[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
U.S. GOVERNMENT PRINTING OFFICE
48-676 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) 512-2250 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 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
[GRAPHIC] [TIFF OMITTED] 48676.001
[GRAPHIC] [TIFF OMITTED] 48676.002
[GRAPHIC] [TIFF OMITTED] 48676.003
[GRAPHIC] [TIFF OMITTED] 48676.004
[GRAPHIC] [TIFF OMITTED] 48676.005
[GRAPHIC] [TIFF OMITTED] 48676.006
[GRAPHIC] [TIFF OMITTED] 48676.007
[GRAPHIC] [TIFF OMITTED] 48676.008
[GRAPHIC] [TIFF OMITTED] 48676.009
[GRAPHIC] [TIFF OMITTED] 48676.010
[GRAPHIC] [TIFF OMITTED] 48676.011
[GRAPHIC] [TIFF OMITTED] 48676.012
[GRAPHIC] [TIFF OMITTED] 48676.013
[GRAPHIC] [TIFF OMITTED] 48676.014
[GRAPHIC] [TIFF OMITTED] 48676.015
[GRAPHIC] [TIFF OMITTED] 48676.016
[GRAPHIC] [TIFF OMITTED] 48676.017
[GRAPHIC] [TIFF OMITTED] 48676.018
[GRAPHIC] [TIFF OMITTED] 48676.019
[GRAPHIC] [TIFF OMITTED] 48676.020
[GRAPHIC] [TIFF OMITTED] 48676.021
[GRAPHIC] [TIFF OMITTED] 48676.022
[GRAPHIC] [TIFF OMITTED] 48676.023
[GRAPHIC] [TIFF OMITTED] 48676.024
[GRAPHIC] [TIFF OMITTED] 48676.025
[GRAPHIC] [TIFF OMITTED] 48676.026
[GRAPHIC] [TIFF OMITTED] 48676.027
[GRAPHIC] [TIFF OMITTED] 48676.028
[GRAPHIC] [TIFF OMITTED] 48676.029
[GRAPHIC] [TIFF OMITTED] 48676.030