, going forward. 
There are going to be some tough requirements coming from the 
Inspector General, Mr. Barofsky, to ask you for some very 
specific accounting.
    I just want to make this very clear. In the bill that 
passed the House involving the second half, we have a provision 
that says, if you don't like the conditions, and if you think 
you are being ill-treated by our requests that you tell us how 
you spent it, we will take it back. If you are ready to give us 
back all the money with an appropriate interest rate and your 
regulator doesn't have a problem with that, then--that wasn't 
yet in the law, but let me tell you, if you want to give back 
the money, we will take it. And if there are any obstacles to 
your giving it back legally, we will undo those obstacles. I 
believe there would be great support for doing that.
    Now, let me ask you, on the incentive--and I am glad to say 
that many of you are not taking bonuses. But I have to say 
this. If you believe in bonuses, then is that something bad? I 
mean, I guess the question is this. You have bonuses over time. 
If, in good times, you were told you weren't going to get a 
bonus, what part of your job would you not do? I mean, if you 
weren't getting a bonus, would you, like, leave early on 
Wednesday or would you take longer lunches? Would you bypass a 
certain class of investors?
    You say and somebody said, well, your incentive comes in 
shares that align your interest with that of the company. Here 
is one of the problems: Why in the world are some of the most 
highly paid, talented people who have jobs that are fun--let's 
be clear, it is not always fun, this is not amusement park 
time--why do you need to be bribed to have your interests 
aligned with the people who are paying your salary?
    And this is part of the problem. I know it is a problem 
with people at the lower end who get bonuses, and that has been 
built into their compensation. But at your level, again, why do 
you need bonuses? Can't we just give you a good salary or give 
yourselves a good salary--you are in charge of that--and do the 
job? This notion that you need some special incentive to do the 
right thing troubles people.
    Anyone who wants to answer, please go ahead.
    Mr. Mack. I will try, Mr. Chairman. It is a good question, 
and it is complicated.
    At least from the investment banking perspective, we all 
grew out of small partnerships. It was historical. Morgan 
Stanley did not go public until 1986. When I joined the firm, 
there were 325 people and probably 20 partners. They took very 
low salaries. And at the end of that, you got a bonus if the 
firm did well.
    I think what we have seen, at least from investment 
banking, is a carry-on of that methodology. And, without 
question, given the kind of risk that we take today, the global 
nature of our business, and the size of our business, all that 
has to be looked at again.
    To answer your question specifically, at least at my 
level--and I think my colleagues here would say the same--we 
love what we do. If you gave me no bonus in the best year, I 
would still be here.
    The Chairman. I appreciate that answer, and I thank you 
very much. So it does seem to me, if there weren't bonuses, we 
would still get our money's worth. So I will not bill you for 
my services as an efficiency consultant, and I appreciate the 
answer.
    The gentleman from Alabama.
    Mr. Bachus. Thank you.
    The chairman mentioned this being a very important day. I 
agree, not because of the vote on the stimulus package. I 
believe it could be a very important day because I think this 
hearing and the testimony today could go a long way towards 
restoring confidence in our financial services industry and in 
the people who run it.
    If they publish the right story tomorrow--you never know 
what the story will be. But what I heard--and a lot of this I 
know, but I don't think most of the American people know it--is 
that we gave taxpayers, or you gave taxpayers, an equity share 
in your businesses at depressed prices. And, as many of you 
have said, there is going to be, in some cases, a handsome 
profit and, others, a profit. And, as with all investments, 
there may be some losses. But I truly believe, unless there is 
a worst-case scenario for the next 5 or 10 years, the taxpayers 
are going to--actually, this is going to be one of their best 
investments.
    You paid a dividend of 5 percent, and a lot of people would 
love to have that today. You have made mortgage modifications 
by the millions. Government efforts, on the other hand, have 
almost been very unsuccessful. And you did that at no expense 
to the taxpayers. You underwrote the losses. So you kept 
millions of Americans in their homes, families. You assumed 
failing institutions at the urging of the regulators. And, in 
most cases, if not all cases, this was a great benefit to the 
taxpayers, who insure those deposits. That is a real plus. As 
Mr. Mack said, you have reduced risk and leverage, something 
that has to be done. It is a necessary thing. And, as I have 
heard, you have maintained a high level of charitable 
contributions. And so I commend you on all of that.
    Now, the thing that we need to talk about is lending. But I 
will tell you that, in an economy as bad as our economy is and 
in a challenging time and with deposits in some cases eroding 
and an economy in certain areas in shambles, I was simply 
shocked that lending wasn't down 10 or 15 percent across 
America. And when it came out that it was down 1 percent across 
the board, I thought that was wonderful news. That our economy 
could go through that type of shock and lending would go down 1 
percent, I almost don't believe that. But it is a very good 
number. And I thought it should have been a wonderful, positive 
story. And I think that the capital injection cases, in some 
case, made a difference, although I don't know how much.
    I have one question, one urging. I hear from responsible 
borrowers who are not in default and who are paying their 
payments on time, their interest payments in some cases, that 
their principal is being called, that they are being asked to 
do a 10 percent call-down on their principal, or that their 
credit lines are being restricted. And I know, in some cases, 
that this is probably a good lending practice because you are 
seeing some deterioration.
    But I would ask you, can we do a better job in that? And 
can the regulators assist you in that, or is there something 
that we can do to avoid those cases? Because there are people 
who can make interest payments now, but they cannot begin to 
pay down principal. It is just the wrong time.
    So, to any of you who would like to answer that question. 
Or I will call on Mr. Lewis. Or, Mr. Stumpf, you didn't want 
the money, you took it, and you wish you didn't, I am sure. And 
we are going to make money on that investment, but you can 
answer the question.
    Mr. Stumpf. Well, thank you. And we have clarified our 
statements. We are happy to have the money. It strengthened the 
industry, and that is good--
    Mr. Bachus. But, yes, I guess what I meant is, first you 
said, we don't need the money. But I appreciate it.
    Mr. Stumpf. With respect to borrowers, in our company, 
frankly, we have been growing loans the last 18 months. As I 
mentioned in my testimony, many others have retrenched. And we 
think these are actually good times to make loans to credit-
worthy borrowers.
    We make money when we make loans. That is our business. We 
want to serve customers, help them educate children, buy homes, 
help small businesses to develop products and services that 
they can sell and serve other customers. In some cases, it is 
prudent. You have to cut back on a line, but we have not done 
it system-wide. It has been very much individual, one customer 
at a time, working with them. And we want to stick with them if 
we possibly can. But also, unfortunately, not every borrower 
who wants or needs money can afford it today. And we have to be 
prudent--
    The Chairman. If the gentleman would yield briefly, that is 
such an important question that so many of us have been asked 
to get answers to. I would ask those to whom it is relevant--
obviously, not Mr. Blankfein or Mr. Kelly or Mr. Logue or Mr. 
Mack, but for the commercial bankers who are before us, if you 
could answer in writing, that would be very helpful. I think we 
would all like that, because I think that is one of the most 
frequently asked questions we have. So for Mr. Dimon, Mr. 
Lewis, Mr. Pandit, Mr. Stumpf, if you would answer that in 
writing, that would be very helpful.
    Mr. Stumpf. If I could add one other thing? We have about 
$175 billion of untapped lines of credit--home equity lines, 
credit card lines--that are not in use.
    The Chairman. The gentleman from Pennsylvania.
    Mr. Kanjorski. Thank you very much, Mr. Chairman.
    I am going to take the opportunity--having eight of the 
world's finest financial minds lined up before the committee is 
too great an opportunity not to ask some simple, but I think 
important, questions.
    We are going to be called upon constantly to relook at re-
regulation, and the common expression is ``Washington,'' so 
this never happens again. And how often we have heard that as 
we go through history. Well, I am not quite that optimistic 
that we have the capacity to stop the natural adjustment of the 
marketplace from never happening again.
    But I do wonder--and anyone can take the question to start 
with--when did you first realize that the economy was in 
trouble? What actions did you take, either privately within the 
corporation or publicly, to alert those of us in government and 
the leadership of government? And just when was that? And why 
does it appear to the general public that all the finest minds 
in finance missed the most obvious--this disaster, if you will?
    I do not want you to stampede now in wanting to answer that 
question.
    Mr. Lewis. I will start, sir.
    Mr. Kanjorski. Good, Mr. Lewis.
    Mr. Lewis. To Secretary Paulson's credit, I can vividly 
recall him calling me in August of 2007 when things really 
started to melt down. And so, late July to early August or mid 
August was kind of the timeframe that we saw real challenges in 
the economy--
    Mr. Kanjorski. Let me stop you there. I am going to try to 
jump in, because I am really interested in this question.
    That is when the marketplace and subprime loans started to 
disintegrate?
    Mr. Lewis. Correct.
    Mr. Kanjorski. But everybody was starting to see it then. 
Was that the first inclination you had as a banker that we had 
trouble?
    Mr. Lewis. It was for us, in terms of capital markets. We 
were not in the subprime business, so we don't make subprime 
loans, and so we wouldn't have seen that. But the capital 
markets meltdown in August was the first time that we began to 
see the severity of what was going on and became very 
concerned. And there was a lot of communication with Treasury 
and the Fed by that time.
    Mr. Kanjorski. So is it right for me to conclude that you 
thought everything was going to continue and go along at the 
level of leverage that existed in our system and there wasn't 
going to be any repercussions from that?
    Mr. Lewis. I think more so we did not see the economy--we 
thought the economy was in relatively good shape going into the 
third quarter of 2007. And so that was more, as a commercial 
bank, was our focus than necessarily the leverage and the 
capital markets piece.
    Mr. Kanjorski. Mr. Blankfein, you are out there in the 
cutting edge of putting money out. Is that approximately the 
same time you saw this?
    Mr. Blankfein. Yes. We had some signals before that, with 
respect to the market. But if you remember--and this kind of 
commentary came out of the Central Bank, our Central Bank and 
other places, and commentators--there was a bifurcation that 
was in the air at the time: These are problems of Wall Street, 
not problems of Main Street.
    When there were conversations about whether we needed an 
interest rate cut or not, the conversation was, should we do 
something that helps Wall Street maybe that is contrary to the 
interest of Main Street? Because it was thought at the time 
that these problems in subprime and real estate were mostly of 
securities and an isolated problem and were the problems of 
Wall Street.
    I think one of the lessons we learned is that was kind of a 
foreshadowing, the problems that we saw in the securities 
market were directly related to--because they all sprang from 
the real estate sector. It was a foreshadowing of what we saw 
in the real economy. But, for a long time, people made the 
bifurcation and separated Wall Street from the real economy.
    And I think one of the lessons we learned now is they are 
inextricably wound together. Wall Street can't prosper with 
Main Street in poor economic health, because we lend money and 
we need to be paid back for sure. And, obviously, we know now, 
absent credit and liquidity, the real economy suffers. And so I 
think that is one of the lessons learned from this incident.
    Mr. Kanjorski. Okay. I have very little time left, but I am 
going to ask the question anyway. What do you see in the 
future? Have we seen the worst of this thing? Have we failed to 
describe the problem adequately for the American people and for 
the public generally? And if we have failed to do that, is it 
important that we describe this problem in as great a detail 
and dramatically as possible so we get everybody signed 
onboard? And if we do that, do you have any fear that will 
precipitate a further negative reaction?
    The Chairman. I am afraid there won't be time for that 
question to be answered.
    The gentleman from Texas.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    One of the things that--there has been a lot of focus on 
all of the bailout activities. The TARP plan was primarily 
directed at toxic assets. That is the big topic. And somehow, 
if we fix the toxic assets, we fix the economy. I don't 
necessarily agree that is the case.
    But one of the things that I hear from a lot of other 
people that I talk to is that the reason that nobody is selling 
their assets is because they don't like the price, that there 
is a market for some of these assets out there, and that there 
is a reluctance on the sellers because they keep hearing people 
from government say, you know what, we may have a plan to help 
you. And so nobody wants to go out and start taking those hits 
that they have hopefully written down on their books and then 
find out later on they missed out on a good deal.
    The other piece of it is that everybody's solution is to 
somehow sanitize these toxic assets with taxpayer money. I 
don't think that is necessarily in the shareholders' or the 
taxpayers' best interest.
    Is it time for the government just to kind of step back and 
let the markets work through this? If you have these assets 
written down appropriately, then it shouldn't be affecting your 
balance sheet that much; it is just going to affect your 
liquidity.
    And, at the same point, we are taking some of these very 
extreme measures, and we are really not asking your bondholders 
or your shareholders to get in the game with us.
    But, more importantly, the primary question that I want to 
know is, at what point in time do we say, you know, this is 
enough and the market just kind of has to work this thing out 
and we back off of the government intervention? Because the 
deeper we get into this, the tougher the exit strategy is going 
to be. And how we ever get the markets, quite honestly, back to 
where they were will take a long, long, long time.
    So, Mr. Blankfein, do you want to start with that?
    Mr. Blankfein. Again, as a commentator--because, again, we 
are not in the consumer businesses as such, and we are under a 
mark-to-market accounting regime, so we are required to mark at 
the fair-value price that is in the market today. But, as a 
commentator, I would say that accounting regimes, I think, for 
banks--and people can comment on this--allow people to mark 
securities where they are generally--certain kinds of 
instruments that they have on their balance sheets--essentially 
where their expectation will be that those assets will be 
economically valued over time.
    Right now, because of the lack of capital in the market, 
those assets couldn't be sold at that price even though, if 
held on the balance sheet, a bank can reasonably expect that 
they would get value for that at a higher price. But if they 
tried to sell it today, there is really no risk capital that 
would pay that price. The supply and demand would only cross at 
a much lower level.
    So I think banks would generally say, we are going to hold 
these securities, earn the fair value over time, and not hit a 
bid where it would clear today. That is disadvantageous for the 
system, because I think what the system would like is for banks 
to sell. But there is no incentive to sell at a price that they 
perceive as too low, because that low price is generated by the 
fear and the general crisis in the environment and the lack of 
risk capital coming in.
    Mr. Neugebauer. Well, some people would say that one of the 
reasons that they don't want those transactions to start is 
they are probably going to start at a much lower level than 
they have actually been marked on the books.
    Mr. Blankfein. Well, that is correct. It would be lower.
    Mr. Neugebauer. And so then there is this fear that now I 
am going to have to actually write down my assets more, and I 
would rather just sit here. And now that the government is 
propping up my balance sheet, I can sit here and kind of ride 
this storm out.
    The question is, how does that stimulate the economy? I say 
it probably doesn't.
    Mr. Pandit, do you want to take a shot at that?
    Mr. Pandit. I will. Congressman, we have sold a lot of 
assets. We sold half a trillion of assets just in the last 
year, of which $150 billion is what you would call these 
challenged assets. Every time there was a market, we took 
advantage of it. And we have been continuing to do that where 
there is a market. Although we continue to do that as well, we, 
too, mark to market. And those marks are reflected in the 
losses that we have taken, as well as in our income statements 
and balance sheets.
    The reality is that, as we speak about what is going on, it 
is not only an issue of credit not flowing, lending not 
flowing. There is not enough funding out there in the 
marketplace for people who have risk capital to step up and 
say, I want to buy a lot of these in size. To say there is 
always a market, that is a tautology. I can sell a $100 bill 
for a dollar. But the point is that when we look at some of the 
assets that we hold, we have a duty to our shareholders. And 
the duty is, if it turns out they are marked so far below what 
our lifetime expected credit losses are, I can't sell that. 
That is not right for our shareholders to sell it. I am not 
going to sell them at a dollar.
    So everything you are working on is just right. It is about 
credit starting in the marketplace. It is about funding 
flowing. It is about capital flowing. When that happens, you 
will get a real bid. In the meantime, when we find one, we are 
always there to sell these assets and get them off our balance 
sheet.
    Mr. Kanjorski. [presiding] The gentlelady from California, 
Ms. Waters.
    Ms. Waters. Thank you very much, Mr. Chairman and members.
    Let me just say to our captains of the universe who are 
sitting here before us that it seems that, all of my political 
life, I have been in disagreement with the banking and mostly 
financial services community because of practices that I have 
believed to be not in the best interest always of the very 
people that they claim to serve.
    I have been through the red-lining fights. I have been on 
the fights of discriminatory practices over the years and a 
lack of business lending and available capital to small and 
minority businesses. I have been through and still, I suppose, 
am engaged in a fight about predatory lending. And so I come to 
this with very, very strong opinions about what we need to do 
to regulate this industry.
    Let me just ask a few questions. And I won't ask you to 
expound on them. But I would like to know if any of you or all 
of you, any of you, since you received TARP money, increased 
the amount of interest on the credit cards by sending out 
letters to the consumers, to your credit card holders 
indicating that this was part of the contract, even though it 
may have been in small print, and you now have the ability to 
do it.
    Did anyone? Did any of you do that?
    Mr. Lewis. Let me start, Congresswoman.
    Ms. Waters. I would just like to ask each of you. Bank of 
America, I suppose--did you do this?
    Mr. Lewis. Yes, I was volunteering.
    First of all, I feel more like corporal of the universe, 
not captain of the universe, at the moment.
    Ms. Waters. Did you increase your credit card interest 
rate?
    Mr. Lewis. In 2008, we increased rates on 9 percent of our 
customers.
    Ms. Waters. Okay, thank you very much.
    Did anyone else increase their credit card rates after you 
received TARP money? Anyone else? If so, would you just raise 
your hand?
    Thank you. You sent out the letters that I am trying to 
describe, saying that you have the authority to do that.
    Did any of you reduce the amount of credit that was 
available to credit card holders because they shopped at 
certain stores? Just raise your hand if you did.
    None of you did. Let the record reflect no one raised their 
hand.
    On loan modifications, where you claim to do such a good 
job, I disagree with you. Many of you know that I help to 
implement loan modifications, working with my constituents. I 
would like to thank Wells Fargo for the response that you gave 
me when I brought to your attention how poor your loan 
modification work is under your servicing company.
    I have not heard from Bank of America, even though they 
know that I have spent hours on the phone trying to connect 
with their loss mitigation department.
    Bank of America, do you still have loss mitigation 
departments offshore, where you are using foreign companies or 
individuals to respond to our taxpayers?
    Mr. Lewis. If we have a loss mitigation department 
offshore, I do not know about it.
    Ms. Waters. I am sorry, I can't--you do have them offshore, 
who are supposed to be doing loan modification work or loss 
mitigation work for you, is that correct?
    Mr. Lewis. I do not know that we have or we haven't. All I 
know is that we have 5,000 people working on the issue.
    Ms. Waters. Thank you. So you do have offshore loss 
mitigation work going on.
    Now, we have many of our constituents who try to get to you 
to get a loan modification before they get in trouble. How many 
of you have a policy that says you have to be 2 months or more 
behind before you will deal with them on loan modifications?
    None of you require that you must be 2 months or more 
behind before you can get loan modification from your banks, is 
that right?
    Mr. Pandit. Congresswoman, I would speak on behalf of Citi. 
We have a new program where we are reaching out to half-a-
million customers where we reach them even if they are current 
in their payments. It is not about whether you are behind on 
your payments for a couple of months. This is a--
    Ms. Waters. I just want to know, sir, how many of you 
require that you have to be behind for 2 months?
    Okay. We will get--if I may, Mr. Chairman, I just want to 
also say that I think it is important for us to understand why 
you paid yourself fees on the money that we gave you.
    As a matter of fact, Bank of America, you paid yourself $30 
million in fees just to accept our TARP money.
    Citigroup, you paid yourself $21 million in fees. Why did 
you do that?
    Mr. Lewis. I don't know what you are talking about.
    Ms. Waters. Do any of you understand what I am talking 
about, in terms of processing the TARP money that you got and 
the fees that you have--yes?
    Mr. Pandit. May I answer, Congresswoman?
    Ms. Waters. Yes.
    Mr. Pandit. I think you are referring to the $17 billion of 
debt we issued under the FDIC-guaranteed program on which we 
paid underwriting fees to underwriters, us and a lot of others. 
We have to raise that money in the market, and we have to 
follow the practices by which we raise it, which is to 
underwrite that debt, and we have to pay the underwriters to 
raise that money. I think that is what--
    Ms. Waters. You do the guarantees. You get guarantees. But 
you absolutely collect fees to do the work to place the money, 
is that right?
    Mr. Pandit. We have to pay underwriters and other people 
who sell those bonds.
    Ms. Waters. But you are not paying anybody. You are keeping 
the money yourself.
    Mr. Kanjorski. Ms. Waters, I am just going to have to call 
you down, because, when the chairman gets back, he is going to 
penalize me. And I don't know what that penalty--
    Ms. Waters. I appreciate that very much. But let the record 
reflect that we need to find out why they are paying themselves 
fees on the money that we give them. And we need to have a 
roundtable discussion with them to find out what they are going 
to do to discontinue this practice.
    Mr. Kanjorski. All right.
    Gentlemen, you heard the question. If I could make a 
request, perhaps individually for your companies, you could 
respond in writing to Ms. Waters' question.
    And next, we have Mr. Castle.
    Mr. Castle. Thank you, Mr. Chairman.
    Gentlemen, this all seems to come in waves, and I sort of 
see another tidal wave behind the mortgage foreclosure and the 
other waves, and that is the area of credit cards.
    There are many economists and others who believe that, with 
the breakdown of the economy, that we are going to have multi-
trillion-dollar losses as far as credit cards are concerned. 
And this could actually lead to a situation in which we have 
bankruptcy in the industry. And a lot of this, obviously, 
relates to the unemployment rate and the people just not having 
the ability to pay who had the ability to pay before.
    My question--and perhaps I will ask Mr. Dimon and Mr. Lewis 
this question--is, are you prepared for that? Or perhaps you 
disagree with the premise that this is going to happen. But 
there are many who do speculate in the next few months to 2 or 
3 years that we are going to have significant problems in the 
credit card industry. And I don't know what your level of 
preparation for that is.
    Mr. Lewis. It is clear that this year, in particular, is 
going to be the year of consumer credit losses, because it is 
so intertwined with the performance of the economy. With regard 
to credit card losses, the general rule of thumb is at a 
percentage point to the unemployment rate to get your loss 
rate, at least in our mix of portfolios. And so, clearly, this 
is going to be an awful year for the credit card industry and 
for all credit card portfolios. There is no doubt about it, 
because the more optimistic views are unemployment at 8 or 8\1/
2\ percent, and that would cause very high loss rates in the 
credit card portfolios.
    Mr. Castle. Are you prepared to manage that?
    Mr. Lewis. We are doing everything we know to do in our 
loss mitigation efforts, in our call center efforts, to 
mitigate as much as possible and to cut expenses as much as 
possible.
    Mr. Castle. Thank you.
    Mr. Dimon?
    Mr. Dimon. I think it is not as dire as that because I 
think all credit card debt in America is maybe $1 trillion. And 
when you have a credit card business, you know that there are 
going to be cycles. It usually follows unemployment; it will 
get worse when unemployment goes up.
    We expect, and we have told our analyst community, that our 
losses will be probably 7\1/2\, maybe 8 percent this year. It 
will be worse than that--8 percent of total outstanding, that 
is well over $10 billion of losses. And, yes, we are more than 
adequately prepared to deal with that. We are properly reserved 
for it. And that is one of the costs of being in the business.
    Mr. Castle. Thank you.
    Mr. Pandit, you and actually others who testified indicated 
that you are handling your mortgage foreclosures, that you are 
actually hopefully doing a good job with respect to those who 
have mortgages with you.
    We have had a plan put forth in legislation by Congress 
which has not been particularly successful to this point. We 
have had discussions of other plans. Mr. Geithner yesterday 
mentioned that as part of his plan, which a lot of people feel 
is a little bit ill-defined at this point.
    My question to you is, are you satisfied with what you and 
other bankers are doing? Or is there a plan that we should be 
adopting, maybe not with respect to the companies represented 
here but to other not only banking interests but mortgage 
interests created for that purpose that weren't particularly 
well-funded, etc., and helping those who are going into 
foreclosure, that we should be doing? Do you have a precise 
recommendation with respect to that?
    Mr. Pandit. Congressman, what I would say is that when we 
can talk to the individual who is in the home, we have a very, 
very high percentage of success in keeping that person in the 
home. The challenge is, when times get tough, people don't want 
to own up and say, hey, I am going to have an issue. And so 
people put their heads in the sand and they don't own up, and 
that is really a bad place to be.
    What we find is half the foreclosures that we enter into 
are for people we have never talked to. Anything you can do to 
have more community service, more effort to say to people, you 
know what, there is no shame, there is no stigma, we are going 
through this together, open up, figure out some way to go talk 
to your lenders, that would be good for us. Because we think we 
can help those people.
    Mr. Castle. I assume, of all the commercial banks here, 
that you are in the same basic position; if you talk to the 
people, you will try to work out a plan to help them with their 
foreclosure circumstances. You all represent large, pretty 
well-capitalized entities that, according to your reports 
today, are doing reasonably well. But I am more concerned about 
the mortgages that were created by mortgage banks that are no 
longer in business and perhaps have been assigned to or sold to 
other entities at this point and which are going to be true 
foreclosures.
    Do any of you have any ideas about what we, as a 
government, should be doing to help in those circumstances? And 
I appreciate what you are doing individually as companies.
    Mr. Dimon. I think one of the legitimate issues is that 
people, if they don't know who their servicer is and they don't 
know who to call, that there are some great ways to modify 
loans. We should find ways to make sure that all loans are 
modified that way. And we have shared with the Treasury, the 
FDIC, the OCC, which several banks here have best practices, 
and we think that everyone should follow its best practice, and 
we will do the best job we can for everybody. It has been 
haphazard in the last year.
    The Chairman. The gentlewoman from New York.
    Mrs. Maloney. Thank you.
    First, I would like to welcome the panelists, some of whom 
are headquartered in the district I am honored to represent. 
And I particularly would like to thank Bank of America for 
deciding to build a major headquarters in New York in the dark 
days after 9/11. It was very important for our morale. Thank 
you.
    But, Mr. Lewis, as a New Yorker, I followed the Bank of 
America-Merrill Lynch merger with great interest. Earlier this 
year, I believed that the government intervention to add $45 
billion to get the merger done, along with $188 billion 
guaranteed for the bad loans of Merrill, was in the interest of 
the American taxpayer and our economy. But recently, Secretary 
Geithner said that we were shoring up banks not for the sake of 
the banks, but for the sake of American taxpayers.
    But, in the case of this merger, some alarming facts have 
come out in a report that was recently issued by Attorney 
General Andrew Cuomo. In it, he points out that bonuses to 
Merrill employees--they doled out over $3.6 billion just days 
before Bank of America bought the collapsing firm with the help 
of taxpayer money.
    Also, we learned that Merrill moved up the timing of these 
bonuses for the fourth quarter of 2008 to December 8th, a full 
month before the fourth quarter earnings came out on January 
16th. And Merrill's fourth quarter earnings were terrible. They 
lost over $16 billion, capping a year in which they lost a jaw-
dropping $27 billion.
    I can understand paying bonuses for outstanding 
performance, for building jobs, growing the economy. But how 
can you justify paying bonuses to managers who were running 
their company into the ground to the point that they were 
forced into a merger?
    Also, we learned that the $3.6 billion in bonuses was not 
distributed fairly or over the board to all the employees, but 
was highly concentrated to the top. The top 14 employees 
received about a quarter of a billion dollars. The top four 
employees received a combination of $121 million, and the top 
30 about $20 million apiece. So that those who were most 
responsible for the losses were the most richly rewarded.
    And, for me, the worst aspect of this business is that 
Merrill paid these bonuses out just before the January 1st 
merger with your bank. Couldn't this reasonably be described as 
looting the company prior to the merger?
    And since Merrill's contribution deteriorated in its 
condition so much in November and December, even those bonuses 
were paid out--when they were paid out, the government had to 
inject $45 billion to make the merger happen. So it appears the 
American taxpayers, they are the ones who are stuck with the 
bill for paying huge bonuses to the very people whose poor 
judgment and mismanagement cost this country billions of 
dollars.
    So my question to you is, did you know how big those 
bonuses were going to be? Did you know that they were going to 
be paid? Did you discuss it with anyone prior to the merger? 
And were you aware that government, taxpayers were going to 
have to pay for these bonuses for the losses to the company?
    Thank you.
    Mr. Lewis. Thanks for the question, and thanks for the 
first comment.
    My personal involvement was very limited, but let me give 
you my general understanding of what happened.
    First of all, I do know that we urged the Merrill Lynch 
executives who were involved in this compensation issue to 
reduce the bonuses substantially, particularly at the top. I 
will remind you, though, that they were a public company until 
the first of this year. They had a separate board, separate 
compensation committee, and we had no authority to tell them 
what to do, we could just urge them what to do. So we did urge.
    There was some feedback, in that, to your point, at the 
very top there were some contracts that were of tens of 
millions of dollars to several individuals that were legal 
contracts that Merrill had made to those individuals. And it is 
my understanding those skewed these amounts pretty 
substantially.
    I can only contrast that to Bank of America's policies. 
First of all, as I mentioned, nobody on my management team 
received any incentives. Nobody on my management team has a 
contract or a golden parachute or severance. And then finally, 
we pay our bonuses on February the 15th of the following year.
    So major changes will be made, but we could not make them 
until we owned the company.
    Mrs. Maloney. Okay. Thank you. My time has expired.
    The Chairman. The gentleman from New York.
    Mr. King. Thank you, Mr. Chairman.
    I want to thank the witnesses for their testimony today.
    I would like to direct my questions to Mr. Dimon and Mr. 
Mack. Our chairman, Mr. Frank, has proposed the creation of a 
systemic risk regulator. And in your testimony, Mr. Dimon, and 
yours, Mr. Mack, both of you endorsed the concept of a systemic 
risk regulator. I would like to ask you several questions and 
then just turn it over to you for the balance of the time.
    If we do establish this systemic risk regulator, which 
existing regulators would this replace? Do you have concerns 
that the regulator would be created in such a way as to impede 
our competitiveness with the rest of the world?
    And secondly, how would this regulator have worked? Looking 
back at the last several years, how would this regulator have 
mitigated or even prevented the current situation we have?
    And, with that, I ask Mr. Dimon and Mr. Mack if they could 
answer the question.
    Mr. Mack. Well, Congressman, the world has turned into a 
global trading market. So the idea of a systemic risk 
regulator, I think, is critical. Our businesses are much more 
complex than they were 40 years ago when I first got in the 
business. And I would argue, and you heard from Secretary 
Paulson, that, if you go back, some of our existing laws were 
written right after the Depression. We had Glass-Steagall at 
that time. It was a real separation of risk-taking. So, on one 
hand, you had the Federal Reserve with regulatory authority, 
clearly, with the banks and the SEC with the investment banks.
    There needs to be, I believe, a coming together of 
regulatory oversight. So that is at the first level. And I 
think it is up to a number of hearings and discussions on how 
that takes place, but I would like to see a combination of some 
of our regulators.
    If you go back a very short time ago, the New York Stock 
Exchange had a regulatory arm and ASD had a regulatory arm, and 
they put it together as FINRA. I think that consolidation of 
regulatory authority needs to continue.
    I think there needs to be some type of global regulatory 
coordination much more efficient than we have today. And, 
again, that is complicated because each country, especially the 
major companies where we are doing trading or sales--and not 
just for the investment banks, but clearly for the banks also--
the coordination, I think, is critically important.
    I also think, you know, as you look at the different 
jurisdictions, whether now that we report to the Fed and the 
SEC, you are also involved with the commodities business, you 
are involved with the FDIC. We need to have a coordinated 
super-regulator for the financial service business. How we put 
that together is going to be a number of conferences and 
meetings, but I do urge all of you to pursue that. And we will 
be as helpful as possible in trying to help define what the 
issues are.
    Mr. King. Okay.
    Mr. Dimon?
    Mr. Dimon. Yes, so, first, I want to start by saying that 
there are a lot of things that need to be fixed in the 
regulatory system. They were not to blame for all the things 
that happened. So I am not trying to push the blame to anyone 
else. But we should recognize these issues and problems and fix 
them if we want to fix these problems going forward.
    We have a Byzantine alphabet soup of regulators that get 
involved in systematic regulation. And I also should point out, 
by the way, a lot of companies that were heavily regulated have 
problems, and a lot of companies that were not heavily 
regulated have problems. So it isn't quite clear that was the 
solution.
    But the OTS had enormous problems with WaMu and 
Countrywide, who are no longer here and were acquired by some 
that are coming to the table. Fannie Mae was regulated by the--
I forgot the name at the time, but it has a different name 
today. We have the SEC, the CFTC, the OCC.
    A lot of unregulated businesses caused some of the 
problems, like the mortgage business. The unregulated mortgage 
part of the business was far worse than the regulated part, 
which was in the commercial banks. And I think it would have 
been good to have taken a good look at that. And some other 
problems that were caused by insurance companies that really 
weren't under the jurisdiction of a regulator that was into the 
global capital markets like AIG and some of the monolines.
    So I think it would be a tremendous benefit to have one 
regulator looking at anything that can cause systemic risk that 
is constantly looking for things like that and trying to look 
around the corner. And it should be a U.S. system and globally 
coordinated. But it doesn't have to, obviously, be exactly the 
same in every single country.
    I think there is a regulator who, kind of, does a lot of 
this already, which is the Federal Reserve. I think if you try 
to invent a new one it will take a long time. I think they do 
have the capability, the people, the knowledge, and maybe 
should have a broadened mandate to do this too.
    Mr. King. In the few seconds that are left, are any of you 
opposed to having a systemic risk regulator?
    Okay.
    Mr. Chairman, I yield back.
    The Chairman. The gentleman from Illinois, Mr. Gutierrez.
    Mr. Gutierrez. Thank you, Mr. Chairman.
    First, I would like to begin by thanking Mr. Pandit for 
coming and visiting with me yesterday. It was a good meeting 
and very helpful.
    And then ask him, how do you see, going forward, what it is 
we do in terms of pricing the assets that you have on your 
books so that we can figure out, going forward, what it is we 
do with them and thereby begin a real recapitalization of your 
financial institutions and other financial institutions?
    How do we get a market price so that we know the depth of 
our credit crunch right now? When we had Paulson come before us 
in the beginning, he said he was going to go and buy or somehow 
take toxic assets. And then, a couple of months later, much to 
my surprise, after we had authorized the money, he simply 
infused money into financial institutions, took $350 billion, 
and spread it out.
    How do we get to a pricing so we know what our economic 
situation truly is?
    Mr. Pandit. Congressman, I appreciate that question.
    Let me start by saying that the first and foremost line of 
attack has to be do everything we can in the capital markets to 
improve liquidity, improve credit flowing, improve private 
capital coming in, because that can unfreeze the markets. And 
maybe that is a way in which you get these assets out in the 
marketplace. So that is the front line. And we heard some of 
that yesterday from Treasury Secretary Geithner, as well.
    The valuation question is, of course, difficult because we 
own all kinds of assets. There are mark-to-market assets, and 
there are assets that are called accrual assets, where you take 
losses as they go.
    Mr. Gutierrez. So if we took the largest 50, starting with 
the 8 of you, and the largest 50 and we took all these assets, 
so that we know--so that the investment community can come in 
and say, ``Okay, we know what the standing of Bank of America 
is, JPMorgan Chase is, we know what you have on your books,'' 
how would we do that?
    Mr. Pandit. It is an extraordinarily difficult question, 
but, on the other hand, there have been countries around the 
world who have addressed that.
    One way in which countries have addressed that is by 
saying, we will take these assets, we will accrue the losses we 
take on these, and we will send you a bill when we get to a 
more stable economy. And that has been the prevalent approach 
that has been taken in the Netherlands, that has been taken in 
the U.K., that has been taken in a variety of different parts 
of the world, which is rather than to address where to price 
them today because today's prices are affected by so many 
things--lack of liquidity, etc.
    Mr. Gutierrez. I don't think anybody can price them, right?
    Mr. Pandit. Exactly. And so you have to say, let's put them 
on the side, take them, create a bill of the losses, and then 
come back to the banks and recover those losses at the back 
end. That has been a popular--
    Mr. Gutierrez. Let me ask you then, is there a formula, is 
there a mechanism, are there discussions between the Federal 
Government and the banking community to get that done, in your 
opinion?
    Mr. Pandit. We have not had those discussions, Congressman. 
We think that at the right time--and hopefully now that 
Treasury Secretary Geithner has laid out his framework, it may 
be an appropriate time to start talking about different ways in 
which we can do that.
    As I said, again, we don't necessarily need to reinvent 
things. They have been done around the world today, and we 
should be able to take a look at that. But we welcome that 
dialogue.
    Mr. Gutierrez. Let me just say to all eight of you who are 
here before us this morning, I would like for all of you to 
just kind of put in writing so that we could have it on the 
record--and I don't expect the answer here this morning--if 
each of you could just tell us how much your bank has paid 
itself on FDIC-guaranteed or other government-guaranteed 
financing, and what percentage of those finances were completed 
solely for the purpose of funding your bank.
    An example: I won't name the bank, but you go out and you 
take $3 billion in one deal, and you go out with FDIC 
insurance, and you go to the market and you sell $3 billion 
worth of bonds in order to give yourself more liquidity. And 
they are FDIC-insured. Are you then paying your own investment 
banking firm--I am sorry, Mr. Chairman.
    The Chairman. Finish the question.
    Mr. Gutierrez. Are you then paying your own investment 
banking firm? And how much are you paying your own staff, in 
terms of underwriting fees for selling what a kindergartner 
could sell out in the market today?
    The Chairman. Let me just say, as we conclude this, we will 
take these answers in writing. Also, all members have the right 
to submit further written questions. I think this is important. 
There will be some clarification. So we will be submitting some 
further written questions, as well.
    And next, Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman.
    I will go to Mr. Dimon and Mr. Stumpf for a question, and 
this would go back to my opening statement that I was raising, 
sort of the root causes of the problem we are in.
    I recall in 2005 the Federal Reserve testifying before us 
saying that Fannie Mae and Freddie Mac were creating a systemic 
risk to the U.S. financial system. So I will go back and pose 
this question.
    To what extent was the securitization process, led by the 
GSEs, part of the problem here in terms of the bubble? We had 
leveraging 100 to 1 at these institutions. They had a portfolio 
of $1.5 trillion that they arbitraged to get to. That was a 
loss of eventually $1 trillion in that sector. So was there a 
market perception because government-backed corporations were 
at the heart of the U.S. housing sector that this was a safe 
and secure investment and did this play a role in ballooning up 
this market and creating the moral hazard problem that some 
economists argue came into play?
    Mr. Stumpf. Congressman, thank you for the question.
    Let me just say that I think this problem started a lot 
earlier than 2007. Back in 2002 and 2003, Wells Fargo was the 
number one mortgage company in the country and we saw crazy 
things happening, things about the so-called liar loans, 
leveraged risks to subprime borrowers, the so-called negative 
ARM loan. We didn't negative ARM any loans in our business, and 
why would you ever do that for a homeowner, for probably the 
most important asset they will ever have, where they can owe 
more later in the mortgage than what they started with.
    So I think there are a lot of issues. So we backed out. We 
didn't do any of those loans. We didn't see how it would be 
helpful to our customers and ultimately to our shareholders, so 
we didn't participate in that.
    There is no question that Fannie and Freddie played a part. 
I don't know what percentage it was. I know that credit became 
too available and too inexpensive, and the risk and reward got 
separated through innovation.
    The day I got my first mortgage, the bank that made it put 
it in their portfolio, and if they had enough bad ones, they 
probably fired the banker. Now you would have people 
originating the mortgage who were separate from the person who 
packaged it, who was separate from the person who owned it, and 
the risk and reward got separated.
    Mr. Royce. One of the things that struck me was who would 
have bought some of the Countrywide subprime loans except 
Fannie and Freddie; and Congress had given them an allocation 
or a goal that 10 percent of their portfolio would be a certain 
type of loan, typically Alt-A or subprime.
    Let me go to Mr. Dimon for his thoughts on this.
    Mr. Dimon. Albert Einstein says keep things as simple as 
possible, but no simpler, so I am going to give you three root 
causes.
    Housing in total. There was a bubble, and a lot of things 
added to that. Securitization of very low interest rates. I 
wouldn't blame the GSEs, but I would put them in the category. 
Most importantly, bad underwriting on the part of some banks, 
on the part of a lot of mortgage companies and under-regulated 
businesses. A lot of companies here didn't do option ARMs, but 
option ARMs obviously sunk Countrywide, and probably Wachovia 
and WaMu. So the whole housing issue is one.
    I think when the economists talk about what caused some of 
the lower rates and things like that, I would put in the 
category the excessive trade deficit and Fed policy over an 
extended period of time created a little bit of a speculative 
bubble. And I would put in the category excess leverage, and 
that excess leverage was in consumers, it was in hedge funds, 
it was in banks, it was in investment banks, it was in European 
banks, and it was pretty much around the world.
    Some of these things, by the way, were known in articles 
talked about, but no one predicted the ultimate outcome. Maybe 
people just thought we would have a regular type of recession 
and this stuff would clean up on its own.
    Mr. Royce. Mr. Blankfein, I saw your piece in the Financial 
Times on the rating agencies. What role did they play?
    Mr. Blankfein. Well, one of the big problems is that people 
subcontracted risk management out to rating agencies. And I 
think we have all done that to some extent. We are all culpable 
for that. So we join the rating agencies in the problem. But, 
obviously, they got these things quite wrong and never 
reinvestigated, and they were too much relied upon by 
institutions.
    So, for example, when loans were packaged and resold, once 
they bore the stamp of a rating agency at a certain level no 
more investigation was done and that certainly contributed to 
the accumulation of assets on people's balance sheets that they 
wish weren't there.
    Mr. Royce. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from New York, Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Pandit, last January, we learned that Citigroup was 
supporting legislation that would let bankruptcy adjust 
mortgages for at-risk borrowers. I would like, since you are 
quite a convincing person, that you provide the rationale for 
supporting that legislation so that your colleagues who are 
sitting at the table understand why it is important to support 
that type of legislative initiative.
    Mr. Pandit. Thank you very much, Congresswoman.
    None of these decisions are easy. Let's start there. But 
these are unusual times. They need unusual tools, and we have 
to admit that. What we found is that when we talk to 
homeowners, we can figure out a way to keep them in their 
homes. So when we go back to this particular legislation, to us 
what was important was to say let's apply it retroactively, 
meaning it is for loans that have been made up to now. It is 
not about the future of the market.
    Ms. Velazquez. So what you are telling me is what you are 
doing in supporting bankruptcy cramdown is a better answer than 
foreclosure.
    Mr. Pandit. To me, the proposal that is in there that says 
the homeowner has to have had a negotiation with the bank or 
mortgage owner for 10 days before bankruptcy gives us the 
opportunity to talk to them and renegotiate that. We think that 
is good for America.
    By the way, if they do go into bankruptcy, we have enormous 
confidence in the judicial system in America.
    Ms. Velazquez. I would like to go down the table here, 
starting with Mr. Blankfein, and ask you, would you be 
supportive?
    Mr. Blankfein. I agree with what Mr. Pandit said about in 
difficult times you can make difficult decisions, and I would 
say we would not be supportive in general because these things 
have consequences. And if you allow these contracts to be 
changed in bankruptcy and admit the vagaries of that kind of 
uncertainty, one of the consequences we may find that may be 
unwanted is that less capital flows into these markets.
    Ms. Velazquez. So are you implying that Citigroup lost 
their mind?
    Mr. Blankfein. No, as I started out by saying, you can come 
out on either side of the line.
    Ms. Velazquez. I just want a yes or no answer. I don't have 
much time.
    Mr. Blankfein. If they have, it is not because of this 
issue.
    Mr. Dimon. No, we don't agree.
    Ms. Velazquez. Next, Mr. Kelly.
    Mr. Kelly. Limiting foreclosures is incredibly important, I 
think, to America, and we have to solve that, but cramdown 
legislation is problematic.
    Ms. Velazquez. Mr. Lewis.
    Mr. Lewis. We think something could be worked out, but we 
want encouragement for the borrower to talk to the lender for 
some period of time, first.
    Ms. Velazquez. Mr. Logue.
    Mr. Logue. We agree that anything that we can do to help in 
the area of mortgage foreclosure is good. However, we do think 
there are also consequences to the proposed legislation that 
may not be beneficial.
    Ms. Velazquez. Mr. Mack.
    Mr. Mack. I would agree with my colleagues on the right. We 
need to negotiate and try to work things out.
    Mr. Stumpf. And I agree also we need to work without 
bankruptcy. I think bankruptcy has some really negative 
consequences.
    Ms. Velazquez. Thank you.
    Gentlemen, there have been talks about a $68 billion merger 
between drug giants Pfizer and Wyatt. About $22.5 billion, or 
about a third of this transaction, will come from bank loans 
and especially banks that are taking TARP money. While you are 
giving away money to corporate giants, the Federal senior loan 
officer survey showed that over 74 percent of respondents 
reported tighter credit lending standards on loans to small 
firms in the last quarter of 2008. And I heard some of you 
saying that you are lending to small businesses. But let me 
just say that the numbers don't lie. This is the Federal 
Reserve's own survey. Credit for small firms is lower than it 
has ever been in the history of the Fed survey.
    So can you explain why your institutions are finding money 
to fund a multi-billion dollar merger that will produce 19,000 
job losses but will not find more money to lend to small 
businesses?
    Of course, you are not going to provide an answer.
    Let me just say, here is the case of a businessman, a 
responsible businessman from Florida, who was paying his loan 
on time to a bank that received $3.4 billion in TARP money last 
year, and he asked for an extension on the maturity date of his 
loan to continue to make payments until the markets settled, 
and he was denied. The bank took their properties. That is what 
we have here on this table.
    The Chairman. The gentlewoman from West Virginia.
    Mrs. Capito. Thank you, Mr. Chairman. I would like to thank 
the gentleman.
    I have two questions, I hope, in the time I have allotted.
    I have several constituents I have heard from. We all have 
heard from constituents about the credit card debt issue. One 
gentleman, a minister, 77, holds a Chase card. His rate has 
just been jacked up on him. He now thinks he has to get a 
second job to be able to pay for his medicines. He never missed 
a payment. He is not delinquent on anything.
    Another is a woman who had a Citigroup card for 14 years. 
She never missed a payment. She called Citigroup and they said, 
you have never abused your account; we are not going to raise 
your interest rate. Her interest rate was raised from 6.74 to 
24.99 percent. Her payments now--she doesn't pay her whole 
balance, obviously, every month, but she has never missed a 
payment in 14 years.
    These folks feel--and I think that when I saw Citigroup's, 
your report to Congress, you mentioned here since receiving the 
first installment of TARP, Citi has made plans to expand its 
lending activities further and extend affordable credit to 
lower-risk borrowers. Well, that is not what I am hearing from 
my constituents.
    Can you please help me with this and help them? Because 
they feel that their good credit and their good faith and their 
good practices, that it is on the backs of them not only as 
taxpayers but also as creditors, they are being asked to pay 
more.
    Mr. Pandit. I appreciate that, Congresswoman.
    We did not raise rates on cards for 2 years. Our funding 
costs went up, as did everybody elses. Credit costs went up 
dramatically. The question was one of keeping credit flowing. 
So we finally decided that, in order to keep credit flowing in 
a responsible way, we had to change rates on these cards.
    What I would also tell you is, together with that program, 
we also expanded our forbearance program. Our forbearance 
program is in talking to individuals and customers to lower 
their rates where it is appropriate. So we kept the credit 
flowing, but we also created a mechanism for either people to 
opt out and/or to change the rates on those cards on a case-by-
case basis.
    Mr. Dimon. Congresswoman, I think, first of all, JPMorgan 
Chase tries to uphold the highest standards, and several years 
ago we got rid of universal default, double-cycle building. 
Universal default allows you to raise rates on someone for 
something like a change in a FICO score. There are very limited 
rate increases. There are also rate decreases. So both take 
place, but they are very limited. And whenever we hear about a 
circumstance like this, if we did the wrong thing, we should 
fix it. Send it to me, and we will take care of it. Sometimes I 
hear this and the facts aren't what you were told.
    Mrs. Capito. Well, I think we are hearing it across the 
country.
    Mr. Dimon. Well, send them all to me, and we will deal with 
them one by one, and we will treat the client in the proper and 
appropriate way.
    Mrs. Capito. Thank you for your response.
    Last question. Many of your institutions over the years 
have had significant acquisitions, and one of the stated 
intents was to spread the risk so if one part of your business 
is not doing as well the other parts can hold it up. We have a 
whole new lexicon here in the last several years in the 
financial services business, but one that I don't think was set 
up for financial institutions is now ``too big to fail.''
    Are you too big to fail and how do you respond to that? Mr. 
Pandit?
    Mr. Pandit. We are a large bank, and we are in 109 
countries. We help American businesses around the world, we 
help Americans at home, and there is a size that comes with 
that.
    What we found, Congresswoman, is that in the environment we 
are going through, nobody has been spared. People talk about 
decoupling. There is no decoupling. Every asset class has been 
linked. So diversification has not necessarily been the driver 
of why Citi is the size it is. The driver has been what do our 
clients need and how do we provide them those services, and 
that has led to the size of the operations that we are at.
    Having said that, for our own sake, we have reduced the 
size of the company. We have reduced the assets, and we are 
restructuring Citi into two parts. One is going to be our 
ongoing business, which is a lot simpler than the business we 
had before and a lot smaller.
    Mrs. Capito. How much time do I have left?
    Ms. Waters. [presiding] You have a couple of seconds left.
    Mrs. Capito. Anybody else?
    All right. Thank you.
    Ms. Waters. The gentleman from North Carolina for 5 
minutes.
    Mr. Watt. Thank you, Madam Chairwoman.
    I am actually going to follow up on the question that Mrs. 
Capito has raised here, and I want to follow it up with Mr. 
Lewis and Mr. Stumpf, because they are the two banks that have 
the largest presence in my congressional district. But I 
suspect it is a question that is applicable to all of these 
folks. Because if you were asked to take TARP money, then you 
probably fit into the category of too big to fail.
    I think I started this discussion with Hugh McCall some 
years ago around the issue of deposit caps and became convinced 
of the merits of having banks large enough to be worldwide 
competitive, and so I understand that aspect.
    I have had the discussion with Ken Thompson and even back 
to John Medlin when they were saying that Wachovia didn't have 
to worry about that because it didn't have a nationwide 
footprint, but now Wells Fargo, the owner of what used to be 
Wachovia, does have a nationwide footprint.
    Then, most recently, yesterday, Secretary Bernanke started 
to raise more concerns about this whole question of too big to 
fail.
    So I guess my question is whether, in that context, an even 
more aggressively regulated framework for larger banks, and 
maybe even not only banks but institutions that have systemic 
risk potentials, might be appropriate? What is your assessment 
of that, Mr. Lewis and then Mr. Stumpf? And the rest of you all 
can respond in writing, I guess, because we won't have time to 
hear from everybody.
    Mr. Lewis. Well, on the positive side, I think if, instead 
of looking at size, you look at the beauty of diversity, the 
beauty of diversity of people, products, and geography--despite 
the fact that this has been an incredible timeframe in terms of 
a recessionary environment, it seems like the diverse companies 
certainly have done better than the monolines and the ones that 
were so focused on wholesale funding. So I think there has been 
some strength admitted or obvious in this time from banks that 
have that diversity.
    The size thing, I think, is more an issue of not size but 
what your role is in the capital markets and markets in general 
and, therefore, do you pose a systemic risk no matter what your 
size it is. We saw some of that when we saw the Lehman failure 
and the things that happened from there.
    So I don't know if it is ``too big to fail'' as an issue, 
but if you are systemically important, the consequences of an 
institution failing is pretty severe.
    Mr. Watt. And should you then have a more aggressive 
regulatory framework? Or how would you address that, I guess is 
the question I am trying to get to the bottom of.
    Mr. Lewis. I think that therefore calls for an overlay of 
supervision beyond what we have now.
    Mr. Watt. Mr. Stumpf.
    Mr. Stumpf. Thank you, Congressman.
    I think success and failure is more a condition of culture 
and leadership and values than it is as it relates to small or 
large. In our case, we have a strong culture. We were able to 
buy a firm, merge with a firm using our own money.
    Mr. Watt. I don't want to cut you off, but I know where you 
are going, and I am not sure that is going to address the 
public necessity, because then that leaves it to the individual 
goodwill, good intentions or good execution, which, if it is a 
systemic problem, may work out well, may not work out well.
    Let me ask one other question going back to credit card 
risk and the impact on the economy in general. Is it your 
estimate--and you can submit this in writing--that the size of 
this stimulus is sufficient to serve the purpose for which it 
is being represented? I will let you respond to that later.
    Ms. Waters. Thank you.
    The gentleman from Texas, Mr. Hensarling.
    Mr. Hensarling. Thank you, Madam Chairwoman.
    Gentlemen, if there is one overarching message from a 
number of us, it is what you do with your money is your 
business; what you do with the taxpayer money is our business. 
Having said that in my opening statement, I spoke about the 
Administration's executive comp proposals. I am still studying 
every comma and semicolon within it. But although sometimes 
life is full of lousy options, I tend to err on the side of the 
taxpayer.
    One thing that did concern me was a front page article in 
the Financial Times, I think it was yesterday. The headline is, 
``Deutsche Bank chief says U.S. pay curb could spur defections. 
President Obama's sweeping restriction on pay at U.S. banks 
could push their best staff to defect to overseas rivals, 
Joseph Ackerman, Chief Executive of Deutsche Bank, Germany's 
biggest bank, predicted yesterday.''
    Clearly, there must be some balance here. But are you 
concerned at the loss of talent through this program?
    Anyone who cares to comment, we will take the first 
volunteer.
    Mr. Mack. Yes, Congressman. I think at the most senior 
levels I am not as concerned, but at levels below that--and we 
are seeing it already with some of our European managing 
directors and executive directors. Some of the European banks 
have already gone out and put packages and multiyear guarantees 
in front of them. So it is a competitive issue. But I think it 
is for that group of individuals below the most senior 
management. I am concerned about it, though.
    Mr. Hensarling. A second question: I think a number of you 
have indicated that, in retrospect, perhaps you didn't exactly 
volunteer to take the capital infusion from the Federal 
Government, and if you had your druthers you would pay it back. 
Aside from market conditions, which we are all painfully aware 
of, is there a legal impediment--I don't have the wording of 
these investment vehicles in front of me, but is there a legal 
impediment--if Congress wanted to allow you to pay the money 
back and you wanted to pay the money back, what is it that is 
preventing that? Mr. Dimon?
    Mr. Dimon. Part of the agreement was that if you pay it 
back before the end of 3 years, which is now somewhat less than 
that, you have to replace it with an equivalent type of 
capital. So a lot of the firms that might want to pay it back 
don't want to go raise all that capital which they don't 
necessarily think they need. So this is a legal impediment at 
this point. Chairman Frank mentioned that may get changed, but 
that has not been changed yet.
    Mr. Hensarling. Any other comments?
    Seeing none, we will go on to the next question.
    I want to echo some of the sentiment that I have heard from 
my colleagues and a lot of angst from my constituents in the 
Fifth District of Texas who don't understand about their credit 
limits being limited, capital that was previously available to 
them.
    I am curious, as you continue to hear a message from many 
in Congress saying loan, loan, loan, I continue to hear 
anecdotes from bankers I know saying they are hearing the 
opposite message from their regular interests, saying contract, 
contract, contract. Now all of this evidence I am hearing is 
anecdotal. But could somebody speak to that dynamic? Perhaps my 
anecdotal evidence is--Mr. Stumpf?
    Mr. Stumpf. Congressman, maybe I will take a shot at that.
    Clearly, all of us want to make good loans; just making 
loans for loans' sake is not going to help anyone. Actually, we 
are finding opportunities to make good loans, and the 
regulators are not, at least in our case, any different than 
they were before, concerned about safety and soundness as they 
should be. But we are not being encouraged by them not to make 
loans.
    Mr. Hensarling. Anybody else wish to comment on that?
    If not, speaking for myself and many others, if you don't 
think they can repay it, please don't loan them the money. It 
is kind of what got us into this economic crisis in the first 
place.
    I want to go back to the issue of a systemic regulator. 
Some of us still have concerns that with institutions that are 
deemed systemically significant, it becomes a self-fulfilling 
prophecy that they are too big to fail. Witness Fannie and 
Freddie. Chairman Greenspan--I didn't agree with everything he 
said and did--but for years and years and years, he warned that 
one of the greatest points of systemic risk in our economy was 
Fannie and Freddie, yet many Members of Congress fought for 
years and years and years to make sure they didn't have any 
regulation. Many said that Congress would never bail them out, 
and now we have bailed them out. So does that not become a 
self-fulfilling prophecy?
    Ms. Waters. The gentleman's time has expired.
    The gentleman from New York.
    Mr. Ackerman. Thank you, Madam Chairwoman.
    Sometimes some of us think we are living in two different 
worlds. One world is here; and we listen to the group of you 
giving us very calm assurances that everything is okay, under 
control, and there are no problems, that you are lending out 
all this money and that everything is hunky dory. And then we 
leave here and go home to our districts all over America, and I 
think we all hear basically the same thing, and that is the 
voices from the other world, the real world, where people can't 
get loans, where people can't refinance their homes, where 
people can't buy automobiles, can't send their children to 
college. And we listen to you and we hear words, words, words, 
and no answer.
    It seems to me, and to some of us, that this money hasn't 
reached the street, that you are not loaning it out. When the 
press makes inquiries as to what you did with the first tranche 
of money that we gave you, many billions of dollars, your 
answer is it is none of your business and we don't have to tell 
you because we weren't required to and if you want new 
restrictions on what we do and what we have to do, then put it 
in the next tranche of money.
    The fact that we heard from so many of you that you have 
made so many loans in the past year is not reassuring, because 
that is what you are supposed to do. But what did you do with 
the new money? That is not really anything that many of you 
have addressed today.
    It seems to me that of the $302.6 billion that have gone 
out in TARP, the 8 firms that you represent have received $165 
billion, much more than half of all the money we have lent, 
lent almost 300 institutions across America.
    How do you explain that?
    Mr. Dimon. Can I take a crack at that, Congressman?
    First, I think what I heard is that every person up here 
believes the government absolutely has the right to ask the 
question about the TARP money, what we are doing, that we are 
doing things in the best interests of the company.
    Mr. Ackerman. Why didn't we get answers? Why didn't the 
press get answers? Why didn't anybody get answers?
    Mr. Dimon. I can't explain with the press. I am telling you 
everyone here has said that and is doing everything they can to 
do it right.
    There is something that explains part of the difference of 
what you are saying. Bank lending is kind of flat year over 
year, up a little bit or down a little bit, and one of the 
other Congressmen mentioned it. There is a huge amount of non-
bank lending which has disappeared, which is the same thing to 
the consumer, finance companies, car finance companies, 
mortgage companies, Countrywide, funds, money funds, bond 
funds, that did withdraw money from the system and make it much 
harder in the system. That created some of the crisis we have.
    Mr. Ackerman. Can you give us a list of what you did? How 
many billions did your company get?
    Mr. Dimon. We got $25 billion.
    Mr. Ackerman. Can you tell us what you did with $25 
billion? Not what you did with all your other money but with 
that $25 billion?
    Mr. Dimon. I believe that we lent out, probably exclusively 
because of that, probably $50- to $75 billion within a couple 
of weeks of that, most of that being in government and not-for-
profit, $1 billion to the State of Illinois, interbank lending, 
the purchase of mortgage securities.
    Mr. Ackerman. Why can't people get mortgages?
    Mr. Dimon. I believe that we did $35 billion in mortgage 
originations.
    Mr. Ackerman. What did you do last year, and the year 
before?
    Mr. Dimon. In this same quarter, I don't remember the 
number, but I would say approximately the same.
    Mr. Ackerman. So with $25 billion more, you gave out the 
same as you did the year before. So there is no increase.
    Mr. Dimon. In that product. Some products were up, and some 
products were down.
    Mr. Ackerman. But if you did $35 billion last time, you did 
$35 billion this time, we gave you $25 billion more to do it, 
nothing of that went out then.
    Could you each send us in writing what you did with all of 
those billions of dollars that you got? Is anybody unwilling to 
do that at this point? Is anybody going to say, it is not your 
business; we don't have to? We will expect that from each of 
the eight of you in writing then.
    Okay, the $165 billion that we have put into your companies 
shows that we have some degree of confidence in what you are 
going to do with that money and that you are going to be 
around. Each of you are individually wealthy. Could you go down 
the line and just give us a number, how much of your personal 
money you have invested in your company in new money during the 
last 6 months? And zero is a number.
    Mr. Blankfein? I can't hear you. Just a number.
    Mr. Blankfein. My wealth is in my company, because that is 
how I get compensated. In new money that went in, zero, because 
that money is already in my company.
    Mr. Ackerman. Mr. Dimon?
    Mr. Dimon. $12 million.
    Mr. Kelly. I did not put any new money in.
    Mr. Lewis. I have bought 400,000 shares, and I have 
forgotten the amount. But I bought 400,000 new shares.
    Mr. Logue. Nothing.
    Mr. Mack. Nothing.
    Mr. Pandit. $8.4 million.
    Mr. Stumpf. Nothing new. All of it is in.
    Mr. Ackerman. Thank you, Madam Chairwoman.
    Ms. Waters. Thank you very much. On that note, we will 
recess until 1:15. So I would like to ask all the members and 
our witnesses to please return promptly at 1:15 so that we can 
continue our questions. Thank you very much.
    [recess]
    Mr. Meeks. [presiding] The committee will come to order. 
The Chair recognizes Mr. Garrett of New Jersey for 5 minutes.
    Mr. Garrett. I thank the Chair, and I appreciate the fact 
that we are holding this hearing today, although some may argue 
that we are holding it a day late and a dollar short. A number 
of us requested such a hearing back in December before we 
released the second round of $350 billion of TARP, the idea 
being that before we authorize the expenditure of $350 billion 
for a second time, maybe we should know how we spent the first 
one. Unfortunately, that is not the way we operate here in 
Congress.
    Secondly, I would like to make the point to thank the 
chairman for advocation for the committee with regard to the 
cause of why we are here today. And he said in his opening 
statement that it was not deregulation, but nonregulation or 
the absence of regulation that helped bring us to where we are 
today. That is significant because many times we have heard 
from the other side of the aisle that there was rampant 
deregulation occurring over the last decade or so, opening up 
the marketplace to allow all sorts of other activity to occur. 
I appreciate the chairman edifying us that it was, in fact, as 
many of us have said, not deregulation, but perhaps some gaps 
and lack of regulation.
    Turning then to some questioning. Mr. Blankfein, I would 
ask with regard to your company and your information that you 
can enlighten me on the situation with AIG. Some people say 
that when the Federal Government stepped in and helped bail out 
AIG, what they really were doing was saving the counterparties 
or saving the banks in their relationship with AIG. I wonder if 
you could just sort of enlighten us as to what your 
relationship is with or was with AIG, and what your position 
with as far as counterparty obligations, what the dollar 
amounts may have been at that point in time.
    Mr. Blankfein. Sure. AIG was a very large, obviously very 
large, company. It also was a very large player in the credit 
markets insuring credits. We and many people on Wall Street and 
many businesses who would have had exposures would have dealt 
with AIG.
    In our dealings with AIG, we were always subject to a 
collateral arrangement, and so that with respect to our 
dealings with AIG, we were always fully collateralized and had 
de minimis or no credit risk at any given moment because we 
exchanged collateral. So we had outstanding positions, as did 
most people, but we had no credit exposure because we had 
collateral from them and in some cases other kind of credit 
mitigants.
    Mr. Garrett. I have heard rumors or stories in the paper 
and what have you as far as a position dollar amount. Can you 
give us a ballpark figure?
    Mr. Blankfein. Our total outstanding, if you look at the 
nominal amounts of positions, would have been $20 billion worth 
of nominal positions. That wasn't the exposure. The exposure 
was substantially less. And we exchanged collateral.
    I do know where the source of the rumors were. There was a 
New York Times story that was partially retracted that made the 
statement that AIG was being saved for the benefit of the 
counterparty. Now, to some extent AIG had obligations to a lot 
of people. Had they defaulted on their obligations, they would 
have gone bankrupt, and that would have triggered. And in a 
particular statement they said Goldman Sachs had a huge 
obligation, which we immediately denied. Our CFO and our 
earnings call said to the world that we had no significant 
credit exposure to AIG, and I repeat that to you now.
    Mr. Garrett. So if they were fully collateralized, then 
what was then, A, the point as far as the statements made by 
some that Federal dollars that actually went through AIG to you 
would not be a correct statement, because they were already 
fully collateralized?
    Mr. Blankfein. We were collateralized.
    Mr. Garrett. If you were collateralized, then what was the 
necessity for the Fed to step in at that point to bail them 
out?
    Mr. Blankfein. AIG had exposures. It wasn't being driven in 
any way by its exposures to Goldman Sachs.
    Mr. Garrett. My time runs quick. Were you hedged on the way 
down as well for that?
    Mr. Blankfein. We had a collateral--yes, the answer is yes, 
we always had hedges. Sometimes the hedge--I am sorry. 
Sometimes the collateral would lag, and we would also take out 
credit insurance against their exposure. So it was always our 
intention. We manage all our risks, including our credit risks.
    Mr. Garrett. Help me understand this in 15 seconds. Does 
that mean that you can sort of win on the way up and on the way 
down, too?
    Mr. Blankfein. No, no, no, no. It just meant that we were 
insured against losing money because of their default.
    Mr. Garrett. So you benefited on the fact that they were 
collateralized?
    Mr. Blankfein. We had transactions with them, and if they 
had gone the wrong way, they would have owed us money. We 
assume they would pay it, but if they defaulted, they wouldn't 
pay us. We insured against that default. We didn't win money 
from it. We wouldn't have made money, but we protected our 
downside.
    Mr. Garrett. I appreciate that. My time has run out. Thank 
you.
    Mr. Meeks. Mr. Sherman of California.
    Mr. Sherman. Thank you.
    Several of the witnesses have said that they have not used 
taxpayer money to pay bonuses and dividends. Gentlemen, money 
is fungible; don't insult our intelligence. It is a rather 
silly claim to say, well, we just used the depositors' money or 
the investors' money to pay the dividends and the bonuses, and 
then we put the taxpayers' money in our vault pending the day 
when those depositors want to make a withdrawal.
    The issue is what dividends and bonuses did you pay or will 
you pay while you are holding taxpayer money? The chairman 
correctly states taxpayers want their money back ASAP, which is 
why it is outrageous that some of you have paid, all of you 
have paid, dividends or had stock repurchases. You had extra 
money, and instead of loaning it to the economy, instead of 
repaying it to the taxpayers, which is what you should have 
done, you sent it out as dividends to your shareholders; 8 out 
of 8 of you have paid dividends since October 1st, and 7 out of 
8 of you have paid dividends after you got the TARP money. So I 
want you to provide a statement on your dividend policies for 
the record.
    But for now, I would like you to just raise your hand 
unless you have adopted a policy that prevents future dividends 
and future stock repurchases until the taxpayers are repaid. 
Please raise your hand unless you have such a policy.
    So I see only the first two witnesses, Blankfein and Dimon, 
have raised their hand. The rest of you have adopted such a 
policy?
    Do you have a policy against paying dividends to your 
common shareholders while you are holding taxpayer money?
    Mr. Logue. Congressman, we have reduced our dividend to one 
cent.
    Mr. Sherman. Is that a policy? Does anybody else have--I 
will give you 1 cent a share? Does anybody other than Mr. Logue 
have a policy against paying dividends in excess of 1 cent a 
share for so as long as you hold the taxpayers' money?
    Mr. Pandit. That is where we are as well, Congressman.
    Mr. Sherman. So I see Mr. Lewis and the gentleman from 
Citicorp raising their hands. The rest of you ought to adopt 
such a policy.
    Next is a question insisted upon by three new friends I 
have in Detroit. I would like you to provide for the record a 
detailed statement about planes and perks, but for now I would 
like you to raise your hand if your company currently owns or 
leases a private plane.
     Let the record show all the hands went up except for the 
gentleman from Goldman Sachs.
    Gentlemen, we know that it is extremely expensive to 
operate these planes, that you could sell them and generate 
capital for your company, and that capital could be used to 
repay taxpayers immediately. The big show of not buying one 
particular new plane flies in the face of how you are really 
flying.
    The third issue. The first $254 billion of TARP money was 
invested, and all parties announced that this was at par, that 
the Treasury was getting securities worth as much as the 
Treasury was investing. The Congressional Oversight Panel last 
Friday distributed this chart which is behind me, which shows 
that the taxpayers were screwed to the tune of $78 billion, 
much of it by the firms represented here.
    I would like you to raise your hand if you plan to suggest 
to your board of directors that they issue additional preferred 
shares and warrants to the taxpayer to fully compensate for the 
shortfall demonstrated by the Congressional Oversight Panel.
    Let the record show no hands went up, and that all of the 
witnesses are content to leave a situation where the taxpayers 
have been undercompensated to the tune of $78 billion.
    So I will ask the gentleman from Citibank particularly, you 
received $45 billion in cash. It has been demonstrated, I think 
conclusively, by the Congressional Oversight Panel that you 
only delivered securities, preferred stock and warrants with a 
value of $25\1/2\ billion, shorting us to the tune of $19\1/2\ 
billion. Are you content to just sit there and say, sorry, we 
gave you too little securities, we are happy that we gave you 
so little, and we are not going to give you more?
    Now, before you answer, don't tell me that the securities 
could go up in value and could be worth hundreds of billions of 
dollars. Trust me, if I sold you General Motors stock today for 
$10 a share, you would call that an unfair transaction because 
the market says today it is worth about $3 a share. So why are 
you unwilling to issue additional securities to make the 
taxpayers fully compensated?
    Mr. Pandit. Congressman, I haven't looked at this analysis. 
We would like to look at the numbers. And I haven't done that. 
I don't know exactly where all these numbers come from.
    Mr. Sherman. That comes from the Congressional Oversight 
Panel in the hearings of last week.
    Mr. Pandit. I appreciate it. Ultimately, my goal is to make 
this an extremely profitable investment for the U.S. 
Government. I plan to pay it back. In the meantime, we are 
paying $3.4 billion annually as dividends on this investment.
    Mr. Meeks. Mr. Barrett of South Carolina for 5 minutes.
    Mr. Barrett. Thank you, Mr. Chairman.
    Thank you, gentlemen. Thank you for being here today.
    Gentlemen, I believe in the power of the free market, I 
believe in entrepreneurship, I believe in risk, I believe in 
innovation. But I want you to understand, and I know you do, 
that your decisions have real consequences, and when we stray 
away from making good commonsense business decisions and moral 
decisions, that we put a lot of things in jeopardy. And I know 
you know this, but we have people in America and people in this 
Congress that if you don't get it right, they are going to take 
control, and they are going to get it right, and that scares 
the fire out of me, because I believe that our free market and 
our capitalistic society is at stake. And I am not trying to be 
overdramatic, but it rests on you, so please get it right.
    Mr. Pandit, thank you for your report today. I look forward 
to taking a look at that, and I applaud you for getting that. I 
hope that you get all 435 Members that information.
    I keep hearing from a lot of people that stability and 
consistency, certainty is what we need. What can the Federal 
Government do right now, in your opinion, that can help the 
stability and the certainty of the market today, or is there 
anything we can do?
    Mr. Pandit. Congressman, we are in the midst of a once-in-
a-many-generation economic event, and it really is about GDP 
and unemployment. We need to arrest that, and the plans that 
have been talked about so far, I think, are responsive.
    We have to stabilize housing. It started there, we need to 
fix it there; keep people in their homes, avoid foreclosures, 
try to get that destabilized. We need to make sure we get 
credit flowing again, and that is clearly a very important part 
of what the Federal Government and the Federal Reserve Bank can 
do. And we need to create jobs. I think those three are still 
the goals.
    We were pleased to see Treasury Secretary Geithner's report 
yesterday, but we are all awaiting a lot more details to see 
exactly how it is going to work.
    Mr. Barrett. To your point, the Federal Government has done 
some things, and there is talk about spending this next $350 
billion with Secretary Geithner. Do we need to take a wait-and-
see approach, a little more measured approach now, Mr. Pandit, 
and say let some of this stuff percolate before we commit 
anything else?
    Mr. Pandit. Congressman, that is a very good question, and, 
again, there are no easy answers to that. Let me tell you that 
we always deal with economics, but there is also an issue of 
confidence. And I don't have a formula as to how to fix 
confidence. We know what we can do economically. I think 
confidence is up to all of us here in this room, including the 
Treasury Secretary and the President and everybody else. And 
one thing we do know about confidence, when broken, you get to 
fixing it really fast.
    Mr. Barrett. Mr. Dimon, the same question. Is there 
anything that you know that we can do to bring some certainty 
into the market, the Federal Government?
    Mr. Dimon. I think it is a combination. There is no one 
thing. But I think very well-designed fiscal stimulation. I 
know something got voted on in the conference today. I can't 
evaluate the effectiveness of all of that because I am not 
capable of doing that, but that is one piece.
    I think the Secretary of the Treasury yesterday spoke about 
four different types of things: TALF, which I think will be 
helpful and important; financing mortgages, making them both 
cheaper and more affordable, and we spoke earlier today about 
making mortgage modifications easier to do and quicker; the 
public-private bank; and the stress testing; and additional 
capital of banks. If these things are done, they are done 
quickly, coordinated, consistent, fairly, I think they will 
have a very good effect and start to turn this around.
    Mr. Barrett. Thank you, sir.
    Mr. Lewis, do you believe that this TARP program has 
permanently changed the face of the free-market system in the 
United States?
    Mr. Lewis. It certainly is the most unusual thing I think 
we have ever done, at least in my almost 40 years in this 
industry, but I don't think it has to. I think you could have a 
scenario where the economy does improve, that the banks within 
the 3-year period do pay it back, and that we get back to 
normal. So I am not so skeptical to say that we have turned the 
corner on that point.
    Mr. Barrett. Mr. Kelly, the same question.
    Mr. Kelly. I would say the system is not permanently 
changed. I think there are a number of learnings in that we 
have had the worst economic downturn since the 1930's. I think 
there are very good learnings on this. They are complicated. 
There are a lot of things we have to do. I do think we have a 
very good chance to as a group, as an industry, to repay the 
TARP money and for the taxpayers to ultimately make a lot of 
money on it.
    Mr. Barrett. You guys fix this thing so we can get out of 
this stuff.
    Thank you, Mr. Chairman.
    Mr. Meeks. I yield myself 5 minutes.
    Chairman Frank initiated talking about we look back so that 
we can make sure we can go forward. Barack Obama is now the 
President of the United States because he said there should be 
change in Washington, and I think that there is one thing that 
we have in common, that is, those in the financial services 
industry and those of us who sit in Congress, is that right now 
both of us, your industry and mine, have a credibility problem 
with the American people. There is enough blame, there is a lot 
of blame to go around, but we both have a credibility problem, 
and that is the kind of change that we are talking about. And 
when I think about this crisis that we are currently engaged 
in, there are some things that I think surely that we should 
have done probably as Members of Congress. And maybe we should 
say to the American people that we are looking to get it right 
this time and apologize to them for not getting it right the 
first time. In regards to a lot of the investments that was 
made, clearly there are some things, some bad investments that 
were made.
    So my first question is, do you feel that the industry has 
anything to apologize to the American people for so that we can 
try to have some reconciliation to move forward and gain some 
credibility back? Does the industry have anything that we 
should apologize to the American people for because we didn't 
catch this, and now we are in this terrible situation? Anyone.
    Mr. Mack. That is a tough question, so let me just say that 
as an industry, clearly we made mistakes, whether it is 
leverage--at least speaking of my company, at one point we had 
32 times leverage--whether it was in loans that we made that we 
shouldn't have made, whether it was in some of the complex 
instruments. So I think from Morgan Stanley's point of view, if 
you go back and play the clock over again, you definitely would 
do it differently.
    I think the entire industry shares some of that 
responsibility, and for that we are sorry for it. I am 
especially sorry for what has happened to shareholders, and the 
knock-on effect to that has been what has happened to the 
American people. But clearly as an industry we have 
accountability, and we are responsible. It is much broader than 
just this group of people, but we all have responsibility. I 
will take that responsibility for my firm.
    Mr. Meeks. Thank you.
    Let me move forward and to try to get to this question that 
I think was asked by Ms. Waters earlier, and, yes, we were 
talking about, I believe, the underwriters' fees, when you 
heard that question before, that I guess internally you will 
pay the underwriters within your companies, etc.
    Let me extend that to ask this: When you are talking about 
the--whether it is the FDIC or the TLGP program and the 
underwritings, is there any opportunity or have any of you 
utilized any small or minority- or women-owned firms? I know 
that in listening to Mr. Mack earlier, he said a lot of folks 
initiated from small firms before they got to big firms. But 
looking at the fees that were paid internally, or so it appears 
to me, I am wondering whether or not anyone has given any money 
or utilized that to give it out to some underwritten by small 
or minority-owned firms or women-owned firms?
    Mr. Stumpf. I might take that. In our company, and I 
believe it is in many of the companies we have, minority vendor 
programs were not only Tier 1 but Tier 2, so we put our 
products and services out for bid for whatever it might be.
    Mr. Meeks. I am talking now specifically about the TARP 
and/or the FDIC Temporary Liquidity Guarantee Program and the 
fees that would be utilized by underwriters therein. I think 
that Mr. Pandit talked earlier about that; the money that is 
legal, that you have to--by law you have to have it 
underwritten.
    My question is, there are also opportunities there for it 
to be farmed out to others or contracted out to other minority 
firms or small firms, and I was wondering if anyone has done it 
with any of those fees specifically, with public dollars.
    Mr. Stumpf. Yes, we have done that.
    Mr. Pandit. Congressman, I don't have the facts. I can get 
you the facts. I believe we do that, but let us get you the 
information.
    Mr. Meeks. I would like to get the information from 
everyone else.
    Finally, let me ask Mr. Blankfein, I think that I caught 
the word in your testimony that you said you are a wholesaler, 
and therefore you don't get into the housing market. However, 
it would seem to me that since housing is the--and foreclosing, 
keeping people in their homes is most importantly, is there 
anything as a wholesaler that you in your company can do to 
make sure that we are keeping people in their homes?
    Mr. Blankfein. Thank you, Congressman.
    We are not an originator of mortgages because we don't deal 
with the consumer, however, we own a mortgage servicing company 
that is responsible for interacting on behalf of the owners of 
mortgages, and that is Litton Servicing. That company has been 
very foresighted and innovative in the way it has approached 
its dealings in modifying mortgages.
    Mr. Meeks. I have to cut you off. Can I get that in 
writing?
    And I would move to Mr. McCotter from Michigan.
    Mr. McCotter. Thank you, Mr. Chairman.
    Coming from Michigan, the reports about the failure of the 
Wall Street bailout to date has caused a lot of concern. There 
is a lot of suffering going on in Michigan; high unemployment, 
highest in the country, a very difficult time finding credit. 
It is so difficult for them to get credit despite the Wall 
Street bailout that they were told would work that they are 
beginning to think they are being redlined by banks. I simply 
bring this to your attention without my own comment on it.
    The question that I do have regarding the auto industry is, 
we are seeing the UAW, we are seeing the auto executives, we 
are seeing suppliers, car dealers, everyone coming together to 
make sure that the American-based auto industry survives. I 
would like to know what your view of the survival of the 
American auto industry is, and if as stakeholders in that 
process you are willing to help ensure that the restructuring 
process is successful.
    Mr. Mack. Congressman, we have--and clearly not just my 
firm--we have relationships with the Big Three automakers. We 
have loans on our books to them. One of the things that 
hopefully we will be able to do as markets open up for them, as 
we have done in the past, raise either debt money for them or 
preferred or find foreign investors who will put money in with 
them. So from my perspective, we couldn't be any more focused 
and committed not only in spirit, but on our balance sheet.
    Mr. Stumpf. Congressman, we are closer to the customer end 
of that situation. We finance and do business with many of the 
20,000 different auto dealers there are in the Nation. We are 
buying about $1.5 billion of consumer auto paper a month in our 
company, and we view that as good credit, and it helps 
hardworking Americans buy cars.
    Mr. Lewis. I would say that, number one, we are working 
with GM as we speak to convert their debt to equity; secondly, 
that we like automobile loans, and actually in January they 
were up 7 percent over January of 2007--2008.
    Mr. Meeks. Mr. Moore of Kansas for 5 minutes.
    Mr. Moore of Kansas. Thank you, Mr. Chairman.
    I have a series of questions I would like to ask, and ask 
each of you to respond, and start if we could with Wells Fargo, 
Mr. Stumpf at the end, and just move this way, if you would, 
please.
    How much taxpayer money did your company receive in the 
past 5 months? Number two is how much salary did you receive in 
2008, and how much, if any, bonus or other financial 
consideration did you receive? And I would like to go down the 
line with those two questions, please.
    Mr. Stumpf. We received $25 billion. My compensation in 
2008 was--I am embarrassed, but I think it is 850--I can't 
remember the exact number; let us say $850,000. And as far as 
bonus, our company, our board of directors makes that decision 
in February regarding 2008, but there is no mystery there. 
Unless we reach at least a 15 percent internal rate of return 
or 235 earnings per share. We don't qualify. And we didn't make 
either of those. So there will be no bonus.
    Mr. Moore of Kansas. Thank you, sir.
    Mr. Pandit with Citigroup.
    Mr. Pandit. Congressman, we received $45 billion of TARP 
money. My compensation for the year 2008 was my salary, which 
is $1 million. I received no bonus. And as I stated earlier, I 
plan to take $1 a year in salary and no bonus until we return 
to profitability.
    Mr. Moore of Kansas. Thank you, sir.
    Morgan Stanley, Mr. Mack.
    Mr. Mack. Congressman, $10 billion in TARP funds. My salary 
is $800,000 in salary and zero bonus.
    Mr. Moore of Kansas. Thank you, sir.
    Mr. Logue, State Street Corporation.
    Mr. Logue. Congressman, we received $2 billion in TARP 
funds. My salary is $1 million, and my bonus is zero.
    Mr. Moore of Kansas. Thank you, sir.
    Bank of America, Mr. Lewis.
    Mr. Lewis. 2008, $15 billion in TARP money, $1.5 million 
salary, no incentive.
    Mr. Moore of Kansas. Thank you, sir.
    Mr. Kelly, Bank of New York Mellon.
    Mr. Kelly. $3 billion in TARP money, Congressman, and my 
salary is $1 million and zero bonus.
    Mr. Moore of Kansas. Thank you, sir.
    Mr. Dimon, JPMorgan.
    Mr. Dimon. We got $25 billion in TARP money. My salary is 
$1 million, and there was no bonus paid for 2008.
    Mr. Moore of Kansas. Thank you, sir.
    And Mr. Blankfein, Goldman Sachs.
    Mr. Blankfein. $10 billion in TARP money, $600,000 in 
salary, no bonus.
    Mr. Moore of Kansas. Thank you, sir.
    Again, start at this end this time and go back the other 
way. How much salary will you receive in 2009, has that been 
determined; and what do you expect to receive, if any, in the 
way of bonuses in 2009?
    Mr. Blankfein. 2009 salary is still $600,000, and we are a 
long way from bonus time.
    Mr. Moore of Kansas. Okay. Mr. Dimon.
    Mr. Dimon. My salary is $1 million, and we are a long way 
from bonus time, too.
    Mr. Moore of Kansas. Instead of going through all this, is 
there anybody whose salary will have changed from last year?
    Mr. Pandit. As I said earlier, Congressman, I told my board 
I will take $1 a year in salary.
    Mr. Moore of Kansas. Thank you, sir.
    Anybody else?
    Okay. I would like to start now, and begin down here, if 
you would, please, with Goldman Sachs, and ask, will you expect 
that your company will be able to pay back taxpayer funds by 
2012?
    Mr. Blankfein. It is my hope to do that well before that. 
Markets are uncertain. If it can be, we will.
    Mr. Moore of Kansas. Thank you, sir.
    Mr. Dimon.
    Mr. Dimon. Yes.
    Mr. Moore of Kansas. Mr. Kelly.
    Mr. Kelly. Yes.
    Mr. Moore of Kansas. Mr. Lewis.
    Mr. Lewis. Yes.
    Mr. Moore of Kansas. I am having trouble seeing a little 
farther on down there.
    Mr. Logue. Yes.
    Mr. Moore of Kansas. Yes, sir.
    Mr. Mack. Yes.
    Mr. Moore of Kansas. All right.
    Mr. Pandit. Yes.
    Mr. Stumpf. And yes for Wells Fargo.
    Mr. Moore of Kansas. Very good.
    Thank you, Madam Chairwoman, and thank you to the gentlemen 
on the panel.
    Mrs. Maloney. [presiding] The gentlemen yields back.
    Mr. Lance from New Jersey is recognized for 5 minutes.
    Mr. Lance. Thank you very much. And good afternoon to all 
of you gentlemen.
    Mr. Stumpf and the entire row, as a follow-up to the 
question that was just asked, how many of you would be able to 
pay back the TARP funding early and not related to the 3 years, 
but perhaps early? And I know there may be legislation that is 
being written so that you don't have a penalty for paying back 
this money early. So how many of you could expect to pay it 
back early?
    Mr. Stumpf. In Wells Fargo's case, it would depend on the 
credit markets more than anything else.
    Mr. Lance. Mr. Pandit.
    Mr. Pandit. Congressman, we are all dependent on the 
markets, market conditions. As soon as possible.
    Mr. Mack. Given that I think the markets have improved, we 
think maybe not the entire amount by 2012, but some portion of 
it prior to that.
    Mr. Lance. Thank you. Mr. Mack.
    Mr. Logue. Congressman, I would agree with my colleagues 
that it will depend on the markets. Hopefully we will be able 
to give it back prior to 2012.
    Mr. Lewis. I would agree, markets and the economy, and we 
would like nothing better than to pay it back early.
    Mr. Kelly. And I agree with my colleagues.
    Mr. Dimon. We hope to pay it back earlier, and that would 
just be in consultation with our regulators and the Secretary 
of Treasury.
    Mr. Blankfein. Same. And the expectation, present 
expectation, is that it would be early.
    Mr. Lance. Thank you. And following up on a line of 
questioning from Congresswoman Maloney earlier in the hearing. 
And this is to you, Mr. Lewis. And I recognize that you are 
Bank of America and not Merrill Lynch, and there was a great 
deal of pressure on Bank of America to merge with Merrill 
Lynch, but we are all disturbed about the level of bonuses from 
Merrill Lynch. Was Bank of America aware of the contractual 
nature of those bonuses?
    Mr. Lewis. Yes. As we got on in our due diligence, we saw 
the contracts, yes.
    Mr. Lance. And are those contracts a matter of public 
record, or can they be made a matter of public record?
    Mr. Lewis. I don't know the answer to that, but there 
were--as I mentioned, there were two or three that were very, 
very large and were contractual obligations of Merrill Lynch.
    Mr. Lance. I certainly would be interested, and I imagine 
the committee would be interested, in whatever information is 
available as a matter of public record regarding that. I 
believe that TARP funding is, of course, fungible, and that 
from our perspective those bonuses are really from TARP funds.
    Now, you state quite accurately in your testimony that as a 
practical matter, we cannot tell you whether the next loan we 
make is funded by TARP or from preferred stock placed with 
other investors, etc., and I certainly respect that point, Mr. 
Lewis. But from the perspective of those of us in Congress, we 
are deeply concerned about the level of bonuses of Merrill 
Lynch, and I would hope that in your responsibilities that you 
could impress upon your colleagues who have come to Bank of 
America from Merrill Lynch, to an even greater extent than you 
have done already, that I think it is the consensus of Congress 
that this is precisely what the American people find 
objectionable with the first portion of TARP.
    Mr. Lewis. Sir, we have owned Merrill now for 42 days, and 
things have changed. We are in charge now.
    Mr. Lance. Thank you very much, Mr. Lewis.
    I yield back the balance of my time.
    The Chairman. I thank the gentleman.
    And the gentleman from Massachusetts is recognized for 5 
minutes. After the budget discussion, we just have 5 minutes or 
a little more. He is on the Committee of House Administration.
    Mr. Capuano. Thank you, Mr. Chairman.
    Gentlemen, you have been asked a lot of questions, and you 
seemingly answer them honestly to me. I have a couple of more 
detailed questions.
    Just by a show of hands, how many of your banks either 
directly or indirectly--and by indirectly I mean by loaning 
money to people that you knew would be using this money to 
invest in credit default swaps. How many of you engage in that?
    Mr. Mack. We engage in credit default swaps, but when you 
are asking the question are we lending money for them to do 
that, I have to come back and give you specifics. I cannot tell 
you.
    Mr. Capuano. Fair enough.
    How many of you directly engage in purchasing or investing 
in credit default swaps? How many of you directly or indirectly 
engaged in CDOs? How many of you have--
    The Chairman. Excuse me, we have a very good recorder, but 
recording raised hands doesn't work, so we will need some oral 
responses.
    Mr. Capuano. We can fill that in later. That is fair.
    And how many of your banks had or currently have special 
investment vehicles, those off-the-books, somehow unregulated 
subsidiaries of the bank or sister corporations?
    Mr. Mack. We have SPVs
    Mr. Lewis. We do, too.
    Mr. Capuano. So basically all or most of you engaged in all 
or some of the activities that actually created this crisis, in 
my opinion, because every one of those activities, especially 
the SIVs, especially the SIVs--to me, I think they are illegal. 
I cannot believe no one has prosecuted you on this. But then 
again, we have had no prosecutorial action whatsoever the last 
Administration, and the new Administration has a little time to 
figure this out. We will find out whether anybody really cares. 
How can possibly any regulated bank have something on its books 
that is totally unregulated, for all intents and purposes does 
the same thing the bank does? That is for your lawyers to 
answer, and my hope is that you will be answering those 
questions in court someday. We will find out later on.
    But basically you come to us today on your bicycles, after 
buying Girl Scout cookies and helping out Mother Teresa, 
telling us, we are sorry, we didn't mean it, we won't do it 
again, trust us. Well, I have some people in my constituency 
who actually robbed some of your banks, and they said the same 
thing, they are sorry, they didn't mean it, they won't do it 
again, just let them out.
    Do you understand that this is a little difficult for most 
of my constituents to take that you learned your lesson? And it 
is all the same people doing this, the same people who created 
SIVs, who created CDOs, who created credit default swaps that 
never existed a few years ago. You created them. You created 
the mess we are in. And you are not the only ones, don't get me 
wrong; you just happen to be the only ones here today. I can't 
wait to get the credit rating agencies here someday again. And 
now you are saying, sorry, trust us, and by the way, we don't 
even want the money. Interesting. No one has ever come to me 
and say, you must take billions of dollars.
    And as I heard it earlier, you have an option. Basically 
they said you have to capitalize better because we no longer 
trust your books. You can either take this money and do it, or 
you can do it on your own. If you don't want the money, you can 
give it back, you just have to come up with the capital. As I 
understand it, if you can't do it, I think many of us would be 
happy to change that law.
    You have to understand, I don't really have a question, but 
I was told that I can use the 5 minutes, because the questions 
I have, you have answered them, and you are going to continue 
to answer them, and that is all well and good.
    The problem I have is that, honestly, none of us, America 
doesn't trust you anymore. I, for one, between myself and my 
various campaigns and my own personal business stuff, I get a 
lot of money to put in banks. I don't have one single penny in 
any of your banks, not one, not one, because I don't want my 
money put into CDOs and credit default swaps and making 
humongous bonuses, me personally. Until that changes, none of 
us really believe--I won't say none of us, I don't believe 
anything will change until you change the people who brought 
you into SIVs.
    Who was the brilliant person who came and said, let us do 
credit default swaps? Find him. Fire him. Tell me you fired 
them. Get out of CDOs. Start loaning the money that we gave 
you. Get it on the street. And don't say, oh, well, we are not 
using that money for bonuses. Come on. Money is all of a sudden 
not fungible in your entity. It is fungible everywhere else, 
but not in your entities. Get our money out on the street. And 
if you don't want to give it back, don't come in here and tell 
me you can't. Yes, you can, as long as you live up to the 
requirements that are put under you now in the new world that 
you created and we have to clean up.
    With that, Mr. Chairman, I yield back the remainder of my 
time.
    The Chairman. The gentleman from North Carolina, Mr. 
McHenry.
    Mr. McHenry. Thank you, Mr. Chairman. And thank you all for 
testifying today. As a taxpayer, and I guess now a stockholder, 
we appreciate it. There has been a lot of discussion and 
debate.
    The Chairman. I apologize to the gentleman. Start the clock 
over. The gentleman is recognized.
    Mr. McHenry. Thank you, Mr. Chairman.
    There has been a lot of debate here in Congress about what 
the TARP funds went to: Was it consumer lending, or was it 
safety and soundness? There has been a lot of debate, and part 
of the reason why is the former Secretary of the Treasury did a 
great sales job and said if we obligate taxpayer dollars for 
your financial institutions, whether you liked it or your board 
liked it or your investors liked it or not, that it would 
increase consumer lending. It was nothing more than a sales 
job, as I think is pretty evident.
    But my question to you, and we could just go in 
alphabetical order, just yes or no, is your first obligation to 
your depositors, to your board, to your investors; is your 
first obligation the safety and soundness of your institution?
    Mr. Blankfein.
    Mr. Blankfein. I think so.
    Mr. Dimon. Yes.
    Mr. Kelly. Yes, safety and soundness.
    Mr. Lewis. Safety and soundness.
    Mr. Logue. Absolutely safety and soundness.
    Mr. Mack. Safety and soundness.
    Mr. Pandit. Yes.
    Mr. Stumpf. Yes.
    Mr. McHenry. Thank you.
    I think we have completely resolved whether the TARP funds 
were for you to simply lend or for the safety and soundness of 
our financial system, okay.
    I have a question. Mr. Blankfein, Secretary Geithner has 
outlined his TARP II proposal, and again, we just have an 
outline. What are your general thoughts on this proposal, and 
will it work?
    Mr. Blankfein. Again, I have just seen the outline, and I 
probably haven't read it even as closely as you have, given my 
traveling in these past couple of days.
    Mr. McHenry. Well, the train is a much more efficient way 
to travel, right?
    Mr. Blankfein. It is relaxing, and you can read.
    My feeling is that they are committed to trying a lot of 
things, and they are taking a lot of initiatives. And I think 
here there is nothing ideological. There are a number of 
different things like insurance, like an aggregator bank, like 
extending credit for other institutions. And I think they are 
trying all of them in some way, shape, or form. And I think 
that is actually what the situation kind of calls for, because 
we are not really sure what will work, but I think they will be 
in a position to emphasize those that are getting traction.
    Mr. McHenry. Are you comfortable with more transparency and 
disclosure of where the funds go and how they are used?
    Mr. Blankfein. Well, I have heard the intent, and of course 
we have seen the outline, but certainly all signs now are that 
they are really committed to transparency.
    Mr. McHenry. Mr. Dimon, what are your thoughts on the new 
Geithner proposal?
    Mr. Dimon. I think the important part is that all of these 
things be done well. The devil is in the details and how they 
get executed. Some we know about. The fiscal stimulus plan got 
passed today. I am not an expert in that.
    Mr. McHenry. It didn't get passed.
    Mr. Dimon. I mean, the conferees agreed to it. I think the 
TALF plan will work and serve a purpose. I think guarantees 
will work and serve a purpose. I don't know yet about the 
mortgage plans. It is important that take place with 
modifications and make it cheaper for Americans. And I have to 
see more detail on the stress tests and capital injections. I 
do think if all these things are done well and properly, it 
will have a very big beneficial effect on this country.
    Mr. McHenry. And opening up to CNBS, do you all agree? If 
you could both touch on that. Is that healthy?
    Mr. Dimon. I think that helps, yes.
    Mr. McHenry. Is that necessary, Mr. Kelly?
    Mr. Kelly. There is no question that the real estate market 
is under--commercial real estate market is under a great deal 
of stress, and it is going to continue to be, and it will 
probably be worse a year from now than today. So I have 
certainly heard from a number of real estate executives that 
they need access to funds, and I would think that this would be 
helpful.
    Mr. McHenry. Mr. Lewis, I just live in the suburbs of 
Charlotte. Your institution is vital to us as was, is Wachovia 
and now Wells. The question I have to you is about transparency 
and disclosure. I think your institution has been hammered on 
the street because of a lack of transparency and disclosure as 
to what the government funds are for. What is the reasoning the 
government has given you these extraordinary sums of money? 
Would you be comfortable with greater transparency and 
disclosure of the decisionmaking of how government obligates 
funds?
    Mr. Lewis. Yes. I don't know exactly what you are talking 
about in terms of what more needs to be done, but, of course, 
as of use of the TARP money, we have voluntarily said that each 
month we are going to show what we are doing with it, how we 
are using it. Each week I meet with my executives to talk about 
what more can we do. So we are very focused on lending money.
    Mr. McHenry. Well, no. The disclosure of how government 
makes the decision on giving you funds. I am asking from a 
government perspective, should we disclose more there?
    Mr. Lewis. Correct. I think I have, but if you want more, 
you certainly can have it.
    The Chairman. The gentleman's time has expired, and the 
gentleman from Missouri is recognized.
    Mr. Clay. Thank you, Mr. Chairman.
    Since last October, the taxpayers have injected more than 
$300 billion into the financial system to stabilize key 
institutions, including yours. With the exception of Citibank, 
which has at least made an effort at honest disclosure, the 
rest of you haven't seen fit to follow suit. The American 
people are now your partners, and your partners have a right to 
know where their money went. So on behalf of the taxpayers who 
now own a portion of your institutions, what did you do with 
the money? And I will start with Mr. Stumpf.
    Mr. Stumpf. Thank you.
    Now, the question with respect to what we did with the 
money?
    Mr. Clay. Yes, what did you do with the money?
    Mr. Stumpf. Well, we have about $100 billion of capital in 
our company. There is $25 billion added to that, and as I 
stated in my testimony, we use those funds and the funds of our 
other investors to run our business on behalf of our 
communities, our team members, our customers, and our 
shareholders. Last year we made a $3 billion profit doing that, 
and we have had a long history of using our capital to advance 
the kinds of businesses we do, and making loans is a big part 
of it.
    Mr. Clay. Have you modified any mortgages?
    Mr. Stumpf. Sure. We have modified 706,000 mortgages in the 
last year-and-a-half, 22 percent of all the mortgages that were 
reported by the industry in modifications.
    Mr. Clay. One of the most frustrating aspects of this 
crisis, that every time we think we understand how bad things 
are in the financial sector, something that one of you failed 
to disclose comes to light, and the situation gets worse. So I 
want all of you to look us in the eye, give it to us straight, 
and tell this committee how many more potential losses are out 
there? What do you see on the horizon? What are you 
forecasting?
    Mr. Stumpf. To me, it is all about jobs. I started out in 
this industry 35 years ago as a collector, and the same four 
things that affected a consumer delinquency are the same four 
today. It is death, divorce, an unscheduled medical payment, 
and a job loss.
    Nothing has happened to the first three. Job loss is the 
key, so this is all about jobs. And if you can tell me what is 
going to happen to unemployment, I probably can tell you what 
is going to happen in credit. But I think we are still having a 
very challenging time, and I commend you and the rest of 
Congress who are working on ways to help this economy going 
with jobs, and we want to participate in helping you with that.
    Mr. Clay. Thank you for that response.
    Mr. Pandit, what do you see in the forecast?
    Mr. Pandit. Congressman, I have to agree with the fact that 
when it comes to consumer banks or commercial banks, profits 
and losses are completely tied to GDP and unemployment. That is 
what determines where things are. One thing that is different 
about this cycle is that it is not tied in the same way as it 
was before, which means that it becomes difficult to forecast 
completely. Having said that, anything we can do to be on the 
plan to keep people employed and increase the amount of 
employment can only help us.
    Mr. Clay. Do you envision credit being freed up? I mean, I 
just had a group of commercial developers come to my office and 
say they cannot build any new developments because they don't 
have access to credit. Now, when does that change?
    Mr. Pandit. Everything you are doing, the plan that the 
Secretary of Treasury talked about yesterday, all of these are 
steps to help increase the flow of credit in the U.S. economy. 
We are doing everything we can. And as you pointed out, clearly 
we have made an extreme effort to account for every dollar of 
TARP money that we received, and we are tracking it, and we are 
going to do our part.
    Mr. Clay. Thank you for your response.
    Mr. Mack, what do you see in the forecast?
    Mr. Mack. Well, it is not unlike what my colleagues to the 
left have said. The only thing I would add to that, if you go 
back into right after the failure of Lehman Brothers in 
September and into December, we are finally beginning to see 
the capital markets open up where we can raise money for 
corporations to help them invest in their business. We are 
beginning to see investors come in where they will invest in 
businesses.
    Mr. Clay. Excuse me. How about extending credit?
    Mr. Mack. We are doing that. But again, we are very small 
in the consumer business.
    Mr. Clay. Thank you, Mr. Chairman. I yield back.
    The Chairman. Let me say I think we can probably get two 
more questions in. People need to go vote. It is the first 
vote. We will be coming back. There are three votes. So, 
gentlemen, I appreciate this. I think this has been very 
important.
    The gentleman from Minnesota, Mr. Paulsen, for 5 minutes.
    Mr. Paulsen. Thank you, Mr. Chairman.
    With some of the retroactive rules for TARP recipients, and 
also more pending stabilization programs from the Treasury and 
the Fed that are yet to come, and the uncertainty now about 
future regulatory reform, I am just wondering how concerned are 
you or are you very concerned that those factors or these 
factors are going to potentially drastically discourage 
injection of private capital into your institutions that really 
could help you shore up your balance sheets rather than the 
government providing that capital? I mean, how concerned are 
you about that?
    Mr. Blankfein. Which retroactive changes are you referring 
to?
    Mr. Paulsen. I am just saying in terms of, like, the 
retroactive rules that have gone forward, the pending 
stabilization programs coming forward, uncertainty about new 
regulatory reforms. I mean, how concerned are you about those 
issues addressing private capital coming into your institutions 
right now as opposed to sitting back and waiting for these 
other things to take place?
    Mr. Blankfein. They have certainly created some 
uncertainty. That is not there, and so that is a deterrence. On 
the other hand, you have to balance it against the fact that 
there are some things that need to be fixed. And so any 
uncertainty is disliked by the market. On the other hand, we 
know that we he have to make changes, so we are going to go 
ahead and have these changes.
    Mr. Paulsen. And maybe I can just follow up, Mr. Chairman.
    Some of you have already said you feel that you have not 
been given a very clear directive from Congress or the 
government how to use the money that has been provided that has 
come directly from the TARP funds. Aside from that directive, 
what other recommendations do you have for the government or 
for future disbursements now of those funds either to your 
companies or the other recipients that may get them in terms of 
just good advice to make sure it flows more smoothly?
    Mr. Lewis. Frankly, I think the issue is more the economy 
and creating demand than any other single item. As I mentioned, 
lending money is at the core of what a commercial bank does, 
and we don't optimize our profits unless we lend money. So we 
need to have more demand, and the critical thing there is for 
the economy to turn around.
    Mr. Paulsen. Maybe I can ask one other question. As we 
consider the regulations for the financial markets, because we 
are going to be doing that now to sort of get rid of the crisis 
that we are in, prevent another one from happening or deepening 
this crisis actually, what are the largest concerns about 
overregulating, going down the road of Sarbanes-Oxley in terms 
of moving in that direction, and stepping too far where we are 
intending to be helpful, but actually it could be very harmful? 
Is there anything specific you can draw out that we should be 
very cautious of?
    Mr. Lewis. I think my main concern around compensation, for 
instance, is it is okay to do the things that are being talked 
about at the very top, but if you start to go too low in the 
organization, you will run off key talent to foreign 
competitors.
    Mr. Paulsen. Is that a shared view among others?
    Mr. Kelly. It is one of our greatest worries.
    Mr. Stumpf. Yes, there are many businesses that we are in 
that are commission-based, for example, and if we limit across-
the-board or whatever, we could lose some of the most 
productive people and some of the most important parts of our 
business.
    Mr. Paulsen. Thank you.
    Mr. Stumpf. It is widely dispersed.
    The Chairman. While the gentleman yields back, let me take 
advantage, because I am going to ask you to submit in writing, 
I understand the argument you make about foreign competition. 
It has been my impression that people here have generally been 
better compensated than people in these other countries. So I 
would ask you to submit to me some cross-national comparisons. 
I am, frankly, skeptical from what I have seen that they are 
paying so much more in other places. Certainly not at your 
level. So I would be interested in those cross-national 
comparisons.
    You are going to have to prove to me that you are really at 
risk there if there is some moderation.
    The gentleman from California.
    Mr. Baca. Thank you very much for holding this hearing, and 
I want to thank all of the CEOs for coming here.
    One of the questions that I have, here in the hearings, a 
lot of you indicated that you have a responsibility to the 
stockholders. I agree that you have the responsibility towards 
your stockholders. Well, we have a responsibility to the 
American people, and that is why we are having this hearing 
right now, is the American people lack trust and confidence in 
the banking industry, especially with what is going on right 
now.
    I want to ask a couple of questions. One is, how do you 
feel about the bailout? Do you feel that the bailout was 
necessary? Any one of you.
    Mr. Blankfein. I didn't necessarily think it was necessary 
at the time, and this was said at the time. They were looking 
ahead at an emerging recession that was going to get worse, and 
for prudential reasons, it was necessary for the systemic and 
safety and soundness, and as subsequent events have borne out, 
I think it has provided safety and soundness and taken some of 
the risk away from the system.
    Mr. Baca. Anyone else want to attempt to answer?
    Mr. Lewis. I actually agree. I know at the time, we did not 
feel like we needed the $15 billion, but I think in light of 
the severity of the recession and in light of the speed in 
which the economy deteriorated, I think we have lent more money 
because we had the TARP funds and that level of capital.
    Mr. Baca. Well, apparently, the consumers out there feel 
that there hasn't been enough money that has been lent out. 
There are a lot of small businesses in my area and throughout a 
variety of different areas right now that can't obtain loans 
right now, don't have access. Even developers. I know that my 
colleague just asked that question a while ago.
    Why is it they don't have access to credit right now, and 
why isn't it available for small businesses and developers? 
Because we need to turn this economy around, and if they can't 
employ and can't get the money, and you are somehow reviewing 
and extending before you make any kind of decisions, you are 
hurting us at the same time. Can any one of you answer why not?
    Mr. Lewis. Well, I would say that the single biggest factor 
both for the small business and consumers, particularly 
relating to real estate, is the declining home values and loan-
to-value issues with that. A small business, usually most of 
the equity that a small business owner has is home equity, and 
as those values come down, you have loan-to-value issues.
    Mr. Baca. Anyone else want to answer that?
    Let me ask another question. A lot of you said earlier that 
part of the problem has been the credit line. Well, a lot of 
the problems that came out in the credit lines that were 
offered and credit cards that were given out, most of you are 
guilty of that; all of you that offered a lot of these credit 
cards to many individuals, students, student loans, others that 
went out in different areas. I know my child during that period 
of time--she is an adult now--got a little thing: Apply for a 
credit card.
    Now the credit cards have led to a lot of the problems 
because you are going to end up losing. You are the ones who 
made the mistake in offering and giving those credit cards. You 
should be responsible. The American people and the taxpayers 
should not be responsible for the mistakes you did in going out 
and trying to get so many consumers to tie into credit cards.
    How do we answer and how do we deal with your problems in 
trying to attract many individuals to get into the credit 
cards? I know all of you want to make a profit, and you do make 
a profit by going to individuals who are applying for these 
credit cards. These are students. These are a lot of our kids 
who are solicited by your industry to apply, and yet you know 
the interest rate goes up. It continues to go up on them. Some 
of them who started, some of them can't even buy a car. Some of 
them want to end up buying a home, but it is the credit cards, 
and you are the ones, and we are the ones who have to bail you 
out because of what you have done and the losses there. Anyone 
who would like to attempt that?
    Let me ask another question then. Some of you mentioned 
best practices. What do you mean by ``best practice statement'' 
and what needs to be done? Most of you say you follow best 
practices.
    Mr. Mack. Well, I am not aware of what exactly people have 
said, but best practices from our point of view is in every 
discipline we are in. So, in risk management, as an example, to 
make sure that we have an independent risk management that 
reports to the CEO and chairman but not to some trading group. 
That would be an example of best practices.
    That is one, I think, if all these firms had had that 
established, there is a possibility some of this wouldn't have 
been as bad as it ended up being.
    The Chairman. The time of the gentleman has expired.
    We have to vote. We will come back after the vote. It will 
be about 20 minutes. I thank you for staying with us. We are 
now in recess for this vote and 2 more 5-minute votes.
    [recess]
    The Chairman. Let's get started.
    We will now turn to the gentleman from North Carolina.
    Mr. Jones. Mr. Chairman, thank you very much, and I want to 
thank you for holding this hearing. I agree with you in your 
statement this morning that this might be one of the most 
important hearings that we could hold to help the American 
people to know why this Congress passed the TARP bill and how 
their, meaning the taxpayers, how their life is going.
    I want to start with Mr. Pandit. This might have been asked 
before, but I am going to ask it in a different way. I am 
looking at a New York Times article, November 15, 2008: Despite 
pledge, Citigroup to raise credit card rates, blaming difficult 
requirement. Citigroup is reneging on a promise it made to tens 
of millions of credit card customers in good times.
    In April of last year, I joined Mrs. Maloney in her 
legislation to bring sunshine to the charges on credit cards. I 
wrote to Mr. Bernanke and I received this on April 16, 2008. 
Bank card revenues in billions of dollars: In 2006, after tax, 
those banks that issued credit cards or get fees and interest 
from credit cards made, in 2006, $18.37 billion.
    Now, since the the taxpayer has done so much for you and 
your banks, is it even possible, and I will go back to Mr. 
Pandit, is it even possible when the average penalty interest 
rate averages 24.51 percent, I am not saying that is Citigroup, 
I don't know, but when the taxpayer is hurting so badly and he 
or she has helped you out from making bad decisions, could 
there be a period of time that you would say to the American 
credit card holder, no longer am I going to ask you to pay 24 
percent so I can make billions of dollars. What I am going to 
do for the good of the American people is say 9 percent. Why 
can't you do something like that?
    This country is in a recession, headed for a depression, 
and these poor taxpayers in my district, the Third District of 
North Carolina, a family of 3 or 4 has an income of about 
$37,000 gross, and most, like myself, have a credit card. Why 
can't you do something for them? Can you reduce that rate for a 
year or two?
    Mr. Pandit. Congressman, on the credit cards, we did not 
change our rates for 2 years. We changed our rates in response 
to keeping credit flowing because credit costs and funding 
costs have gone up dramatically. We also gave every one of the 
cardholders an option to opt out of that.
    We have also, in addition to that, created forbearance 
programs. We talk to card members one on one. We talk to them 
about their rates. We figure out what is affordable, what is 
not. We keep doing that.
    But the problem goes beyond that, Congressman. You know 
that. It is about not only cards; it is about housing. We 
continue to help people with their housing, too. We have taken 
mortgage rates down to 4 percent. We have extended maturities 
to 30 or 40 years. We have forgiven principal, and we continue 
to go down the path.
    What you are asking for is right, a lot of forbearance, and 
we are with you on that.
    Mr. Jones. Well, I have one more question that will be for 
Mr. Lewis, Mr. Chairman.
    But, at this time, to help the image of the banking 
industry, show compassion. Show compassion for that American 
citizen who is out there losing their job, having a cut in pay. 
Because, believe me, the majority of the people are not members 
of the country club, and I am not saying you are. But the image 
of the banking industry is about as low as it has ever been, 
and I think with what I have suggested or not, you need to 
nationally speak to some of these things, all of you, if you 
issue charge cards, and say that, yes, we are going to suck it 
up, too, by the way, Mr. Taxpayer, and we are going to take 
less in interest, so you can have a better quality of life and 
maybe meet some of your bills.
    In the time I have left, Mr. Lewis, I am going to read an 
e-mail.
    The Chairman. The gentleman has 10 seconds left. You may 
have to get your answer in writing.
    Mr. Jones. I talk so slow, I can't do it.
    Will there be another round, Mr. Chairman?
    The Chairman. Possibly. We will get it in writing if we 
can't get it otherwise. Ask the question, sure.
    Mr. Jones. This is the e-mail, and I am going to make it 
real quick, Mr. Chairman: The original course of action to be 
taken by Congress to save our economy was to buy up toxic loans 
from financial institutions as a way to free up these banks to 
make loans.
    The last point: The bank that I have been dealing with for 
31 years basically told me that they wanted my children to 
personally endorse all loans. They have decreased just about 
every loan-to-value ratio so that it would take more equity, 
raised my internal rate, raised my fees.
    Mr. Lewis, when you all leave here today, for God's sake, 
do whatever you can to free credit to the people across this 
Nation, because they are suffering and they are hurting.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas, Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Mr. Chairman. I want to say thank 
you for having this hearing and I hope that many of my 
constituents down in deep south Texas are listening to this 
important and informative hearing.
    Regarding back mortgages that your institutions hold, I 
want to know if your personnel attempted to contact homeowners 
who have mortgages with your institutions to determine their 
financial status and whether they will be able to hold on to 
their homes?
    In a nutshell, what type of outreach have all of you and 
your companies made to help homeowners on the verge of losing 
their homes? I will start with the first presenter.
    Mr. Blankfein. We are not an originator, but we are a 
servicer of mortgages, and our mortgage servicer, Litton, has 
been very aggressive in reaching out to homeowners to modify 
loans, to take the debt-to-income ratio to the lowest level of 
31 and even to forgive principal where that will help the 
homeowner stay in his home.
    Mr. Dimon. We work extensively to contact anyone who is in 
default, and we also try to contact those that we think might 
have a problem based upon some analytics we do. We do it all 
the time, consistently, and we have been doing it well over a 
year-and-a-half.
    Mr. Kelly. Congressman, we are not in the mortgage 
business.
    Mr. Lewis. Congressman, we do have an outreach program. We 
have had it for some time. As I mentioned, we have 5,000 people 
working on loss mitigation. We take about 80,000 calls a day in 
our call centers. So we are very focused on the outreach and 
getting to the issue before it becomes a critical issue.
    Mr. Logue. Congressman, we are also not in the mortgage 
business.
    Mr. Mack. Congressman, we are very small in the mortgage 
business through Saxton Mortgage, and we do have an outreach 
program in trying to work with homeowners in keeping their 
homes, reducing principal, and lowering their rate.
    Mr. Pandit. Congressman, not only do we make mortgages, we 
service mortgages. We have been able to talk to mortgage 
servicers, and we have consent from 90 percent of them to allow 
us to modify mortgages that they have given us.
    In addition to that, we have something called the CHAPS 
program. We are reaching out to half-a-million homeowners, not 
because they are delinquent or can't make the payment. This is 
an early warning system. We are not waiting for fire alarms to 
go off. We have installed smoke detectors. In a sense, we need 
to know they might get in trouble. We are doing all of that.
    In addition to that, we have kept 440,000 people in their 
homes who would otherwise be distressed borrowers and, last 
year, that was 4 out of 5 people we talked to we have kept in 
their homes.
    Mr. Stumpf. Congressman, we service one in seven mortgages 
in America. We have doubled our staff to 6,000 people who make 
thousands and thousands of calls a day contacting people who 
are either past due or potentially would become past due. And 
we have learned that when you talk to them early, it is much 
better than not talking to them at all.
    We talk with 94 of every 100 customers who are 60 days past 
due or more. And when we do talk to them, as I said in my 
testimony, for 7 out of 10, we find a solution. We have done 
706,000 solutions in the last year-and-a-half.
    Mr. Hinojosa. Citi was probably one of the first who agreed 
to the possibility that bankruptcy judges might be able to make 
some changes on the terms of the loans, and then others, even 
in my district, agreed to that. Is that something that is 
already in place that allows the bankruptcy judges to change 
and alter those terms? Is that something--I am going to ask 
Citi to answer that question.
    Mr. Pandit. Congressman, that legislation has not yet been 
passed.
    Mr. Hinojosa. It has not been passed. That is what I 
thought.
    Do those of you who answered that you do have home 
mortgages believe that would possibly stop the numbers that are 
falling off the cliff and falling into foreclosure? Because 
listening to Chairman Bernanke yesterday, things are going to 
get worse before they get better, and I think that we really 
need to hear some answers on how we can stop this.
    The Chairman. I would say not every member can be here at 
all times, and at times, I am absent myself. The panel was 
polled by one of our questioners as to where they stood on the 
bankruptcy issue, so we do have it in the record, their views 
on whether or not we should do the bankruptcy bill.
    Mr. Hinojosa. Thank you, Mr. Chairman.
    The Chairman. It was behind in the early returns.
    The gentleman from Massachusetts.
    Mr. Lynch. Thank you, Mr. Chairman, and the ranking member.
    There has been a lot of criticism here today and probably 
well-deserved, but I do want to point out, Mr. Logue, I read 
your testimony regarding State Street, and I am pleased that 
you were straightforward. You took the $2 billion in the TARP. 
You lent that out directly, which was the purpose of the 
program, and also I noticed that in capping executive 
compensation, you went right down the line all the way except 
for your most junior employees, and I think that was 
commendable.
    A number of the witnesses today have talked about support 
for a new regulatory framework to help us get out of this 
situation, and I do want to point out that the last major 
dislocation we had in the markets like this was back in 1929, 
the crash, and I asked this question yesterday of Chairman 
Bernanke. Back then, the leaders on Wall Street of the major 
banks and investment houses got together with Members of 
Congress, and in order to pay for the new regulation that had 
to be put in place to stabilize the markets, they came up with 
an idea called transaction fees.
    What they did, the leaders of the financial services 
industry back then and Members of Congress, is they imposed a 
transaction fee of 1/300th of 1 percent of every share traded 
on the major exchanges in the United States at the time. At 
that point, back in 1929 and 1930, there were only about 5 
million shares a day being traded. Today there are 5 billion 
shares, on a good day, although we haven't had a good day in 
awhile.
    I want to ask you, we have had this money going out the 
door left and right here, trillions, and no one has come 
forward with a way to pay some of this back. I have about 40 
percent of my district that doesn't have money in the stock 
market. They don't have 401(k)s, they don't have any investment 
at all in the market, yet they are being asked to bail the 
banks out, you folks out, and they have no hope of return.
    What I am asking you, each of you, do you support the idea 
of a small, and I mean, look, this could be microscopic, given 
the volume of trades every day, and I would not leave out the 
bond market either; they would have to be assessed at some 
point, but is there any appetite out there to look at 
transaction fees as a way to pay some of this back, rather than 
putting the entire weight of all this support, all these 
bailouts, on the backs of the American taxpayer?
    Mr. Logue. Congressman, I think it is something that 
definitely could be discussed with the exchanges. It is an idea 
that I haven't heard yet, but I think it is something that 
could be explored.
    Mr. Lynch. Mr. Pandit?
    Mr. Pandit. Congressman, I have not looked at that in a 
long time. Different countries have done that in different time 
periods. This is an unusual time period. We should look at it, 
and if you don't mind, let me think about it a little bit more. 
If you like, we can come back to you.
    Mr. Lynch. Mr. Dimon?
    Mr. Dimon. We would have no problem paying some fees to 
help bear the costs of I think you mentioned regulation or 
something like that.
    Mr. Lynch. Right now, we have a continuing process of doing 
that, and I believe the money comes directly to Congress, but 
we use it to fund the SEC.
    Mr. Lewis?
    Mr. Lewis. I had assumed that the banking industry was 
going to pay for it one way or another. I just hadn't thought 
about the way. But, of course.
    Mr. Lynch. Mr. Mack?
    Mr. Mack. I think we should consider it, but at the same 
time I think we need to become careful. Exchanges have become 
global, and we need to be sure that we do not drive volume out 
of the United States into other countries. Other than looking 
at that, I think it makes sense to consider it.
    Mr. Lynch. All right.
    Mr. Chairman, I yield back my time.
    The Chairman. Let me take the gentleman's remaining time, 
because he is on to something. Let me remind people, in the 
TARP bill which we passed, we adopted an amendment sponsored by 
our colleague on the Ways and Means Committee from Tennessee, 
Mr. Tanner, which says that, at the end of 5 years, 5 years 
from October, the President then in power, that is after the 
next Presidential election, is mandated to send to Congress a 
proposal; he is to get from CBO the net cost of the TARP, of 
the $700 billion, whatever the net cost is to the Federal 
Government, and send to the Congress a piece of legislation 
that would pay for that by some combination of fees and taxes 
on the financial industry. So that is in fact in the law that 
is being sent to us.
    People can say, well, he is going to send it to us. I will 
tell you, 4 years from now, I don't think it is going to be any 
different. I don't think Members of Congress are going to say, 
no, no, no, no, we don't want to do that to our good friends in 
the financial industry. Let's do it somewhere else.
    So something like that is mandated for a President to send 
us 4\1/2\ years from now.
    Mr. Lynch. Mr. Chairman, I am just fearful that the urgency 
that we have around this issue right now, if things start to 
get better--
    The Chairman. I appreciate that. If the gentleman will 
yield, I think that is a good point. I should have phrased it 
more explicitly. I think on the side of that argument is to say 
to the financial community, look, you are going to have to do 
this some years from now, why not start doing it now, because, 
in fact, if you begin to phase it in, there is less likely to 
be a big bump at any time.
    The gentleman from North Carolina. You want to wait?
    The gentleman from Georgia.
    Let me just say this. I am looking at the members here. We 
can finish this--I am sorry, Mr. Posey is back, and we will get 
to him after the gentleman from Georgia. We can probably finish 
it in a little over an hour if we have their indulgence. Our 
colleague, the gentlewoman from Ohio, is going to have to leave 
at 4 o'clock to go preside over special orders. So I would hope 
the members would not object if I took her out of order. We 
will then be able to reach everybody, and anybody who has to 
sit and listen to special orders deserves a certain 
consideration.
    The gentleman from Georgia, then the gentleman from 
Florida, and then the gentleman from North Carolina.
    Mr. Scott. Thank you very much, Mr. Chairman.
    I certainly appreciate you all being here. It is a very, 
very important hearing.
    But I believe we have a unique chance today to do something 
very special for the American people. You all have come under 
great attack for selfishness, for greed, not you collectively, 
but the banking industry. And I want to ask you to do something 
that Abraham Lincoln suggested we do that worked very good back 
then when he said, at certain times in our history, we need to 
allow the better angels of our nature to shine through. And we 
have such a time that you could do this with millions of 
Americans watching this on television across this country.
    We are losing 7,200 homes to foreclosure every day. There 
is nothing more draining. Yesterday, Secretary Geithner came up 
with his plan, so-called plan. Many people have questioned 
that. But I think he did a wise thing, especially when it comes 
to home foreclosures.
    I am asking you at this time to commit to this committee 
and to the people across America that you will do something 
here that will manifest your better angels of your nature, and 
that is to commit to having a moratorium on all foreclosures 
that each of your banks and affiliates deal with until the 
Treasury Secretary can put together this package.
    Now, mind you that this committee and the TARP bill has put 
forward up to $100 billion. So far, the Obama Administration 
has said they are willing to look at it with $50 billion--that 
is a lot of money--and that he would only require a need of 
doing this in about the next 3 weeks. But I think that would be 
a tremendous gesture, to say you will not foreclose on any 
American's home until we put the plan in place. That is the 
fair thing to do.
    Will you do that? Could I get a yes-yes here, because the 
record needs the yes?
    Mr. Lewis. Actually, if we could put a timeframe on it, and 
not just leave it open-ended, and say it is 2 weeks or 3 weeks, 
we would do that.
    Mr. Scott. Okay; 3 weeks.
    Mr. Lewis. We would do that.
    Mr. Scott. That is good news.
    Mr. Pandit, could you concur with that for 3 weeks?
    Mr. Pandit. There are two types of homeowners. There is the 
investor, and there is the person living in the home. We will 
commit to making sure that the people stay in their houses as a 
moratorium.
    Mr. Scott. Thank you.
    Mr. Stumpf?
    Mr. Stumpf. Yes, we have already put a moratorium in or on 
those homes where we are the investor through Wachovia, 
especially their pick-a-pay portfolio. We have contractual 
arrangements with our investors, because most of what we 
service is for someone else. And I can't commit to you. I will 
look at what that language looks like.
    The Chairman. If the gentleman will yield for 1 minute to 
say, and I will give you back your time, I hope fairly soon to 
have legislation passed on a bipartisan basis that will give 
you some protections against those lawsuits, assuming you are 
doing it in their economic interests. So help is on the way in 
that regard.
    Mr. Scott. Well, thank you all for that commitment to 
forego the foreclosures, and I thank you, on the parts of all 
Americans who need this help to get some confidence.
    Really quickly, there is an issue that is going to be 
coming before Treasury regarding FAS 157. I think you all know 
what that is in terms of the instrument that is used to assess 
the value, the fair market value of your liabilities and 
assets. But there is an unequal application of that, because 
there is a FAS 114, that is more applicable and causes a more 
severe situation to your smaller banks, your community banks.
    Would you not agree that if the Treasury is going to change 
FAS 157 that affects your larger banks like yourselves, 
wouldn't you think that same application should be true for the 
change to FAS 114?
    Mr. Dimon. I don't think everyone here is familiar with FAS 
114.
    Mr. Scott. What FAS 114 does is it requires the value of 
the loan be set at the fair market value of the collateral or 
market-to-market. So, in other words, there really is no 
difference, except that it makes it much more difficult, say, 
when you are dealing with a home foreclosure, where most of 
these assessments are made basically on a case of what we would 
call a willing buyer to a willing seller. But in foreclosure, 
neither party is willing. They are forced. So when they 
accumulate the value of their assets, I mean, it is a false way 
of doing it.
    But at any rate, there will be this change coming forward. 
The community banks, the smaller banks are very much aware of 
it. All I am simply saying is the smaller banks should be fed 
out of the same spoon as the larger banks when it comes to 
assessing their assets.
    Thank you very much for the commitment on going forth with 
the foreclosures.
    The Chairman. Before going to the gentleman from Florida, I 
ask to put into the record, I know I have general leave, but I 
thought I would announce this. The Office of Thrift Supervision 
dated today urged OTS-regulated institutions to suspend 
foreclosures on owner-occupied homes, as Mr. Pandit indicated, 
until the financial stability plan's home loan modification 
program is finalized in the next few weeks.
    So the Office of Thrift Supervision has now joined in the 
call for a moratorium until we see the plan from Mr. Geithner 
on owner-occupied homes. This will be in the record.
    The gentleman from Florida.
    Mr. Posey. Thank you very much, Mr. Chairman.
    I don't want to beat a dead horse, and my dad always told 
me, you should never ask somebody how much they made, but since 
somebody already asked that and the door is already opened, one 
question that kind of begs for an answer is the question of 
what your compensation was before the train wreck, not 
necessarily the last year, but what it was the year before?
    If we could start at one end, salary and bonuses for 2007?
    Mr. Blankfein. In 2007, $600,000 of salary and something 
like $67 million worth of shares and some cash at the values 
that pertained in 2007, which wouldn't look familiar to you 
now.
    Mr. Dimon. For the year 2007, $1 million of salary and $29 
million of cash and stock. Again, the stock is not worth what 
it was then.
    Mr. Kelly. Congressman, in 2007, it would have been $1 
million salary, and with all the long-term option type 
compensation in total, it was around $20 million.
    Mr. Lewis. You said 2007; 2007 would have been around $14 
million, all inclusive, including stock and cash.
    Mr. Logue. Congressman, I believe it was $1 million in 
salary, and total compensation of about $20.5 million, if my 
memory serves me well.
    Mr. Mack. Compensation was $800,000 and zero bonus.
    Mr. Pandit. $250,000 in salary and $2.5 million in stock.
    Mr. Stumpf. I had $800,000 in salary, $4.2 million in cash 
bonus, and $3.2 million in stock, in option value, which today, 
of course, is worthless.
    Mr. Posey. I think that might help give us a little more 
insight into the train wreck.
    Mr. Dimon, there are some arguments on both sides about 
this cramdown. Can you tell me the effect the cramdown would 
have on your institution?
    Mr. Dimon. Let me just start by saying that we are deeply 
in favor of having solutions for modifications. We have done 
300,000 already. We expect to do 650,000.
    Mr. Posey. That is the next question. But right now, if 
there was an arbitrary cramdown, if the judge could reduce the 
amount--
    Mr. Dimon. We believe an arbitrary cramdown would greatly 
increase the cost of mortgage losses and that it would also 
increase the cost of all unsecured credit as you gave an 
incentive for people to declare bankruptcy.
    Mr. Posey. Does anyone beside Mr. Pandit agree with that? I 
mean, it is logical. It makes sense to me.
    The next is, I gave an example talking to the Treasury 
about some constituents. They have about a $400,000 loan on a 
house that is now worth about $250,000. They lost their jobs, 
couldn't make a couple of payments, got behind, started a 
little business, and were able to catch up. And their company, 
and at the time I didn't want to mention it because it would be 
indiscrete, but it is Countrywide, refused to accept any 
payments unless they got caught up in full.
    So their CPA advised them, give the doggone house back and 
go buy a short sale down the street. You will $150,000 better 
off. I understand that, perhaps, whoever is servicing the 
Countrywide paper may be concerned about some liability, and 
that is the only possible excuse for not using the good 
judgment of trying to mitigate such a stupid, horrendous, 
upside-down loss.
    Would the ability to have servicers modify mortgages 
without liability be appealing, and do you think that would 
lead us toward a solution to this foreclosure crisis? We can 
start at the end with Mr. Blankfein.
    Mr. Blankfein. I think doing something about the liability 
would be helpful. We are modifying these mortgages without that 
protection now, and so we would welcome the protection.
    Mr. Posey. Is it your own loans, or loans you might 
service?
    Mr. Blankfein. If it was our own loans, we wouldn't be 
worried about it at all. It is other people's loans that we are 
servicing.
    Mr. Posey. And you are modifying loans you are servicing 
now?
    Mr. Blankfein. Yes, we are, and reducing principal, because 
we think that is the best way of recovering value. People tend 
to stay in houses and support their payments when they have 
equity. So we believe we are carrying out a duty to our 
investors if we in fact cut principal down and keep people in 
their homes and let them have positive equity in their homes.
    Mr. Posey. Mr. Lewis, you are Mr. Countrywide, Mr. Bank of 
America?
    Mr. Lewis. No, I am not Mr. Countrywide. But we are being 
very aggressive in doing modifications with loans that we 
service. We have changed the policies at Countrywide, but it 
would help if we got some help on that issue.
    Mr. Posey. But you have already changed the policy, like 
these people should be getting some kind of response rather 
than walking away?
    Mr. Lewis. I can't imagine we would do that under our 
policies, because that would be a perfect loan modification 
situation.
    Mr. Posey. It is a no-brainer. Maybe I can get my staff to 
get one of your cards or something and they can contact you 
directly to see that gets taken care of.
    Mr. Lewis. I will.
    Ms. Waters. The gentleman's time has expired.
    Mr. Miller.
    Mr. Miller. Thank you.
    I am against arbitrary cramdown, too. However, judicial 
modifications based upon the very clear, well-established legal 
standards based upon a wealth of case law says bankruptcy 
courts can modify every other kind of secured debt, I think 
would be a great advantage in modifying mortgages.
    In the Washington Post article this morning on the Geithner 
plan, buried two-thirds of the way into the story on the inside 
after the jump from the front page, there are these two 
sentences: Many financial analysts have concluded that the 
current values banks have assigned to these assets are much 
higher than they are worth, but if banks wrote them down to 
their actual value, many of the firms would collapse.
    There are two versions of what is wrong with the banks now. 
One is that there is a liquidity problem, that you have assets 
that are hard to value, for which there is no active market, 
and the uncertainty about how much your assets are really worth 
is a financial constraint. The other is that there is a 
solvency problem, that the assets aren't worth much, and if 
they were placed on a market, the reason there isn't an active 
market is that no one who owns them is selling them, and they 
really aren't worth much and a great many financial 
institutions are in fact insolvent.
    Now, all of you have said that you all don't have a 
problem, that you are safe and sound. But a lot of analysts 
think that some others in the industry apparently might have a 
big problem. Probably most credulous of financial institutions, 
valuations of their assets is IMF. They estimate assets are 
overvalued by about $500 billion. The least credulous, the most 
skeptical, not surprisingly, Nouriel Roubini, Dr. Doom, 
estimates they are overstated by $3.6 trillion.
    Mr. Blankfein, your economists are in between. They 
estimate they are overvalued by $1.1 trillion. A total loss of 
$2.1 trillion, about $1 trillion of that has been written down 
at that point, and I have heard that described as the consensus 
estimate. So there appears to be a problem out there.
    If there are banks that are in fact insolvent, can you 
think of any reason, based upon economics or ethics, that loss 
should be borne by taxpayers instead of by shareholders and 
unsecured creditors, as is usually the case when a corporation 
becomes insolvent?
    Mr. Blankfein?
    Mr. Blankfein. Well, I think the point here is that, when 
you talk about a health or solvency issue, you are talking 
about marking them to what level.
    Mr. Miller. My question is, who should bear the loss? If 
they are insolvent, who should bear that loss? Is there any 
reason based upon ethics or economics or any other rationale 
that the loss should be borne by taxpayers, not by shareholders 
and unsecured creditors?
    Mr. Blankfein. Again, it is a political decision. But I 
just want to definitionally say again, we are a mark-to-market 
firm.
    Mr. Miller. That is not my question.
    Mr. Blankfein. I think that people would quibble about what 
the real mark of that should be. In other words, if they stayed 
on the balance sheet, those marks might not be ever taken.
    Mr. Miller. Mr. Dimon, do you have an answer to the 
question I asked?
    Mr. Dimon. I think the shareholders should pay for the 
losses, if possible.
    Mr. Miller. Mr. Kelley, shareholders and unsecured 
creditors or taxpayers?
    Mr. Kelly. Shareholders.
    Mr. Kelly. Mr. Lewis?
    Mr. Lewis. Shareholders.
    Mr. Kelly. Mr. Logue?
    Mr. Logue. Shareholders.
    Mr. Kelly. Mr. Mack?
    Mr. Mack. It should be shareholders and unsecured 
creditors, but I also think you need to look at, is there a 
chain reaction? If there is no chain reaction, no danger to the 
system, shareholders should be wiped out along with unsecured 
creditors.
    Mr. Miller. Mr. Pandit?
    Mr. Pandit. I would want to make sure that we seriously 
look at whether their insolvency is a result of credit or 
whether liquidity. These are fundamental issues. And if it is 
on the basis of credit, I think the answer is what Mr. Mack 
just talked about, you should let the shareholders take it, 
unless there is a systemic issue.
    Mr. Miller. Mr. Stumpf?
    Mr. Stumpf. I agree with my colleagues.
    Mr. Miller. Now, obviously, everyone has spoken of a 
problem with confidence in the industry, and Chairman Bernanke 
yesterday compared the proposal for a stress test to the bank 
holiday in 1933 in the New Deal, a comparison that occurred to 
me as well.
    Do your current safety and soundness regulators have the 
capacity, the sophistication, the expertise, to do a credible 
stress test, or what do we need to do to make sure that any 
stress test is credible and we know that any bank that gets a 
clean bill of health is in fact safe and sound?
    Mr. Blankfein. I believe they are capable. I have only had 
a 3-month relationship with my new regulator.
    The Chairman. We will have to take the rest of the answers 
in writing.
    The gentleman from Texas.
    Mr. Green. Thank you, Mr. Chairman, and I thank the 
witnesses for appearing.
    The Chairman. Believe it or not, you are at this point, the 
only Texan in the room.
    Mr. Green. That is a rare, rare occasion when I am the only 
Texan in the room. It is an honor--
    The Chairman. I take it back. Mr. Hinojosa is here. I am 
wrong.
    Mr. Green. Thank you.
    The American people are exceedingly angry, and I have the 
opportunity of hearing and visiting with many of these angry 
people. And if they are angry about one thing, it is a lack of 
intelligence as to what happened to the money. They really want 
to know what happened to the money, and I am not sure, that 
after today, they will have any less anger. My suspicion is, 
when I visit with my constituents, they will still tell me they 
are concerned as they have great consternation about what 
happened to the money.
    To this end, I would like to know from you, first, is it 
possible to ascertain the amount of increase in new lending 
attributable to TARP? Is it possible to ascertain the amount of 
new lending attributable to TARP? And if you think that it is, 
we will do this en masse, will you kindly raise your hands? Can 
your accountants, the people to whom you pay large amounts of 
money, ascertaining the amount of new lending attributable to 
TARP. If so, kindly raise your hand.
    New money. All right, let's see. I will show that all of 
the hands have been raised saving--ok, saving, Mr.--with 
Goldman Sachs.
    The Chairman. They are not in the lending business.
    Mr. Mack and Mr. Blankfein are not in the lending business.
    Mr. Green. If you are not in the lending business, raise 
your hand, please.
    Mr. Blankfein. We are not in the consumer lending business.
    Mr. Bachus. This is going to be a good Saturday Night Live 
skit.
    Mr. Green. Bad question, good answers. How about that. So 
here is where we are. If you are lending money to consumers, 
can you ascertain the amount of new consumer lending 
attributable to TARP? If so, raise your hand. And you are 
lending money to consumers.
    If you are lending money to consumers and you cannot, would 
you kindly raise your hands. Anybody. Can you tell me why you 
cannot, sir?
    Mr. Stumpf. Yes. We are lending. Our consumer loans are up. 
In fact, we were lending through this whole crisis.
    Mr. Green. Without telling me they are up, can you tell me 
why you can't ascertain?
    Mr. Stumpf. Because it is all part of the same capital 
pool. I don't segregate a certain amount of capital against one 
loan. So when we financed $1.5 billion worth of auto loans in 
the month of December, I can't tell you where that money--
    Mr. Green. Let me ask this. Can you ascertain the total 
amount of increase in new lending?
    Mr. Stumpf. Yes, we can do that. Yes, absolutely.
    Mr. Green. So all of you who are in the business of lending 
to consumers, you can do one of two things. You can either tell 
us the amount of lending attributable to TARP at new lending, 
or you can tell me the amount of new lending that you have.
    Mr. Stumpf. Absolutely.
    Mr. Green. Mr. Chairman, I beg that I be allowed to pass 
the document that was entered into the record earlier, the bill 
that I have introduced along with--in fact, I shouldn't say 
along with, the bill was actually introduced by Congressman 
LaTourette, and I am a proud cosponsor; that is H.R. 387.
    Thank you, Mr. Chairman. The reason I would like for you to 
have this is because this piece of legislation would mandate 
exactly what I have just talked to you about. Either you would 
tell us in your quarterly report the amount of new lending 
attributable to TARP, or the increase in your new lending. Is 
there anyone who can find any reason why we should not have you 
as lenders do this? Anyone?
    Let the record reflect that there are no hands up. So let 
me reverse the question quickly?
    Yes, sir?
    Mr. Mack. Congressman, we do that to the Federal Reserve in 
our TARP filing. It shows all categories.
    Mr. Green. So it is not a problem for you, is what you are 
saying.
    Mr. Mack. It is not a problem at all. I think it is being 
done.
    Mr. Green. If you can do this and you see no problem with 
it, kindly raise your hand. I want the record to be clear.
    All right, for the record, all can. I thank you. Mr. 
Chairman, I yield back.
    Mr. Bachus. Could I ask a question? Do you factor in the 
deterioration in the economy and the drop in demand for credit? 
I don't know how you factor in all those.
    The Chairman. Let me say I think that is a reasonable 
question for us to ask each other.
    I did want to clarify one point. When we talk about 
consumer loans, that is your business. We are talking about 
retail loans. Just to be clear, we are not just talking about 
credit cards or automobiles. If it is for the inventory for a 
business, that is also covered. I want to be clear on that.
    The gentleman from Missouri.
    Mr. Cleaver. Thank you, Mr. Chairman. I have about seven 
pages of questions that were sent to me from my districts. I 
represent Kansas City, Missouri, and Independence, Missouri.
    ``How dare you!''--Judy from Kansas City.
    ``Why are you squeezing us dry with fees and increasing 
credit card rates but lining your own pockets?''--Alice from 
Raymore.
    ``Since you are the experts with the big pay, why did you 
screw up?''--Ben.
    ``How big is your yacht?''--Michelle.
    ``Do you really believe that you are that smart?''
    I read those only because I think everybody has already 
conveyed to you that people are angry. I don't think I need to 
reinforce it, but I do think I do need to reinforce it.
    What I want to talk to you about is not that. I want to 
talk to you, Mr. Blankfein, first of all. Do you believe that 
warehouse lending is safe and profitable?
    Mr. Blankfein. I am sorry, warehouse lending? Against a 
physical warehouse?
    The Chairman. No. Any one of the retail bank people, they 
know what we mean by warehouse lending and probably ought to 
take that.
    Mr. Cleaver. Well, some Wall Street banks are involved in 
warehouse lending. Warehouse lending is when you issue a line 
of credit to an originator, usually it is for about 30 days, 
and then they, of course, sell the mortgage somewhere else.
    Mr. Stumpf. We are familiar with the business. We do very 
little of it, if any, anymore, primarily because we would 
rather make loans, our home loans, ourselves. We have a set of 
auditors. We have a set of principles, values, so we make sure 
the mortgage is for the benefit of the customer. They 
understand the terms and conditions. It helps them and so 
forth. So it is hard to control when you are a warehouse 
lender.
    Mr. Cleaver. So most of you don't do warehouse lending, 
which is one of the problems. That is one of the problems. If a 
mortgage company in my district is making loans, or trying to 
make loans, and the liquidity is not available, and it has been 
constrained a great deal recently, it is difficult for them to 
originate the loans because they don't have access to the 
capital, and with more and more people avoiding warehouse 
lending, it is hurting local mortgage companies. Wouldn't you 
agree?
    Mr. Stumpf. We have been out of the warehouse lending 
business for 5 or 6 or 7 years, and the reason we got out is 
because we saw them doing crazy things that we wouldn't do 
ourselves, so why do we want to be a part of that? It was too 
risky for us.
    The Chairman. Will the gentleman yield, and I will give him 
some extra time, because he is on to a central issue that I 
have heard a lot of complaints from my colleagues about. And 
one of them is, it is one thing to say we are not going to take 
on any new warehouse lending, but we have been told there are 
people who had accumulated an inventory based on their ability 
to do warehouse lending, and they were cut off in the middle. 
So there is a considerable degree, we have heard this from 
several members, there are people who had a warehouse lending 
relationship and had made certain commitments on the assumption 
that they would have that capacity, and it was cut off before 
they could sort of wind down the business in a reasonable way.
    I wonder if there is anybody familiar with that issue, 
because that is a particular form of it that I have heard a lot 
of complaints about, from builders.
    Mr. Stumpf. I am not an expert in warehouse in mortgage 
lending, but there are two kinds. One we actually finance, you 
give them a line of credit. Another one is where they do their 
own mortgages, and you buy them, and then you process them. I 
don't know which one it is.
    The Chairman. The one where I think we have had the 
problem, there were developers, people who had accumulated 
property, and then they were counting on the line of credit to 
be able to finance these purchases and were shut down in the 
middle. That is the specific complaint that I have heard. I 
don't know about the gentleman from Missouri.
    Mr. Cleaver. Yes, that is precisely it. And one Wall Street 
investment bank at one point not long ago had a $250 million 
line of credit just for one originator. So all that has dried 
up. How in the world are we going to deal with the housing 
crisis, the home builders and the Realtors, if warehouse 
lending is being evaporated? You are the only one that 
participates in it, and yours is at a minimum. I needed to just 
say that, because it is a problem in every community, and my 
community is no less being hit.
    The final issue I want to raise is that I am woefully 
unimpressed with the diversity of this panel, of not only the 
panel but the folks who sit behind you. I don't know how many 
rows deep we would have to go to have some diversity.
    Thank you, Mr. Chairman.
    The Chairman. Let me say, and I appreciate the gentleman 
raising that, I would ask that you give us in writing a 
response, because the gentleman raises a very important 
question. I will tell you, we hear a lot of this from our 
colleagues. It is the cutting off of the warehouse lending 
relationship in the middle of the movie, when there is 
inventory of some kind that was going to be financed by the 
warehouse lending and is cut off.
    I would ask you to talk to your people and give us answers 
in writing, and I would hope the answer would be that, well, 
yes, that is a problem, and even if we don't want to take open 
any new commitments, we will allow for the orderly unwinding of 
the existing commitments. I think that is the focal point we 
have heard.
    The gentlewoman from Ohio is going to do special orders. We 
will be able to finish everybody, because we will stay until 5 
p.m., so ould anybody object if I took the gentlewoman from 
Ohio for 5 minutes?
    Ms. Kilroy.
    Ms. Kilroy. Thank you, Chairman Frank.
    Mr. Lewis, you went on record recently with CNBC's Maria 
Bartiromo stating very publicly that the Bank of America will 
fully refund the taxpayers, and that you expect, ``that this 
company is going to be a thing of beauty as we get to the other 
side of this and it will be the envy of the financial services 
industry in terms of market share.''
    Do you stand by that statement?
    Mr. Lewis. Yes.
    Ms. Kilroy. So we can fully expect that the $45 billion in 
TARP funds will be repaid?
    Mr. Lewis. Plus the $3.8 billion in interest a year.
    Ms. Kilroy. You stated as well that categorically, Bank of 
America will not need additional government funding. Is that 
correct?
    Mr. Lewis. Correct.
    Ms. Kilroy. So that means no further TARP funds?
    Mr. Lewis. Correct.
    Ms. Kilroy. That means no loan guarantees?
    Mr. Lewis. Correct.
    Mr. Kilroy. That also means no purchase of bad loans or 
toxic assets by an aggregator bank?
    Mr. Lewis. Pardon me, I don't know because I haven't seen 
the program, but that would be something that would be at a 
market or would be available to everyone, I would presume.
    Ms. Kilroy. Well, these other funds may be available to 
everyone as well. Purchase of a toxic asset at less than a fair 
value, that would be government funding to the bank, would it 
not?
    Mr. Lewis. If it were less than fair value, and that is the 
issue that people are dealing with, and that is why it is so 
complicated.
    Ms. Kilroy. I am pleased to see that you have this 
commitment to repaying the very angry and worried taxpayers 
that you have heard about, and you certainly have set a 
standard here for your colleagues today in setting the bar. So 
I would like to ask each of you to go on record before this 
committee and before the public to answer the question, can 
each of you assure me that you will also be fully paying back 
the government funds, the taxpayer funds, and that you will not 
be back to the government again asking for money that many of 
us and many of our anxious and worried and angry Americans feel 
is corporate welfare? Or do you expect your institutions to 
also be things of beauty when all is said and done?
    Mr. Blankfein. That is my expectation.
    Ms. Kilroy. That you will be able to pay us back.
    Mr. Blankfein. It is my absolute--my expectation.
    The Chairman. You are not under oath, guys, so--
    Ms. Kilroy. Is it your expectation also that you will not 
need any additional infusions of government funding?
    Mr. Blankfein. We are users of the FDIC program, but it is 
not our expectation to have to sell assets at a higher-than-
market value.
    Mr. Dimon. We categorically expect to pay back the TARP 
funds.
    Ms. Kilroy. And do you anticipate requests for additional 
TARP funds before we get to the end of this, to the thing-of-
beauty stage?
    Mr. Dimon. If it is, it won't be me.
    Ms. Kilroy. Mr. Kelly.
    Mr. Kelly. We also expect to be able to pay back the TARP 
funds hopefully within 3 years and hopefully gain even sooner 
than that. And we will not need additional funding. That is not 
our expectation.
    Ms. Kilroy. You will not need additional funding. Thank 
you.
    Mr. Lewis--excuse me, Mr. Logue.
    Mr. Logue. We expect to pay back the TARP funding as well, 
and we would expect that we will not need any other funding.
    Mr. Mack. I will pay back the TARP funds, but we do use the 
FDIC guarantee in erasing debt.
    Mr. Pandit. We will pay back the government TARP funds. I 
don't know what the rest of the program is going to be used 
for. If you come to us and say, do it this way, and by the way 
that increases loans that are made and it is also good for our 
shareholders, how are we going to turn that down?
    Mr. Stumpf. We will pay back the funds at the stated 
interest rate. And we stated we will not, as we are positioned 
today, need any more TARP funds.
    But I also agree with Mr. Pandit. I don't know what plans 
will be for the future. I don't know what is in store. But the 
way we see it today, we can pay it back, and we need no more 
funds.
    Ms. Kilroy. So you may anticipate the government purchase 
of bad loans or toxic assets.
    Mr. Stumpf. I don't know what the Geitner plan will look 
like. I don't know what is coming down. But our plan is what we 
see today, what we know today, we need no more funds.
    Ms. Kilroy. Thank you.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman from Minnesota.
    Mr. Ellison. I would like to ask a question of the 
gentleman from Bank of America. Have any of the TARP funds you 
have been given so far been used to lobby?
    Mr. Lewis. No.
    Mr. Ellison. Are you familiar with a posting that was in 
the Huffington Post that would seem to indicate that there was 
a Financial Services Roundtable conversation in which someone 
from your office indicated that the Employee Free Choice Act 
should be rapidly opposed by the members of the Financial 
Services Roundtable?
    Mr. Lewis. I don't go to the Financial Services Roundtable, 
so I would not know.
    Mr. Ellison. Do you agree with me in principle that any 
company that gets TARP funds, those funds should be used to 
either recapitalize the bank or to otherwise promote solvency 
within the bank and promote lending and not to try to impact or 
try to defeat any measures in Congress to promote union 
organizing?
    Mr. Lewis. For use of the TARP funds, yes.
    Mr. Ellison. Okay. And so can I take it, can I have your 
insurance that no TARP funds have been devoted to lobbying?
    Mr. Lewis. Correct.
    Mr. Ellison. Do you think it is appropriate while in 
receipt of TARP funds to be trying to defeat measures such as 
the Employee Free Choice Act?
    Mr. Lewis. I think doing what is in the best interest of 
your company is always the best thing to do. So I wouldn't 
point to any one thing and say, just because you have TARP 
funds, you can't do something.
    Mr. Ellison. But, as has been pointed out already, money is 
fungible. What you don't use one place you can switch and use 
other monies for that while you are using TARP funds. Wouldn't 
you agree that your company needs to be using those funds for 
their intended purpose--
    Mr. Lewis. Yes.
    Mr. Ellison. --and not trying to defeat union organizing?
    Mr. Lewis. And $45 billion is in the context of $230 
billion in equity. So you have to think of it in the context of 
a much larger number.
    Mr. Ellison. Right. Well, I just wanted to put into the 
record, have unanimous consent to have entered into the record, 
this letter from Change to Win to Mr. Steve Bartlett, who was 
with the Financial Services Roundtable. In it, he describes a 
conversation in which several companies which received TARP 
funds were having some fairly frank conversations about 
lobbying. I find it pretty disturbing, and I would like you to 
respond to this letter, if you would, sir, because it 
specifically mentions your company.
    The Chairman. We have general leave, so it will be made a 
part of the record.
    Mr. Ellison. I would also like to give voice to the people 
in my district who sent me a number of questions to ask all of 
you. I will just give you a sense of how these questions go.
    One is, aren't bonuses to award productivity, not failure? 
That is Ann J. from Minneapolis. Whatever happened to banks 
being risk averse? That is Pat B. from Minneapolis. And it goes 
on and on and on.
    I just wanted to give voice to it because it is true that 
there is a general concern about the state of our financial 
services industry. And to the degree that we give you a benefit 
that our constituents think you shouldn't have, we run afoul of 
them. So I hope you bear that in mind as you go about the use 
of your TARP funds.
    I also want to have something put into the record, and I do 
recognize there is general leave to have things put into the 
record. It is an article written by Adam Levitin, who talks 
about how securitization of credit card debt has contributed to 
the financial malaise that we find ourselves in. So I will have 
that in there as well.
    Mr. Pandit, I would like to ask you a question about 
solvency at Citi, and I would like to have the--actually, both 
the gentlemen from Bank of America and Citi, both these 
questions might apply to you. Could you share with me what you 
feel the solvency of your firm is at this time?
    How about you, sir?
    Mr. Pandit. Congressman, our Tier 1 capital ratio is 12 
percent. That is an enormously high capital ratio, well above 
whatever the regulators consider to be well-capitalized banks; 
and that is the risk capital that supports all our depositors, 
all our creditors, all our bondholders. That is a very, very 
strong ratio. We feel well-capitalized as a company.
    Mr. Bachus. Will the gentleman yield just for one minute?
    Mr. Ellison. Yes, I will yield.
    Mr. Bachus. In the questioning before that--and I know the 
gentleman is thoughtful. We very much as a body respect the 
freedom of association and the freedom of speech. And I know 
the gentleman--
    Mr. Ellison. Reclaiming my time, if the gentleman wants 
to--
    The Chairman. That is really a debate on the gentleman's 
issue.
    Mr. Ellison. If he wants to debate the issue, he can get 
his own time for that.
    Mr. Bachus. I apologize. But I am just saying I didn't want 
them to get the wrong--and I know you didn't--
    The Chairman. Let us--
    Mr. Ellison. I hope that does not come out of my time.
    The Chairman. No, it does not.
    Mr. Ellison. From Bank of America, what is your Tier 1 
capital ratio?
    Mr. Lewis. It is about 10.6. And, remember, we made money 
in 2007, we made money in 2008, about, in the total of those 2 
years, $19 billion. We did not lose money like some banks 
across the world did. And so to ask me that question is 
amazing.
    Mr. Ellison. Well, I mean, I have asked the question. You 
have answered it.
    Tell me, how has Merrill Lynch--the acquisition of Merrill 
impacted your Tier 1 capital ratio?
    Mr. Lewis. That was the reason that we took the injection 
to do the deal, and so it actually helped it, because we filled 
the hole that was caused by the loss.
    Mr. Ellison. And what about Countrywide? How does that 
impact your--
    Mr. Lewis. Countrywide is not big enough to affect us in 
any big way.
    The Chairman. Can I just say, when you say ``the 
injection'' that is the second TARP funding, not the first, but 
the second injection.
    Mr. Lewis. The second.
    The Chairman. Go ahead.
    Mr. Ellison. Now, there has been wide speculation that some 
of our larger banks around the Nation may end up being 
nationalized. Do you feel that your bank should be considered 
one of those banks at risk?
    Mr. Lewis. Are you talking to me?
    Mr. Ellison. Yes.
    Mr. Lewis. Absolutely not. I don't know why you would ask 
the question.
    Mr. Ellison. And I am curious about Citi as well. Is there 
any worry that--will we be here in a few months talking about 
the demise of Citigroup?
    The Chairman. This answer will end your time. The gentleman 
got extra time.
    Mr. Pandit. Congressman, I intend to make sure that is not 
the case.
    The Chairman. The gentleman from Ohio.
    Mr. Wilson. Thank you, Mr. Chairman.
    Gentlemen, I have a question for all of you. If I came to 
you as the owner of a failing business and I asked for a loan 
to take my staff on a spa trip to Las Vegas, would any of you 
grant that loan?
    Mr. Blankfein. No.
    Mr. Dimon. No.
    Mr. Kelly. No.
    Mr. Lewis. No.
    Mr. Logue. No.
    Mr. Mack. No.
    Mr. Pandit. No.
    Mr. Stumpf. No.
    Mr. Wilson. Thank you. I didn't think so.
    But help me explain to the people back home what has 
happened with their tax money that went out in the first part 
of this TARP which my understanding is all of you are 
recipients of it.
    The Chairman. I would just say to the members that this is 
not a day in which you are going get a lot of volunteers. So if 
you want to get an answer, you probably want to pick somebody.
    Mr. Wilson. Okay. Maybe I can rephrase my question, Mr. 
Chairman.
    There are a lot of people in Ohio who are really upset 
about the way things have been handled, the arrogance, the way 
things have been done, what has happened, the PNC purchase of 
National Citi with TARP funds, on down the line. It could go on 
and on. But what have we done to restore the confidence in the 
financial community that is going to help small businesses like 
I represent in Ohio to be able to get their line of credit to 
be able to buy goods for the spring and for the summer selling 
season? What has been done with the TARP money?
    Mr. Dimon, could I address that question to you?
    Mr. Dimon. I think we put in the record a lot of what has 
been done with the TARP money. We have lent in the last 90 days 
I believe it was $250 billion; $90 billion to corporations, $50 
billion to consumers, net and increased credit lines; $50 
billion in interbank markets; $60 billion in the purchase of 
MBS or asset-backed securities. I do believe--and it is an 
estimate. I do believe that probably $75 billion of that would 
not have happened without the TARP money.
    We are also a very large small-business lender in Ohio. And 
I don't remember exactly the numbers, but I believe year over 
year, small business loans are up in the Nation. I don't have 
Ohio's numbers. Government, not-for-profit, hospitals, 
university lending is up year over year. And we will be happy 
to make all that part of the record.
    We are still lending in Ohio and other parts of the country 
and try to do exactly what you want us to do with the TARP 
money, which is to fulfill our obligations in regards to this 
country and the communities we serve, which is to help in every 
single way possible.
    Mr. Wilson. A follow-up question on that, Mr. Chairman, is, 
do you think the TARP money is starting to work as it is 
intended?
    Mr. Dimon. I think the question that neither I nor anyone 
will ever be able to answer is what would have happened had it 
not been injected when and how it was injected. We will never 
know. We will debate it the rest of our lives.
    I personally don't spend much time guessing about things 
like that. It could have gotten much worse. So it may very well 
have created a situation where it stabilized things so that we 
can move forward, as opposed to having a lot more problems. And 
I just don't know.
    Mr. Wilson. Thank you. Thank you, Mr. Dimon.
    Another question I have--and I will address it to Mr. 
Lewis, if I may--banks versus--banks who took TARP versus banks 
who did not, why do some banks turn their back and say I don't 
want any more TARP funds--I don't want any TARP funds. I don't 
want to live with the problems of government money, of 
taxpayers' money. What is the rationale there? Could you help 
me with that?
    Mr. Lewis. Yes. The reason is they don't want the 
government involved in their business. It is as simple as that.
    Mr. Wilson. Well, thank you. I am glad it was a simple 
answer to a simple question.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. I thank the gentleman.
    Mr. Dimon saying we will never know did remind me, and I 
think we all ought to keep this in mind when we are trying to 
be absolute about past judgments. In the Knickerbocker's 
History, Washington Irving says--he describes a boat crash. And 
he said the boat went around the bend, and a wind came up and 
blew it on the rocks, and we will never know what happened 
because there were too many survivors. And I think that is part 
of our problem.
    The gentleman from Colorado.
    Mr. Perlmutter. Thanks, Mr. Chairman. Just a couple of 
questions, and thank you all for your testimony today.
    We have been dealing with a lot of sort of dire 
circumstances. We have had a chance to have Mr. Bernanke come 
and testify in September when things were really on the 
precipice, again in November and then yesterday, and I am 
hoping that we have turned the corner on stabilizing the 
financial markets. We still have to restore confidence in the 
markets and rejuvenate the economy to avoid the job losses that 
Mr. Stumpf was talking about, and I think we are on track to do 
those things.
    But I want to come back to how we got here. And I look back 
to the sort of bankers that I can sort of reach back to, Dick 
Van Dyke and Mary Poppins. No offense. But, you know, a stable 
guy who had certain things. Jimmy Stewart and then whoever Mr. 
Potter was. And I don't know if there was a Barrymore or 
somebody.
    But what I am concerned about--and Mr. Dimon heard me say 
this one time--is the size and the scope of your institutions 
is so far-reaching globally and just in terms of the products 
that you handle. And I just--I am concerned about the effect on 
the system. That, in some instances, your institutions are 
bigger than the FDIC insurance we have in place, or the Federal 
Reserve had $800 billion at some point last year to assist the 
market. I mean, is there a point where you are too big and that 
the system itself is in jeopardy?
    Mr. Mack, do you have any opinions on that?
    Mr. Mack. I can only speak to our firm. We are not too big, 
and we still plan to grow, so we don't find that as an issue 
for ourselves.
    Also, as I sat here and listened, 2 years ago we owned a 
credit card business. We didn't think it was one of our core 
competencies, and we spun that off. So we have grown, but, at 
the same time, we have gotten rid of businesses that do not 
fit.
    Mr. Perlmutter. Let me switch it a little bit. Do you think 
that you can get too far-flung in the types of businesses under 
your umbrella? Whether they might be insurance or, you know, 
own real estate, I don't know.
    Mr. Mack. Yes. And I think that is an issue. Especially as 
we grow our businesses not only here in the United States and 
develop new products or globally, that is an issue. That is 
something we look at. We look at it through our audit 
committee. We look at it through our chief risk officer. We 
look at it through our strategy and planning. That is an issue.
    Mr. Perlmutter. Do you think the regulators in this arena 
have been focused enough on the breadth of business that you 
might have? Or, Mr. Dimon, if you have an opinion or Mr. 
Stumpf. Mr. Dimon, if you would.
    Mr. Dimon. I think if I was in your seat I would want 
large, successful American corporations that do business around 
the world, some of which by their nature have to be big because 
they are large--they have huge data center systems, diversified 
credit exposure, etc.--and I have never seen in my experience 
that large itself is the bad thing. I have seen bad large 
companies and bad small companies. I have seen good large 
companies and good small companies. And the United States 
military, which is a magnificent organization, isn't bad 
because it is large. You want it to be large and use the 
benefit of its size for the state of the government. So I 
always separate is it good or bad and do you have the systems 
and people to handle the size and/or the complexity.
    Mr. Perlmutter. Let me narrow it just a little bit.
    Back in September, when the Treasury Secretary and the 
Chairman of the Federal Reserve came to us, I mean really in an 
urgent, emergent fashion, they said, this is the banking 
system. It is different than everything else. You have to help. 
If you don't, we will have trouble in everything else.
    Is the banking system different than just a corporation, in 
your opinion?
    Mr. Dimon. Are you asking me?
    Mr. Perlmutter. Yes.
    Mr. Dimon. Well, yes, I think you have special obligations 
and you do have risks. You have to serve the countries and the 
communities you operate in. So I think it is special to that 
extent. And I think it is special to the extent that you not 
uniquely--there are probably other ones which I have not 
thought about--but uniquely could cause systematic risk, and 
that should be eliminated. You don't want that to be the case. 
There are ways to handle that.
    Mr. Perlmutter. Thank you.
    The Chairman. The gentlewoman from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman.
    Based on all of your testimony today, it sounds like your 
institutions are doing okay. So why are we here? And I think 
one of the things that we need help in is, how can you help 
restore investor and consumer confidence? I don't know who 
wants to address that. Any volunteers? How can you help to 
restore investor and consumer confidence?
    Mr. Dimon, how about you?
    Mr. Dimon. You are being unfair now.
    Mrs. Biggert. You are the name I know.
    Mr. Dimon. I think that every person at this table is doing 
everything they can with all their brains and might to fix this 
situation. I also think that Congress is doing that, the 
Secretary of Treasury, the Administration. And I think all of 
us, working really hard, we will beat this thing.
    And we are still, I would say, bruised and battered but 
still standing and fighting. We have a ways to go. But, if we 
do it right, this country will do what it has always done. It 
will learn, it will reform, and it will move on. I am 
completely comfortable that will be the case this time, too.
    Mrs. Biggert. Mr. Stumpf.
    Mr. Stumpf. I will also add a couple of things to that.
    We have talked about mark-to-market accounting before, 
which has really destroyed capital in this industry. We think 
things have intrinsic value that are very different from the 
market clearing value, and we have to write those things down. 
Also, the way we do reserves for loans in our industry. We 
reserve at the time when we are least able to afford to do it. 
It is procyclical. That is not particularly helpful.
    One thing that the chairman is actually helping on is this 
FHA foreclosure issue. We have a very difficult time. Ten 
percent of all the loans we service are FHA and VA loans. They 
are almost impossible to restructure. And again called the 601 
program. So there are a number of things like that will be 
helpful.
    But I think at the end of the day serving more customers, 
helping them and partnering with you and Congress to create 
jobs in the public sector and private sector, neither of us can 
do this alone, is the real key.
    Mrs. Biggert. Well, if you were in my shoes and you were 
sitting up here, and your customers were as angry as some of my 
constituents, what would you tell them? What would you do if 
you were here? What would you do to help them restore their 
confidence?
    We want to do the right thing, and so far we have tried so 
many things, and it really hasn't worked. Are we doing too 
much? Should it be more of the free market? Are we doing too 
little?
    If you have just one or two things that you think that the 
Congress should add to our repertoire to see if we can solve 
this problem. I know you have been here a long time.
    Mr. Lewis. Well, I will begin. I don't know if I know all 
the answers. Obviously, I don't.
    But you are soon to pass the stimulus package. There is 
some quick hits which will help immensely. The modification on 
mortgages is incredibly important to get that in the TARP 
package. And then, thirdly, we have to keep mortgage rates down 
so that we can continue to have refis, which are, in essence, a 
kind of a tax break.
    I think over time with those three things you are going to 
have an impact on the economy.
    Mrs. Biggert. How many of you think we should do away with 
the mark-to-market?
    Anybody else? Just one? That is interesting.
    Mr. Stumpf. I should say don't do away with it. When 
markets are not functioning, it is no longer mark-to-market. It 
is mark-to-craziness. We ought to look to a different mark-to-
cash flow then when those markets are not functioning. There is 
nothing wrong with the mark-to-market per se.
    Mr. Lewis. I would agree. Extraordinary times like this, 
there should be another alternative.
    Mrs. Biggert. You know, I hear from so many customers of 
yours that they can't get to the lender. Or, if they do, they 
talk to somebody, then they get somebody else, and it goes 
around in a circle. I would hope that you would make sure that 
these people really get answers to their questions and see what 
you can do to help them. But it sounds like--are things 
improving? Do you see any ray of sunshine that we are going to 
solve this?
    Mr. Blankfein. The credit markets have been improving 
steadily.
    Mrs. Biggert. Thank you.
    The Chairman. Your time has expired.
    But if I can get the indulgence, I was distracted. I 
distracted myself. Nobody's fault.
    Mr. Stumpf, you talked about the FHA/VA issue. Would you 
give me that one again?
    Mr. Stumpf. About 10 percent of the loans that we service 
are FHA and VA, and these are sometimes for new home buyers and 
so forth. The way the loan works, we make a loan, the 
government guarantees it, they get a guarantee fee, and the 
asset goes into a Ginnie Mae pool. And whatever the customer 
pays us a month is indifferent. We have to pay the pool for the 
full amount of the mortgage, and we can't restructure.
    The Chairman. I would ask you to--
    Mr. Stumpf. It has been very helpful.
    The Chairman. I will say this. With regard to the 
bankruptcy, which I know many of you don't like, but we did do 
a separate piece to that so that in cases of FHA or VA the 
government would take the hit and not the owner.
    Mr. Stumpf. I understand.
    The Chairman. But we should be able to work it out short of 
that. Please be in touch with our staff, and we obviously want 
to be helpful--
    Mr. Stumpf. You have been wonderful in that.
    The Chairman. --and unravel all that. Thank you.
    The gentleman from Indiana.
    Mr. Donnelly. Thank you, Mr. Chairman.
    I have the privilege of representing Elkhart, Indiana, 
which is where President Obama went about 2 days ago. And what 
has happened there is that the credit has completely 
disappeared so they can't do floor plan financing and that 
consumers can't buy the recreational vehicles that are made; 
and, consequently, unemployment has gone up to 15.3 percent.
    And I know--I heard Mr. Lewis--I know you don't want us in 
the banking business; and, believe me, we don't want to be in 
the banking business. But until we get to the other side--when 
the folks in Elkhart and the rest of my district come back home 
from work, and they are not sure if the place is going to be 
open the next week, with the factory they are working, and some 
of their money comes out of their paycheck for TARP, they just 
want to know that there is going to be good judgments made with 
it.
    And I know some of the stuff you want to tear your hair out 
when you read it as much as we do. But what we need you to do--
and I know that you want to achieve this as well--is that our 
great generals like Omar Bradley and them, they always made 
sure that the troops were bedded down and that everybody was 
fed before they were fed.
    Mr. Stumpf is the one who talked about a culture of values 
and leadership. And we really need you guys. I know that is 
your goal, too, to do the same thing. So that when you see some 
of this crazy stuff--
    I mean, look at it from my perspective back home in 
Indiana. If you look at it from that instead of Wall Street and 
you look at something and you go, this would be crazy to the 
folks back home in Indiana, please don't do it. Because when 
that happens it makes it much tougher to try to get them to 
understand why the second part of TARP is needed.
    So you are absolutely critical to the success of this 
country. If things don't work with your banks, it is going to 
be awfully tough. So we are in this together, and we are 
counting on your good judgment as we move forward. And I hope I 
am looking at three, six, eight or more Bradleys over on the 
other side of the table.
    The other thing I want to ask you is this. And, Mr. Stumpf, 
again you said we want to work with companies if we possibly 
can.
    I have small businesses back home. That is the heart and 
soul of my district. They have lines of credit, and they are 
based on hitting certain profit numbers, inventory numbers, all 
of those things, and it is tough right now, and some of those 
numbers may be a little bit off. And they have come to me and 
said, ``Hey, Joe my number is off; they are going to call the 
line.'' They have made every payment, but their ratios are off 
now.
    Does it make sense to try to work with those companies? I 
mean, that is one of the toughest things we have back home, is 
good companies, still profitable, but their ratios are off a 
little. Can't we work with them?
    Mr. Stumpf. I think the answer is absolutely yes. And I 
think I believe in our company's case we have stuck by our 
customers during the difficult times.
    Every situation is different. Not every customer is created 
the same, not everyone has the same possibilities and 
opportunities and so forth, but to the extent that we can and 
balance it off with safety and soundness for all of our 
customers and for our stockholders that is where the secret 
sauce is.
    Mr. Donnelly. We heard Mr. Hensarling. We don't want to 
make loans to people who can't pay them. But to people who can 
and are going through a tough time now, just like your banks 
have, they want to come out the other side just as well. They 
will sell their car to make the payment to the bank. And so I 
would encourage all of you to stick with them and to try to 
work with them.
    The other thing that we found back home is what you talked 
about, that some of the companies, nonbank, that used to be 
there are no longer there. Financing for RVs was primarily done 
by GE Financial and Textron and Key Bank. All three are gone. I 
mean, not gone technically gone, but they have pulled out of 
the market.
    So you have companies that have worked nonstop and they 
look up and all the companies they have worked with have said, 
we are not into this anymore; you know, this doesn't interest 
us. That makes it extraordinarily difficult to conduct your 
business.
    So I just wonder if you have any ideas on how to fill that 
hole for those financial companies who are not around anymore. 
Mr. Lewis, I will ask you first.
    Mr. Lewis. I don't know a lot about the RV business, but we 
are looking for opportunities, and if they are good ones, then 
our point is make every good loan we can make.
    Mr. Donnelly. So there is money out there to be loaned 
then.
    Mr. Lewis. This not a question of liquidity. At least our 
company has never been this liquid in our history. This is 
about an issue of demand and the economy.
    Mr. Donnelly. I will bring you the demand, sir. Thank you.
    The Chairman. Thank you.
    I want to go back to Mr. Stumpf, because you were more 
right than I was, apparently, at the initiative that you 
brought to us. We have language in the bill that we voted out 
last Wednesday of this committee which we hope to get passed at 
some point which deals with that FHA/VA problem. So we do 
think, thanks to your good staff and mine, that we were able, 
working together, there was bipartisan agreement on that piece 
of it. There may be some objection--but as it came out of here 
that is in our whole service of piece, and that has been done.
    Mr. Stumpf. Thank you. You have been very helpful. I 
appreciate it.
    The Chairman. The gentleman from Illinois.
    Mr. Foster. Let's see, I have a couple of questions.
    The first ones have to do with stress testing going forward 
and the conditions under which you may or may not stay solvent 
and may or may not continue to exist. If you take the slightly, 
hopefully, significantly pessimistic but realistic assumptions 
of maybe 11 percent unemployment, 25 percent further decline in 
real estate prices and comparable problems in the commercial 
real estate, which a lot of people tell me are not that 
unrealistic, without being specific could one of you give an 
estimate of how many of the eight of you would still survive 
without a Federal cash infusion under those sort of pessimistic 
but realistic conditions?
    Mr. Mack. We would survive. I mean, we have a very high 
Tier 1 ratio. We have reduced our balance sheet dramatically 
from $1.1 trillion to a little less than $600 billion. We have 
taken our leverage from 32 times down to about 12\1/2\ times. 
It would be very painful and very upsetting if those numbers 
come true as you are saying, but we would make it.
    Mr. Foster. Do you regard those as unrealistic numbers, 
things that are very unlikely to happen or not?
    Mr. Mack. Well, I think some of those things can happen, 
especially in the commercial market you were talking about. I 
think we have not seen how difficult that can be, and it is 
just beginning. I do not think it will be at the same level or 
intensity of a downslide that we saw in residential, but there 
is a lot of pain to come in the commercial market.
    Mr. Foster. Then maybe I will try putting you on the spot. 
If you would give an estimate for how many of the eight would 
survive--without pointing. Don't look or point but just make a 
guess.
    Mr. Mack. I am not going to guess at that, Congressman.
    Mr. Foster. Is anyone feeling more brave? You are shaking 
your heads. You won't do it.
    Mr. Blankfein. I can speak for ourselves. We would survive. 
But the nature of uncertainty and given enough time and the 
unpredictability of markets, look where we are and look how we 
wouldn't have foreseen it. So you have to prepare that anything 
can happen, even things worse than that. And then we have to 
build in expectations, and that is the world we are in.
    On the other hand, at this point, given expectations are so 
low, it is worth pointing out the same way we have been in a 
bubble that is to the upside, we could very easily have been in 
a downward bubble. At this point, there is 100 percent of the 
world that is 100 percent pessimistic; and that may not turn 
out to be the case, either.
    Mr. Foster. Well, do you routinely game out situations like 
I described to say what is our survival strategy under these 
things?
    Mr. Blankfein. Yes.
    Mr. Foster. Everyone is nodding.
    Mr. Dimon. What are your numbers again?
    Mr. Foster. 11 percent unemployment, 25 percent further 
decline in real estate, and comparable problems in commercial 
real estate.
    Mr. Blankfein. That and beyond.
    Mr. Foster. And beyond. Okay, so you actually think about 
downside things.
    Mr. Blankfein. We do the math, and our regulators observe 
us doing the math.
    Mr. Foster. And have you in the past gamed out a 25 percent 
drop in real estate prices or was that just off your planning 
horizons?
    Mr. Blankfein. I am just not that conscious of it. But our 
plan, for example, in equity assumed a 50 percent drop in the 
equity market.
    Mr. Foster. As of a year ago, you were thinking in those 
terms?
    Mr. Blankfein. Absolutely. We look in terms of standard 
deviations and percentage moves, and, yes, they would be very 
extreme.
    Mr. Lewis. We had 30 percent decline in real estate prices 
about a year ago.
    Mr. Foster. So you saw this thing coming and were 
relatively quiet about it for quite a while.
    Mr. Lewis. No.
    Mr. Foster. You gamed out a survival strategy.
    Mr. Lewis. Right.
    Mr. Foster. That is different.
    The other question I have has to do with alignment of 
incentives. And my attitude on that is I was a small 
businessman for many years, and it is now rather successful. 
But for about 20 years, I carried an unlimited personal 
guarantee in order to get the operating loan. And so that means 
if our company went under, I lost my house and everything else. 
You gentlemen are not in that situation.
    And I was wondering, well, first off, have you ever heard 
of a compensation scheme that you think couldn't be 
circumvented is one question. When these things get suggested, 
I think the immediate thing--I know that--I certainly say, hey, 
you could game it this way or that way or the other way. Are 
you personally optimistic that if we chose to somehow limit 
compensation schemes that a way wouldn't immediately be found 
around it?
    Mr. Blankfein. Well, our goal isn't--the goal is we are the 
leaders of our firm. Our legacy is how well our firms do. We 
want to keep the alignment of our people with the fortunes of 
the firm. And we have suggestions for how to do this, 
especially as you climb up the letterhead and you get to the 
more senior people, paying people in relationship to how the 
whole company does and making them keep that payment, the bulk, 
in stock.
    Mr. Foster. But do you believe that has been done so far in 
the industry? I mean, I think there seems to be almost a 
consensus that there is a misalignment of incentives issue that 
is largely--
    Okay. I will give you follow-up written questions, 
actually.
    The Chairman. The gentleman will do written questions.
    I was very pleased with the gentleman's question about 
survival and your answers. But I am afraid that some time later 
in the evening, I am going to be seized by the image of the 
eight of you standing up singing, ``I will survive,'' and I 
hope that I am not.
    The gentleman from Indiana.
    Mr. Carson. To add on to my colleague's point, as you know, 
this committee will address the issue of moral hazard and 
regulatory reform in the coming months. Some of the reform 
provisions mentioned by Chairman Frank for this legislation are 
critically important in my view because of the incentivized 
high-risk behavior within this particular industry that helped 
fuel the market downturn, as we know.
    While we looked for your companies to exhibit tremendous 
leadership in this crisis, to Congressman Donnelly's point, we 
heard reports of bonuses and acquisitions and sponsorships and 
so forth. As you all know, the public--to Donnelly's point--I 
am from Indiana as well--the public doesn't believe that you 
guys have learned from your errors. And before you answer, keep 
in mind that over 100,000 Hoosiers lost their jobs last year, 
and much of the TARP assistance will be paid for in part by my 
constituents.
    Now, the question for me becomes I want to know how--what 
specifically will your companies do to better monitor internal 
risk assessments and reform your compensation policies?
    Mr. Mack. Well, Congressman, in our case, on the risk 
assessment, we have just completed a risk assessment with an 
outside consultant working with our audit committee. We have 
enhanced our credit risk controls and market risk controls. I 
think we have added an additional 67 people since about 6 
months ago. So we are very focused in looking at risk, how we 
manage risk, how do we learn from mistakes we have made.
    On compensation, the thing that we have introduced is a 
clawback. One of the things that has frustrated me is that 
oftentimes you come to year end, you pay someone on record 
revenues for their area, only to find out 3 months later or 6 
months later that position ends up losing money. So we have a 
3-year clawback.
    And I think as we look at our business all of us are going 
to try to figure out how do you continue to tie performance 
compensation to the overall firm and making sure that people 
are vested in the firm on a long-term basis, not year to year. 
I think that is the goal of all of us to do that.
    Mr. Carson. Thank you, sir.
    The Chairman. The gentlewoman from California.
    Ms. Speier. Thank you, Mr. Chairman.
    Thank you, gentlemen, for your testimony today.
    Mr. Blankfein, there is a question I wanted to ask you for 
months. In September, when Secretary Paulson and Chairman 
Bernanke met that weekend and made the decision to save AIG and 
to allow Lehman Brothers to fail, and I think Bank of America 
picked up Merrill at that point, there was reference made to 
the fact that you were there. And there were subsequent 
discussions as to whether or not Goldman Sachs was a 
counterparty. And, if so, I would like to know how much money 
you received back from AIG for credit swaps.
    Mr. Blankfein. First of all, AIG was a big counterparty. 
Many firms were a counterparty.
    I said--in response to another question, I pointed out that 
we had no credit exposure to AIG because we had a collateral 
arrangement and credit mitigant bonds. So we had no exposure to 
AIG.
    As far as participating in meetings at the Fed, we are a 
very big advisory firm, we have particular expertise in 
financial institutions, and we were called by the New York Fed 
to lend assistance to try to look for a private market solution 
for AIG. This is following the Lehman Brothers weekend.
    Ms. Speier. All right. Thank you.
    The Congressional Oversight Panel has put out a chart that 
suggests that, for most of you, the taxpayers are now 
subsidizing you, that the value of the contract that was let is 
one now that is underwater. In fact, $78 billion worth of a 
subsidy.
    The question I have and I think the question a lot of my 
constituents have--in fact, I have gotten plenty of questions 
to ask you today, much like many of my colleagues--is if I am 
subsidizing you--I, the taxpayer--am subsidizing you to the 
tune of $78 billion because what we have loaned you is now not 
valued at the same amount, why is it I have to pay an interest 
rate for my credit cards at 18 or 20 percent? Why is it you can 
get money for 5 percent from TARP, and I am paying 18 percent, 
and I am subsidizing your business?
    So my question to you, each of you, is are you willing to 
reduce the credit card rates that you charge your customers as 
being a TARP participant?
    Mr. Blankfein. We are not in the credit card business.
    Ms. Speier. Mr. Dimon.
    Mr. Dimon. Every business has its own financial dynamics.
    Ms. Speier. I am just asking the question, yes or no.
    Mr. Dimon. The answer would be no.
    Ms. Speier. Okay. Mr. Kelly, you are probably not in the 
business, correct?
    Mr. Kelly. We are not, no.
    Ms. Speier. Mr. Lewis.
    Mr. Lewis. No.
    Ms. Speier. Mr. Logue.
    Mr. Logue. No, we are not in the business.
    Ms. Speier. Mr. Mack.
    Mr. Mack. We are not in the business.
    Ms. Speier. Mr. Pandit.
    Mr. Pandit. Case by case.
    Ms. Speier. Mr. Stumpf.
    Mr. Stumpf. No.
    Ms. Speier. So what is the interest rate you are charging, 
for those of you in the business on credit cards?
    Mr. Lewis. It is a range. It is a range of 9 or 10 percent 
to 20-something percent.
    Ms. Speier. To what, 27 pecent?
    Mr. Lewis. 20-something percent.
    Ms. Speier. 20-something percent.
    Do any of you believe that we should have a law in America 
that has a usury rate? Do you think there is ever a rate that 
is usurious, that is obscene, that shouldn't be charged, 36 
percent usurious? Could you answer that?
    Mr. Dimon. I think there should be a usurious rate, yes; 
and I believe there are by State. I mean, you can decide. I 
think it is a different number in different businesses, but I 
think there should be a usurious rate, yes.
    Ms. Speier. There is a GAO report that just came out in 
December of 2008, and it talked about the number of the biggest 
financial institutions both in size and in their bailout 
receipts and that they maintain revenues in offshore tax haven 
countries where there are no or nominal taxes and minimal, if 
any, reporting. According to the Department of the Treasury 
reports, the U.S. Government loses $100 billion a year in tax 
revenue from these tax dodges from all sources, including these 
firms.
    For instance, Citigroup claims 427 different overseas 
locations or tax jurisdictions, 90 in the Cayman Islands alone. 
And, by the way, you are receiving a 38 percent subsidy from 
the taxpayers right now.
    Morgan Stanley has 273 locations of which 158 or well more 
than half are in the Cayman Islands. Again, Morgan Stanley has 
about an 18 percent subsidy from the taxpayers right now.
    Are you willing to bring those offshore tax havens home to 
America?
    Mr. Mack. Congresswoman, I would have to give you the exact 
details and come back to you. I think a number of those are 
either partnerships or vehicles we have made structured for 
clients or structured for an offshore business. I cannot give 
you the complete answer, but I will give you the answer when I 
return.
    Ms. Speier. Thank you.
    The Chairman. The gentleman from Florida.
    Mr. Grayson. Thank you, Mr. Chairman.
    Gentlemen, I received over 500 e-mails from my constituents 
concerning this hearing. Let me read two of them to you.
    Barbara Ruffo of Winter Garden writes, ``One executive 
bonus could build one school. Imagine what all that bonus money 
could do.''
    Frank Kruszewski of Orlando writes, ``Put them all in jail, 
which is where I would be if I robbed a financial 
institution.''
    I would like to go back to Mr. Green's earlier question 
about where all the money went, and I would like to focus 
specifically on a deal the government made several months ago 
with Citigroup. I provided a copy of the Section 129 report on 
that deal, which, of course, you already have, to Mr. Pandit at 
lunchtime. So you have had several hours to examine the details 
of the deal itself. Let us talk about where all the money went.
    Mr. Pandit, that was a $306 billion deal, correct?
    Mr. Pandit. $301 billion, Congressman.
    Mr. Grayson. Well, let us take a look at page 3 under 
heading number 2. Treasury and the FDIC also have agreed to 
share with Citigroup losses on a designated pool of up to $306 
billion in primarily mortgage-related assets. What is the 
difference here? 301? 306?
    Mr. Pandit. 301 is the number, Congressman.
    Mr. Grayson. Well, you know, a billion here a billion 
there. Soon you are talking real money, Mr. Pandit.
    Mr. Pandit. I understand. I just want to make sure that we 
are speaking of the same number.
    Mr. Grayson. All right. Now, in this deal, Citibank took 
the first $29 billion in losses, and then the taxpayers take 90 
percent of the remainder, is that correct?
    Mr. Pandit. The first $30 billion of the losses and then 
Citigroup takes the remaining 10 percent.
    Mr. Grayson. Well, further down in that paragraph, which we 
have extra copies of if anybody wants to see it, it says, under 
the terms of the guarantee arrangements, Citigroup will first 
bear responsibility for any losses on these assets that exceed 
the company's current reserves and marks up to a maximum of $29 
billion. Do you see that?
    Mr. Pandit. I do. The number is $30 billion, Congressman.
    Mr. Grayson. Are you saying the number 29 is the number 30?
    Mr. Pandit. The only thing I will say to you is that this 
was put out--I don't know when this was put out. But what I do 
know is we finalized the terms of this thing with the Federal 
Reserve Bank and the government I think about a month ago, and 
some of those things did change. I just wanted to bring that to 
your attention.
    Mr. Grayson. Well, the bottom line--you can correct me if 
I'm wrong, Mr. Pandit--that the government has assumed 
liabilities here for this designated pool that amount to $250 
billion more or less, isn't that correct?
    Mr. Pandit. Congressman, we bought insurance from the U.S. 
Government. We paid a little bit more than $7 billion for 
buying insurance. That allowed us to take the first $30 billion 
of losses and then 10 percent of losses after that.
    Mr. Grayson. You call it insurance, but that word does not 
appear anywhere in this document, does it?
    Mr. Pandit. You did give this to me at lunch. I have to 
apologize. I didn't get the time to read it that carefully, but 
it was insurance.
    Mr. Grayson. So the government gets $7 billion in preferred 
stock, and the government is on the hook for $250 billion in 
losses, is that correct?
    Mr. Pandit. We are on the hook first for the losses we 
talked about; and the $7 billion of insurance is for losses 
beyond that, not unlike every other insurance contract. Whether 
you buy insurance on your house, your car, you know, you pay 
insurance premiums. You are on the hook for your deductible, 
and then, of course, the insurance company is liable for the 
value beyond that.
    Mr. Grayson. You tell me, Mr. Pandit, where I can get a 
deal like this, where I can get $250 billion in insurance, as 
you put it, for toxic assets that barely have a bid in the 
marketplace and only pay $7 billion for that. You tell me where 
I can get a deal like that.
    Mr. Pandit. Congressman, the only thing I will say to you 
is that these aren't necessarily toxic assets at all. The 
government has gone through these assets very carefully. They 
have gone through what the expected losses might be on this. 
They did their work. And I think that is an important aspect 
that is not in this document.
    Mr. Grayson. Well, if it turns out that they are not truly 
toxic and there is an upside, who gets the upside?
    Mr. Pandit. The losses and the profits are netted on this 
pool, off assets, and if there are profits beyond that, they 
are Citi's profits.
    Mr. Grayson. Right. So you get 100 percent of the upside 
and the government gets 90 percent of the downside, correct?
    Mr. Pandit. That is what the insurance contract is designed 
to do.
    Mr. Grayson. Have you heard the phrase, Mr. Pandit, 
``Heads, I win; tails, you lose?''
    Mr. Pandit. I appreciate that, Congressman. I don't think 
it applies here.
    Mr. Grayson. Is this on your balance sheet, this 
arrangement?
    Mr. Pandit. Yes, it is, Congressman.
    Mr. Grayson. Do you know if it is on the Federal Reserve's 
balance sheet they are responsible for $234 billion of losses? 
Do you know if the Federal Reserve put it on its balance sheet?
    Mr. Pandit. Congressman, I couldn't tell you. I think there 
is--some of this is with the FDIC. Some of this is with the 
Treasury. Some of this is with the Federal Reserve. I don't 
know the exact details. I will be happy to get back to you.
    The Chairman. The gentleman's time has expired.
    The gentleman from Connecticut.
    Mr. Himes. Thank you, Mr. Chairman, and thank you to all of 
you for appearing before this committee today.
    You are on the hot seat today and rightly so. And I am 
pleased that many of you to a lesser or a greater extent have 
acknowledged that your institutions took risks that might be 
charitably characterized as imprudent. But, of course, you are 
a part of the problem.
    We find ourselves where we are today as a result of a 
willing suspension of disbelief by lenders and borrowers around 
the world and as a result of a massive failure of our 
regulatory apparatus. I am not sure we can legislate against a 
willing suspension of disbelief, and we will see whether we can 
recraft a regulatory structure that makes sure we never find 
ourselves here again.
    So that brings me back to the question of risk and really 
the heart of two questions that I have. We will get less 
involved I think to the extent that risk resides with those who 
take that risk, to the extent that you all and your 
organizations eat your own cooking. And I get really interested 
in ways that we can make sure that is true.
    I have heard a lot about compensation. I will just ask this 
question because I want to get on to a different question. Are 
any of you unwilling to affirmatively commit to this committee 
that you will research, consider, and implement compensation 
structures that reward your people for good, long-term value 
creation and that guard against taking excessive risk?
    Let the record show that nobody is raising their hand.
    Mr. Mack. We will.
    Mr. Himes. Mr. Mack.
    Mr. Mack. Yes.
    Mr. Himes. Okay. Thank you.
    On to another topic I am very interested in. In the spirit 
of eating your own cooking, mortgage brokers issuing more 
underwriting, issuing mortgages and then bearing no risk, 
people underwriting IPOs that 2 years later crater 
securitizations, that find their way through a long chain of 
ownership but the original underwriters bear no consequence for 
their ultimate failure.
    My question--and let me start with Mr. Pandit, as a very 
large issuer of securities and lender. What if we started 
thinking about asking issuers of securities, whether we are 
talking about underwriters of IPOs or mortgage brokers issuing 
mortgages, to retain a very small top loss position, an equity 
position, if you will. And I know that will cut liquidity in 
lots of markets, and I know that will put a burden on your 
capital. But I am okay with that as a matter of principle, 
given where we are. As an idea, good, bad, should we pursue it?
    Mr. Pandit. Congressman, there are established markets with 
established standards and established protocols; and then there 
are markets that are newer.
    You talk about the mortgage market. Owning part of what you 
originate is one solution. There are lots of other solutions. 
Those solutions could be around regulation. It could be around 
standards that you impose on origination. I think we should 
look at the whole package and then come to a decision, but we 
do need to do something to change the structure that was in 
place.
    Mr. Himes. Thank you.
    And let me open this up. Is there any good reason why we 
shouldn't--and by ``good reason,'' I mean a reason that would 
put taxpayers at risk in the future--look at structures which, 
if you put together a massive securitization, fine, sell 98 
percent of it, retain 2 percent; if you underwrite an IPO, 
fine, sell 98 percent of it, retain 2 percent. Is there a good 
counterargument against that kind of thinking?
    Mr. Mack. Well, if you were in a market--let us go back to 
the Internet boom that we had in the mid-1990's all the way up 
into 2000, 2001. The volume of new issues that came from banks 
and Wall Street would have been so large that I think you would 
put a burden on balance sheets if you had that 2 percent 
retention.
    Clearly, in a market when volume is very low, that would 
not be an issue. Oftentimes I think the focus should be much 
more on the diligence, the due diligence that is done other 
than retaining it. And also there are today, I think SEC, when 
we price a new issue, we have to distribute it. If we hold it 
back, we can hold it back, but it is for sale and not to be 
retained on a permanent basis.
    Mr. Himes. Thank you, Mr. Mack. That is a fair point. But I 
think your Internet example is a good one. I might suggest--and 
I would ask if you agree--that perhaps, given what happened to 
the Internet underwritings, perhaps that is not the best 
example. Perhaps if there had been a retention of some top loss 
position, volume would have been down, but perhaps risk would 
have been reduced.
    Mr. Mack. Well, in many of the companies that we 
underwrite, and not only are we doing the equity deal but we 
have loans to them, we are very much involved. This is not 
price an issue and walk away from it.
    So I would say there are better ways. I think Mr. Pandit 
was right. I think you need to look at a number of ways in how 
to ensure that when we do underwritings we are bringing you 
something that has really been scrubbed down, is a viable 
business or concept. There is no simple way of doing it. But I 
think we need to look at the whole package and how can we do it 
better.
    Mr. Himes. Thank you.
    Mrs. Maloney. [presiding] The gentleman's time has expired.
    Mr. Bachus. Madam Chairwoman, it is my understanding that 
we are going to cut this hearing off at 5 o'clock. Is that 
correct?
    Mrs. Maloney. That is correct. And we have two more 
gentleman who wish to question--three.
    The Chair recognizes Mr. Peters for 5 minutes.
    Mr. Peters. Thank you, Madam Chairwoman.
    I have a question. I don't want to belabor this, because 
you have all heard from many Members of Congress already 
talking about the inability to get credit in their respective 
districts all across the country.
    But I represent the State of Michigan, and I am going to 
follow up a little bit on a colleague of mine who talked about 
this problem that I am hearing constantly from my constituents, 
is that we understand that credit is tight all over the 
country, but there is a feeling from people in Michigan--and 
Michigan, in particular, because we lead the country now in the 
unemployment rate, as well as the problems with the auto 
industry--that loans, in particular from money center banks, 
are simply not available to small businesses. And the 
businesses that could get credit in the past, even if they can 
get it, it is at prices that simply just make it unaffordable.
    I don't expect detailed answers now, but I know, Mr. Dimon, 
Mr. Lewis, you have substantial operations in Michigan. Maybe 
first off, is there a basis for that, that your lending 
operations in Michigan are less than other States? And would 
you be willing to provide me with actual numbers that would let 
me go back to my constituents and say that Michigan is not 
being singled out, Michigan is not a State that is a more 
difficult place to do business, therefore leading to the spiral 
downward that we are experiencing in our State?
    Mr. Lewis. Well, first, absolutely, redlining or whatever 
you want to call it, it is not the case. We want to make every 
good loan anywhere we can make it. Obviously, if you lead the 
Nation in unemployment, then we will be lending less there than 
we would somewhere that had a better employment rate. But our 
attitude toward Michigan is no different than any other State. 
We want to make every good loan we can.
    Mr. Dimon. Yes, I agree with Mr. Lewis. We look at loan by 
loan, industry by industry. There is no redlining of a State. 
We do a lot of business in Michigan, and we have a deep 
appreciation of how difficult it has been there. And we also 
have enormous exposure to the car companies, the auto 
companies, auto finance in Michigan today.
    Mr. Peters. Well, I want to follow up on that. And I 
appreciate both your comments, but is it possible to get 
numbers so I can just get a sense of how the loan volume is 
different in Michigan than other States? Would you both be 
willing to provide that information?
    Mr. Dimon. I would be happy to do that, yes.
    Mr. Lewis. Yes.
    Mr. Peters. Mr. Lewis, as well. We will follow up on that.
    I want to get back to the auto industry, because obviously 
we have a very strong concern in the auto industry. And, 
surely, the impact of the credit crisis has hit the auto 
industry more than most industries, and the repercussions could 
be dramatic, not just in Michigan, but all over the country. 
Millions of jobs are at stake.
    But also, if you look at the recovery of the economy, there 
isn't anything that is more powerful a stimulus in the economy 
than to get people buying automobiles, get the auto industry 
going. It has picked this country out of many recessions in the 
past, has the potential to do that again if managed well.
    And you know that right now we are in a very precarious 
situation. In fact, the auto companies will come back to this 
committee on February 17th with their viability plans, and a 
part of those plans have to be plans that they have made with 
the stakeholders, both labor as well as the creditors.
    How many of you are creditors to the auto industry, have 
substantial loans or substantial debt instruments of some form 
or another?
    Basically all of you, except Mr. Stumpf. Everybody has it. 
Well, then, how many of you have received proposals from the 
auto companies?
    Mr. Mack. When you say proposals, requests?
    Mr. Peters. Proposals from the auto companies to 
restructure that debt, which, as you know, is a condition that 
has placed on it to have substantial concessions from debt 
holders to renegotiate that debt. How many of you have already 
received specific proposals from the auto companies?
    Mr. Mack. Congressman, I would have to check. We have a 
very active dialogue with the auto industry. And I will check 
when I am back and let you know exactly.
    Mr. Peters. I would appreciate that.
    Mr. Lewis. We are actually advising one of the companies on 
doing that. So we are in the middle of the execution of that, 
of the conversion from debt to equity.
    Mr. Peters. You are currently in negotiations?
    Mr. Lewis. We are currently executing on the game plan that 
we advised on.
    Mr. Peters. Oh, okay. So you are really, definitely down 
the road. Given that we have 6 days left before this plan, so 
you feel pretty good at where you are, Mr. Lewis?
    Mr. Lewis. We feel the pressure.
    Mr. Peters. You feel the pressure.
    Any other gentleman as to where we are on that?
    Mr. Dimon. We have had conversations with some of the 
companies, but I am not up to date on them.
    Mr. Blankfein. The same.
    Mr. Peters. Because it is critical. And there is a sense, 
in some meetings that we have had, that some of the creditors 
to the auto industry may believe that bankruptcy is a better 
option. That is something that I have very strong feelings 
about, that bankruptcy is not an option for the auto industry, 
given the warranty situation and also given the cascade effect 
that could occur for auto suppliers and hundreds of thousands 
of jobs around the country.
    I want to get a sense, of those of you debtors to the auto 
companies, what is your sense? Are they better in bankruptcy? 
Or are you willing to step up to the plate and say, no, we will 
take considerable haircuts in order to save this industry, save 
these jobs, and get the American economy moving forward?
    Mr. Dimon?
    Mr. Dimon. Yes, I don't think it is an either/or. Okay? I 
think that all the things that need to be done need to be done 
whether it is in bankruptcy or not in bankruptcy. And I assure 
you, at the end of the day, it will cost us money; we will not 
make money on it.
    Mr. Blankfein. And there will be haircuts in either case.
    Mr. Dimon. In either case, there will be haircuts, yes.
    Mr. Peters. Is one worse than the other?
    Mr. Dimon. It depends on how they get structured.
    Mr. Peters. Okay. It is difficult to get financing in 
bankruptcy. It is going to be very difficult for these.
    Mrs. Maloney. The gentleman's time has expired.
    Mr. Peters. Oh, sorry. Thank you.
    Thank you, gentlemen.
    Mrs. Maloney. Congressman Klein is recognized for 5 
minutes.
    Mr. Klein. Thank you very much, Madam Chairwoman.
    And, gentlemen, it has been a long day. We understand that. 
It has obviously been a long number of weeks and months for the 
American people, which is why we are all collectively trying to 
get this right. And we appreciate the effort to get it right.
    As I was listening to your presentations this morning and 
reading some of the background material, if I sort of got the 
impression, the impression was that we are doing our part, we 
are trying. Some statistics show there is some lending going 
on.
    And I would certainly recognize and acknowledge right up 
front that you are all in different positions. Some of you are 
probably doing more than others. Some are deeper in a debt 
problem than others.
    But what is clear to me, and I think what you have heard 
over and over again today, is, throughout the United States, 
when we speak to people at the local level, it is not 
translating through. It is not translating through in the form 
of access to credit for businesses. It is not translating 
through in access to credit for consumers.
    I am from Florida, from south Florida, and I will tell you 
in a very dramatic way that there are some community banks that 
are certainly trying to do their best. There are some regional 
banks that are trying to help out with syndicates for lending 
and refinancing. But a whole lot of concern about the next 
round of problems is going to be real estate financing, 
shopping centers, office buildings, lots of things that either 
are getting called right now on technical defaults or their 
terms are up and they are being told you either have to put 
another $20 million into this thing or $1 million or $500,000 
into this or we are not even going to take up the loan or 
consider it. Other situations--and I know many of these 
borrowers. They are very credit-worthy people. They are being 
given packages that just don't make any economic sense.
    So I am expressing this because there is great concern in 
the greater economy once again. We have, already, problems with 
residential loans. We are now moving to the next round of 
understanding credit card debt. We are now talking about 
commercial loans and how this plays out.
    So there is this great concern, and I don't know what the 
answer is. And I am hearing that, yes, you are doing more. And 
I am speaking to our community bankers, and they are trying. 
And I am hearing about the tension between the FDIC and mark-
to-market issues and things like that. I am not hearing 
solutions. And I don't know where to take this conversation 
today to come up with some solutions.
    I also want to express--and I know some of you have said 
the idea of, well, we will give the money back. Maybe we didn't 
want it in the first place; we will give it back. Some of you 
expressed that.
    And I just want to point out that it is not just the TARP 
money. Many of had received great benefits with the Federal 
Reserve taking certain emergency actions. And those have been a 
bolstering on behalf of the United States and the taxpayers of 
the United States. So it is not just a question of we will 
write a check and then we are free of the concerns of the 
Federal Government. As taxpayers, we are all concerned about 
where this goes.
    So maybe to start out with Mr. Lewis, or if a couple of you 
just want to comment, where do we go with the connection, the 
translation of, yes, we are lending, but nobody seems to be 
feeling it in the smaller-scale businesses and the residential 
consumers, as well as even the larger commercial transactions 
that may be occurring, certainly in Florida. And I appreciate 
the gentleman from Michigan and other places around the 
country.
    Maybe, Mr. Lewis, if you can start.
    Mr. Lewis. Well, we seem to be looking for a very short-
term quick fix. And all of us, I promise you, would like it. 
And the last 19 months has been unpleasant for the economy and 
the American people. And I think a number of things have to 
happen before we start to see us getting out of this.
    And, as I mentioned, we have to be very focused on 
foreclosures. We have to get the housing prices to settle. We 
have to keep rates down on mortgages to keep the refi boom 
going. And we have to have this stimulus kick in to get the 
economy going and to create more demand and to get those 
marginal borrowers in better shape so that banks can lend to 
them.
    Mr. Klein. Do you believe that this is more a question of 
that there really aren't enough borrowers out there that are 
credit-worthy? Because I am hearing from many of them, ``We 
have a very strong balance sheet. I have had a relationship, 
banking relationship, with these lenders for many, many years. 
Things really haven't changed that much for me. But I am 
getting term sheets that come back that are just off the 
charts, and I can't do the deal, and it doesn't make any 
economic sense to do the deal.''
    Mr. Lewis. Yes, I can't say that we could test and be 
perfect in every case. But, obviously, with our desire to make 
loans, we are trying to be as accommodative as we can. Usually 
when we hear the individual situation, there is something 
around loan-to-value, something in that area, that causes it 
not quite to be just the FICO score, for instance, on an 
individual.
    But, again, the industry, at least in the big banks, are 
probably as liquid they we have ever been. We want to lend 
money, we have the capital, and so there is no reason to not 
make a good loan.
    Mrs. Maloney. The gentleman's time has expired. Congressman 
Maffei is recognized for 5 minutes.
    Mr. Maffei. Congratulations, gentlemen, you have reached 
the last questioner.
    I appreciate what all of you are saying. I do want to say 
that, you know, look, as a policy-maker, I am not sure if any 
of us care particularly about any of your individual 
institutions, but we want the system to go well. And, like my 
colleague from Florida and my colleague from Michigan, we have 
seen an awful lot of problems with the rubber hitting the road.
    I do want to say that I think some of the questioning that 
you have gotten that has been a little bit leading has sort of 
been unfair. Many of you are reformers in your field, frankly, 
and you have been, to some extent, held responsible for the 
sins of your corporate fathers. And I don't want to do that.
    But I am sure you can hear the frustration, and I am going 
to jump on the bandwagon in the same way, because, just like in 
Florida and Michigan and it seems many other parts of the 
country, people in my district are not seeing the benefits of 
the TARP program. If anything, they are having as difficult a 
time getting loans for everything from homes, small businesses. 
One bank not represented here I believe has probably frozen 
almost all the home equity lines of credit. And my district, my 
city, Syracuse, currently is, according to Forbes magazine, the 
second-best real estate market in the country. Our property 
isn't losing value because we never had the bubble so our 
bubble never burst.
    So I do want to ask you again--and I will start with Mr. 
Dimon, because you do have facilities in my district. But do 
you have any suggestions for either the Administration or us, 
in terms of how do we craft a TARP program that will lead to 
more loans on the bottom?
    I know the Federal Reserve says that you are loaning more. 
I am not saying it is necessarily your fault or anything. This 
is not normative. But what can we do to get more loans? You 
know, we are giving money to Wall Street; we need more loans on 
Main Street.
    Mr. Dimon. All right. So I will just start by saying you 
know we are continuing that project at Syracuse University and 
the technology center, and we are not stopping that because of 
this crisis or anything like that. That will lead to jobs and 
education in your wonderful city.
    Mr. Maffei. I am very excited about that, and I do think 
that it is exactly what we need in terms of the stimulus.
    Mr. Dimon. So I think something we mentioned before is that 
a lot of non-banks did pull out of the system. So we have this 
little dichotomy where it wasn't all banks who pulled. There 
was a little confusion on what TARP was going to do.
    I do believe, if we finish the stimulus package, if we 
finish the TALF, if Secretary Geithner finishes properly the 
mortgage financing, we finish the mortgage modification, we get 
some of these other programs in place, deeply understood, 
verify banks' balance sheets and capital--because I think that 
is the purpose of the stress test--and if we do it in a 
coherent, consistent, coordinated, intelligent way, it will 
work.
    It will not work if we don't deal with all these issues and 
it is not coherent, it is not consistent, it is not well 
thought through, it is not synchronized. It will not work that 
way. And we have been suffering a little bit with that in the 
last 6 months or so.
    Mr. Maffei. Mr. Lewis, you also have a lot of banks in my 
district. Do you have that same--
    Mr. Lewis. I agree with Mr. Dimon.
    Mr. Maffei. Okay.
    Mr. Pandit, Citi, the same thing, we have projects in my 
district that, frankly, seem as viable now as they were before, 
but they are having more and more trouble keeping their loan 
status. And some of those are Citi loans.
    Mr. Pandit. Banks are not the only institutions that have 
been lending money in the past. There have been finance 
companies, and also there has been funding that has been 
provided, loans that have been provided through 
securitizations.
    Mr. Maffei. No, I understand that. But how can we make up 
for the lack of the securitization market? In other words, how 
can our TARP funds help you make up for some of that? I am not 
saying that--right, the problem isn't you, necessarily, but it 
is a problem.
    Mr. Pandit. The finance companies are finding it difficult 
to fund themselves in order to turn around and make loans. The 
securitization market is basically not there in the form that 
it was before. And I will speak for ourselves too: If we had 
more funding, we would go around and make more loans.
    And the reality is the funding markets are very tight. 
Everything we borrow, we put out. Every deposit we get, we make 
a loan on. TARP capital we put out. If we had more availability 
of funding, we would make more loans too.
    Mr. Maffei. But would those loans reach, sort of, the 
street level? I mean, isn't it easier to do the bigger loans 
than the smaller loans? You know, a small family or a student 
in college, that is where I am missing it.
    Mr. Pandit. And we see a lot of demand out there. Even 
through discipline and all other rigors, there is still a lot 
of demand out there. There is a shortage of funding in the 
marketplace to make loans.
    Mr. Maffei. Gentlemen, thank you very much.
    I yield back the balance of my time.
    Mrs. Maloney. Thank you very much for your testimony.
    This hearing is adjourned.
    [Whereupon, at 5:02 p.m., the hearing was adjourned.]





                            A P P E N D I X



                           February 11, 2009




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


