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

                         TROUBLED ASSET RELIEF PROGRAM

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

                                    HEARING

                                   before the

                           SUBCOMMITTEE ON OVERSIGHT

                                     of the

                          COMMITTEE ON WAYS AND MEANS

                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 19, 2009

                                   __________

                                Serial No. 111-8

                                   __________

             Printed for the use of the Committee on Ways and Means

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                          COMMITTEE ON WAYS AND MEANS

                         JOHN LEWIS, Georgia, Chairman

    XAVIER BECERRA, California           CHARLES W. BOUSTANY, JR.,
    RON KIND, Wisconsin                  Louisiana, Ranking Member
    BILL PASCRELL, JR., New Jersey       DAVID G. REICHERT, Washington
    JOHN B. LARSON, Connecticut          PETER J. ROSKAM, Illinois
    ARTUR DAVIS, Alabama                 PAUL RYAN, Wisconsin
    DANNY K. DAVIS, Illinois             JOHN LINDER, Georgia
    BOB ETHERIDGE, North Carolina
    BRIAN HIGGINS, New York

                 Janice Mays, Chief Counsel and Staff Director

                       Jon Traub, Minority Staff Director

    Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
    hearing records of the Committee on Ways and Means are also published
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                                C O N T E N T S

                                   __________

                                                                       Page

    Advisory of March 12, 2009, announcing the hearing...............     2

                                   WITNESSES

    Hon. Neil Barofsky, Special Inspector General, Office of the
      Special Inspector General, Troubled Asset Relief Program.......     9
    Gene Dodaro, Acting Comptroller General of the United States,
      U.S. Government Accountability Office..........................    20

                           SUBMISSIONS FOR THE RECORD

    Elizabeth Warren, Statement......................................    68

                         TROUBLED ASSET RELIEF PROGRAM

                                  ----------

                            THURSDAY, MARCH 19, 2009

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                     Subcommittee on Oversight,
                                                        Washington, DC.

        The Subcommittee met, pursuant to notice, at 10:10 a.m. in
    1100 Longworth House Office Building, Hon. John Lewis (Chairman
    of the Subcommittee) presiding.
        [The advisory announcing the hearing follows:]

    ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

                           SUBCOMMITTEE ON OVERSIGHT

                                                    CONTACT: (202) 225-5522
    FOR IMMEDIATE RELEASE
    March 12, 2009
    OV-2

        Lewis Announces a Hearing on the Troubled Asset Relief Program:
          Oversight of Federal Borrowing and the Use of Federal Monies

        House Ways and Means Oversight Subcommittee Chairman John Lewis (D-
    GA) today announced that the Subcommittee on Oversight will hold a
    hearing on the Troubled Asset Relief Program (TARP) and oversight of
    Federal borrowing and the use of Federal monies. The hearing will take
    place on Thursday, March 19, 2009, at 10:00 a.m. in the main Committee
    hearing room, 1100 Longworth House Office Building.

        In view of the limited time available to hear witnesses, oral
    testimony at this hearing will be from invited witnesses only. The
    Special Inspector General for TARP, the Honorable Neil Barofsky, and
    the Acting Comptroller General of the United States, Mr. Gene Dodaro,
    have been invited to testify. Any individual or organization not
    scheduled for an oral appearance may submit a written statement for
    consideration by the Subcommittee and for inclusion in the printed
    record of the hearing.

    BACKGROUND:

        Public Law 110-343, the ``Emergency Economic Stabilization Act of
    2008'' (the Act), was enacted to provide authorities and facilities
    that the Secretary of Treasury (Secretary) can use to restore liquidity
    and stability to the financial system of the United States. The Act
    authorizes the Secretary to establish TARP to purchase, and to make and
    fund commitments to purchase, troubled assets from any financial
    institution. The Act provides that the Secretary shall establish a
    program to guarantee certain troubled assets. The Act authorizes the
    Secretary to purchase and hold up to $700 billion in troubled assets at
    a time. Further, the Act increased the statutory limit on the public
    debt to $11.3 trillion (which is now $12.1 trillion).

        The Act included numerous provisions with respect to TARP
    oversight. The Act established the Office of the Special Inspector
    General for the TARP (SIGTARP) to conduct, supervise, and coordinate
    audits and investigations of the purchase, management, and sale of
    assets under the program. The Act created the Congressional Oversight
    Panel. The Act mandated that the Comptroller General of the United
    States conduct ongoing oversight of the activities and performance of
    TARP. Further, the Secretary is required under the Act to provide
    reports to the appropriate committees of the Congress, including the
    Committee on Ways and Means, detailing monthly activities and each $50
    billion in commitments to purchase troubled assets.

        The first oversight reports to the Congress by SIGTARP and the
    Comptroller General both noted that Treasury has utilized TARP funds
    differently than had been envisioned at inception of the Act. TARP's
    primary focus was expected to be the purchase of troubled assets, such
    as mortgages and mortgage-backed securities. However, within two weeks
    of enactment, then-Secretary Henry M. Paulson changed the strategy and
    decided to make capital investments of approximately $290 billion
    directly in financial institutions and other eligible recipients. This
    changed strategy resulted in an extraordinary use of public monies.

        In announcing the hearing, Chairman Lewis said, ``In the face of
    this economic crisis, we must restore public confidence in the use of
    Federal funds. As a starting point, taxpayers need to be certain that
    TARP funds are being spent for their intended purposes. The questions
    are simple. How much has been spent, and what have the recipients done
    with the money? We need answers.''

    FOCUS OF THE HEARING:

        The focus of the hearing is to review TARP, its operations, and
    oversight. Specifically, the Subcommittee will focus on the role of
    Federal borrowing, the impact on the national debt, and the protection
    of public monies. The Subcommittee also will consider the role of
    Federal tax compliance under this program.

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        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://waysandmeans.house.gov.

        Chairman LEWIS. Good morning. The hearing is now called to
    order. This is a hearing of the Subcommittee on Oversight of
    the Committee on Ways and Means.
        Before we begin, I would like to express my condolences to
    our Ranking Member, Dr. Boustany, on the passing of his father.
        I would like to thank Mr. Reichert and his colleagues for
    agreeing to hold this hearing with us this morning.
        I would like for us to take a brief moment to remember Dr.
    Boustany and his father.
        [Pause.]
        Chairman LEWIS. Thank you. To date, the Troubled Asset
    Relief Program has given more than $300 billion to private
    companies, and there are plans to give billions more.
        Taxpayers have no sense that there is any control over this
    money. They have no idea what, if anything, they will get in
    return. This entire program is based on trust, trust in the
    givers and trust in the takers. At this point, there is no
    trust.
        To get money from Treasury, banks and others must sign a
    contract that states they have no material unpaid Federal
    taxes. Treasury did not ask these banks and companies to turn
    over their tax receipts.
        Treasury relied on the signed statements when it agreed to
    invest billions of taxpayer dollars. When you or I go out to
    the bank to take out a mortgage to buy a house, we are asked
    for our tax returns. They are not going to just take our word
    for it, and we are not asking for millions of dollars.
        The Subcommittee looked at the top 23 TARP recipients. We
    found that 13 of them owed more than $220 million in unpaid
    Federal taxes. Two companies owe over $100 million each.
        How can this be? If we looked at all 470 recipients, how
    much would they owe?
        Are they signing contracts knowing that they owe taxes but
    thinking they will not get caught? Did then Secretary Paulson
    turn a blind eye?
        Either way, this is shameful. It is a disgrace. The
    American people are fed up, and they are fired up, and they are
    not going to take it any more. As Members of Congress, we
    should not take it any more either.
        We want to get to the bottom of what is going on here. The
    taxpayers deserve nothing less than the truth. The oversight
    work that our witnesses are doing is so important.
        I look forward to hearing from our witnesses on their
    oversight efforts and more importantly, what Treasury needs to
    do to restore the public trust in TARP.
        Thank you, Members, all of the Members, for being here
    today.
        Without objection, I would like to enter the report from
    the IRS to the Subcommittee into the record.

        [The information referred to follows:]

        [GRAPHIC] [TIFF OMITTED] 50333A.010

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        [GRAPHIC] [TIFF OMITTED] 50333A.012

        Chairman LEWIS. I am pleased to recognize Congressman
    Reichert for his opening statement.
        Mr. REICHERT. Thank you, Mr. Chairman. Also, thank you so
    much and I appreciate your recognizing, taking a moment of
    silence for the Boustany family in their loss. His father
    passed away this week, as you know. Our thoughts and prayers
    are with him and all of his family members.
        The Troubled Asset Relief Program or TARP was intended to
    open up credit for families and businesses but it was also
    supposed to restore confidence in the market.
        Yet every week brings new questions and new concerns about
    how these tax dollars are spent, from the millions of AIG
    bonuses and spa retreats to the billions that simply went
    missing.
        Worse, TARP continues to change and multiply before our
    very eyes, from buying toxic assets to buying stakes in banks.
    There is no clear plan and no consistent application of the
    program.
        Those involved have no idea if, how, or when TARP will
    change or change again.
        One particularly troubling change is the apparent transfer
    of authority from Treasury to the Federal Reserve, without any
    new Congressional oversight. The complete lack of transparency
    in TARP has produced a credibility crisis that undermines the
    very confidence it was meant to restore.
        Without transparency, investors have little reason to
    participate in a program that changes faster than the Dow.
        Without transparency, we are left with outrageous abuses,
    like bailout bonuses for companies surviving on the backs of
    taxpayers alone.
        To restore confidence, two things must be made very clear.
    One, exactly how TARP money is being spent, and two, what
    specific metric or metrics are used by Treasury that will
    measure the effectiveness of this program.
        Taxpayers have every right to be angry, as the Chairman
    said, that the results of the $700 billion bailout are as blank
    as the check that authorized it.
        We have an obligation to them to find answers, to collect
    facts and data, and to hold accountable the policies and people
    that led to the abuses, like those at AIG.
        We can all agree that TARP money has been misspent. Our
    options are to stay mad at wrongdoers or to identify how the
    wrongdoing occurred and find solutions so that it never happens
    again.
        We must also remember that the lack of transparency and
    accountability in TARP happened in the first place because
    Congress acted out of raw emotion before looking at all the
    facts. We acted too fast. That is one of the many reasons why I
    opposed that bill.
        We must be careful not to let our collective outrage
    prevail over good judgment and common sense. After all, we all
    know the mistakes that can happen when Government panics and
    rushes to act rather than working to get the action right.
        This is not the time to again shoot first and ask questions
    later.
        I hope that we can all work together, Democrats and
    Republicans, to get to the bottom of this, to get to the real
    answers, and to stop the abuses. The American taxpayer deserves
    no less.
        Mr. Chairman, I yield back the balance of my time.
        Chairman LEWIS. Thank you very much for your statement.
        Now, we will hear from our witnesses. I ask that you limit
    your testimony to 5 minutes. Without objection, your entire
    statement will be included in the record.
        It is now my pleasure to introduce the Special Inspector
    General for his testimony. Welcome.

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

        Mr. BAROFSKY. Thank you. Mr. Chairman, Ranking Member,
    Members of the Subcommittee, I am honored to appear before you
    today as the Special Inspector General for the Troubled Asset
    Relief Program or as we call it, SIGTARP.
        Originally described as a plan to buy $700 billion in toxic
    assets, the TARP has changed significantly. Treasury has
    announced nine different programs through which TARP will cover
    $2.9 trillion, and this does not include the $750 billion the
    administration has put aside in its budget and noted that it
    may seek later this year.
        To accomplish the TARP's mission to oversee this vast
    amount of money for the American taxpayer, I focused on three
    different areas: transparency, oversight and enforcement.
        Transparency has been an area of focus for my office since
    day one. In late December, I recommended that Treasury put all
    TARP agreements up on its website. In late January, Treasury
    agreed, and earlier this morning, they finally posted the top
    20 TARP agreements on its website.
        I have also used my audit division to advance transparency
    where necessary. For example, after Treasury made clear to me
    that they would not require the banks to report on how they are
    using TARP money, I sent letter requests to each TARP recipient
    asking them to report on how they have used the money that they
    received, how they plan on using unspent money, and how they
    plan to comply with the executive compensation requirements.
        I am pleased to report that as of today, we have had 100
    percent compliance with our survey requests.
        As to coordinated oversight, it has been and will continue
    to be my privilege and pleasure to share oversight
    responsibility with my co-panelist, Gene Dodaro. He and his
    team at GAO and us have been working together for more than 3
    months now to ensure maximum coverage and to reduce any
    unnecessary duplication of effort.
        I have also founded and chair the TARP IG Council, which
    includes as its members GAO, as well as the other Inspector
    Generals or agencies who are also touched by the TARP and
    responsible for its oversight.
        In conducting oversight, one focus of SIGTARP has been to
    attempt to have a positive impact on TARPs before the money
    goes out the door, by making recommendations to limit fraud and
    to increase oversight.
        Because I did not take office until mid-December, I was not
    able to offer advice with respect to early TARP agreements,
    such as the AIG agreement. However, we have been active in
    providing recommendations concerning the programs and the
    contracts ever since.
        We are also focused on enforcement. Of the four primary
    oversight bodies referenced in the Stabilization Act, SIGTARP
    stands alone as the TARP oversight body charged with criminal
    law enforcement authority, as the cop on the beat.
        This is one of our most important functions and we are
    meeting this unprecedented challenge head on.
        We are leveraging our resources with other agencies,
    exploring taskforce and similar regional relationships
    throughout the country.
        For example, last week, we formed a multi-agency law
    enforcement taskforce focused on the $1 trillion TALF Program.
    We believe that this taskforce has already served as a powerful
    deterrent, and when we detect fraud, rest assured we will
    investigate the matter and bring any fraudster to justice.
        Additionally, we have begun our outreach to potential
    whistleblowers and those who may have tips about ongoing fraud
    in TARPs. The SIGTARP hotline is operational to be accessed
    through our website, www.sigtarp.gov, or through our telephone
    hotline, 877-SIG-2009.
        The hotline has already yielded results and we have
    recently opened a criminal investigation based on a
    whistleblower complaint.
        Finally, we have been active in our response to the recent
    bonus payments to AIG. Both in my role as Special Inspector
    General and as an individual taxpayer, I too am frustrated with
    these very substantial bonuses which appear to have been made
    to those responsible for AIG's meltdown.
        First, we are launching an audit that is part of a larger
    review of executive compensation practices, and will include a
    thorough review of the process to which Treasury decided to
    authorize and approve such payments, including who knew what,
    how, when and why, both at the time Treasury entered into its
    agreement with AIG last November, which included specific
    reference to contemplated retention payments, all the way up
    and through the events of this week.
        Second, we are working closely with the New York State
    Attorney General's investigation into these payments.
        Third, we are initiating our own investigation, and
    finally, we are coordinating with the Department of Justice in
    its examination of options that may be available to recover
    taxpayer money.
        Mr. Chairman, Ranking Member, Members of the Subcommittee,
    I thank you and commend you for your efforts to help oversee
    the trillions of dollars that are being expended under TARP,
    and I look forward to answering any questions that you may
    have.
        [The prepared statement of Neil Barofsky follows:]
     Statement of The Honorable Neil Barofsky, Special Inspector General,
     Office of the Special Inspector General, Troubled Asset Relief Program

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        Chairman LEWIS. Thank you very much, Mr. Inspector General.
        It is now my pleasure to introduce the Acting Comptroller
    for his testimony.
        Welcome.

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

        Mr. DODARO. Thank you very much, Mr. Chairman. Good morning
    to you, Ranking Member Reichert, and Members of the
    Subcommittee.
        I am very pleased to be here today to assist in your
    deliberations and oversight over the Troubled Asset Relief
    Program.
        When the program was first created in the Economic
    Stabilization Act back on October 3, GAO was charged with
    providing oversight over Treasury's implementation and
    reporting every 60 days to the Congress, and we are also
    charged with providing an annual financial audit of the
    Troubled Asset Relief Program that is being managed by the
    Office of Financial Stability in the Treasury Department.
        Faithful to the mandates in the legislation, we issued our
    first 60 day report on December 2, and our second 60 day report
    toward the end of January.
        In both of those reports, we made a series of
    recommendations that were very important to increasing the
    accountability and transparency of this very important program.
        Those recommendations fell into three categories. First,
    monitoring and tracking the use of the money and making sure
    Treasury had an oversight process in place to monitor
    compliance with the legislative provisions. These were among
    our top recommendations.
        At that time in December, Treasury did not have plans to
    obtain any information back from the organizations receiving
    money under the Capital Purchase Program.
        Our recommendation was they needed to do so, and as a
    result of that, they initially started collecting monthly
    survey information on the aggregate lending activity of the top
    20 institutions receiving the TARP money.
        In January, we said that is not enough. We believe you
    ought to have data collected on a monthly basis for any
    institution receiving Troubled Asset Relief Programs, and they
    are beginning to now recently move in that direction.
        We are pleased with that but they still need to stand up
    fully their oversight monitoring program to ensure compliance
    with the Act's provisions.
        The second category of our recommendations dealt with a
    communications strategy. This is a program that has been
    plagued with communication problems from day one, in making the
    shift between purchasing the troubled assets to the capital
    injections in the program.
        In December, we recommended that their communication
    strategy be improved, both with the Congress and other
    stakeholders, and in January, we added to that recommendation
    by stating that we believe they need to have a clearly
    articulated vision of the entire TARP, and it needs to be
    coherent and understandable so that people have confidence that
    they understand how the different parts are working together.
        They have made some headway in that area with the
    announcement in the last month of the financial stability plan
    and the homeowner affordability plan, but there is a lot of
    details that need to be worked out yet.
        I think the stress test concept was a good one, but it
    remains to be seen what the results of that will be and what
    actions Treasury will take through their capital acquisition
    program to provide assistance in the future. The plan needs to
    be worked out.
        The last category of recommendations were how the program
    is being managed. They needed to have additional people on
    board, to be hired, to be trained, to make sure they had the
    right complement of people to do the program, to make sure they
    had enough people to oversee the contracts that were being let,
    to make sure there were no conflicts of interest in the
    programs, and they had the proper internal controls in place to
    adequately manage the program.
        We had a series of recommendations in that regard. Those
    recommendations have not yet all been fully implemented.
        We are staying on top of Treasury's efforts to move forward
    in those areas, and we believe it is very important for them to
    fully implement our recommendations to ensure that they
    strengthen accountability and transparency for this program
    going forward.
        Last, Mr. Chairman, in closing, I was asked also to provide
    some information about the amount of lending that has been
    required, broadly speaking.
        From the end of fiscal 2007 to February 2009, the amount of
    payments in terms of debt held by the public has increased $1.4
    trillion.
        One of the big challenges going forward is based upon our
    review of Treasury's records, and this year, they are going to
    have to roll over about $2.5 trillion in debt as well. That
    will be a challenge.
        We have an ongoing monitoring activity looking at
    Treasury's process, and we will be happy to keep the Committee
    apprised of our efforts.
        Thank you very much again for being here and we look
    forward to assisting this Committee in its oversight.
        [The prepared statement of Gene L. Dodaro follows:]
      Statement of Gene Dodaro, Acting Comptroller General of the United
                 States, U.S. Government Accountability Office

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        Chairman LEWIS. Thank you very much, Mr. Comptroller.
        At this time, I will open the hearing for questions. I ask
    that each Member follow the 5 minute rule. If the witnesses
    will respond with short answers, all Members should have an
    opportunity to ask questions.
        Mr. Inspector General, tell the Members of the Committee,
    are you familiar with the extended contracts that are used to
    give money under this program and the term of those contracts?
        Mr. BAROFSKY. I am generally aware of those contracts and
    terms.
        Chairman LEWIS. Do you care to elaborate on the contents of
    those contracts?
        Mr. BAROFSKY. Sure. The contracts contain various
    provisions, a lot of legal standard representations and
    warranties, and as you mentioned in your opening statement,
    provisions regarding tax compliance.
        Chairman LEWIS. That is what I want to get to, Mr.
    Inspector General. Do the contracts state that the recipients
    are not aware of any material unpaid taxes?
        If the contracts contain this clause, why are there
    recipients with outstanding Federal taxes? What can be done to
    collect unpaid taxes?
        Mr. BAROFSKY. I think, Mr. Chairman, yes, the agreements
    state that in Section 2.20 of the Standard Capital Purchase
    Program. The agreement does have that provision. As you
    correctly noted, they represent and warrant that at the time
    they sign this contract, there are no material outstanding tax
    obligations.
        I think it falls primarily on the Office of Financial
    Stability's Compliance Department to be monitoring their
    compliance with these provisions of this agreement.
        I am aware today, thanks to the Subcommittee, that there
    are several recipients who do appear to have large unpaid tax
    amounts, and I certainly plan on discussing this with OFS
    Compliance to remedy this situation. It is obviously a very
    serious one.
        Chairman LEWIS. Mr. Comptroller, what are the options for
    recovering unpaid taxes?
        Mr. DODARO. IRS has various tools available to it, such as
    liens on property, levies on bank accounts or other assets that
    might be available. They can also levy penalties on the
    organizations, and also charge the individuals that are
    accountable at the bank individually with some of these
    penalties.
        The IRS has ample tools available to it to enforce
    compliance under current law.
        Chairman LEWIS. Are either of you prepared to make
    recommendations to the IRS and Treasury as to what they should
    do? Who can the Government collect from when a company has
    unpaid payroll taxes?
        Mr. DODARO. They can collect from the company itself and
    the officers or the responsible officials in the company. That
    is pretty much standard practice at the IRS.
        We have noted over time that their enforcement efforts,
    particularly for unpaid payroll taxes, are not very timely. It
    will take many weeks for them to move toward a decision and
    then to levy the penalties and then to proceed toward
    collection, and their collection record is not that terrific in
    a number of these areas.
        We do an annual financial audit of the IRS, so we look at
    this every year when we do that. We have made some
    recommendations to them to increase their activities to move
    forward in these areas and to collect more funds.
        I would be happy to provide our recommendations that we
    have made to the IRS for the record, Mr. Chairman.
        I would also be happy to--for GAO to get access to taxpayer
    data requires the consent of this Committee or the Joint
    Committee on Taxation or Senate Finance Committee, and if we
    received that approval from the Committee to get the data, we
    could go behind the information and take a closer look at what
    you are revealing today.
        Chairman LEWIS. How do we recover unpaid taxes from Federal
    contractors?
        Mr. DODARO. There are a number of ways. If the dispersing
    system for the contractors can be run through a system over at
    the Treasury Department and they can screen against whether
    that contractor has any unpaid Federal taxes, and the payment
    stream to the contractors can be offset to recoup the amount of
    money that is available there.
        Also, back on your other question, one other tool IRS has,
    they can also offset refunds that are made to individuals on
    the corporations that might be charged with particular problems
    as well.
        We made recommendations that more dispersing systems in the
    Federal Government be coordinated with this Treasury program to
    provide additional safeguards in that process, so there is more
    ability to collect the money.
        Chairman LEWIS. Thank you very much, the two of you. I
    yield to Mr. Reichert for his questions.
        Mr. REICHERT Thank you, Mr. Chairman. Thank you both for
    being here. I do not envy your jobs at this time. I am happy to
    have you here and the American people certainly are looking
    forward to your answers, and glad that you are watching out for
    their tax dollars.
        I just want to congratulate you both first of all for
    talking about transparency and oversight and enforcement,
    monitoring, tracking, all of those things that you both
    mentioned in your opening statements.
        I kind of want to go over some of the things that you have
    already mentioned, just to highlight them.
        The people are real concerned. They have heard a lot of
    figures tossed around, $700 billion is the authorized amount,
    but the total taxpayer exposure, as you mentioned in your
    opening statements, is quite a bit more.
        Just how much really are the taxpayers on the hook for?
    Either one of you can answer that question.
        Mr. BAROFSKY. I think with the TARP related programs as
    they have been described and announced by the Secretary, when
    you add up all the commitments, when leveraged with money from
    the Federal Reserve, the TARP related programs are
    approximately $2.9 trillion.
        Mr. REICHERT Just so the American people understand, we are
    not talking about $700 billion. We are talking about almost $3
    trillion.
        Mr. DODARO. There are a couple of different aspects, and I
    think what Mr. Barofsky is saying is absolutely accurate in the
    aggregate, but some of the different programs have different
    characteristics.
        The Capital Purchase Program, for example, companies are
    required to pay dividends back. So, far, there has been about
    $2.4 billion, and I think with the recent information I
    received, about $2.8 billion in dividend payments that have
    been paid back on the preferred stock.
        There is some ability to recoup some of this money, but you
    are exactly right, the potential risk long term on some of
    these other programs is very significant.
        Mr. REICHERT. We are spending a lot of taxpayer dollars. We
    are talking about $3 trillion potentially on the hook here for
    the taxpayers.
        How can Treasury establish meaningful metrics to determine
    whether or not TARP is really providing any sort of access to
    credit, improving access to credit? Are you able to answer that
    question?
        Mr. DODARO. Yes. That is one of our first recommendations,
    to collect information from the institutions receiving
    assistance about their lending activities, to be able to
    determine whether or not they are actually increasing their
    lending activities or mortgage mitigation efforts, to help
    homeowners that needed to readjust their mortgages.
        Mr. REICHERT. What did you find out?
        Mr. DODARO. We found out first of all that Treasury had not
    planned to do that, and as a result of our recommendation, they
    started collecting that information, and the top 20 banks that
    reported, the aggregate lending activity for their first report
    through the end of the year had decreased a bit in November and
    had gone back up in the aggregate in December, but not back up
    to the October date.
        This money was distributed through a period of time, so
    they need to continue to collect that data. We are in the
    process of analyzing the most recent information, and we will
    be providing assistance.
        We also have developed in our reports a series of
    indicators to determine in the aggregate whether lending is
    going up, like for example, the inner-bank lending rates.
        Mr. REICHERT The troubling part in this is that we knew we
    were spending a lot of taxpayer dollars and there was no plan
    in the beginning.
        Mr. DODARO. That concerned us, and that is why we made our
    recommendations in our very first report, Congressman.
        Mr. REICHERT. Next topic here, I am an original cosponsor
    of a bill that a number of Members have supported that would
    force Treasury to reveal certain records of its dealings with
    AIG.
        Some of the questions that we want answered, of course, as
    you probably have already heard, did the Treasury Secretary,
    Mr. Geithner, know or should he have known, about these bonuses
    prior to offering AIG an additional $30 billion earlier this
    month. Did he know or should he have known?
        Mr. BAROFSKY. The audit that I announced in my opening
    statement will have the answer to that question, whether or not
    he knew. Not just him, of course, but throughout the Treasury
    Department, who knew what, when, how and why, and we will
    answer that question in our audit.
        Mr. REICHERT. When is that due?
        Mr. BAROFSKY. We are just getting it off the ground right
    now. I cannot give you a precise answer.
        Mr. REICHERT. Neither of you can answer that question
    today?
        Mr. DODARO. No.
        Mr. BAROFSKY. I cannot answer that question.
        Mr. REICHERT. Thank you, Mr. Chairman. My time is up, I
    yield back.
        Chairman LEWIS. Thank you, sir. Now, I will turn to Mr.
    Becerra for questions.
        Mr. BECERRA. Thank you, Mr. Chairman. Thank you for holding
    this hearing, which I suspect is the first of several hearings
    to conduct the oversight responsibility that this Committee has
    over these issues involving the TARP funding.
        I want to thank the two gentlemen that are before us for
    their overall work they have done for the people of this
    country in trying to help us provide the information and
    oversight that is important for us to conduct our business.
        First question, you have mentioned, gentlemen, that you
    have had conversations with obviously the folks at Treasury,
    probably the Fed, and some of the recipients of the TARP money
    directly as well.
        Are you receiving all of the support and cooperation that
    you need to conduct your oversight responsibilities and
    enforcement responsibilities from the Department of Treasury
    and its personnel?
        Mr. BAROFSKY. So, far we have.
        Mr. DODARO. We have been given a great deal of cooperation
    from the Treasury Department. One thing I do want to mention
    since you mentioned the Federal Reserve, GAO is statutorily
    prohibited from reviewing certain activities of the Federal
    Reserve, and discount window operations, open market Committee
    transactions.
        I am becoming very concerned as TARP money is being used to
    leverage Federal Reserve activities that we will have--
    currently, that we will have a problem in reviewing that in the
    future.
        I think that the Congress should consider removing those
    restrictions for the GAO to provide additional oversight. I
    wanted to make that point clear this morning. Thank you.
        Mr. BECERRA. Thank you, Mr. Dodaro. I hope, Mr. Chairman,
    we are able to continue conversation with Mr. Dodaro and his
    staff to find out if there is some ways we can help make sure
    that the transparency and accountability that you are charged
    to help us obtain is something we end up securing. Thank you
    for that information.
        On the issue of unpaid income taxes by some of these TARP
    recipients, my understanding is there are more than one TARP
    recipient that has unpaid income taxes totaling over $100
    million to the Federal Treasury; is that correct?
        Mr. BAROFSKY. Based on the information provided to us by
    the Subcommittee, it does indicate that.
        Mr. BECERRA. There are ways for Treasury to collect this
    money from those TARP recipients, specifically the contracts
    these recipients signed with the Government in order to obtain
    taxpayer funded TARP dollars; is that correct?
        Mr. BAROFSKY. That is correct.
        Mr. DODARO. That is correct.
        Mr. BECERRA. Does the Treasury have the tools in place
    today to be able to secure those uncollected income taxes from
    these TARP recipients?
        Mr. DODARO. IRS has the tools available to do it. This goes
    to the recommendation we had made about Treasury really
    monitoring compliance with this Act, and they really have not
    had their program up and running yet.
        Mr. BECERRA. Are you aware if IRS is taking steps to
    collect those uncollected income taxes from those recipients of
    billions of dollars of TARP/taxpayer money?
        Mr. DODARO. I do not know that today but we can find out.
        Mr. BECERRA. Would you please find out? I suspect we will
    try to find out as well. If you can report back to us if IRS is
    taking steps to collect money that is owed by banks and
    financial institutions that have received billions of dollars
    from the taxpayers.
        It just seems anomalous that given that they signed a
    contract that said they will be up to date on their taxes that
    they owe, to get this taxpayer bail out money, they would pay
    their taxes.
        I hope that you will help us quickly determine what is
    being done to make sure that these companies are up to date the
    way we expect every other working American to be up to date in
    his or her taxes.
        Mr. BAROFSKY. Yes, sir. To be clear, if an executive
    knowingly signed this agreement knowing that a representation
    in that was false, that would also potentially be a crime.
        We are going to look very heavily into this issue as part
    of our responsibility for enforcement to see if any such crime
    was committed.
        Mr. BECERRA. Please let us know if we can be helpful to you
    as you conduct that examination.
        Mr. DODARO. The one thing we will need, Congressman, is
    approval from this Committee to get access to the taxpayer
    information.
        Mr. BECERRA. To the degree that we can help, I am certain,
    Mr. Chairman, we will do everything we can at the Congressional
    level to try to help you have that information at your
    disposal.
        A question regarding Treasury's authority over TARP. Can
    Treasury limit executive compensation based on these TARP
    agreements that were signed by these financial institutions
    that requested taxpayer bail out money?
        Mr. BAROFSKY. Yes, it can do so through regulation.
        Mr. BECERRA. Can it require recipients of TARP money to get
    Treasury approval before paying out bonuses?
        Mr. BAROFSKY. It does have the ability to do so.
        Mr. BECERRA. Can the Treasury limit recipients of taxpayer
    money, TARP money, from using TARP moneys in particular ways?
        Mr. BAROFSKY. It can and has put some restrictions already
    in its agreements.
        Mr. BECERRA. Yes, we can place restrictions on how
    recipients use TARP money?
        Mr. BAROFSKY. Yes.
        Mr. BECERRA. Thank you, Mr. Chairman. Maybe if we have a
    second round of questions, I will have an opportunity to
    continue, but thank you very much. I yield back.
        Chairman LEWIS. Thank you. Mr. Roskam is recognized for
    questions.
        Mr. ROSKAM. Thank you, Mr. Chairman.
        I just want to take a step back and go back to the Fall
    when this whole adventure began, and essentially, I think there
    was not a serious person in Congress that did not realize that
    the credit markets were ceasing up and there was near unanimity
    that Congress needed to act.
        The question is how does Congress act, and there was a drum
    beat that started, and it became more and more intense over the
    course of several days to the point that it almost had a panic
    feel to it around here.
        As a result, there was a proposal that was put forth by the
    administration at the time, and the communication was
    essentially sign this, vote for this, do not ask too many
    questions, and if you are asking questions, you are either
    naive, uninformed or you are an obstructionist. That was the
    subtext.
        The Monday that the first TARP vote failed, I personally
    heard an open outcry on the Floor of the House of
    Representatives where a Member shouted out the market has
    dropped 600 points, as if that was the driving factor in
    Congress making its determination.
        You know how the adventure went on. On Friday, it comes
    back and it is passed into law.
        It seems to me ironic that here we are, this Congress, we
    gave away tremendous authority in the TARP legislation, did not
    do the due diligence in my view at the time, and now, we are in
    a position where yes, this is changing and it is very, very
    difficult.
        I have analogized this. I think it was the financial
    equivalent of the Gulf of Tonkin resolution, where Congress
    basically gets rolled and gives away tremendous authority.
        It started out badly and it got worse because the
    administration came out of the huddle, so to speak, and they
    were going to do their call, and looked at the line of
    scrimmage in a football analogy and said you know what, we came
    out and we were going to do toxic assets, no, no, new play,
    capital injections.
        It has been one adventure after another. I think getting to
    your testimony, there is a lack of predictability on how this
    is playing out. What is the metric? How are decisions being
    made?
        I think that while you are hearing from wound up Members of
    Congress, who are rightfully wound up about this, our
    opportunity was to cast this well when the bill was originally
    passed, and now reluctantly, we are dealing with a situation--
    my predecessor was Henry Hyde, and Henry Hyde had a great
    expression.
        He said there is one thing worse than gridlock, the worse
    thing than gridlock is the greased shoot of Government. That is
    exactly what we are dealing with right now.
        Mr. Barofsky, you mentioned something that I found
    interesting, and that is the recommendations that you are
    making as it relates to this whole program, are those
    recommendations--are you memorializing those?
        In other words, are those recommendations in writing that
    we can get the benefit of in future oversight hearings and
    future conversations, or they just sort of not memorialized and
    just sort of conversational recommendations?
        Could you speak to that?
        Mr. BAROFSKY. We memorialized our recommendations. They are
    included in--the first round of recommendations were gathered
    and included in our first report to Congress on February 6.
    Since then, we have made a series of recommendations. We do
    those in writing. We will be including those in our next
    report, which I believe will be delivered to Congress on April
    20.
        Mr. ROSKAM. You mentioned the on line aspect of the
    disclosure of the TARP agreements. Would those online
    disclosures, as they are currently exercised by Treasury, have
    revealed the AIG problem?
        Mr. BAROFSKY. It would have revealed that in any AIG
    agreement with Treasury, retention payments were explicitly
    contemplated. It did not list the contracts. It did not list
    the amounts.
        In the executive compensation provisions, there is an
    explicit reference to retention payments and calculating the
    total amount of payment a senior executive could receive.
        That issue was in fact in those agreements.
        Mr. ROSKAM. Is it fair to say that if they had been online,
    that issue would have been red flagged and certainly drawn
    attention in advance of the problem?
        Mr. BAROFSKY. Potentially. I am not sure of the exact date
    that the AIG agreement did go up on the Internet. Our
    recommendation was sort of adopted in waves after it was made
    in late December. It is now being fully complied with. I am not
    sure of the exact date the AIG agreement went up.
        Mr. ROSKAM. I understand. Thank you. I yield back.
        Chairman LEWIS. Thank you. Now, I will turn to Mr. Kind for
    his questions.
        Mr. KIND. Thank you, Mr. Chairman. Thank you for holding
    this very, very important and timely hearing. I want to thank
    our witnesses for your testimony and your access to us as we
    have ongoing questions about the oversight and implementation
    of TARP.
        Let me just quickly ask you both whether or not you feel
    that your respective agencies have the resources, the tools,
    the personnel that you need to effectively conduct oversight
    with the implementation of TARP.
        Mr. Barofsky?
        Mr. BAROFSKY. We are building. We do not have the necessary
    resources yet. Pending right now in the House is H.R. 1341,
    which would give us some expanded hiring authority, which will
    help us.
        Right now, we are about 30 strong. We are building to about
    120 to 125. We have had some serious challenges. We have had
    the same challenges that TARP has, as Mr. Dodaro has indicated
    in his report.
        I am hopeful with the passage of this vitally important
    bill for us that we will be on the road to getting the
    necessary resources.
        Mr. KIND. Thank you. Mr. Dodaro?
        Mr. DODARO. I believe we have the necessary expertise in
    GAO since we are a preexisting organization. We have
    collectively pooled the resources and we are augmenting those
    resources with some hires.
        I have two concerns. My biggest concern is what I mentioned
    before about our limitations at the Federal Reserve. I think
    unless that is dealt with, we are not going to be able to
    provide the type of oversight that the Congress would expect,
    and I believe deserves, during these extraordinary times. That
    needs to be dealt with.
        There is also a potential safeguard that could be put in
    place to give us access to the books and records of any
    recipient of TARP money. We currently do not have that.
        There has been a bill introduced in the Senate, which I can
    provide to this Committee, by Senators Baucus and Grassley, to
    do that.
        Right now, it is not a problem, but given the
    unpredictability of how this process is going to unfold, I
    think it would be a good safeguard.
        Mr. KIND. I appreciate your concern about the Fed
    oversight. We have had conversation previously about that. It
    gets a little tricky, and I think we are going to have to
    engage you in further exploration of what type of statutory
    authority you need.
        Obviously, the Fed has always been set up as an independent
    entity, so it is not subjected to the political whims of
    Congress or any other outside influence.
        If there is a way we can massage that authority that you
    need, I think we need to. It is an unprecedented intervention
    by the Fed with the capitalization that has taken place there.
    I think more oversight is certainly necessary.
        Mr. DODARO. Congressman, I am very respectful of the need
    for the Fed's independence. I believe whatever legislation is
    passed could be carefully crafted and even temporary in nature.
    I am not trying to seek any permanent authority here.
        Mr. KIND. Let me ask you both about the coordinated
    oversight functions. Just from my quick calculations here, we
    have the IG Office and the GAO obviously involved in oversight.
    We have the Financial Stability Oversight Board that was
    created with the passage of TARP. We have Treasury involvement,
    Fed involvement with oversight. Our involvement in oversight.
    Might as well throw in the national media's involvement in
    oversight.
        Do you feel there is sufficient coordination so that we do
    not have overlap and redundancy and duplication occurring with
    oversight?
        Mr. BAROFSKY. I do. I think that is one of our most
    important roles, making sure that is the case. TARP is such a
    vast terrain and it is growing and changing every day.
        If Gene and I and our organizations were not to work
    closely, as well with the Congressional oversight panel, I have
    my own council of the various Inspector Generals that includes
    representatives from GAO, if we were not coordinating, one, we
    would not have a shot at covering this whole terrain.
        Second, we would be wasting our time by duplication of
    resources. We have worked really hard----
        Mr. KIND. Let me ask you both this, the first line of
    defense is responsible behavior of the banks that are receiving
    these funds right now. Unfortunately, the track record has not
    been very good so far, especially with the AIG story this week
    and the anger it has engendered.
        Do the banks themselves have internal control systems being
    established in the appropriate use of the TARP funds from what
    you have been able to see?
        Mr. BAROFSKY. One of our recommendations that we made to
    Treasury was that Treasury require in its agreement the
    establishment of internal controls, at least with respect to
    those conditions that are imposed upon them.
        They have adopted that with respect to some of their
    agreements such as Citigroup and Bank of America, as well as
    the auto industries, and we hope they continue to impose those
    internal controls. We think they are vital.
        Mr. DODARO. I think a real important point here for the
    Congress, too, is as these next set of programs are authorized,
    there is a real opportunity here to build in some better
    controls up front than were originally built into the program.
        I would encourage the Congress to have oversight hearings
    with the Treasury Department to really focus on what their
    plans are.
        Mr. KIND. I see my time is expiring, but I would like to
    follow up with you two gentlemen in regard to what type of
    additional oversight we need to provide through statute, what
    type of questions we need as a body to be asking Treasury in
    regard to their oversight function as well.
        There is still a lot of work to be done. I thank you two
    and your agencies for the job that you are performing on behalf
    of the American taxpayer. Thank you.
        Mr. DODARO. Thank you.
        Mr. BAROFSKY. Thank you.
        Chairman LEWIS. Thank you very much. Now, I will turn to
    Mr. Linder for his questions.
        Mr. LINDER. Thank you, Mr. Chairman.
        Mr. Barofsky, of the companies that are owing taxes to the
    Government who signed those contracts, are any of those
    companies delinquent today?
        Mr. BAROFSKY. I do not know the names of the companies. The
    information that was provided to me today has the companies
    identified by number or letter. I cannot answer your question.
        Mr. LINDER. You cannot also answer whether those companies
    signed contracts before or after January?
        Mr. BAROFSKY. Because I do not know the identity, I am
    sorry, Congressman, but I hope to work with the Subcommittee
    and find out and be able to answer that question.
        Mr. LINDER. Mr. Dodaro, are the limitations on the Fed
    statutory?
        Mr. DODARO. Yes, they are, Congressman. It is in the Bank
    Auditing Act. It is one of the few instances where GAO is
    statutorily prohibited.
        Mr. LINDER. Do either of your organizations have any
    anticipatory examination powers? Could you have gone into the
    TARP when it was just being anticipated and looked at it and
    made recommendations?
        Mr. BAROFSKY. I am sorry. We did not exist when the TARP
    was being formed. I was sworn in on December 15. I would not
    have been able to do that.
        Mr. LINDER. Could you do it with respect to TALF?
        Mr. BAROFSKY. With TALF, what we have been attempting to do
    is make a series of recommendations and continue to make
    recommendations on the formation of that program.
        We are very concerned about the fraud vulnerabilities in
    the TALF. We made recommendations in our February report. We
    continue to engage in a dialog with the Federal Reserve as well
    as Treasury. We are trying to do our best to make the necessary
    recommendations to protect taxpayer money.
        We have also formed a TALF taskforce to try to send a
    powerful deterrent message to those who would abuse the
    program, and I think that deterrent effect is beginning to have
    some traction.
        Mr. LINDER. Does that mean people are going to refuse to
    participate in it?
        Mr. BAROFSKY. I hope that anyone who is planning on
    stealing from the program refuses to participate. I hope we
    deter them.
        Mr. LINDER. Do you know more details about TALF than we do?
        Mr. BAROFSKY. I know a lot of details about TALF.
        Mr. LINDER. Can you share them with us? I have no idea what
    they are finally going to do.
        Mr. BAROFSKY. It is an extremely complicated program and it
    changes. That has been one of our great concerns.
        Just last week, a lot of the conditions that gave us some
    greater comfort about the fraud prevention in the program were
    changed. It continues to change.
        In our report, we detail some information on the TALF as it
    existed at that time. The Federal Reserve does have
    information, questions and answers on its website.
        It is complicated. We are going to in our next report give
    a comprehensive description of the program, like we did in our
    last report, and in easy to understand terms.
        Mr. LINDER. Do you have any idea what their timeframe is?
        Mr. BAROFSKY. The first disbursements on TALF are supposed
    to occur next week.
        Mr. LINDER. Do you know how much they are looking at?
        Mr. BAROFSKY. I do not think the numbers have been
    disclosed. The total TALF program as it currently exists is a
    potential $200 billion worth of lending. I am not sure what
    they expect. I do not think they know until the applications
    come in what the amounts will be.
        Mr. LINDER. What do you know about the Fed's insinuation in
    commercial paper markets?
        Mr. BAROFSKY. That is not really part of the TARP related
    program, so I really would not feel qualified.
        Mr. LINDER. Do you know, Mr. Dodaro?
        Mr. DODARO. No.
        Mr. LINDER. Could you look into that?
        Mr. DODARO. That is one of the areas we would not be able
    to look into because of this limitation, Congressman.
        Mr. LINDER. In the last couple of days, you may have
    noticed a lot of interest in the bonuses that AIG paid out.
    That language was put into the bill, stimulation package, was
    it not? When did you first know the language was there?
        Mr. BAROFSKY. I first saw the language--I think the bill
    passed on a Friday and I think I saw it later that day.
        Mr. LINDER. The language was in the bill then?
        Mr. BAROFSKY. When I saw the bill, it was after it had been
    passed and it had language that exempted----
        Mr. LINDER. Prior to February 11?
        Mr. BAROFSKY. Yes.
        Mr. LINDER. Which is about a month ago.
        Mr. BAROFSKY. Yes.
        Mr. LINDER. Did you raise that issue then? Did you raise
    any issues about the bonuses, retention bonuses going to AIG?
        Mr. BAROFSKY. I became aware of these particular set of
    bonuses after they had already been paid. That is when Treasury
    notified me of them.
        Mr. LINDER. Thank you both. Mr. Chairman, I yield back.
        Chairman LEWIS. Thank you very much. Mr. Pascrell is
    recognized for questions.
        Mr. PASCRELL. Mr. Chairman, let me start with my
    conclusion. The Treasury does not want financial institutions
    to fail. None of us do. Those institutions will fail if the
    Treasury puts everything on the table, so let us not put
    everything on the table.
        There are some things the public and the Congress need not
    know. If they know, the public will further lose confidence.
    That is my conclusion.
        I understand that this administration is trying to dig
    itself out of the deep hole that it found itself in. I
    understand that very clearly in early October of 2008, Congress
    passed and President Bush signed the Emergency Economic
    Stabilization Act of 2008, creating the Troubled Asset Relief
    Program.
        At that time, the TARP's primary focus was expected to be
    the purchase of troubled assets, such as mortgages and mortgage
    backed securities.
        However, we know what happened two weeks after the
    enactment, someone changed their minds, not the Congress.
        The past Administration and specifically former Secretary
    Paulson implemented TARP in ways that have been radically
    different than what was widely envisioned when Congress passed
    the Emergency Economic Stabilization Act.
        I consider this a fraud perpetuated by the last
    Administration when it promised one course of action and
    delivered another, but I am deeply disappointed that the
    Treasury Secretary right now, Mr. Geithner, has not taken a
    more aggressive approach to remedy the mismanagement of these
    TARP funds by the last Administration.
        I am stunned by the current Treasury, and I am offended by
    their obstinacy and the fact that they are not here today when
    they were requested to be here three times.
        Three different Treasury offices, the Office of Financial
    Stability, the Office of Tax Policy, the Office of Public Debt
    and Borrowing, were contacted about testifying at the hearing,
    all three refused.
        The Treasury, regardless of the administration, must be
    accountable for their actions or their mismanagement, and the
    mismanagement of the TARP funds specifically.
        Mr. Dodaro, it has been nearly six months since AIG
    received its first Government bail out. By the way, the interim
    final rule still includes limits on executive compensation.
    That is still there, as I understand it.
        Mr. DODARO. Until they revise it to make it consistent with
    the new legislation.
        Mr. PASCRELL. Thank you. They have given a total of $170
    billion, one thousand times the cost of these executive
    bonuses, yet no progress has been made in consolidating AIG and
    no progress has been made in selling off its assets.
        My question is this--I wish the Treasury was present
    because they are the folks I should be asking the question to,
    so you will have to substitute for them, as you have been
    doing, but you have done a fantastic job, both of you.
        Specifically, what the plan is for consolidating AIG, and
    can any of you here today give some insight into the matter?
    Then I have a follow up question.
        Mr. Dodaro?
        Mr. DODARO. If I might, Congressman Pascrell, I have the
    person that is doing this work for us here, Ms. Orice Williams,
    and she could give you----
        Mr. PASCRELL. With your permission, Mr. Chairman.
        Chairman LEWIS. Yes. Thank you for being here.
        Ms. WILLIAMS. No problem. In terms of AIG, the Fed
    initially provided assistance to AIG. Treasury through TARP
    provided assistance through the systemically significant
    failing institution program. That money was paid directly to
    the Fed to pay down the original credit revolving facility.
        The Fed has been responsible for the day to day oversight
    of AIG and its plan to unwind the institution.
        I testified yesterday that in terms of where they are in
    the process, it is still very much ongoing, they have been
    unable to sell major assets out of the organization, so they
    have not had great success in unwinding the organization to
    this point.
        They have been able to terminate their securities lending
    facility that had created a lot of problems for AIG, and they
    also have been able to move off a significant amount of their
    most complicated CDS portfolio.
        Mr. PASCRELL. If I may, Mr. Chairman, in the last 6 months,
    with our infusion of a lot of capital, if there has been no
    progress in addressing the larger problems at AIG, do you still
    believe AIG should receive more TARP money in the future?
        Ms. WILLIAMS. This goes to kind of the Fed's goal in
    assisting AIG, and that had to do with preventing systemic risk
    to the system, from either a credit downgrade of AIG or a rapid
    bankruptcy of the organization.
        The two areas that were creating the largest problems for
    AIG were addressed, and that is the securities lending program
    and dealing with their CDS portfolio, and these were moved into
    two vehicles created by the Fed, Maiden Lane II and Maiden Lane
    III, to purchase the securities that AIG had invested in.
        Mr. PASCRELL. Thank you very much. Thank you. I yield back.
        Chairman LEWIS. Thank you. Mr. Davis of Kentucky is
    recognized for his questions.
        Mr. DAVIS OF KENTUCKY. Thank you, Mr. Chairman.
        I would like to go off on something that Mr. Pascrell had
    mentioned, really a follow up to the joint discussion that we
    had in the library earlier in the week.
        One point that I think is important to clarify on the way
    the record came out, it was not just Members of the past
    Administration who were party to framing this problem.
        I sat in the hearings in the Financial Services Committee
    and actually watched the Majority Chairman, the Democratic
    Chairman of the House Financial Services Committee and then the
    Chairman of the Senate Banking Committee agree and in fact
    ignore the warnings of many Members on both sides of the aisle
    who were attempting to prescribe the use of these funds,
    because the very thing that has happened is really no surprise.
        I find it a little disingenuous that the Secretary in fact
    is reacting to this based on the fact that he was Governor of
    the New York Fed that was intimately involved in setting up the
    contractual relationships of how this went.
        I want to come back to a bigger picture, I think, this was
    the thrust of my question before. Not so much a party issue,
    and I truly believe at the root of problems like this, it is
    not a Democrat or Republican issue, but we have a flawed
    process issue in how the agencies are functioning.
        First of all, we have this unprecedented transfer of
    unaccountable power to the executive to place taxpayer money
    into the private sector.
        I may over simplify this and where we go with it, but I
    guess the concern I have is we have had this change take place,
    is there a bigger Constitutional question here?
        Do you believe that we need to have the ability to dive in
    and see what was done with those assets specifically?
        Where I would go into a parallel before I follow along with
    a couple of subparts to the question, if I owned 80 percent of
    a corporation, I know for a fact that I could see every aspect
    of the books of that corporation if I so desired by simply
    calling an emergency board meeting and determining I would be
    given that access.
        Why cannot we not do that here and see this? I suspect
    there will be more culpability in the details when we get down
    there, if you were to have access, and especially the Chairman
    and Ranking Member.
        Mr. BAROFSKY. Certainly, the Fed and Treasury do have that
    degree of access.
        Mr. DAVIS OF KENTUCKY. They are obviously not sharing this
    information.
        Mr. DODARO. Right. The only thing we have been given from
    the Federal Reserve is information that is available to the
    public. Unless the law is changed removing our restrictions, we
    are not going to be able to do what you are suggesting. I do
    think it needs to be done.
        Mr. DAVIS OF KENTUCKY. Following on that, do you believe
    the way that the original law was structured out of the
    Congress was flawed?
        Mr. DODARO. I guess my view would be given the original
    explanation of what it was to be used for, I am just speaking
    from GAO's standpoint, in terms of what our authority would
    have been, I think we would have been fine if they would have
    purchased the toxic assets.
        Since they shifted the plans, first, to the capital
    purchase program, that created a little bit of a dilemma for
    us, but when they started using TARP money to leverage Federal
    Reserve activities, that created a bigger problem.
        As the program has evolved, we have not been able to adapt,
    because of these restrictions, the type of accountability and
    transparency that the Congress expects of us.
        Mr. DAVIS OF KENTUCKY. I think this goes back to the
    cautions that many of us were raising in the run up to the
    legislation last year, the way the title was originally put
    into the housing bail out bill that would have been oriented in
    that direction was a simple blank statement that the Secretary
    was basically being given unlimited authority.
        The only real question last Fall was raising the debt
    ceiling rather than actually the mechanisms of how it would be
    done.
        Seeing that Secretary Geithner seems to be carrying on the
    same responsibilities that Paulson had asked for in the
    previous Administration, I would really question the competence
    of how this is being carried out.
        You agree that we have to have some type of an audit
    mechanism to see that and hopefully we will work from this
    Committee to bring that forward.
        Just as an aside, the President made a comment this past
    week that Secretary Geithner was making all the right moves. Do
    you agree with that statement, just from a forensics audit
    standpoint? You do not have the information that is available.
    We have numbers instead of names for people.
        This would be an outrage in the private sector as the
    owners of a business and certainly we as taxpayers own it now.
        How do you feel about that?
        Mr. DODARO. Basically, I would say it relates to the
    recommendations that GAO has made about how to improve the
    program, that they are making progress but they are not there
    yet.
        From the standpoint of fully implementing our
    recommendations, I would say they need to take additional steps
    in order to do that.
        Mr. BAROFSKY. I would say the exact same with our
    recommendations.
        Mr. DAVIS OF KENTUCKY. Thank you. We will try to work
    closely with you and follow on from the discussion earlier in
    the week and with the Chairman of the Committee to address that
    blank spot.
        Thank you very much. I yield back.
        Chairman LEWIS. Thank you very much. Mr. Etheridge is now
    recognized.
        Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me thank you
    for holding this hearing.
        We have a lot of hearings going on the Hill right now. All
    of them are important in this area because the American people
    are concerned, and it did not just start with the bonuses paid
    for AIG, as all of us know.
        This started last year when they had serious concerns about
    the economy and then the funds moving in that area. I think it
    has sort of culminated and erupted with what has happened over
    the last several days.
        I think all of us are concerned, so let me ask you a couple
    of questions. I appreciate your service. I appreciate the job
    you are doing, both of you, and GAO has a rich history.
        As we look at these and as we deal with the focal points of
    where we are, I think we have to acknowledge that, too many
    people talk around it, people are just furious, and certainly
    in my district in North Carolina where people are about to lose
    their homes, we have farmers who are in jeopardy of losing
    their farms, and then they see their tax money rolling to Wall
    Street. I think that is what is bubbling over the top.
        The very people that got us in this problem are the very
    folks that they feel we are rewarding. As we move to fix the
    problem, my question is as we deal with that, in your
    testimony, you mention the following ``Plans to launch an audit
    examining Federal monitoring and enforcement of executive
    compensation restrictions imposed as a condition of Federal
    financial assistance.''
        Can you tell me and those of us in this panel about this
    audit, what it will entail, and what can be done in the future
    to prevent these kinds of excesses?
        I think that is what the American people want to do. The
    American people want things fixed, but they want them to be
    done right, and they are just tired of gaps being put in place
    that people slip through.
        Mr. BAROFSKY. I think there are several aspects of this
    audit. First and foremost, it is to make sure or to report on
    what the status of Treasury's responsibility is in its
    compliance, to set up the right procedures, to ensure that the
    recipients of TARP funds are complying with the executive
    compensation requirements.
        This is something that GAO has identified, I think, in its
    very first report. We are picking up on that to have a
    comprehensive audit of what is going on.
        Second, it is looking very specifically at the AIG process,
    the process for this particular example of executive
    compensation, how it came to be that these payments were made,
    when Treasury knew about it, who at Treasury knew about it,
    what legal analysis was done, to provide that type of
    transparency.
        Ultimately, that type of transparency in reporting on what
    the efforts have been and making recommendations on how to fix
    it are how, I think, we are best able to address these
    problems.
        Mr. ETHERIDGE. You covered this a little bit earlier, and I
    think it is important enough to be touched on again. We keep
    talking about transparency. We talk about time lines.
        If you would, repeat again when do we expect to have the
    transparency up so the American people can see it on line.
    Number two, when the audit will be completed, and I assume that
    will be on line.
        Mr. BAROFSKY. Yes.
        Mr. ETHERIDGE. These are the kinds of things that people
    hear. They expect to see it. All of a sudden, they see more
    hearings, nothing is happening, and they are absolutely
    frustrated and confused.
        Can you cover that one more time?
        Mr. BAROFSKY. Sure. On our overall audit on use of funds,
    we have just received our last response yesterday, late
    yesterday. We are now in the process of gathering that
    information. I think that within the next 30 days, we are going
    to release some preliminary information.
        We are shooting for----
        Mr. ETHERIDGE. You are saying by April 15?
        Mr. BAROFSKY. Yes, summary of responses, some anecdotal
    descriptions of the responses. We are looking for late Spring
    to have the first wave of the report.
        Mr. ETHERIDGE. When is late Spring?
        Mr. BAROFSKY. May/June is the timeframe.
        One of the problems we have, Congressman, is we are
    starting up. We have actually hired a contractor to help us
    with this.
        Mr. ETHERIDGE. You cannot fault me for trying to tie you
    down to a date.
        Mr. BAROFSKY. Right. We want to get it out as soon as
    possible, and that is why we actually hired a contractor and
    are not doing it entirely in-house, to speed this up, which
    will be an intermediate report.
        Ultimately, if H.R. 1341 does pass, that requires us by
    September 1 to get a comprehensive report on how TARP funds
    have been spent, so we will certainly have a final, final,
    final by that date, but we plan to release the information and
    provide transparency in stages, making sure that we have a
    complete yellow book standard audit report when we provide our
    final product to the Congress and the American people.
        Mr. ETHERIDGE. I think that will be great and important.
    Thank you. Thank you, Mr. Chairman. I yield back.
        Chairman LEWIS. I just want to announce to the Members, we
    are going to have a series of votes coming up, and we are going
    to try to rush to get everyone in.
        Mr. Higgins is now recognized for questions.
        Mr. HIGGINS. Thank you, Mr. Chairman.
        I just want to stay on this issue of executive compensation
    and the problem with AIG. Unfortunately, this Troubled Asset
    Relief Program will always be synonymous with the mess that has
    been created with respect to AIG.
        AIG should not be paying out bonuses. They should be paying
    restitution. They should be fined.
        This is a gross breach of their responsibility. AIG was
    essentially running an unregulated hedge fund within the
    context of an AAA insurance company. AIG was selling a product
    that did not exist, issuing phony insurance policies against
    the default of bundled subprime mortgages, insurance that did
    not have any capital behind it. It was like a hedge fund
    without the hedge.
        When you get into this whole issue of bonuses, call them
    performance bonuses or retention bonuses, the bottom line is a
    bonus is a form of compensation for rewarding good work.
        I do not think anybody agrees that AIG was doing good work.
    In fact, I think they were corrupt in what it is they were
    doing, which is undermine the confidence of the American people
    relative to the financial markets and the overall economy.
        Let us call them retention bonuses as AIG has called them.
    The problem is they paid this out to 54 people who are no
    longer with AIG.
        When this whole thing started, people were suggesting that
    these financial institutions were too big to fail because they
    were highly integrated, they were associated with banks and
    governments, and those institutions, those secondary
    institutions would fail if we allowed these big companies to
    fail.
        They are failing. We were rolled, as somebody else said, by
    approving the Troubled Asset Relief Program, which is no longer
    a troubled asset relief program, and we continue to call it a
    troubled asset relief program.
        The Chairman earlier talked about trust and the fact that
    no trust exists, and once you lose trust, it is very difficult
    to get it back.
        The Congressional response and the administrative response
    to a massive financial problem has morphed into another massive
    financial problem.
        I am concerned that whatever audits are done are not going
    to give us the kind of conclusions that are necessary to fix
    this thing in time.
        You are both talking about staffing up, starting up,
    getting your personnel numbers and expertise in order, in order
    to properly monitor these programs, and the program continues
    with the dispersement of funds, and it seems as though there is
    very, very little oversight.
        I am not suggesting that anybody is doing this
    deliberately. I cannot see how it could be much worse than what
    it is today.
        The American people are very, very angry. Members of
    Congress are very, very angry for good reason. I think the
    frustration is fueled by a lack of clear, concise answers to a
    problem that is contributing to the continual contraction of
    this economy.
        Just your thoughts on that.
        Mr. BAROFSKY. Let me give you an example of how much worse
    it could be. The original TALF program, which is now projected
    to be $1 trillion of Government money, the original fraud
    protections when we were briefed on the program was they were
    going to rely on two things.
        They were going to rely on AAA rating by credit agencies
    and the due diligence of investors. That, of course, was the
    exact same protections that got us into the entire mortgage
    meltdown, mortgage backed securities meltdown.
        We came out strong. We came out with strong
    recommendations, and the fraud prevention in that program is
    better. They have not adopted all of our recommendations. It is
    not perfect, but third party attestations and launching of our
    taskforce is going to reduce the amount of fraud.
        It is not going to reduce it to zero, but that is an
    example of where we provided oversight, we provided
    recommendations, so that it may not be as bad as it may have
    been.
        Mr. HIGGINS. Credit rating agencies were bought off. Credit
    rating agencies were not doing objective analysis of the
    creditworthiness of these instruments. They were extracting
    huge fees for giving phony high credit rating agencies which
    bamboozled the American people and investors and clients.
        Mr. BAROFSKY. That is why we came out with a strong
    recommendation that would not be sufficient.
        Mr. DODARO. I would just make three quick points. One, if
    it was not for our recommendations, you would not have any
    information available on how the lending practices have changed
    for the institutions receiving the money.
        Number two, we are staffed up but we are hampered by access
    to certain information, which I pointed out.
        Number three, we have issued a report and designated it as
    a high risk area and the need to modernize the financial
    regulatory system to close some of these gaps.
        Basically, the regulators struggled and were unable to
    mitigate the systemic risk of some of these large financial
    conglomerates. Unless Congress revamps that whole financial
    regulatory system going forward, that is really as important in
    my opinion as fixing some of these intermediate activities.
        Mr. HIGGINS. Thank you, Mr. Chairman. I yield back.
        Chairman LEWIS. Thank you very much. Mr. Comptroller, if
    you are going to be able to do your job as an official of GAO,
    you need the capacity, you need the ability to get all of the
    information.
        I think this Committee should get serious and careful
    consideration to making a recommendation to the Full Committee
    that we change the law. It does not make sense.
        Mr. DODARO. It makes sense and in a carefully crafted
    manner, I would be happy to have our counsel work with your
    counsel to see if we can develop some legislation that respects
    the independence and some of the issues of the Federal Reserve,
    but gives us the authority we need to provide Congress with
    proper oversight.
        Chairman LEWIS. We should do just that.
        Mr. BAROFSKY. For what it is worth, as GAO being such an
    important oversight partner for us, giving them this type of
    access would only enhance the overall oversight of this
    program.
        Chairman LEWIS. Thank you. We are prepared and ready to
    work with you. On that note, we will recognize Mr. Davis of
    Alabama for his questions.
        Mr. DAVIS OF ALABAMA. Thank you, Mr. Chairman.
        Let me react, if I can, Mr. Dodaro and Mr. Barofsky, to
    several things that struck me about your testimony in this
    hearing today.
        I remember an exchange between you and one of the
    Republican Members about the various privacy provisions, I
    suppose, that prevent us from identifying these 13 companies
    that owe massive amounts of money to the Federal Government, in
    terms of their taxes, but signed the contracts saying they had
    no tax liability.
        I was thinking about the fact that in my hometown of
    Montgomery, Alabama, if you write a large number of bad checks,
    they stick your picture on a big billboard and they put it on
    the most well traveled interstate in town, and whatever privacy
    you thought you had kind of goes out the window.
        I am wondering how many people listening to this hearing or
    sitting here wondering why there seems to be one set of rules
    for them and their families and there seems to be another set
    of rules for these enormously large companies that employ all
    these so-called geniuses who were so smart that they figured
    out how to ruin a company in a way that almost ruined an
    economy.
        As I was listening to the testimony, for example, I heard
    you talk about the requirement that they had to make a signed
    statement that they did not owe any tax liability, and I
    thought about Sarbanes-Oxley, which requires chief financial
    officers to sign a statement attesting that when they sign a
    financial statement, that signature is an attestation that all
    the contents are accurate, and people get prosecuted and go to
    jail if they knowingly sign a false Sarbanes-Oxley statement.
        I was a prosecutor for a little while at the Federal level,
    and I prosecuted people who got loans from the SBA and
    represented to the Federal Government that they did not owe any
    outstanding taxes, and it turned out they did, and they went to
    jail.
        There are prosecutors all over the country who are going to
    have to bring cases like that.
        I am wondering what those prosecutors will say to juries
    when they are sitting here wondering why are we being asked to
    find this person criminally liable when I am turning on my t.v.
    in the middle of the day and hearing about large companies
    getting taxpayer dollars making false representations and we
    cannot even name them, much less make them pay the money back,
    much less prosecute them.
        Finally, I am thinking about people in my state who have
    invested in an affordable college plan get a letter from the
    State Treasurer a few weeks ago that tells them the plan is
    about to run out of money, their hard earned investments may go
    for naught, may have to tell their kids to lay off a semester
    to go to college, and then they pick up the newspaper and hear
    this week about again these geniuses who worked for AIG who
    were so smart that they figured out how to wreck an economy and
    not just a company, but yet it is so important to retain them
    and keep them doing what they are doing, and we have to pay
    them millions and millions of dollars.
        I just wonder, we are eroding confidence in the way our
    legal system works. We are eroding confidence in the way
    taxpayer dollars are managed and spent and the cost of that, it
    is going to make it harder than ever for us to do the things
    that must be done to get this economy moving forward.
        This is a massive breach of accountability and public
    trust. It goes way across party lines. It is damaging and
    imperiling everything we think about in public trust and about
    Government.
        Now, I would like a brief response from you all.
        Mr. BAROFSKY. To be very clear, I have not invoked or set
    forth any type of privacy claims with respect to this
    information. I just received this list today indicated by
    number.
        I look forward to finding out who those financial
    institutions are.
        Mr. DAVIS OF ALABAMA. So, they will get their day on the
    billboard, hopefully.
        Mr. BAROFSKY. Absolutely. With regard to Sarbanes-Oxley, I
    was a Federal prosecutor for 8 years before I took this job.
    One of the things I have done is bring in Sarbanes-Oxley's
    certifications into the TARP. It is part of my standard
    recommendation for every condition that is imposed, that a
    senior executive officer has to certify under 1001 with
    criminal penalty that their company is in compliance with each
    of the TARP conditions.
        On my survey that I sent out to each of the financial
    institutions requiring them to report on how they used the
    funds, it included 1001 Sarbanes-Oxley type----
        Mr. DAVIS OF ALABAMA. Do you agree that some of these
    people need to be prosecuted for lying to the Federal
    Government about their tax liability?
        Mr. BAROFSKY. One of my core responsibilities is to
    investigate anyone who lies, makes a material lie to the TARP
    to get money, and that would include this. If it is a material
    lie, absolutely, they need to be prosecuted.
        Chairman LEWIS. Thank you very much. Now, I recognize Mr.
    Larson for his questions.
        Mr. LARSON. Thank you very much, Mr. Chairman. I thank our
    witnesses as well. especially for your testimony today but also
    your ongoing work.
        I am interested in that in the testimony you were talking
    about that you go back to September in terms of taking a look
    at how this whole thing came to be with respect to TARP.
        Are either of you familiar with the Becora Commission?
        Mr. DODARO. No.
        Mr. BAROFSKY. No, sir.
        Mr. LARSON. Becora in 1929 was called upon by the Banking
    Committee to come forward and take a look at how this whole
    thing came to be. It seems to me we have had three major
    economic bubbles and then bursts. I realize that is not your
    specific oversight responsibility.
        I am interested in both of you who are getting to take a
    look at this about the need for us to do a systemic long term
    look, not unlike Becora did, who probably was a then modern day
    inspector general.
        With respect to inspector generals, you have independent
    oversight; correct? You are not the employee of the Treasury
    Department, you have independent responsibility?
        Mr. BAROFSKY. I am within the Treasury Department but I
    have complete independence.
        Mr. LARSON. Do you think that inspector generals should
    have independent responsibility? Should they be appointed by
    the President, approved by the Senate, and have complete
    independent oversight?
        Mr. BAROFSKY. It is the only thing I know, since I am new
    to the inspector general community, and I certainly fell in all
    of those categories.
        Mr. LARSON. Should the CFTC and the SEC have independent
    oversight?
        Mr. BAROFSKY. It certainly seems to work on the TARP.
        Mr. LARSON. I would conclude from that you would say they
    should. It surprises me to know that they do not.
        It surprises me to know that where there is independent
    inspector generals, there are 435 investigations and audits,
    and where there are not independent, meaning they are not
    nominated by the President and ratified by the Senate, there
    are 11 independent audits and investigations that go on.
        Does it seem to you, Mr. Dodaro, that we should have a long
    term look back, in fact, something like the Becora Commission,
    to take a look systematically at what is happening, not just
    since September, but what has happened in a lot of legislation
    over a long period of time has transpired, not just the last 8
    years or the last 16 years, but perhaps the last 20 or 28
    years.
        I think there is a real need for that. I would be
    interested in your response, either of you.
        Mr. DODARO. I not only agree with you, I initiated such an
    effort at the GAO. We issued a report in January where we
    traced the evolution of the financial regulatory structure over
    the last 150 years.
        We talked about the last major market developments in the
    last 20/25 years that have out paced the ability of the
    regulatory system to manage it, and we outlined a list of
    characteristics, nine characteristics, that we think Congress
    can use in crafting and evaluating legislative proposals to
    modernize the system.
        The system we have now is outdated. It is fragmented and
    ill suited to meet our needs going forward. We have designated
    it a high risk area.
        I do not admit we have done all the research
    comprehensively, and it could be added to, but I felt very
    strongly about that, and that is why I initiated it.
        Mr. LARSON. Of those nine characteristics, what would be
    the top three things that the Congress should be doing
    immediately that would assist in this area?
        Mr. DODARO. Number one is there is no systemic regulators,
    no one regulator charged with monitoring systemic risk across
    the system. That is a big problem. It needs to be fixed. There
    are a lot of gaps in institutions that are not covered or
    products that are not covered. They need to closed.
        The taxpayers need to be protected. The system has to be
    revamped in a way that not only gives additional protections to
    investors and the public, but also gives some of the regulators
    more independence as well.
        Those are the key things. I would be happy to provide a
    report to you.
        Mr. LARSON. I would be glad to receive that and sit down
    with your staff and work with you on that.
        You mentioned, I think, to a question with regard to Ron
    Kind, do you have the appropriate moneys. You said you were in
    the process of still building up and gearing up, but it seems
    to me that especially given these times, and as was pointed out
    by Mr. Davis, the special need to restore confidence in the
    American public, if you could tell us to the extent that you
    need more money or additional tools, et cetera, or elaborate on
    that, we would be interested to know as well.
        Mr. BAROFSKY. Absolutely. The Stabilization Act carved out
    $50 million for my office. We will come back to Congress when
    we see that we need additional funds. Right now, that is more
    than covering our expenses, but we certainly will let you know.
        Mr. LARSON. I thank Chairman Lewis. I would love to pursue
    talking with you about inspector generals and the kind of
    authority and independent nature of the authority they should
    have given your vast experience.
        Mr. DODARO. We have also studied that issue across the
    Federal Government. I would be happy to provide some of our
    reports and talk to you about that as well.
        Mr. LARSON. Thank you very much.
        Chairman LEWIS. Thank you. Mr. Meek is recognized for his
    questions.
        Mr. MEEK. Thank you so very much, Mr. Chairman. I am glad
    the Inspector General and the Comptroller are here.
        Inspector General, I know that it was several weeks after
    we passed TARP when you were appointed; am I correct?
        Mr. BAROFSKY. A couple of months, actually.
        Mr. MEEK. I remember because it was right before a Senate
    hearing asking about TARP that you were appointed almost a day
    before the hearing.
        I want to make sure that the members are fully aware of
    that and the American people are aware of that because Mr.
    Chairman and Ranking Member, we were in a very precarious
    situation when it came down to passing this TARP legislation.
        It is almost like putting the dollars out there and not
    having the overseer or the police officer out there to enforce
    our original intent to be able to bring the price of money
    down.
        I just want to point the Committee to what happened on
    January 22, 2008. The Federal Reserve cut rates by 3.5 percent,
    the largest cut in 25 years. On March 7, the Federal Reserve
    makes $200 billion in funds available to banks and other
    institutions.
        This is without Congressional intervention.
        Then we turn around and find that Freddie and Fannie have
    problems or go into problems and enter into an agreement with
    the Federal Government on September 7.
        I skipped over a lot, Mr. Chairman. We kept moving down,
    kept moving down. As I look at this chart here, and this is a
    CBO report showing the price of money and how it was spiking,
    and how small businesses were closing because they could not
    meet payroll.
        I am saying all that to say that I think in a time such as
    this, we do know that we could not afford for our financial
    institutions to fall, at that time, because it would have been
    a bigger problem than what we are facing now.
        Now we know we had to act under pressure. We do know that
    there are some issues that are unaddressed that should be
    addressed immediately.
        Just a couple of days ago, the President shared with the
    American people--this is on March 18, yesterday--time is flying
    here--he is saying he is asking for the same authority that
    FDIC has over banks to be able to consolidate some sort of
    oversight of TARP.
        This is something that he said yesterday. I think it is
    important, he identifies AIG as an insurance company but has a
    hedge fund over it. I think it is important that we look at how
    the administration can move.
        You mentioned earlier, I believe, and if I am misquoting
    you, Inspector General, let me know, you mentioned a bill,
    1341?
        Mr. BAROFSKY. I believe that is H.R. 1341.
        Mr. MEEK. That is to give you additional authority or staff
    or oversight to be able to follow up on many of these leads
    that you are getting over the hotline and that your staff is
    uncovering?
        Mr. BAROFSKY. There are a number of different provisions.
    The ones I was referring to would give me some greater hiring
    flexibility. There are also portions of the bill that clarify
    my overall authority as well.
        Mr. MEEK. Can this be achieved through an Executive Order
    or some sort of flexibility that the President and Treasury has
    now? I know you are kind of the overseer.
        Can that be accomplished through administrative actions
    since the administration has a great deal of flexibility that
    the Congress has given it to carry out this program?
        Mr. BAROFSKY. I think some of the hiring flexibility, they
    could. Some of it, they could not. I think the expansion of
    authority, although I think it is more of a clarification of
    our authority, is something that Congress would need to do
    since we are ultimately a creation of Congress.
        Mr. MEEK. For what the administration can do, I would love
    to talk to the appropriate staff person--we are going to have
    to run out here for votes very shortly--of being able to follow
    up.
        I want to write a letter to the Administration. I am hoping
    we can do it as a Committee, saying these are the things that
    you need right now, yesterday, so we can be able to follow up
    on it.
        I think the American people know that we had to respond,
    which we did, under President Bush, and now under President
    Barack Obama.
        I think it is important that we do not allow the same
    situation to continue because no one is paying attention day by
    day of the details.
        I think when we look at this whole AIG situation, the
    details--I do not think $30 billion would have gone out the
    door. I do not think Mr. Geithner would have been able to sit
    where you are sitting right now just a week ago if we had any
    idea of what was going on as it relates to this bonus
    situation.
        We know we are a country of laws and also contracts, and we
    realize that. When you have the American people around here,
    their hours are being reduced, they are losing their jobs, and
    businesses are closing, meanwhile, back in New York or where
    have you, you have individuals that are pulling down $1 million
    and we are saying we need them.
        We are all outraged. Where do we stop the bleeding? I think
    we have to stop it by doing things that we can do through the
    executive power and also this Committee pushing legislation as
    though it was imperative, which it is, to get it done ASAP.
        I commend you both. I am glad you all are doing what you
    are doing. You are shedding light on this. You are looking at
    the details, as we try to govern.
        Mr. Chairman, all of us are public servants. We all signed
    up to serve the people of the United States of America. I do
    not think anyone set out to be able to waste taxpayer dollars,
    but we must make sure that the Comptroller and the Inspector
    General have time to catch up on what we did in a very fast way
    to make sure that we shore up the financial institutions so
    that small businesses do not have to close and we will not see
    the job loss that we would have seen if we did not respond to
    the crisis.
        Thank you, Mr. Chairman. I look forward to working with the
    Subcommittee.
        Chairman LEWIS. Mr. Pomeroy is recognized for questions.
        Mr. POMEROY. Mr. Chairman, I know we have to vote so I will
    be very quick. Actually, you can submit answers in writing to
    me later.
        I am concerned that the closer you look at the AIG
    situation, the uglier it gets, especially the prospect that
    there has been very little effort made by people in the
    Financial Products Division to get the best deals possible as
    they unwind the many commitments of that division.
        Obviously, under the circumstances, I believe it would only
    be a responsible business proposition to demand a haircut in
    settling of the many obligations that were entered into by the
    company.
        Indeed, today's Washington Post reported that instead there
    has been subtle pressure from the government to settle
    liberally because the receiving firms probably need the money.
        This is not good stewardship of taxpayer dollars.
        Is this a matter you are looking at?
        Mr. DODARO. Basically, since the Federal Reserve is
    managing this area, this is one reason I cite that we have
    statutory prohibitions in looking at this issue.
        Mr. POMEROY. It is important information for us to
    consider, Mr. Chairman. I thank you and I yield back my time.
        Chairman LEWIS. Thank you. Let me take the opportunity on
    behalf of the Ranking Member and all of the members to thank
    you two for being here, thank you for your testimony.
        I am sure we will be calling on you again as we move down
    this road, and it is a very long road.
        Thank you so much. You have been very helpful.
        Mr. DODARO. Thank you very much, Mr. Chairman.
        Mr. BAROFSKY. Thank you, Mr. Chairman.
        Chairman LEWIS. The hearing is adjourned. Thank you.
        [Whereupon, at 11:46 a.m., the hearing was adjourned.]
        [Submission for the Record follows:]
          Statement of Elizabeth Warren, Congressional Oversight Panel
        Thank you, Chairman Lewis, Ranking Member Boustany and members of
    the Oversight Subcommittee, for allowing the Congressional Oversight
    Panel to submit written testimony for your hearing on the Troubled
    Asset Relief Program: Oversight of Federal Borrowing and the Use of
    Federal Monies.
        I regret that I am unable to testify in person, however, the
    Oversight Panel is holding a hearing at the same time. Certainly, we
    share a desire to bring accountability and transparency to the TARP
    program, and I am pleased to assist your efforts in any way that I can.
        The Oversight Panel was created as part of the TARP in last year's
    Emergency Economic Stabilization Act. The job of the Panel is to
    ``review the current state of the financial markets and the financial
    regulatory system'' and report to Congress every 30 days. The Panel has
    submitted reports to Congress on December 10, January 9, February 6,
    and March 6, and it is preparing its fifth TARP oversight report for
    submission in early April. The Panel also submitted a special report on
    regulatory reform to Congress, as required by the legislation, at the
    end of January.
        The Oversight Panel is one of three organizations to which the TARP
    legislation gives oversight responsibilities. In my capacity as Panel
    chair, I have been pleased to work alongside my colleagues Gene Dodaro,
    the Acting Comptroller General of the United States, and Neil Barofsky,
    the Special Inspector General for the Troubled Assets Relief Program.
    Together we are charged with ensuring that the tax dollars of the
    American people are used prudently and effectively to ameliorate and
    ultimately reverse the deepening financial crisis in which our
    country--and much of the world--now finds itself.
        The Special Inspector General for the TARP has a broad
    responsibility, and matching authority, to audit and investigate any
    part of the Program. GAO is given an even more detailed set of
    instructions for ``ongoing oversight of the activities and performance
    of the TARP,'' as well as responsibility for an annual audit of the
    TARP's financial statements. Between the Oversight Panel's obligation
    to report to Congress every 30 days, the GAO's obligation to report
    every 60 days, and the obligation of the Special Inspector General to
    report every 90 days, Congress will receive an average of two TARP
    oversight reports every month.
        The three oversight organizations are working to complement, not
    duplicate, one another. We hold regular meetings with the office of the
    Special Inspector General and with GAO senior staff responsible for
    TARP oversight. We share information and discuss possible lines of
    inquiry. We have also discussed sharing, where possible, preliminary
    work product. If GAO or the SIGTARP identify questions for the
    Oversight Panel, they will pass them to us and give us access to data
    that we can synthesize to inform our work; similarly, when our analysis
    or information indicates a significant instance of non-compliance with
    the terms or spirit of the TARP legislation, we will inform GAO, the
    SIGTARP, or both. We all want to make the whole of our work greater
    than the sum of its parts.
        The Oversight Panel is the smallest of the three organizations. We
    see our contribution as fact-based analysis designed to raise issues
    about the operation and direction of the TARP and about the broader
    effort to restore stability to the financial system. In the Emergency
    Economic Stabilization Act, Congress specifically asked that the
    Oversight Panel conduct oversight on: the use of Treasury authority
    under the TARP; the Program's effect on the financial markets,
    financial institutions, and market transparency; the effectiveness of
    foreclosure mitigation efforts; and the TARP's effectiveness in
    minimizing long-term costs and maximizing long-term benefits for the
    nation's taxpayers. Our ultimate question is whether the TARP is
    operating to benefit the American family and the American economy. If
    we believe the answer is no, we will ask ``why not,'' and try to
    suggest alternatives.
        Several facets of our work are related to your question of the use
    of federal monies. The Panel's February 6 report asked whether the
    public was receiving a ``fair deal'' when Treasury used TARP funds to
    make capital infusions into financial institutions last year. We worked
    with recognized independent experts to develop multiple valuation
    models to determine whether the securities Treasury received had a fair
    market value equal to the dollar amount of the infusions. With minimal
    variation, the models all demonstrated that Treasury made its infusions
    at a substantial discount. Treasury received securities that were worth
    substantially less than the amounts it had paid in return, given the
    financial institutions involved. In all, the Panel's report found that
    Treasury had overpaid by an estimated $78 billion. For each $100
    Treasury invested in these financial institutions, it received on
    average stock and warrants worth only about $66. We believe this is an
    important issue.
        Our report does not draw a conclusion about whether such discounts
    may--or may not--have been appropriate as a matter of policy. The Panel
    continues to examine the matter, and Congress may decide to keep it in
    mind as well. Thus far, Treasury has not given the public an
    explanation, so that the appropriateness of the overpayment remains, at
    best, unresolved.
        The most important lesson we draw from our analysis is that without
    a clearer explanation from Treasury about its overall plan for each
    capital infusion, and without more transparency and accountability for
    how that plan was carried out, it is not possible to exercise
    meaningful oversight over Treasury's actions. Congress has given
    Treasury substantial discretion, as befits this fast-moving crisis. But
    that discretion carries with it an equivalent obligation to explain, in
    real time, why the discretion is exercised as it is. Congress and the
    American people need to understand Treasury's conception of the
    problems in the financial system and its comprehensive strategy to
    address those problems. Our collective financial security is on the
    line, and we all have a stake in the outcome.
        The Oversight Panel has also focused on mortgage foreclosure
    mitigation, with particular regard to impediments to mitigation
    efforts. The March report offers a checklist of items to evaluate the
    likely effectiveness of any proposal to halt the cascade of mortgage
    foreclosures.

              Will the plan result in modifications that create
            affordable monthly payments?
              Does the plan deal with negative equity?
              Does the plan address junior mortgages?
              Does the plan overcome obstacles in existing pooling
            and servicing agreements that may prevent modifications?
              Does the plan counteract mortgage servicer incentives
            not to engage in modifications?
              Does the plan provide adequate outreach to
            homeowners?
              Can the plan be scaled up quickly to deal with
            millions of mortgages?
              Will the plan have widespread participation by
            lenders and servicers?

        President Obama's announcement of the Administration's Homeowner
    Affordability and Stability Plan last month addressed many of these
    issues. The Plan focuses on payment affordability through an expanded
    refinancing program involving Fannie Mae and Freddie Mac and a
    modification program targeting a wide range of borrowers at risk. The
    Plan also includes financial incentives to encourage both lenders and
    borrowers to strive for sustainable outcomes. It also encourages
    servicers to modify mortgages for at risk homeowners before they are
    delinquent. There are additional incentives available to extinguish
    junior mortgages. The Administration estimates that the Plan's expanded
    refinancing opportunities could assist four to five million responsible
    homeowners, some of whom otherwise would likely have ended up in
    foreclosure.
        While these projections are encouraging, the Panel noted areas of
    concern that are not addressed in the plan. In particular, the Plan
    does not include a safe harbor for servicers operating under pooling
    and servicing agreements to address the potential litigation risk that
    may be an impediment to voluntary modifications. It is also important
    that the Plan more fully address the contributory role of second
    mortgages in the foreclosure process, both as it affects affordability
    and as it increases the amount of negative equity. And while the
    modification aspects of the Plan will be mandatory for banks receiving
    TARP funds going forward, it is unclear how the federal regulators will
    enforce these new standards industry-wide to reach the needed level of
    participation.
        The Plan also supports permitting bankruptcy judges to restructure
    underwater mortgages in certain situations. Such statutory changes
    would expand the impact of the Plan. Without the bankruptcy piece,
    however, the Plan does not deal with mortgages that substantially
    exceed the value of the home. Such a failure could sharply limit the
    relief it provides in parts of the country that have experienced the
    greatest price declines.
        It is also critical for the federal government to collect and
    analyze loan performance and loss mitigation data. Without adequate
    data, measuring the success or failure of mitigation efforts is, at
    best, a hit-or-miss proposition. Data are the clearest way to
    demonstrate whether TARP funds used for foreclosure mitigation efforts
    are achieving their intended purpose.
        The TARP legislation is now more than five months old, and Treasury
    has spent or committed more than $350 billion under its terms. Both the
    Oversight Panel and GAO have called on Treasury to articulate a clear
    strategy for its use of TARP funds; the absence of such a vision
    hampers effective oversight. In fact, the absence of a clearly
    articulated strategy was one of the very first points raised by the
    Oversight Panel. In our first report the Panel outlined a series of ten
    basic questions, starting with the question, ``What is Treasury's
    strategy?'' Unfortunately, Congress and the American public still do
    not have a clear answer to that question. The ongoing uncertainty has
    hindered recovery efforts.
        I have sent two letters to Treasury Secretary Geithner asking for
    clarification on this point, among others. I am disappointed to report
    that the Oversight Panel has not received a substantive response.
    Although the initiatives announced over recent weeks describe a
    commitment to transparency and accountability, the general frameworks
    do not provide an adequate foundation to oversee Treasury's activities
    or to measure the success of the TARP or the Stability Plan. As part of
    its April report, the Oversight Panel will further analyze the evolving
    strategy of Treasury, including the lessons that can be learned from
    previous financial crises, both foreign and domestic.
        What have we learned thus far? Even in a crisis such as we are
    experiencing, transparency, accountability and a strategy with clearly
    delineated goals are necessary to maintain public confidence and the
    confidence of the capital markets. Sophisticated metrics to measure the
    success and failure of program initiatives are also essential. Assuring
    that the TARP reflects these elements underlies all of our oversight
    efforts.
        Thank you again for the opportunity to explain the work of the
    Congressional Oversight Panel.