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



 
                     A REVIEW OF TARP OVERSIGHT,


                   ACCOUNTABILITY, AND TRANSPARENCY


                           FOR U.S. TAXPAYERS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 24, 2009

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 111-5




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                 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 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
              Subcommittee on Oversight and Investigations

                     DENNIS MOORE, Kansas, Chairman

STEPHEN F. LYNCH, Massachusetts      JUDY BIGGERT, Illinois
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
JACKIE SPEIER, California            RON PAUL, Texas
GWEN MOORE, Wisconsin                MICHELE BACHMANN, Minnesota
JOHN ADLER, New Jersey               CHRISTOPHER LEE, New York
MARY JO KILROY, Ohio                 ERIK PAULSEN, Minnesota
STEVE DRIEHAUS, Ohio
ALAN GRAYSON, Florida
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 24, 2009............................................     1
Appendix:
    February 24, 2009............................................    29

                               WITNESSES
                       Tuesday, February 24, 2009

Barofsky, Neil M., Special Inspector General, Office of the 
  Special Inspector General, Troubled Asset Relief Program.......     4
Dodaro, Gene L., Acting Comptroller General of the United States, 
  Government Accountability Office...............................     6
Warren, Elizabeth, Chair, Congressional Oversight Panel, and Leo 
  Gottlieb Professor of Law, Harvard University..................     8

                                APPENDIX

Prepared statements:
    Moore, Hon. Dennis...........................................    30
    Bachmann, Hon. Michele.......................................    32
    Klein, Hon. Ron..............................................    34
    Barofsky, Neil M.............................................    35
    Dodaro, Gene L...............................................    40
    Warren, Elizabeth............................................    55


                      A REVIEW OF TARP OVERSIGHT,



                    ACCOUNTABILITY, AND TRANSPARENCY



                           FOR U.S. TAXPAYERS

                              ----------                              


                       Tuesday, February 24, 2009

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:41 p.m., in 
room 2220, Rayburn House Office Building, Hon. Dennis Moore 
[chairman of the subcommittee] presiding.
    Members present: Representatives Moore of Kansas, Lynch, 
Klein, Speier, Moore of Wisconsin, Kilroy, Driehaus; Biggert, 
Lee, and Paulsen.
    Chairman Moore of Kansas. This hearing of the Subcommittee 
on Oversight and Investigations of the House Financial Services 
Committee will come to order. Our hearing this afternoon is 
entitled, ``A Review of TARP Oversight, Accountability, and 
Transparency for U.S. Taxpayers.''
    We will begin our first subcommittee of the year with 
members' opening statements, up to 10 minutes per side, and 
then we will hear testimony from our 3 witnesses. After that, 
members will each have up to 5 minutes to question our 
witnesses. Without objection, all members' opening statements 
will be made a part of the record. I now recognize myself for 
up to 5 minutes for an opening statement.
    Five months ago, some Members of Congress were told by 
former Treasury Secretary Paulson that the financial meltdown 
was accelerating and we may not have an economy on Monday if 
Congress failed to pass the rescue bill.
    On September 29, 2008, the House first considered the 
Emergency Economic Stabilization Act, but the measure failed by 
a vote of 205 to 228. The DOW lost 777 points after the vote 
and we saw a loss of $1.2 trillion in the stock market. The 
Senate later added a number of unrelated tax provisions and 
approved the bill by a vote of 74 to 25 on October 1st. The 
House approved the Senate version by a vote of 263 to 171 on 
October 3rd, and it was signed into law by the President the 
next day.
    We are in a deep and painful economic downturn, the likes 
of which we have not seen in generations. The evidence is all 
around us and very clear. Just last month, our economy lost 
nearly 600,000 jobs and that is on top of the 2.6 million jobs 
we lost in 2008. But something we should remember, our 
financial sector must be stabilized and confidence restored 
before we see any economic recovery.
    ``Facts are stubborn things,'' John Adams once said, and 
there is no way around this fact. When Congress enacted the 
Emergency Economic Stabilization Act, the new law not only 
created a $700 billion troubled Troubled Assets Relief Program, 
commonly called TARP, we made sure to include strong oversight 
protections for U.S. taxpayers. This included the creation of 
the Financial Stability Oversight Board, the Special Inspector 
General for TARP, the Congressional Oversight Panel, and new 
audit and oversight mandates for the Comptroller General of the 
United States.
    I am pleased today to have three representatives of these 
TARP oversight bodies here to testify. Their work--and the work 
of their staff--has contributed to a number of reports totaling 
over 1,700 pages, all of which are available on the Internet. 
In fact, the Congressional Research Service has written a 21-
page paper explaining all the accountability reports required 
by the Emergency Economic Stabilization Act. In the words of 
the Project on Government Oversight early this month, ``The 
world would be a better place if all oversights were this 
aggressive.''
    In light of recent announcements by the Obama 
Administration regarding the use of TARP funds and their 
comprehensive financial stability plan, it is important that 
Congress ensure oversight organizations, understand their 
respective roles in the oversight process, cooperate with each 
other, and work to avoid repetitive efforts and inefficiencies.
    I hope today's hearing will help us identify any gaps, 
either in statute or regulation, that may exist with respect to 
the oversight of TARP and how we can better protect you as 
taxpayers in this effort.
    For example, the Senate has already approved S. 383, the 
Special Inspector General for the TARP Act. While this bill 
primarily deals with the Special Inspector General's office, 
the question is, would it improve the overall TARP oversight 
framework? What is the current status of your organization's 
hiring efforts and are steps being taken to avoid potential or 
real conflicts of interest, what oversight work is your 
organization currently focused on, and finally, does the 
oversight structure we are putting in place ensure that the use 
of TARP funds follows the clear principles laid out by 
Congress?
    In Section 2 of the Economic Stabilization Act, the stated 
purpose of the new law was to restore liquidity and stability 
to the financial system, as well as to ensure that these 
efforts: protect home buy use, college funds, retirement 
accounts, and life savings; reserve ownership; promote jobs and 
economic growth; maximize overall return to the taxpayer; and 
provides public accountability for the exercise of such 
authority.
    I look forward to hearing your testimony and discussing 
these important issues. My constituents are anxious and 
frustrated and they deserve the strongest oversight and 
structure that will provide the accountability the law 
requires. And I think probably every member of this panel feels 
the same way.
    I now recognize for 5 minutes the distinguished ranking 
member of the subcommittee, my colleague from Illinois, Mrs. 
Biggert.
    Mrs. Biggert. Thank you, Chairman Moore, and thank you for 
holding today's hearing. I look forward to working with you and 
all the members of this subcommittee during the 111th Congress.
    I welcome today's witnesses and thank them for sharing 
their expertise with us today. I really am disappointed, 
however, that the Department of the Treasury didn't produce a 
witness for this hearing. I believe, Mr. Chairman, that we are 
sending a letter to Secretary Geithner demanding an explanation 
of why a witness was not produced to testify at this hearing, 
and we would like our other colleagues to join us.
    Treasury has yet to answer critical questions about the 
trillions of taxpayer dollars being expended through TARP. 
Showing up with no answers is unacceptable, which has been the 
case in Treasury's most recent appearances before our 
committee, but not showing up at all is both disrespectful to 
the American people and an abandonment of duty.
    It is this lack of communication that has most angered the 
people who pay the bills, the American taxpayers. Granted, 
there is plenty of communication out there about the alleged 
misuse of TARP funds, lavish parties and corporate jets and 
expensive retreats, but what do we hear of TARP funds that have 
been put to good use. Not enough.
    It is no small wonder there is a lack of confidence in the 
program. American taxpayers trusted Federal leaders who asked 
them to front trillions of dollars to prop up the financial and 
auto industries on the verge of collapse and homeowners facing 
foreclosure, but they have questions that deserve answers. What 
is the strategy? Where has the money gone and is it working? 
What benchmarks have been set to determine success or failure? 
Are we throwing good taxpayer dollars after bad in this TARP 
program?
    It has been 5 months since the enactment of TARP and we are 
still waiting for answers. We still need evidence that TARP 
excludes unscrupulous lenders and bad actors. We still need to 
know that TARP funds aren't being sent to the same folks who 
are engaged in unsound lending practices that were the source 
of our problems in the beginning.
    I hope that today's witnesses can help us better understand 
what mechanisms Treasury needs to put in place to weed out bad 
actors and not reward bad behavior.
    My constituents are sick and tired of bailouts. They paid 
their mortgages on time, they have saved and invested for their 
future, they worked hard and paid their bills and taxes. Now 
they continue to see Federal money fly out the door and they 
want answers.
    Granted, we all understand that many people face 
foreclosures due to traditional reasons: loss of a job; death 
in the family; or medical issues. Some were the unfortunate 
victims of loose lending standards and predatory lending, but 
there are many homeowners who overextended themselves, couldn't 
afford their home even with Federal assistance, lied about 
their income on the loan application, flipped properties for 
profit, or were part of a mortgage fraud ring.
    Is it fair to take money from all the other homeowners and 
taxpayers to help this latter group of homeowners? I don't 
think so. It's certainly not fair to all of those Americans who 
are hardworking and working to make ends meet without a break 
or a bailout.
    I hope that today's witnesses can discuss the ways that the 
Administration should follow through with its commitment that 
TARP funds or any taxpayer funds be used solely for responsible 
homeowners.
    And what is the exit strategy? I don't know about everybody 
else in this room, but my constituents don't want the Federal 
Government--big brother--owning, operating and footing the bill 
for banks, auto companies, insurance companies and everything 
in between. America is not pro-socialism. We are pro-democracy 
and pro-free market.
    Additionally, our national debt is rising at an 
unprecedented rate and we cannot afford to pass down this 
burden to future generations of Americans. With that, I 
conclude and look forward to hearing from our witnesses.
    Chairman Moore of Kansas. Thank you, Mrs. Biggert.
    I'm pleased to introduce the witnesses we have for today's 
hearing. First, we have Mr. Neil Barofsky, the Special 
Inspector General for TARP, whom I had the pleasure to meet a 
few weeks ago. Prior to assuming his new position, he was a 
Federal prosecutor in the United States Attorney's Office for 
the Southern District of New York for more than 8 years and 
investigated cases of mortgage and securities fraud.
    Mr. Barofsky also led the investigation that resulted in 
the indictment of the top 50 leaders of the Revolutionary Armed 
Forces of Columbia on narcotics charges, a case described by 
the then-attorneys general, as the ``biggest narcotic 
indictment filed in United States history.''
    Next, we will hear from Mr. Gene Dodaro, the acting 
Comptroller General of the United States. In a GAO career 
dating back more than 30 years, he has held a number of key 
positions at GAO. For the last 9 years, Mr. Dodaro has served 
as the Chief Operating Officer, the number two leadership 
position in the Agency, assisting the Comptroller General and 
providing leadership and vision for the GAO's diverse 
multidisciplinary workforce.
    And finally, we are glad to have Professor Elizabeth Warren 
testifying before our subcommittee. Professor Warren is the 
chair of the Bipartisan Congressional Oversight Panel. She also 
serves as a law professor at Harvard University and has written 
8 books and more than 100 scholarly articles dealing with 
credit and economic stress.
    Without objection, your written statements will be made 
part of the record and you will each be recognized for a 5-
minute opening statement summarizing your testimony.
    We will start, Mr. Barofsky, with you, sir, for 5 minutes.

   STATEMENT OF NEIL M. BAROFSKY, SPECIAL INSPECTOR GENERAL, 
OFFICE OF THE SPECIAL INSPECTOR GENERAL, TROUBLED ASSET RELIEF 
                            PROGRAM

    Mr. Barofsky. Thank you.
    Chairman Moore, Ranking Member Biggert, and members of the 
subcommittee, I am honored to appear before you today as a 
Special Inspector General for the Troubled Asset Relief 
Program, or as we call it, SIGTARP.
    Approximately $300 billion has already gone out the door 
and including the recently announced programs, Treasury intends 
to leverage the total TARP allotment, with the Federal Reserve 
and others, to fund at least 8 separate programs under the TARP 
involving more than $2.8 trillion. These huge investments of 
taxpayer money will invariably create opportunities for fraud, 
waste, and abuse and will require strict oversight.
    To meet this massive oversight challenge, I have focused 
SIGTARP on three areas: transparency; coordinated oversight; 
and enforcement.
    Transparency has been an area of focus of my office from 
day one. The adoption of our early recommendations has resulted 
in all the TARP agreements, a commitment from Treasury to post 
all the TARP agreements onto the Internet, and the two largest 
recipients of TARP funds are being required to report on their 
use of TARP funds.
    We have also initiated four separate audits: First, into 
TARP's recipients' use of funds; second, into executive 
compensation; third into the impact of outside influences, such 
as lobbyists on the TARP application process; and fourth, into 
the circumstances under which Bank of America received $45 
billion in cash and commitments to a $100 billion of asset--of 
guaranty of toxic assets under three separate TARP programs and 
four separate transactions. We believe that these audits and 
these initiatives will shed light into some of the darkest 
areas of the TARP.
    As to our second area of focus, coordinated oversight, it 
is my honor and privilege to appear today with my co-panelists. 
For the last 2 months, we have closely worked together to 
coordinate oversight and provide maximum oversight coverage of 
the vast terrain of the TARP. I have also founded and chair the 
TARP IG Council where, along with GAO, we coordinate oversight 
among the other inspectors general who cover TARP and TARP-
related programs.
    We have also tried to have a positive impact on TARP 
programs before the money goes out the door. Treasury has 
adopted several of our recommendations for TARP agreements 
under the auto finance, targeted investment, and asset guaranty 
programs and we are actively working with Treasury in making 
similar recommendations with respect to the newly initiated 
programs that were recently announced.
    Our third area of focus is enforcement. Of the four primary 
oversight bodies set forth in the Stabilization Act, we alone 
stand as the TARP oversight body charged with criminal law 
enforcement, as the cop on the beat. To meet this challenge, we 
have developed key relationships with other law enforcement 
agencies. We have already opened several criminal 
investigations and we have teamed up with the SEC in shutting 
down a multi-million dollar securities fraud scam in Tennessee.
    We are planning to set up regional and program-specific 
task forces around the country, both to deter criminal activity 
before it occurs and to make sure we have the right resources 
in place to investigate and prosecute any and all who try to 
criminally profit from this national crisis.
    Unfortunately, history teaches us that our law enforcement 
task will not be an easy one. When government offers 
assistance, whether for hurricane relief, Iraq reconstruction, 
or the savings and loan meltdown, criminals are drawn like 
flies to honey. If by percentage terms some of the estimates of 
fraud in those programs are repeated in the TARP, we are 
looking at literally hundreds of billions of taxpayer money 
lost in fraud. We must be vigilant.
    And while I believe that SIGTARP is effectively 
establishing a framework that will permit us to meet our 
oversight obligations, we face serious challenges, particularly 
with respect to identifying and recruiting the highly trained 
and experienced government investigators and auditors that will 
be necessary to fulfill our mission.
    We desperately need more hiring flexibility, the type of 
which is contained in S. 383. This bipartisan bill, unanimously 
approved in the Senate on February 4th, would give us a limited 
version of some of the authorities that other startup inspector 
generals have told me were absolutely essential in standing up 
their offices.
    The TARP program has changed significantly since the 
Stabilization Act was passed last October. Originally intended 
to purchase and manage $700 billion of toxic assets, that 
effort now stands as just a portion of one of the 8 programs 
under the TARP and just 25 percent of the total of $2.8 
trillion that are contemplated to be involved. Quick passage of 
this important and essential legislation will help me build the 
necessary core of my office to meet this challenge.
    Chairman Moore, Ranking Member Biggert, members of the 
subcommittee, I commend you for your efforts to ensure proper 
oversight over the trillions of dollars being expended under 
the TARP and its related programs and I look forward to 
answering any questions that you may have.
    [The prepared statement of Mr. Barofsky can be found on 
page 35 of the appendix.]
    Chairman Moore of Kansas. Thank you very much, Mr. 
Barofsky.
    And next, Mr. Dodaro, you are recognized for 5 minutes, 
sir.

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

    Mr. Dodaro. Good afternoon Mr. Chairman, Ranking Member 
Biggert, and members of the subcommittee. I'm very pleased to 
be here today to assist your efforts to provide oversight over 
the Troubled Asset Relief Program.
    GAO has a number of responsibilities under the legislation, 
the first of which is to report every 60 days to the Congress 
on our oversight efforts of Treasury's implementation. Since 
the Act was passed on October 3rd, we have issued two reports 
to comply with that mandate.
    The first report was issued on December 2nd, and we 
provided testimony before the full committee on that report 
back in December. We issued our second report on January 30th. 
In both of those reports, we focused on a series of 
recommendations to improve the accountability and the 
transparency of the TARP program. Our recommendations fell into 
three main categories.
    First, in our first report, we pointed out that Treasury 
did not have a process in place to monitor and report on the 
use of the funds under the Capital Purchase Program. We thought 
that this needed to be rectified. We made a recommendation. As 
a result of our recommendation, Treasury issued a monthly 
survey now to the 20 largest institutions receiving funds under 
the Capital Purchase Program and the results are starting to 
come in about their overall lending practices, thereby 
providing a bit more transparency to the process.
    We believe, however, that is not enough. We think that all 
participating organizations should be reporting on a monthly 
basis their lending activities and how the funds are being used 
consistent with the purposes of the legislation. I would note 
that in Treasury's most recent articulation of their plans 
going forward, they embodied our recommendation in there to 
provide and solicit a plan ahead of time from the agencies that 
would receive money in the future under the Capital Assistance 
Program and to provide monthly reports back on lending 
practices. We hope that they implement that effectively for the 
second half of the TARP program.
    The second major area has been communication strategy. Now 
this program has been plagued with communication problems from 
the outset. Communications were poor initially in describing 
the change from the purchase of the toxic assets moving to the 
Capital Purchase Program. We recommended that Treasury improve 
its communication strategy with the Congress and other 
stakeholders. They have taken a number of initiatives to do 
this.
    In our last report in January, we recommended that they 
articulate a coherent vision for the TARP program going 
forward. Earlier this month, the Financial Stability Plan was 
announced and also the homeowners' program was announced in 
terms of preserving homeownership and stability in that area as 
well, but there are a lot more details that need to be 
articulated for people to understand exactly how those programs 
are going to proceed.
    I think the idea of doing the stress test at the banks was 
a good idea, but there are a lot of details, both on the 
financial stability plan, as well as the homeownership 
affordability and stability plan as well. So we plan to 
continue monitoring Treasury's efforts to continue to 
articulate the strategy.
    The last category of recommendations that we had was in 
Treasury's management of the program. In hiring, we suggested 
they expedite their hiring practices to stand up the program 
and they did provide a good transition between the 
Administrations, which was one of our earlier recommendations 
in December, but they still need to hire and standup the type 
of resources that they need.
    And they really don't have a plan yet on the total amount 
of resources they need, which is in part due to having a vision 
of how they are going to implement the program. We recommended 
that once that vision is put in place, they have a 
comprehensive human capital strategy to support that plan and 
to actually deliver results going forward.
    In the contracting area, we suggested that they have the 
right skills and people needed, provide training to them, move 
to fixed price contracts where they can away from the time and 
materials contracts that they invariably had to have up-front 
going forward, and we made a number of recommendations for 
internal controls and other necessary management tools that 
they need to have in place.
    Along with Mr. Barofsky and Ms. Warren, you know, I would 
like to compliment both of them publicly for the type of 
cooperation that has been at play here. GAO was right there at 
the beginning in October right after the Act was passed 
carrying out our responsibilities. As they came onboard in 
November and December, we set up effective coordinating 
mechanisms and I believe we are doing what we can to make sure 
we have adequate coverage to fulfill the responsibilities under 
the legislation.
    I would be happy to answer any questions additionally as to 
GAO's own efforts as well as some limitations on our authority 
at the Federal Reserve. So thank you very much.
    [The prepared statement of Mr. Dodaro can be found on page 
40 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Dodaro.
    Ms. Warren.

 STATEMENT OF ELIZABETH WARREN, CHAIR, CONGRESSIONAL OVERSIGHT 
  PANEL, AND LEO GOTTLIEB PROFESSOR OF LAW, HARVARD UNIVERSITY

    Ms. Warren. Thank you, Chairman Moore, Ranking Member 
Biggert, and members of this subcommittee. It's a pleasure to 
be here today.
    I am the chair of the Congressional Oversight Panel, but 
because I am not tightly scripted, I should remind everyone I 
speak, in that sense, on my own behalf and not necessarily the 
views of the Panel.
    I am very pleased to be here because of the important 
responsibility on this subcommittee and to try to help in any 
way that we can. I also want to start by echoing the remarks of 
Mr. Barofsky and Mr. Dodaro, that we are all working together. 
We are sharing information as much as we can, strategy as much 
as we can. We think there is plenty of work to go around and we 
are doing what we can to enhance each other's efforts rather 
than compete in any way.
    I just want to mention about the purpose of the 
Congressional Oversight Panel. I see our purpose at three 
levels. We are here to do oversight of the operation of the 
TARP, but also the direction in which Treasury is aiming TARP 
funds, and then in a larger sense, the broader efforts to 
restore stability to the financial system.
    The Congressional Oversight Panel is charged, by statute, 
with responsibility for reporting on Treasury's use of the TARP 
funds, the impact on financial markets, financial institutions 
and market transparency, whether foreclosure mitigation efforts 
are successful, and the long-term costs and benefits to the 
taxpayer. So far, we have issued three oversight reports and, 
as required by statute, a report on regulatory reform.
    All of these aim toward a central question and that is 
whether TARP benefits the American family and the economy and 
if it does not, why not and what kind of constructive 
suggestions can we make. This is what we come to you with.
    I want to give you one example of the Oversight Panel's 
approach, and that is with our valuation report. In our 
December 9th oversight report, we asked, among many other 
questions, whether or not the public, the taxpayer, is getting 
a fair deal for the money that is being infused into these 
financial institutions.
    On December 30th, then-Secretary Paulson responded to us by 
saying yes, these are investments, not subsidies, and they are 
made at or near par. We could have stopped there, but we 
thought it was appropriate to do an independent investigation 
pulling together recognized experts to be able to do a 
valuation of the transactions.
    In our February 6th report, we made that report public and 
what we discovered is that Treasury had substantially 
subsidized the banks to that point. They had paid about $78 
billion more than the value of the assets they received at the 
time of the transaction. This is not about subsequent declines 
in market, this is about on the day of the transaction. In 
effect, for every dollar of taxpayer money put into the 
financial institutions, on that date, we got back about 66 
cents in stock and warrants as they were currently valued.
    Now I want to be clear. There may be good policy reasons to 
subsidize the banks. That is an independent inquiry. But there 
is no good policy reason not to be honest about that, not to be 
forthcoming with the American people. Misdirection undermines 
the confidence of both the American people and the worldwide 
economies. So in this report, as in all of our reports, we 
return to our central themes of transparency, accountability, 
and a clearly articulated plan and strategy for executing that 
plan.
    Just to give you a preview of coming events, our March 
report will be focused on foreclosure mitigation efforts. We 
were very pleased to hear the President announce the Homeowner 
Affordability and Stability Plan last week principally because 
it shows the importance of dealing with the mortgage 
foreclosure problem as a central element in trying to pull this 
economy out of the ditch and get it back in an operational 
mode, but we are going to make, I think, two important points 
as we go forward in our report.
    The first will focus on the inadequacy of the current data, 
how little we know, in a factual sense, about what is going on 
in the mortgages themselves and particularly, in the loan 
modifications. And we want to make the point that if you don't 
have good data, it is hard both to analyze the problem with any 
specificity, design a solution that is going to meet that 
problem, and then evaluate whether or not the execution of that 
solution is really doing something useful.
    The second point we will be making in our report is that we 
are going to identify where many of the current obstacles are 
to reaching economically rational mortgage foreclosure 
mitigation. In other words, why aren't the workouts happening 
on their own? And to use that as a checklist for evaluating any 
proposal to deal with these foreclosures. It may help us 
evaluate whether or not those proposals are likely to be useful 
by zeroing in on where the problems are.
    I just want to say, by way of conclusion, nearly $350 
billion has already been spent in the 5 months since TARP was 
authorized by Congress. The themes that we have returned to 
time and time again in the Congressional Oversight Panel have 
been about transparency, accountability, and a strategy that 
comes from clearly articulated goals. This is the only way that 
we can maintain public confidence in this program and in our 
ability to solve our economic problems.
    Thank you again for having me here and I'm here for 
whatever questions you may want to ask.
    [The prepared statement of Professor Warren can be found on 
page 55 of the appendix.]
    Chairman Moore of Kansas. Thank you, Ms. Warren.
    As we have discussed before, Mr. Barofsky, I am very 
pleased your office has sent use of funds letters to every TARP 
recipient asking them what they have done or plan to do with 
the taxpayer's funds they have received. What is the status of 
those requests?
    Mr. Barofsky. Our requests had basically a 30-day deadline 
so they are due back in early March. We sent them over a course 
of 3 days in early February. So far we have actually had, I was 
told this morning, 17 responses. My audit chief describes them 
as good responses, meaning they have had substantive 
information.
    We have had a number of inquiries for clarification. We are 
going to be posting something shortly on our Web site, 
www.sigtarp.gov, some questions and answers to give guidance 
and clarification for those requests, for those banks that are 
in any way confused or seeking such clarifications. The ABA 
reached out to us and asked us to do that and we will be doing 
that. And we look forward to getting what we hope to be a 100 
percent response rate in early March.
    Chairman Moore of Kansas. And how many did you send out? Do 
you know, sir?
    Mr. Barofsky. It was the exact number of TARP recipients as 
of the date. I think it was a little bit over 350.
    Chairman Moore of Kansas. Thank you.
    Second question to you, Mr. Barofsky. As you know, the 
Senate recently approved S. 383, a bill expanding your Office's 
authorities as Special Inspector General for TARP. You 
expressed your support for the bill in your testimony. Would 
you explain the importance of timing in your work and why the 
House should act quickly on this bill. Why is that important?
    Mr. Barofsky. Our most significant challenge is hiring and 
the expanded hiring authorities in S. 383 are essential to us 
as we build our office. We are a temporary agency. We exist as 
long as the government holds an asset and while that may appear 
right now to be a long time, to attract government, highly 
trained government employees. And we need government auditors, 
we need government-trained investigators, and we need pretty 
sophisticated ones, at that, who have this type level of 
experience.
    The bottom line is that those who have that experience, 
particularly mid-career people, it is very difficult to recruit 
them into a temporary agency. I have had folks say to me, 
``Neil, what happens in 10 years? If your program is over, what 
happens to me and my career?'' And those are difficult 
questions to answer.
    These hiring authorities help us immediately address those 
questions. One, the ability to rehire annuitants. Those are, 
you know, highly experienced auditors, investigators who are 
retired and drawing a pension. And normally if they come back 
to government service, they have to have an offset for their 
pension. What the legislation does is gives us a waiver so they 
don't have to do so.
    This is a method about which I had talked to some start-up 
special inspectors general, Iraq reconstruction, Director of 
National Intelligence, and they have told me--they had blanket 
authority under this provision. And they told me it was 
absolutely essential of getting people in place and in place 
quickly. This bill gives us actually a much more modest form of 
that, only 25 slots.
    And then the second part is under part of the U.S. Code 
3161. That enables us to hire people, but they retain the right 
to return back to their Federal agency. So it helps answer 
those two questions.
    We can't hire untrained new entry level people. We don't 
have the time or luxury of time. We have $2.85 trillion to 
oversee and we desperately need to get a core group of 
investigators and auditors in as quickly as possible.
    Chairman Moore of Kansas. Thank you, sir.
    Mr. Dodaro or Professor Warren, would you care to make any 
comments on how the bill might positively or negatively affect 
the broader TARP oversight effort and do you have any concerns 
with the bill? We have about 1 minute and 30 seconds left. I'm 
going to adhere to the time limits we have, so please, if you 
would--
    Ms. Warren. I'll yield to you, Gene.
    Mr. Dodaro. Yes. Thank you, Elizabeth.
    I think I have no concerns with the bill. I think the 
provisions, especially the personnel provisions, are essential. 
I have the authority, as the Comptroller General, to waive the 
annuity offsets for retired annuitants. I have brought back 
about 80 people over a period of time, not specifically for 
TARP, but we have brought back one banking specialist for that 
purpose, and I think those tools are essential and I think it 
will help the overall oversight effort.
    Ms. Warren. And I should just add, we have no concerns 
either. We support the bill and think it is important to move 
it quickly.
    Chairman Moore of Kansas. Thank you, Ms. Warren.
    Last question, mine. We have about a minute left here. In 
your testimony, Mr. Barofsky, you note that with the 
Administration's new financial stability plan, the TARP program 
expands to 8 different programs with an exposure of more than 
$2.8 trillion.
    One concern I have is in the oversight of TARP funds that 
pass through the Federal Reserve, especially given the 
independence Congress grants the Fed. For example, the Fed's 
TALF program will use TARP funds to lend up to $1 trillion to 
thaw the consumer lending markets.
    Starting with Mr. Dodaro, what oversight power does your 
organization have over the Federal Reserve and do you have any 
concerns about tracking TARP funds passing through the Fed?
    Mr. Dodaro. Actually, at the Federal Reserve, that is one 
of the very few areas that we are statutorily prohibited to 
look at as it relates to foreign transactions, open market 
transactions.
    Chairman Moore of Kansas. You said prohibited?
    Mr. Dodaro. We are prohibited to.
    Chairman Moore of Kansas. Okay.
    Mr. Dodaro. We have the authority, Mr. Chairman, to look at 
how the Federal Reserve oversees and carries out its 
supervisory and review functions, but when it comes to monetary 
policy, particularly the discount window, open market 
operations, the decisions of the open market committee, and the 
transactions with foreign banks and foreign governments, GAO is 
statutorily prohibited from reviewing those activities. Now as 
to the TARP--
    Chairman Moore of Kansas. Excuse me, sir. I'm over my time 
limit here.
    Mr. Dodaro. I'm sorry.
    Chairman Moore of Kansas. And I'm going to adhere to the 
time limits. If you would, please, if you have further comments 
to make, I would certainly appreciate receiving that in writing 
and I'll circulate your comments to the other members of the 
committee as well.
    Mr. Dodaro. I would be happy to.
    Chairman Moore of Kansas. Thank you, sir, very much.
    I am out of time so I am going to recognize Mrs. Biggert 
now for her questions.
    Mrs. Biggert. My microphone didn't seem to be working very 
well, so I'll use this one. Maybe we have some money in the 
stimulus for updating this room. It could use a little help, I 
think. Thank you.
    Mr. Barofsky, once your office is fully staffed, and maybe 
you can tell us about how long that is going to take, do you 
plan to do an audit of the past recipients of TARP funds or 
will you focus on future recipients only?
    Mr. Dodaro. Right now, our current audit of TARP recipients 
applies. Everyone up until the date that our letters went out. 
So we are going to be reviewing the use of funds of each and 
every TARP recipient up through February 4th, 5th, and 6th, I 
believe it is.
    Mrs. Biggert. So that will go back to the fall of 2008?
    Mr. Dodaro. Back to the first disbursement, I think, in 
late October.
    Mrs. Biggert. And about how long is it going to take you to 
be staffed up?
    Mr. Dodaro. To staff up? Well, hopefully if this bill is 
quickly passed, that will help us speed our hiring efforts. 
What I have done basically to date is I focused on the senior 
executive staff and I have now finally have--we have identified 
the right people. I'm very proud of the people that I have 
identified in the senior positions. Now they are going to be 
building out their different divisions. I'm hopeful with this 
expanded authority, we will be able to move more quickly than 
we have.
    Mrs. Biggert. Thank you. Then, Mr. Dodaro, in response to a 
critical report that your office issued in January regarding 
the Treasury's management of TARP, Treasury developed the 
Financial Stability Plan that you have talked about and 
conducted a survey of the 20 largest TARP recipients and 
announced plans to analyze data each quarter from every 
institution receiving TARP funds.
    And in your written testimony, you mentioned that 
additional action is still needed from Treasury to ensure 
accountability. What are your recommendations and have you ever 
seen the data that they were going to analyze?
    Mr. Dodaro. Yes. We now have the data from the 20 largest 
institutions. We are in the process of analyzing that 
information ourselves and we will be providing our analysis in 
our next report due next month.
    What we had suggested, though, is for the other 
institutions, which are now up to 416 institutions that have 
received money, is that rather than have the quarterly call 
report data, which is what they are planning to do, that they 
have the same monthly type survey, and maybe even a subset of 
information, that they can gather each month on the lending 
activities for those other institutions.
    We think it is important to have timely information from 
those institutions and we are very pleased with what we have 
seen on the monthly survey for the 20 largest banks, that they 
are actually collecting some information that is not on the 
quarterly call report data concerning different types of 
lending activities. So that is what we recommended.
    Mrs. Biggert. Okay. Thank you.
    Then Professor Warren, in your best estimate, or 
estimation, why has the Treasury Department either been 
unwilling or unable to give specific details as to how they 
manage the TARP program?
    Ms. Warren. Congresswoman, I don't know. I wish I had a 
better answer. I'm sorry.
    Mrs. Biggert. Do you think it is understaffing, 
inexperience, or that they just don't want to do it?
    Ms. Warren. I have no reason to believe that they don't 
want to. At least we can say now there has been a shift, as we 
have new leadership in the Treasury, and they have made it 
clear, at least in their public statements, that accountability 
and transparency are important. They have made some significant 
changes on the Web site. They have implemented some of the 
procedures that the GAO has asked for. So there has been 
movement. My sense is, it is a very difficult time for them.
    Mrs. Biggert. You know, in reading the testimony of all 
three of you, I think there was something that you all talked 
about--a vision--needing the communication and the vision. It 
seems like with all of the things that have been done, there is 
no plan. I mean, it is we will do this and then we are going to 
do this and then we will do this and then we will go back and 
do this. Is that a problem or is it maybe due to their 
sensitivity in the marketplace and they don't want to bring 
these out?
    Ms. Warren. Congresswoman, I actually think it is worse 
than you have described it. I think it is worse than just that 
there has been change. Change can be explained by events unfold 
and if you discover that moving in this direction is not 
yielding in what you want, you move in another direction.
    What we saw I think with the valuation report, for example, 
was a description of a plan to go in one direction and a plan 
that was never designed to go there, an execution that headed 
in a very different direction. And so this suggests a lack of 
forthcomingness on the part of Treasury, at least in the early 
months, that is deeply disturbing. And I have to say, it is 
critically what oversight is about and we can't execute on 
oversight if there is not a clear plan to measure against the 
particular execution. So we are doing our best here, 
Congresswoman.
    Mrs. Biggert. Thank you.
    I yield back.
    Chairman Moore of Kansas. Thank you to the witnesses and 
Mrs. Biggert, thank you.
    And next Mr. Lynch, you have 5 minutes, sir and I will tap 
at the end of 5 minutes so you wind up, if you would, please, 
very quickly.
    Mr. Lynch. All right. Thank you, Mr. Chairman.
    First of all, I want to thank the witnesses for your work. 
I know this is not easy. Just for the record, I want to say 
that I voted against the TARP and I have not had a moment when 
I have regretted that decision, unfortunately, because of the 
way it has been run.
    I would say that how we handle this going forward is not 
only important because of the huge sums that are at stake here 
and the trust of the American people that must be regained, but 
also I'm hearing rumblings that the financial services industry 
is going to come back on the Hill, at some point, and look for 
more help.
    I just need to say that--and I have talked to a lot of my 
colleagues, although I only speak for myself, the risk appetite 
here on the Hill, given the way we have seen this top handled 
so far, is very, very low. And, you know, there is a whole lot 
more oversight that needs to happen and protection of the 
American people and the taxpayer that needs to happen here, 
work that you're doing, before that will ever get through 
Congress. As much as it may be needed, I just think that this 
has been a disaster.
    Before I just ask my question, I do want to say that, Mr. 
Barofsky and Mr. Dodaro and Ms. Warren, in talking about the 
employees that might be needed to really do very good 
oversight, I know that many of our districts, we have Treasury 
offices closing, IRS offices closing. You have investigators, 
you have accountants, you have, God forbid, attorneys, you have 
auditors who are all doing this work and they are experienced, 
seasoned employees, in many cases, and offices are closing 
down.
    So there is a pool of talent there that I think we could 
capitalize on. You know, they would be doing the work that they 
are doing anyway. Some of them may be a few years from 
retirement and we might be able to tap into those resources so 
that we don't have to go out and try to hire these folks from 
the private sector, which would be enormously expensive, I 
think.
    Let me ask you this. Normally, Congress wouldn't need to 
know, in great detail, the make-up of complex derivatives or 
exotic derivatives or CDO's or, you know, credit default swaps, 
but unfortunately, now the taxpayer is a major purchaser of 
these instruments. They are very complex and I have been trying 
on my own and with the help of the committee to get behind some 
of these instruments and see what is actually behind them.
    You did wonderful work on the February report and, you 
know, unfortunately, we had bad news--the taxpayers overpaid, 
by $78 billion, for some of these instruments. Are we ever 
going to get to the point where we are ahead of this process? 
And I was happy to receive the report, but it was after the 
fact. We had already overpaid, you know, 66 cents for every 
dollar, you know, we got back 66 cents for every dollar spent.
    Are we ever going to get to the point where we can 
actually, you know, in real time, understand that, through 
transparency, that we are paying a fair value for these assets? 
Is that a possibility because that is something that I'm trying 
to grapple with and there doesn't seem to be a clear answer out 
there. Some of this is, you know, because of Treasury's lack of 
cooperation, but it also is a result of the complexity of some 
of these instruments.
    Ms. Warren. Congressman, I would say three things, I think, 
about that. The first one is, although the report that we 
issued is entirely retrospective, it talks about transactions 
that had already occurred, surely that report has been read by 
the Treasury Department and if that doesn't sound a warning, 
then I don't know what possibly could. And that is, someone 
will be watching and reporting on every dollar you spend. And I 
assume that will have a very sobering effect on a going forward 
basis.
    Mr. Lynch. You would hope so.
    Ms. Warren. I would hope so. The second thing is that this 
goes to the question of increased transparency, trying to get 
more of the documents, and so on, to be transparent so that we 
can move up in terms of--on time on being able to value. We 
have now created--this is the second thing that came out of our 
report. We now know how to do it. So if you try those 
transactions again, we are much more geared up in how to 
evaluate them in something closer to real time.
    And then there is a third point on it, and this goes back 
to the question of articulating clearly what we are trying to 
accomplish. If Treasury will be in the business of trying to 
explain in a clear way what it is trying to accomplish and how 
this is the strategy to get there, we actually may have a 
chance to be able to evaluate it in real time.
    Mr. Lynch. All right.
    Chairman Moore of Kansas. Thank you very much, Ms. Warren.
    Mr. Lynch. Thank you.
    Chairman Moore of Kansas. Mr. Lee.
    Mr. Lee. Thank you.
    I have a few different questions, but I heard some 
interesting testimony and I guess we can throw it up for grabs 
on who wants to answer some of these questions, but I'll start 
with, actually, one specifically for Mr. Barofsky, because 
during your testimony, you had talked about the fact that we 
have a huge investment in taxpayer money done really over a 
relatively short period of time, and during this period, we are 
going to see incredible amounts of waste, fraud, and abuse, 
potentially tens of hundreds of billions of dollars.
    And I, for one, I am a new Member of Congress and 
obviously, I did not vote for the first TARP, but the second 
tranche. I, again, was against the fact, based on what I had 
been hearing, that we were in a position where we knew enough 
to release the second half. I'm curious. In your mind, do you 
feel it was a prudent course knowing the fact that we really, 
in my mind, don't have enough systems set up in place that it 
was prudent to release another $350 billion into the 
marketplace?
    Mr. Barofsky. Fortunately, making decisions and 
determinations like that is not among my responsibilities. Our 
focus, of course, is now that the decision has been made, what 
can we do to make the right recommendations to avoid the tens 
or hundreds of billions of dollars of fraud, waste, and abuse. 
And the way we do that, as I noted, is by trying to work with 
Treasury, taking a look at the program and making the necessary 
recommendations so we can avoid repeating the problems, the 
past problems, of history.
    Mr. Lee. Well, then, I'll get to it in another way. My 
concern, obviously, is making sure we do have the right staff, 
but I came from the private sector and one of the things that 
concerns me and alarms me, that the only sector in our economy 
that has grown over the, really over the last decade, is in the 
Federal Government and hiring of new Federal employees. And 
unless we get the private sector growing, this country is in 
trouble.
    So a potential solution, and I would like your thoughts, is 
you have talked about the challenges of hiring qualified 
auditors to come in here and immediately have an impact. We 
have hundreds of billions of dollars at stake. We have four of 
the leading private firms, be it Deloitte, Ernst & Young, KPMG, 
or PricewaterhouseCoopers. Does it make sense, because they 
could be used on a temporary basis, to come in, and then they 
are not government employees, can go back into the private 
sector of using them to do some of the auditing for us? I would 
like your comments on that or anybody in this room.
    Mr. Barofsky. We have been given the power to contract and 
we are exploring those opportunities. We anticipate getting 
some help on our use of funds survey of contracting private 
auditing firms to help us.
    Mr. Lee. You feel you may go in that direction.
    Mr. Barofsky. We most certainly will go in that direction 
with respect to being able to get this project done. We have 
also contracted with Deloitte to help us in our program 
management.
    Mr. Lee. That's good to hear. One last question and whoever 
wants to, again, tackle this one. The fact that, and I have 
always found this in its--it doesn't matter if it is a 
government business or a private business, but we have the 
bureaucratic overlap with the GAO, the new Office of Financial 
Stability within the Treasury, the Congressional Oversight 
Panel, and I believe there are seven other offices of 
inspectors general in other agencies. How do you guys mesh 
together to ensure that you are speaking, and in fact doing, 
what you were designed to do in the first place?
    Mr. Dodaro. I will take first shot at this. First of all, 
there is no overlap between the Office of Financial Stability 
and the entities that are overseeing their activities. So that 
is not an issue there because that is the Treasury Department 
administering the program and we are overseeing that program.
    Now with regard to coordination, we each have some 
specialty areas. For example, we are the financial auditor of 
the Office of Financial Stability at the GAO and we have these 
responsibilities to coordinate. Now we had the luxury of being 
an already existing oversight entity with staff and we pooled 
our financial markets experts, our accountants, our lawyers, 
and our economists together and we have had to do relatively 
little hiring to get on the case right away, and then we have 
coordinated with them.
    As Neil mentioned--Mr. Barofsky--they are focused on the 
criminal investigative area. Neither one of our entities is 
doing that. We overlap in some of the areas on implementation 
of some of the programs that we are working together on 
coordinated audits, sharing information and as Ms. Warren 
mentioned, and I'm sure she will articulate, the Congressional 
Oversight Panel has some broader policy issues that they are 
looking at that we at the GAO are not. I have been involved in 
a lot of this across government and I think it is working very 
well here.
    Mr. Lee. Thank you.
    Chairman Moore of Kansas. Thank you to the witnesses and 
thank you, Mr. Lee.
    Next, Mr. Klein, if you have questions, sir.
    Mr. Klein. Yes, sir.
    Chairman Moore of Kansas. Five minutes.
    Mr. Klein. Thank you, Mr. Chairman.
    Thank you all for being here and participating, and for 
your work in this very important area.
    When we passed the bill, the big issues and the big reasons 
to pass it were expressed as an attempt to head off more 
failures of major financial institutions and also to free up 
the credit market. And it is very clear, despite what was said 
by many of the leaders of the major banks who came before us 
last week or 2 weeks ago, that despite what they are saying, 
they are laying out large amounts of money to large Fortune 
100's. I went home last week and heard over and over and over 
again from businesses, small and large; real estate, 
commercial, and residential, that this is not translating to 
our local markets.
    So one of the biggest things I keep hearing from people is, 
all right. Well, you're talking about the second $350 billion 
and yes, you are probably going to, hopefully, and part of this 
conversation is, put all the necessary trappings in place, 
oversight, clear direction of what is supposed to be--what the 
money is supposed to be used for, but it takes me back to well, 
we are not prepared just to leave that $350 billion out there 
on the table without a further interest in making sure that 
that money gets spent to help ease the credit market.
    And can you share with us, maybe start with Mr. Barofsky, 
your thinking on what it is that we can do, as it relates in 
your research and oversight, with the current--and maybe it is 
a question of our policy, you have to come make some 
recommendations to us as Congress, and we come back and whether 
we do it after the fact or we have a lot of interest in these 
institutions, regulatorily and otherwise, to get them to take 
necessary steps to ease the credit market.
    That is the biggest problem that I heard right now out 
there. What can you do--these banks that took all this money, 
what can you do to start lending to reasonably, you know, 
unwritten borrowers. We are not talking about making bad loans. 
We are talking about solid, creditworthy people. Can you share 
with us some of your thinking on what you are seeing?
    Mr. Barofsky. I think a theme that all of us keep returning 
to is transparency and whether it is transparency for Treasury 
or it is transparency for those who have received the funds. 
The way we are trying to contribute to answer your question is 
by doing this audit on how are they using the funds. And GAO 
has recommended and Treasury is implementing its survey on 
lending and the effect, the impact of TARP on lending. Our 
survey is a broader one on overall use of funds.
    So we hope that by doing that and being able to report back 
to Congress, how the first, of the first tranche, the first 350 
or so entities up to January 31st have spent the money, that we 
can give you that data and give you that answer and therefore, 
be able to make recommendations based on that hard data.
    Mr. Klein. Well, I want to just point out transparency is 
absolutely essential because we want to understand it, but is 
there a gap here or is there a lack of standards, a lack of 
expectations, a lack of teeth that is missing from this 
original bill that said you take the money--the fact that they 
are going to end up reporting to us what they did or didn't do 
with it may not solve the problem of how do we get this money 
to be put into the market for lending.
    Mr. Barofsky. I think the question of what conditions are 
attached is certainly, you know, a policy-based decision that 
needs to be addressed to meet your concerns. I think that the 
Administration has indicated, in its announcement of the 
programs, that there may be more requirements on how the 
institutions use the funds. We will see as those programs are 
rolled out.
    Mr. Dodaro. A couple of points I would add. First of all, 
there is about $50 billion of the first amount of money, the 
$350 billion figure, that hasn't been allocated yet to the 
banks. There are still dozens, if not hundreds, of institutions 
in the pipeline that the regulatory agencies are looking at and 
making recommendations to Treasury.
    A second major point is, you know, we made recommendations 
that those entities provide monthly reports on their lending 
activities and Treasury hasn't implemented that recommendation 
on the first half. They've indicated that they would look at it 
for the second half. We still think that needs to be put in 
place.
    Mr. Klein. And that can be done right now.
    Mr. Dodaro. They would have to renegotiate the agreements. 
The ones that they haven't executed yet, they could still do it 
and it could be done.
    Mr. Klein. Mr. Chairman, I think that is something we ought 
to be speaking to Treasury about. I mean, as we want 
transparency, there is no reason we can't go back on the 
original money that was allocated and get these institutions to 
participate with us.
    Chairman Moore of Kansas. I agree with you.
    Ms. Warren?
    Ms. Warren. I would only add to that, Congressman, that I 
think you are exactly right about this, but this goes back not 
only to transparency, but to about clearly delineated goals. If 
this is about putting money into the hands of small businesses 
that have done most of the job creation outside the public 
sector, then you make that part of the terms of taking the 
money. And if someone doesn't want to do that with the money, 
then don't let them have the money. It's that straightforward.
    Mr. Klein. I know my time is running out, but I think that 
is a very important point. I know our small business community, 
which we are all so concerned about, is not getting access to 
this. Large businesses are, in many cases, but, Mr. Chairman, I 
think we really need to focus on getting some criteria, if they 
receive money, small businesses are given high level focus.
    Chairman Moore of Kansas. Thank you, Mr. Klein, and thank 
you to the witnesses for that, the questions and answers.
    And the last person who has indicated they have questions 
to ask is Mr. Paulsen. Sir, if you would.
    Mr. Paulsen. Thank you, Mr. Chairman, and I also want to 
thank the witnesses for taking the time to testify.
    I will just ask a quick question. Mr. Barofsky, I 
understand your offices are currently held in the Treasury 
Department, right? And that being the case, you are not 
technically part of the Treasury Department, obviously. You 
don't ultimately answer to the Treasury Secretary. You are kind 
of on your own, but whom exactly do you ultimately answer to 
just in regard to your findings, your oversight. Is it just 
reporting back to us? I mean, sort of your authority. Who do 
you have to go back to and report your findings?
    Mr. Barofsky. I think you are correct. We answer to you, 
the Congress.
    Mr. Paulsen. And I just want to follow-up, Mr. Chairman, 
too, with Ms. Warren.
    You had mentioned before and, you know, both Mr. Dodaro and 
Ms. Warren had mentioned earlier that the oversight and reports 
that have come out have been very critical of the process in 
terms of re-reporting the same problem over and over again.
    And so, what sort of hope can you give us, I mean, that you 
are not going to re-report once again the same problem because 
I think you are hearing this frustration across the aisle here 
today, but it is--as you mentioned before, it is disturbing, 
there is no clear plan to measure against as the execution goes 
forward, but is there hope that we can really buck the trend 
and do something differently, as these monies go out there, for 
the confidence of taxpayers?
    Mr. Dodaro. I think that is a good question to ask the 
Secretary of the Treasury in the Treasury Department. I mean, 
our recommendations are advisory. They only have a force of law 
if Congress requires them, through statute, to be implemented. 
Treasury has been implementing our recommendations at the GAO, 
but they have not fully implemented most of the recommendations 
that we have had. So unfortunately, in these circumstances, 
unless the agencies fully implement the recommendations, we 
will be repeating them going forward because we think they are 
important.
    Chairman Moore of Kansas. Thank you. I was wrong. We do 
have a couple of other members who would like to ask questions.
    First, Ms. Speier, please, for 5 minutes.
    Ms. Speier. Thank you, Mr. Chairman and members.
    First of all, let me say to all three of you how important 
your role is as we move forward on assessing TARP. You are our 
eyes and ears and if there is one frustration I think we all 
have it is that we don't get the word soon enough when there is 
trouble to be able to change it midstream. So anything you can 
do to alert us with your red flags, I hope that you will do 
that, and we will attempt to act more quickly.
    Mr. Barofsky, you said that you have received 17 responses 
and you have made 350 requests. My understanding is that these 
are voluntary, so they don't have to return these responses.
    Mr. Barofsky. That's correct.
    Ms. Speier. Okay. That is enough to send me into orbit and 
probably every American taxpayer. What do we have to do to make 
sure that everyone who has received TARP money is required to 
respond to you?
    Mr. Barofsky. Well, I think that--I'm hopeful that we are 
going to have a full compliance. It is a 30-day deadline so I 
was actually surprised that we got responses this early. We 
obviously, we do have the power to compel responses if people 
choose not to and I will talk to my audit staff and depending 
on what our level of response rate is, we certainly can 
consider compelling them through a subpoena--
    Ms. Speier. So you do have the authority to compel them. I, 
as one Member, would want you to do utilize and exercise that 
authority if they do not and I would like for you to start 
posting on your Web site those who have so that we can see who 
hasn't responded and who has responded as a running total, if 
you would.
    Mr. Dodaro. I think we are certainly going to post response 
rates and that information--
    Ms. Speier. But I would like to know who hasn't responded 
as opposed to who has.
    Mr. Dodaro. I am confident that is part of our audit plan.
    Ms. Speier. All right. Thank you.
    Ms. Warren, I have to tell you, I think you are doing an 
incredible job with a very small staff. So my first question 
is, do you need more support to do your job?
    Ms. Warren. Yes, but we are working on it. We are 
expanding, we are moving from tiny to small. Well, that's good. 
And we are hiring. I will say, and I say this very tentatively, 
we would also be delighted to have the opportunity to hire 
those who are--
    Ms. Speier. Retired annuitants?
    Ms. Warren. Retired annuitants. I don't want to do anything 
to slow up the bill that is in progress for the IG, but it 
would help us, as well, as we are trying to expand and staff 
out for our oversight procedures. So I mention that, but I do 
it with trepidation, not wanting to get in the Inspector 
General's way.
    Ms. Speier. All right. Well, we will see what vehicle we 
can use to assist you in that.
    Your report that basically made the case that we were 
short-changed in the original contracts that were made with the 
banks is pretty astonishing. And when the CEOs of the banks 
were at a hearing last week, I actually referred to your report 
and since you have received a subsidy from the taxpayers of 
$80--was it $80--
    Ms. Warren. $78 billion.
    Ms. Speier. --$78 billion--
    Ms. Warren. More or less.
    Ms. Speier. --what would you give back to the taxpayers. 
Would you reduce your credit card interest rate? Not one of 
them said yes. So I guess my question to you is, what should we 
extract from these TARP recipients who have gotten deals that 
really are too good to be true?
    Ms. Warren. Well, Congresswoman, I think this is exactly 
the right question and I will say, as Mr. Dodaro did, the right 
person to put on the stand for that question is the Treasury 
Department that has the authority to ask for more, indeed to 
demand more, not only from those who receive money in the 
future, but from those who have already received taxpayer 
dollars.
    Ms. Speier. So in the contracts, and you have reviewed 
them, I gather--
    Ms. Warren. Yes, ma'am.
    Ms. Speier. --is there the opportunity, then, to rewrite 
them to add more provisions? There is nothing that prevents us 
from going back and creating more--
    Ms. Warren. Yes, Congresswoman, that's right.
    Ms. Speier. Now my time has almost expired, but there was a 
Citigroup contract that was discussed at our hearing that was 
pretty astonishing--I don't know if you are familiar with it--
where we basically are committed to over $300 billion over the 
10-year period of time of $306 billion of losses. Do you have 
any insights on that contract? Are there more contracts as bad 
as that contract that we should be aware of and bring to light?
    Ms. Warren. Congresswoman, I actually want to start by 
making a point. When we did the analysis of the value of what 
the American taxpayer got back in return for the money that it 
had invested into the banks, we deliberately did not count the 
guarantees, which means that our $78 billion is small relative 
to potential exposure. We might also want to take a look at the 
Bank of America transaction and some others that involve 
guarantees.
    Ms. Speier. Thank you.
    Chairman Moore of Kansas. Thank you, and I would--before we 
call on the last member to ask questions, I would like to note 
that Mr. Lynch had to leave for another committee hearing. 
There are other hearings going on and members sometimes belong 
to multiple committees and I know some other members may be not 
here for that reason as well. So I just wanted to let the 
witnesses know that.
    And Ms. Kilroy, you are the last person to ask questions 
here today.
    Ms. Kilroy. Thank you very much, Chairman Moore. Thank you, 
panel, for being here this afternoon. I appreciate all the work 
that you have been doing in helping us get a handle on this 
oversight issue.
    You know, it seems to me, in the news reports again today, 
that some of the TARP recipients still haven't gotten the 
message that the party is over. And it seems that perhaps the 
statement that you made, Professor Warren, about making sure 
that there is a clearly delineated goal, maybe some of the 
responsibility lies in how things have been drafted in the 
first place in terms of delivering that message in a much 
stronger fashion than has certainly been received to date.
    So I want to follow-up on what Mr. Klein was asking with 
respect to, you know, should there be more legislation in TARP? 
Should that be where we should be coming down harder and making 
sure that we have the clearly delineated goals. Have we given 
Treasury, in the granting of substantial discretion, maybe too 
much discretion in how to fashion the TARP agreements?
    Ms. Warren. I think this is a very tough question, 
Congresswoman, which obviously it is your job to ask tough 
questions, but the point here is that I understand why one 
might design a system with a lot of flexibility, you know, that 
you don't just stand behind somebody putting out a fire and try 
to micro-manage how that happens. But I also understand that if 
you are going to give that much discretion, that it comes with 
great responsibility to be forthcoming to Congress and to be 
forthcoming with the American people about every step of the 
way.
    And so I think the real question here is first, does 
Treasury have the message and second, do you have real 
alternatives for how you want to think about the management of 
this economic crisis because if Treasury is heading in a 
particular direction, whether they articulate it clearly or 
not, there is only meaningful oversight if you could understand 
it and say, so what would have our alternatives have been? 
Should we be doing something different with the financial 
institutions? Should we be doing something different about 
mortgage foreclosure mitigation?
    If there aren't alternatives on the table that you focus on 
and clearly study, then there really is no alternative. You are 
legislating in the dark. In part, I see that as the 
responsibility of the Congressional Oversight Panel. We are 
here partly to wave the flag when there is a problem, to try to 
document that and show you the seriousness of it, but we are 
also here to try to bring you some ideas about alternatives.
    Whether we keep that on an informal basis in the sense that 
we come, we testify, we meet with you, or a more formalized 
basis, that this is the direction you want to go with reigning 
in the Treasury's ability to decide its own fate, as it goes 
forward, and the fate of the economy, that will ultimately be 
the decision for Congress.
    So I think the answer in part--I hope what I'm trying to 
say here--is we need a lot more intensive conversation about 
this and it is a conversation that is informed by the facts of 
what they have done, by whether or not they are willing right 
now to articulate the direction they are going in and our 
ability to evaluate whether that direction makes any sense.
    Ms. Kilroy. As you know, the House passed some additional 
teeth for TARP money that was not taken up by the Senate and I 
do hope that despite the fact that the Senate didn't take it 
up, that Treasury does take that into account and that we see 
those standards in any future TARP agreements.
    I was also stunned by the testimony about the potential for 
fraud and want to follow-up with that. You talk about the need 
for baseline fraud prevention standards. Are these in existence 
now in the right places to make sure that you have the 
framework that then you can go and enforce if there are 
instances that any number of these whistle blowers might bring 
to your attention?
    Mr. Barofsky. Well, we are certainly reaching out to 
whistle blowers. Our Web site is up and running, our hotline is 
up and running, and a lot of what I have been doing in the 
first 2 months of our existence is building that framework. And 
a lot of that is through our relationships.
    Given our relatively small size and obviously the vast 
amount of money that we are responsible for overseeing, I have 
spent a lot of time working with the Department of Justice, 
with the FBI, with State attorneys general, and with the SEC. 
Basically any law enforcement out there that could potentially 
assist us in monitoring, deterring, and then investigating and 
prosecuting fraud, we have been out there and we are working on 
those relationships. And I think we are getting the right 
structure in place, particularly with these programs that are 
coming out now.
    Ms. Kilroy. But if the initial legal framework or TARP 
documents aren't set up the right way, there would--
    Chairman Moore of Kansas. Your time is up.
    Ms. Kilroy. Thank you, sir.
    Chairman Moore of Kansas. Mrs. Biggert and I have discussed 
the possibility of each member who wants additional time to ask 
questions, we can do that and I would start--I have a question 
myself and we will just go through very briefly, if that is 
okay with the witnesses as well.
    The Fed's TALF program will use TARP funds to lend up to $1 
trillion to thaw the consumer lending markets. Starting with 
Mr. Dodaro, what oversight power does your organization have 
over the Federal Reserve? Do you have any concerns about 
tracking TARP funds passing through the Fed?
    Mr. Dodaro. As I was starting to mention before, to the 
extent that the Federal Reserve is using monetary policy, 
discount window operations, and open market decisions, we are 
prohibited by law from reviewing those activities. Now so as 
the TARP program and Treasury begin to have these partnerships 
with the Federal Reserve, there may be some limitations on our 
ability to provide that type of oversight.
    We are studying how best to do that, this activity, the 
expansion under the TALF program, from the $20 billion up to 
$100 billion of TARP funds to leverage against the trillion, is 
a new development.
    So we are taking a look at that. The program hasn't started 
yet. We are trying to figure out how best to do it, but it is 
something I'm concerned about, Mr. Chairman, and I will come 
back to the committee. I was asked when we testified before the 
full committee, you know, about this issue.
    Chairman Moore of Kansas. Ms. Warren or Mr. Barofsky, any 
comments?
    Ms. Warren. I'll just point out that because our work is 
much more a policy and sort of direction, although we are 
statutorily authorized and required to see what is happening in 
the expenditure of TARP funds, it is not possible to look at 
that without looking at what the Fed is doing as well. So we 
regard that as within the range of the policy questions and 
issues that we should be looking at.
    Chairman Moore of Kansas. Any comments, Mr. Barofsky?
    Mr. Barofsky. Mr. Chairman, TALF, obviously, was a focus of 
our recommendations in our initial report to Congress. I 
continue to be in touch with the Federal Reserve, as well as 
Treasury, about recommendations we have made regarding the 
TALF. I anticipate, and we are currently putting together, a 
group to make sure that we are going to have effective 
oversight of the TALF, certainly from a criminal perspective, 
to make sure that we can deter, as well as investigate and 
prosecute.
    Chairman Moore of Kansas. Thank you. And that is all the 
questions I have.
    Mrs. Biggert, do you have additional questions?
    Mrs. Biggert. Thank you.
    And actually something along that line, Mr. Barofsky, you 
talked about the TALF program in your report on February 6th 
about using asset-backed securities as collateral. You were 
concerned about that and you had recommended that there be 
minimum underwriting standards and/or fraud prevention 
mechanisms. What were your recommendations as far as those 
standards?
    Mr. Barofsky. Well, our initial concern as the TALF program 
was first described, the basic fraud prevention was reliance on 
credit rating agencies and the due diligence of investors. And 
I think history, recent history, has demonstrated that we 
should not be relying on credit rating agencies and private 
investors. That is, of course, in a different type of asset-
backed security, not what was originally intended for the TALF, 
but in the mortgage-backed security market, obviously those 
failed.
    So our original recommendations were addressing the program 
as initially determined and we suggested increased underwriting 
baseline as one example of a fraud detection or prevention 
mechanism. Since then, we have had a number of discussions with 
the Federal Reserve. They presented to us a number of potential 
areas they may go when the TALF is rolled out, I think likely 
this week or next week based on what Chairman Bernanke said 
earlier today, and we are hopeful that there will be vastly 
improved fraud prevention protections in there.
    Mrs. Biggert. I have had an amendment to several of the 
TARP bills and probably will try and have another amendment on 
this bill, and that would be to have more prosecutors from the 
Department of Justice and more investigators from the FBI for 
mortgage fraud. Would you be in favor of that? Is that 
something that you think we need now or is that--
    Mr. Barofsky. I recently testified in front of the Senate 
Judiciary Committee on several bills, one by Chairman Leahy and 
another one by Senator Schumer, addressing specifically 
increased resources for the FBI and for the U.S. Attorney's 
Office and the Department of Justice. I think it is absolutely 
vital with not just the TARP-related programs, but the shift of 
Federal law enforcement resources since September 11th, out of 
white collar criminal prosecution and to terrorism, that there 
really is a need to restock the FBI.
    Mrs. Biggert. Can you outline specific fraud protections 
that you would recommend?
    Mr. Barofsky. It really depends on the program.
    Mrs. Biggert. For TALF.
    Mr. Barofsky. For TALF, I think one of the key areas that 
we made recommendations is on the front-end, certain 
requirements and testing of the borrowers and the actual 
underlying assets. In other words, making sure that the assets, 
the collateral that backs the asset-backed securities, whether 
it is an auto loan or a student loan, making sure that they are 
real, that they are properly underwritten, so we don't get back 
into the same situation as we did with the mortgage-backed 
securities.
    We have had really difficult troubled assets that back 
these securities that are not triple A rated and if the 
Treasury ends up holding these assets and it finds out that 
they are not what they appear to be. And I think one of the 
things the Federal Reserve is addressing is exactly that, is 
testing of the assets that backed the securities to make sure 
that they are real and they meet the criteria.
    Mrs. Biggert. Thank you. Then just one more follow-up 
question, if I might. With the Administration changing course 
yesterday and announcing that it would allow financial 
institutions to sell government common stock as opposed to 
preferred stock, does the riskier nature of common stock 
concern any of you from an oversight standpoint?
    Ms. Warren. Well, common stock is valued differently 
because of the riskier nature. It also means, in the case if we 
are doing--we are taking what had been preferred and moving it 
to common stock, we are forfeiting certain payments, a stream 
of revenue that would have come in under the preferred.
    It also means we are moving now into a plan that is hard to 
describe because we are not clear what kind of control is going 
to come with the common stock. We know how it works in the 
private market, but when the government is the holder of large 
portions of the stock, but there are still private holders, 
this raises a whole new set of questions. We have an animal 
that will be neither fish nor fowl.
    Mrs. Biggert. Absolutely. I agree with you and I hope that 
you will make your concerns known to the powers that be. Thank 
you.
    I yield back.
    Chairman Moore of Kansas. Thank you to the witnesses and to 
Mrs. Biggert.
    And next, Ms. Speier, you have an additional 5 minutes of 
questions.
    Ms. Speier. Thank you.
    What percentage of the TARP funds, in your review, has been 
loaned out? Do you have a figure?
    Ms. Warren. Well, we know that about $300 billion has gone 
out the door and then there are commitments, now, for--
    Mr. Dodaro. For the remaining $50 billion.
    Ms. Warren. --$50 billion of the first $350 billion.
    Ms. Speier. No, I--yes. My question is, of the money that 
has been received--
    Ms. Warren. Oh, I'm sorry.
    Ms. Speier. --by the banks, do we have any idea what 
percentage of that money has been loaned out?
    Ms. Warren. No. Congresswoman, if we don't ask, we can't 
know.
    Mr. Dodaro. That was the essence of our recommendation. 
That was our very first recommendation, they need the reporting 
back. And I think, you know, Mr. Barofsky's effort is a good 
effort, but that shouldn't substitute for the responsibilities 
of the Treasury Department to require that monthly reporting of 
all institutions receiving the money. And that is the 
recommendation we reiterated last month.
    We are glad they moved forward on the 20 largest 
institutions, but that won't substitute for having information 
on all the institutions. That is the only way you are going to 
get timely information on a recurring basis. You can collect 
point and time information, but in this case, you need it on a 
continual basis.
    Ms. Warren. And I would only add to that, since we have 
made the same point in our reports, it may be more than just 
reporting. If this is really what we want to accomplish, then 
we have to move to making it a requirement.
    Ms. Speier. Is there any concern about these no-bid 
contracts that have been let by the Treasury Department and if 
so, what would be your concerns?
    Mr. Dodaro. On the no-bid contracts, we looked at that 
early on and we found that they had followed the Federal 
acquisition regulations. They had limited numbers of contracts. 
I think in our last report we said at the end of last calendar 
year, they had about $8 million in contracts that they have 
obligated, but we have been looking at every contract once it's 
done.
    Now what we did say is that they have been--while they are 
following the Federal acquisition regulations, they are using 
time and materials contracts, which are, as you know, are a 
riskier form of contract, and as their requirements become 
better known, they should move to fixed price contracts, which 
are less risky and a better protection for the taxpayer. In the 
meantime, they need people to oversee the contracts that they 
had let and we had a recommendation that those people be 
adequately experienced and trained properly.
    Ms. Speier. So it is time and materials with no cap.
    Mr. Dodaro. There are some caps, I believe. We list them in 
our report. I would be happy to provide that for the record.
    Ms. Speier. All right. Thank you. How many more tools or 
what additional tools do you need? Besides the personnel, what 
kind of authority do you need that you don't have presently 
that we should be guaranteeing that you get?
    Mr. Dodaro. I think there are two issues from our 
perspective. One, we have mentioned here in terms of to the 
extent to which that the Congress wants oversight from the GAO 
and the Federal Reserve activities, there would need to be a 
legislative change. Now historically, the Congress has not done 
that to protect the independence of the Federal Reserve and I'm 
not suggesting that it be changed on an ongoing basis, you 
know, for normal circumstances. We clearly are not in a normal 
circumstance at this particular point in time.
    And so to the extent to which the Congress wants to do 
that, we would be happy to work on some, you know, specifically 
tailored authorities to carry out that responsibility. Now we 
are going to try to work as best we can under the current 
framework, but there are clear limitations on our ability that 
need to be changed in statute.
    There is also a bill in the Senate--S. 340--that would 
provide GAO access to all TARP recipients' funds. And, you 
know, while it hasn't been a problem so far, particularly since 
Mr. Barofsky's organization is getting split up, where the 
government goes in the future with the second $350 billion, we 
are not clear about that.
    We have been working to try to get our access into 
agreements and Mr. Barofsky has been very helpful to do that. 
Say, for example, in the auto makers, and we are now looking at 
the auto makers plans. But in the future, it is not really 
clear who all the recipients would be. So that would be an 
important safeguard if that legislation was enacted as well.
    Ms. Speier. Ms. Warren?
    Ms. Warren. I would say only two things that you just 
should be aware of. It has not yet created a problem for us, 
but our--we are still developing in what we are doing and 
asking for. The first is I note we do not have subpoena power. 
We are the only one of the three who can hold hearings, but 
whether or not someone wants to come is entirely up to them.
    The second thing I would note is that we have the authority 
to ask Treasury for information, but if Treasury has not 
gathered that information, they can, quite truthfully, say to 
us, we don't know. We do not have the authority to ask the 
financial institutions themselves for information. And so these 
are areas in which we may be able to do more if we had more 
authority.
    Chairman Moore of Kansas. Thank you. And I would like to, 
again, thank our witnesses for their testimony today.
    And to the members who participated in today's hearing, I 
appreciate that as well. I think this hearing and hearings like 
this in the future will be very important and I look forward to 
working with the members on both sides of the aisle. We need to 
do that.
    I think today's hearing gives us a better sense of the 
oversight that is going on regarding the use of TARP funds and 
how it can be improved to ensure the program is transparent and 
closely monitored. I look forward to working with our witnesses 
and with my Republican and Democratic colleagues to ensure TARP 
recipients will be held accountable and U.S. taxpayers are 
protected.
    The Chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 daysmbers to submit written questions to these 
witnesses and to place their responses in the record.
    And again, I appreciate everybody's participation. This is 
very important work and we will have more hearings like this. 
Thank you so much and the hearing is adjourned.
    [Whereupon, at 4:00 p.m., the hearing was adjourned.]
                            A P P E N D I X



                           February 24, 2009
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