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




 
PEELING BACK THE TARP: EXPOSING TREASURY'S FAILURE TO MONITOR THE WAYS 
  FINANCIAL INSTITUTIONS ARE USING TAXPAYER FUNDS PROVIDED UNDER THE 
                     TROUBLED ASSETS RELIEF PROGRAM

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON DOMESTIC POLICY

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 11, 2009

                               __________

                           Serial No. 111-18

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri              TODD RUSSELL PLATTS, Pennsylvania
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
JIM COOPER, Tennessee                LYNN A. WESTMORELAND, Georgia
GERRY E. CONNOLLY, Virginia          PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   BRIAN P. BILBRAY, California
    Columbia                         JIM JORDAN, Ohio
PATRICK J. KENNEDY, Rhode Island     JEFF FLAKE, Arizona
DANNY K. DAVIS, Illinois             JEFF FORTENBERRY, Nebraska
CHRIS VAN HOLLEN, Maryland           JASON CHAFFETZ, Utah
HENRY CUELLAR, Texas                 AARON SCHOCK, Illinois
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
------ ------
------ ------
------ ------

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland         JIM JORDAN, Ohio
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
DIANE E. WATSON, California          DAN BURTON, Indiana
JIM COOPER, Tennessee                MICHAEL R. TURNER, Ohio
PATRICK J. KENNEDY, Rhode Island     JEFF FORTENBERRY, Nebraska
PETER WELCH, Vermont                 AARON SCHOCK, Illinois
BILL FOSTER, Illinois
                    Jaron R. Bourke, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 11, 2009...................................     1
Statement of:
    Kashkari, Neel, Acting Interim Assistant Secretary for 
      Financial Stabilization, Department of Treasury............    38
    Sanders, Anthony B., professor, W.P. Carey School of 
      Business, Arizona State University; Stephen Horne, vice 
      president, Master Data Management and Integration Services, 
      Dow Jones and Co.; Mark Bolgiano, president and CEO, XBRL 
      US Inc.; Neil Barofsky, special inspector general, Troubled 
      Asset Relief Program; and Richard J. Hillman, Managing 
      Director, Financial Markets and Community Investment, U.S. 
      Government Accountability Office...........................   199
        Barofsky, Neil...........................................   264
        Bolgiano, Mark...........................................   206
        Hillman, Richard J.......................................   272
        Horne, Stephen...........................................   237
        Sanders, Anthony B.......................................   199
Letters, statements, etc., submitted for the record by:
    Barofsky, Neil, special inspector general, Troubled Asset 
      Relief Program, prepared statement of......................   266
    Bolgiano, Mark, president and CEO, XBRL US Inc., prepared 
      statement of...............................................   208
    Hillman, Richard J., Managing Director, Financial Markets and 
      Community Investment, U.S. Government Accountability 
      Office, prepared statement of..............................   274
    Horne, Stephen, vice president, Master Data Management and 
      Integration Services, Dow Jones and Co., prepared statement 
      of.........................................................   239
    Kashkari, Neel, Acting Interim Assistant Secretary for 
      Financial Stabilization, Department of Treasury, prepared 
      statement of...............................................    42
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio:
        Article dated March 6, 2009..............................   148
        Article dated March 10, 2009.............................    27
        Memo dated March 9, 2009.................................   174
        News release dated December 14, 2008.....................    31
        Prepared statement of....................................     6
    Press release dated November 17th............................   144
    Sanders, Anthony B., professor, W.P. Carey School of 
      Business, Arizona State University, prepared statement of..   202
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................    17
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................    34
    Welch, Hon. Peter, a Representative in Congress from the 
      State of Vermont, prepared statement of....................    23


PEELING BACK THE TARP: EXPOSING TREASURY'S FAILURE TO MONITOR THE WAYS 
  FINANCIAL INSTITUTIONS ARE USING TAXPAYER FUNDS PROVIDED UNDER THE 
                     TROUBLED ASSETS RELIEF PROGRAM

                              ----------                              


                       WEDNESDAY, March 11, 2009

                  House of Representatives,
                   Subcommittee on Domestic Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis Kucinich 
(chairman of the subcommittee) presiding.
    Present: Representatives Kucinich, Towns, Jordan, Cummings, 
Tierney, Watson, Kennedy, Welch, Issa, Souder, Burton, Turner, 
and Fortenberry.
    Staff present: Jaron R. Bourke, staff director; Claire 
Coleman, counsel; Jean Gosa, clerk; Charisma Williams, staff 
assistant; Ron Stroman, staff director; Leneal Scott, 
information systems manager; Lawrence Brady, minority staff 
director; John Cuaderes, minority deputy staff director; 
Jennifer Safavian, minority chief counsel for oversight and 
investigations; Charles Phillips, minority chief counsel for 
policy; Dan Blankenburg, minority director of outreach and 
senior advisor; Adam Fromm, minority chief clerk and Member 
liaison; Kurt Bardella, minority press secretary; Seamus Kraft, 
minority deputy press secretary; Christopher Hixon, minority 
senior counsel; and Brien Beattie and Alex Cooper, minority 
professional staff members.
    Mr. Kucinich. Good morning. This is the Domestic Policy 
Subcommittee of the Oversight and Government Reform Committee. 
I am Congressman Dennis Kucinich, chairman of the subcommittee.
    The subject of today's committee hearing is entitled, 
``Peeling Back the TARP: Exposing Treasury's Failure to Monitor 
the Ways Financial Institutions are Using Taxpayer Funds 
Provided Under the Troubled Asset Relief Program.'' Our first 
witness today will be Mr. Neel Kashkari, the Acting Interim 
Assistant Secretary for Financial Stabilization, the Department 
of Treasury.
    We are joined today by a number of Members of Congress, 
including the new ranking member, Mr. Jim Jordan of Ohio. I 
want to welcome Mr. Jordan to this position on the subcommittee 
and I want to let you know, sir, that I am looking forward to 
working with you. It is very interesting, in this subcommittee 
we have an Ohio connection, not only Mr. Jordan but Mr. Issa is 
originally from Ohio, Mr. Turner is from Ohio. Ohio is well 
represented.
    Mr. Jordan. And our witnesses is from Ohio.
    Mr. Kucinich. And our witness is from Ohio. So I suppose 
this is Buckeye Day on Capitol Hill.
    We are going to begin with an opening statement. I want to 
thank Mr. Cummings for being here as well as the gentleman from 
Vermont, Mr. Welch. The witness, with unanimous consent, the 
witness Mr. Kashkari, when we get to his testimony, is going to 
be given 10 minutes. He may not need it all, but given the 
gravity of this subject, he is going to be given 10 minutes to 
make his opening statement, without objection.
    The Troubled Assets Relief Program has provided about $200 
billion in capital injections to hundreds of banks. The money 
was provided with virtually no strings attached. Most of the 
banks didn't even bother to account separately for the Federal 
moneys. It is debatable whether the efforts of those that did 
amount to anything meaningful. Treasury does not even ask TARP 
recipients for a detailed accounting of their use of TARP 
funds.
    Because some of the banks are multinational banks, the 
kinds of transactions they are doing include billions in loans 
and investments in other countries at precisely the time that a 
liquidity shortage has impaired credit markets in the United 
States, and a recession deeper than anything seen since the 
great depression is impairing production and employment. 
Nevertheless, several very large transactions conducted after 
these banks received billions in a taxpayer-funded bailout 
include an $8 billion financing arranged by Citigroup for 
public authorities in Dubai, a $7 billion investment by Bank of 
America in the China Construction Co., a $1 billion investment 
by a J.P. Morgan subsidiary in expanding operations in India.
    Unfortunately, the legislation Congress passed creating the 
TARP required very little of the recipients to receive 
taxpayer-funded subsidies. The Treasury regulations and 
contracts crafted to implement the TARP did not require much of 
anything other than someone sign for the money. It may be 
argued that transactions such as these are beneficial to the 
balance sheets of the banks that are making them, that they 
have some indirect benefit to the U.S. financial system as a 
whole. Really?
    If the banking system is in serious enough trouble to 
require massive amounts of Federal support, shouldn't that 
Federal support be directed and channeled to the domestic 
economy? Or are these examples of large investments and loans 
to foreign entities among the kind of transactions the American 
taxpayers should be supporting with TARP moneys, when we face 
significant credit problems here at home?
    How does a multi-billion dollar financing deal to Dubai 
ease the liquidity crisis in the United States of America? What 
about other kinds of uses of funds, corporate spending on 
lavish parties? The continuation of contractual agreements to 
pay for naming rights on professional sports stadiums? 
Corporate sporting event sponsorships? Is this what the 
taxpayers expect our Government to do with TARP funds?
    Is this what Congress intended? If it was the business 
judgment of the very same bankers in charge that governed their 
decision before the financial crisis and arguably helped create 
the crisis, is it tolerable to continue to defer to that 
judgment and allow them to spend taxpayers' money with no 
explanation, little accountability and no questions asked? 
Under the precedent set by former Secretary Paulson, the 
Paulson TARP program makes no demand on TARP recipients for 
detailed information about their spending. Even though the 
statute obligates Treasury to be able to prevent waste and 
abuse of TARP moneys, Mr. Paulson's Treasury Department did not 
even bother to set standards for waste and abuse of TARP funds. 
``Trust them'' is essentially what seems to pass for oversight 
of the capital purchase plan. Treasury has no concrete idea of 
how TARP moneys are being used. They don't ask questions of 
TARP recipients about their use of funds, and don't gather 
sufficiently detailed information from TARP recipients to know 
what to ask about.
    The problem is not a lack of authority. Under the 
agreements between Treasury and the TARP recipient financial 
institutions, Treasury has brought contractual authority to 
scour company books in search of, among other things, waste and 
abuse by TARP recipients. But in practice, Treasury is not 
doing so. The serious shortcomings in the creation and 
implementation of the Emergency Economic Stabilization Act, 
namely the absence of definitions of waste and abuse for 
explicit conditions for the use of TARP funds resulted in the 
inescapable conclusion that Treasury's oversight will not find 
waste, fraud or abuse, because it isn't looking for it.
    Now, to read Mr. Kashkari's testimony today, we find 
nothing to contradict that conclusion, with all due respect. In 
fact, Mr. Kashkari was asked to testify on the steps that 
Treasury has taken to detect and prevent the waste of TARP 
moneys. Mr. Kashkari's testimony does not address that 
question. Rather, he describes Treasury's efforts to do 
something else, to determine the impact of TARP moneys on the 
bank's lending activity.
    Treasury has submitted 90 pages, 90 pages, of 
intermediation snapshots from the largest 20 TARP recipients. 
But what does that prove? Perhaps very little. There are 
significant shortcomings to Treasury's reliance on the monthly 
intermediation snapshots. First, only the 20 largest TARP 
recipients report anything at all. Obviously there can be 
little monitoring of the impact of TARP moneys on the credit 
activities of the 297 TARP recipients which do not file monthly 
intermediation snapshots.
    Second, the snapshots do not provide details about any 
individual transaction, no matter how significant. Third, these 
snapshots address the lending side, the lending side of the 
recipient's business. They do not address any other investment 
or expenditure. And fourth, and importantly, they address only 
new lending and not the contraction of existing lending in the 
form of foreclosures and elimination of credit lines.
    If the amount of new lending does not more than make up for 
the amount of lending contracted, and that's through 
foreclosures, decrease in credit limits, calling back loans, 
then the net amount of credit in the economy is shrinking. 
Telling one side of the credit story without telling the other 
does not give us a fair and balanced view of the realities 
small businesses and individuals know so well.
    At best, the snapshots might serve the purpose of 
monitoring, at the most general level, some impact TARP funds 
may be having on certain new lending activities. But they don't 
reflect the net impact of contracting credit activities on 
existing borrowers. And they tell us nothing about the use of 
TARP funds, which is the focus of this hearing.
    Unfortunately, Mr. Kashkari's testimony is not responsive 
to the purpose of this hearing outlined specifically in the 
letter of invitation sent to him on February 25th. And Mr. 
Kashkari's silence on the subject of this hearing speaks 
volumes. The inescapable conclusion is that Treasury is not 
conducting oversight of the TARP moneys, disbursed through the 
capital assets purchase program, to prevent wasteful use or 
abuse of hundreds of billions in taxpayers' funds.
    Perks for company management were considered sound business 
judgment before the financial crisis and taxpayer bailout, and 
they are considered sound business judgment now, using 
taxpayers' money. Loans to foreign governmental authorities 
were considered sound business judgment before the crisis and 
bailout, and they are supposedly sound business judgment now, 
using taxpayers' money. Investments in foreign company 
operations, even if it results in more layoffs in the United 
States, were sound business judgments before and they are sound 
business judgments now using taxpayers' money.
    In its current form, the capital purchase program of TARP 
leaves recipient companies free to use Federal funds as they 
would any other source of income before the crisis and before 
taxpayers provided the bailout. Treasury's development of the 
TARP program generally and the capital purchase program 
specifically has introduced no new transparency or 
accountability that did not exist before taxpayers were given 
the bill for cleaning up the mess. It has perpetuated business 
as usual. It defers to the so-called sound business judgment, 
judgment of the same corporate management in many cases that 
led to the crisis we are embroiled in now.
    TARP was developed under a previous Secretary of the 
Treasury. Nearly every observation that will be made today 
originates on his watch. But if the new administration is to 
avoid perpetuating the approach of the past, real change is 
going to have to be necessary. It should start with the 
collection of detailed information about how TARP recipients 
are using taxpayer funds and the imposition of conditions and 
standards for how they may use the moneys taxpayers have 
provided and may be called upon to provide in the future.
    My colleagues on this committee, with news reports 
projecting that at least another $2 trillion will be requested 
of taxpayers, it is my hope that this hearing today will help 
propel the new Department of Treasury to reform the intolerable 
deficiencies of the TARP program, thereby making recipients 
accountable to the public for the use of taxpayer funds.
    Finally, we owe it to the American taxpayers to provide a 
complete, comprehensive accounting of all TARP funds that have 
already been allocated. And after such a thorough accounting is 
made available, then let the people decide if their hard-earned 
tax dollars are being spent wisely and in the best interests of 
the American economy and the best interest of the United States 
of America.
    I yield now to the ranking member, Mr. Jordan of Ohio.
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

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    Mr. Jordan. I thank the chairman, and I will be brief. Our 
ranking member, Congressman Issa, will provide our opening 
statement.
    I was in the Judiciary Committee yesterday and I think 
there were 15 opening statements, so we don't need two from our 
side. But I did want to say to the chairman, I look forward to 
working with you and this committee. Since the first time we 
met, I think at an orientation session at the Ohio General 
Assembly in 1994, I have always appreciated the chairman's 
passion and intensity that he brings to the legislative 
process.
    So I do look forward to working with you this Congress and 
in this committee. With that, I will turn it over to our 
ranking member.
    Mr. Kucinich. I thank the gentleman. I just want to say 
that Mr. Jordan is a champion wrestler, and I look forward to 
working with you as well.
    Mr. Issa. Thank you, Mr. Jordan. Thank you, Mr. Chairman, 
for holding this extremely important hearing.
    Mr. Kashkari, welcome. It is not easy for us to hold a 
hearing on the TARP, the Troubled Assets Relief Program, or as 
some people think it is called, the Toxic Asset Relief Program, 
because the TARP suffers from a lack of transparency and 
accountability. In our previous hearing, we asked questions 
such as, ``how much have you spent,'' ``where is the money,'' 
``what is it worth today.''
    But as of February 6th, the Treasury Department has 
verified that $300 billion in taxpayers' funds have been 
provided to our Nation's financial institutions in the form of 
preferred shares, warrants, loans and insurances against loss. 
Now, that figure, of course, is outdated today, and we hope to 
hear an update.
    While the Treasury Department currently monitors aggregate 
monthly levels of some banking activities, it does not require 
any recipient of TARP funds to disclose the details of any 
individual transaction that the recipient would not have 
entered into but for the TARP money. In other words, we do not 
know if $300 billion of taxpayers' money has changed anyone's 
behavior. As a result, neither the Treasury Department nor 
Congress nor the general public truly knows the outcome 
achieved by injecting taxpayers' money.
    Mr. Chairman, this lack of transparency simply is 
unacceptable. We can certainly make the case that this level of 
transparency and the need for it may not have been anticipated 
prior to September of last year. But a government of the future 
must be designed for transparency. We must ensure that all of 
our institutions, whether receiving Federal funds or simply 
operating on an interstate basis be in fact prepared to provide 
transparency. That means interoperable systems and data bases.
    We must understand, however, that true transparency 
requires attention not only to what information is disclosed 
but to how the information is disclosed. To illustrate this 
principle, consider that we receive a deluge of information 
from the SEC in the form of 10Ks and other documents. As a 
matter of fact, my understanding is that there are about 15 
million pages of text. If that is simply text, and in order to 
figure out the state of the top 200 or so companies in America, 
you would have to go through 10 million or more pages of 
documents, then that information in fact is not information, 
it's simply pages of text. Good luck sifting through it.
    In this day and age, every American understands that if 
they don't do it themselves, they could download from their 
bank or other financial institution a monthly statement, 
receive it online, import it into Quicken, into a spreadsheet, 
into some other accounting system, home accounting system, so 
they can quickly look at their financial statements, keep track 
of them from month to month and do analyses of the trends in 
their own investments.
    So knowing that you can do this on a personal basis, one 
would ask what can we do on a national basis? The answer is, 
without a promising technology such as XBRL, that can 
standardize all financial reporting for easy accessibility, we 
will not be able to do the same on a global basis. More than 40 
countries have already adopted this standard, including China. 
The United States is currently requiring the disclosure of 
information to the FDIC in XBRL format. However, the SEC has 
been slow to act, took most of last year to consider it, and 
only recently has approved a final rule that will mandate XBRL 
for all public company reporting, with some companies required 
to comply starting in June 2009.
    Continuing with XBRL technology, it is clear to the public 
that when we talk about lettered technologies and call them 
technologies that they may ask, is this difficult. I am going 
to say here today that although we will receive extensive 
information later today, it is not difficult. It is simply the 
Federal Government requiring that financial institutions, those 
providing mortgages into the public market, those operating 
with the public trust such as public corporations, and those 
receiving TARP money provide information in a way that we do 
not have to re-massage it, that it is transparent to a 
computer. They still have the right, using this technology, to 
withhold information or to be assured that the Government will 
keep confidential information confidential.
    But only with this sort of a common format can we in fact 
begin to separate what is often called toxic assets, which in 
fact is good assets mixed with bad with no ability to decide 
which is which. Without it, we are back to where we were before 
September.
    Mr. Chairman, I absolutely look forward to Mr. Kashkari's 
answers on what he can see today, what he knows today, but more 
importantly, for both the first and second panel, I am 
desperate, and America is desperate to ensure that we do not 
come back to a hearing 3, 4, 5 months from now and find out 
that we still don't know where the money went, we still cannot 
quickly decide what assets are good and what assets are bad.
    Last, Mr. Chairman, I believe that when we look at the 
problem, and Mr. Kashkari has been looking at this in a huge 
way, America had a debt level of about 300 percent of GDP, or 
about $45 trillion, plus or minus, of debt. Historically, 
American ran 100 to 120 percent of debt to GDP, meaning $15 
trillion, maybe $20 trillion of debt. The unwinding of this 
debt, even with the trillions of dollars that are either 
pledged or the hundreds of billions of dollars that have been 
delivered, still has a long way to go.
    I look forward to hearing from Mr. Kashkari how they plan 
to find the stabilized level of debt that America should be. I 
believe that whether it is the international institutions that 
have gone on business as usual, as the chairman said, providing 
dollars to foreign investors, or it is our domestic spending, 
that we have to come to grips with how much of the contraction 
was appropriate because of an excess, an excess that we all 
found interesting and valuable but in fact didn't realize that 
when it unwound was inevitably going to give us huge problems.
    For example, if in fact our 100 to 120 percent of GDP is 
not the new norm, but rather 200 percent of GDP is the new 
norm, we still have a $15 trillion or so contraction of debt 
that will be permanent. I know that is not the subject for 
today, but it is a subject that I look forward to people at 
Treasury and others, working with economists, to discover. 
Because we have to decide what portion of America's hard-earned 
money is going to be put into stimuluses, TARPs, and others, 
and how much in fact is going to have to be written off to, we 
can't go back to the Roaring Twenties, and we can't go back to 
the Roaring Oughts, if you will.
    Mr. Chairman, thank you for your indulgence. I look forward 
to this hearing and yield back.
    Mr. Kucinich. I want to thank Mr. Issa, who is the ranking 
member of the full committee, for his participation. I think 
that all Members would agree that Mr. Issa's business acumen 
brings a real strength to our deliberations, not only today but 
always. So thank you, sir.
    It is my honor now to introduce the chairman of the full 
committee, who is our new chairman and under whose guidance we 
helped to craft today's hearing and under whose guidance we 
will go even deeper into the workings of this TARP program, as 
well as the broad range of Government oversight and reform 
issues facing the U.S. Congress and America. At this time, it 
is my honor to introduce the distinguished gentleman from New 
York, Mr. Towns, the chairman of the full committee.
    Chairman Towns. Thank you very much, Congressman Kucinich, 
the Chair of the subcommittee, and of course Ranking Member 
Jordan, for convening this hearing.
    Oversight of the Treasury's TARP program is an important 
topic for this committee. I am pleased that Mr. Kashkari is 
here today to update us on the program.
    It is quite clear to me at this point that Treasury does 
not have the information or personnel in place to conduct 
vigorous oversight of the TARP program. That bothers me. The 
information we have received about the types of data the 
Government is tracking are far too vague to develop measures of 
the program's effectiveness.
    I am afraid we are reaching a point where Treasury just 
does not know what Wall Street is doing with Government funds. 
In fact, I don't think they even know how much they don't know.
    In my view, Congress has been extraordinarily generous in 
allowing the Treasury Department and the Federal Reserve 
latitude in dealing with the current financial crisis. However, 
the Federal Government's unprecedented investment of billions 
of dollars demands further scrutiny. I am particularly 
concerned about AIG. To date, the Government has invested $160 
billion, that is B as in boy, in AIG, and stated last week that 
AIG may require further support. It should come as no surprise 
that Congress has expressed the need to know exactly how this 
money has been spent, on what basis it has been spent and 
exactly who are the beneficiaries of this record Federal 
subsidy.
    But we cannot take it on blind faith that Federal financial 
support of AIG or other firms is being carried out in a 
sensible manner. We just can't take that. This hearing should 
tell us what information Treasury is collecting and what 
information is being shared with the Congress and what 
information is completely unknown to anyone responsible to the 
American taxpayers. I hope we can come out of this hearing with 
a plan for obtaining the information necessary to make 
responsible decisions about our economy and the burden that the 
American people are bearing to bail out Wall Street.
    Let me just say, this is not a one-shot deal. We are not 
going to go away. We owe it to the taxpayers.
    Mr. Chairman, on that note, I yield back.
    [The prepared statement of Hon. Edolphus Towns follows:]

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    Mr. Kucinich. I thank the chairman of the full committee, 
and it is an honor to serve with you.
    At this time, of course, all members of this committee, 
without objection, are going to have 5 minutes for an opening 
statement. Any other Member who seeks objection? Mr. Souder of 
Indiana, do you desire to have any opening statement?
    Mr. Souder. No, thank you, Mr. Chairman.
    Mr. Kucinich. Mr. Cummings of Maryland.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    I want to thank you and I want to thank our chairman of the 
full committee and ranking member for making this hearing take 
place.
    I was just sitting here thinking about our last hearing. 
And during that hearing, Mr. Kashkari presented and there were 
some issues that we brought up that he did not know about. And 
I realize that there's a lot to get your arms around, I 
understand that.
    But I want us, the reason why this hearing is so important 
is that we are in probably one of the worst economic 
circumstances that we have been in in our lifetimes. I do 
believe that President Obama is doing everything in his power, 
along with Treasury Secretary Geithner, to straighten up this 
mess, and it is just that.
    The problem is that unless there is transparency and unless 
there is accountability, it is going to be impossible to 
maintain the trust of the public. And we need the public trust. 
Right now, the people in my district are losing their savings, 
their homes. As a matter of fact, I was at a town hall meeting 
the other day, Mr. Chairman, and a gentleman said to me, ``You 
know what, I stopped looking at my statement, because I am 
afraid to look at it, it will put me in a bad mood for the next 
month or so, so I don't even look at it any more.'' And they 
are losing their jobs.
    And at the same time, they turn around and they hear about 
the AIGs of the world and they hear about the Citigroups, the 
abuses of this money. And you know what they ask themselves? 
The question they ask is, ``why is my tax dollar being used in 
this way?'' But then the thing I think that really alarms them 
is when they hear the oversight panel in its recent report say, 
``The panel still does not know what the banks are doing with 
the taxpayers' money.''
    It is going to be very difficult for the President and for 
Secretary Geithner to turn this ship around unless we have a 
situation where there is that transparency and the 
accountability. But if you don't know, if you don't know what's 
going on, that's a real problem.
    So we found out just recently that AIG was given retention 
payments, these retention payments were supposed to be to 
retain people, but these were the very people that they were 
letting go. There is also something else that is happening 
here, Mr. Chairman, and there is an arrogance on the part of 
some of these company executives with regard to the American 
taxpayers' dollars.
    So I am hoping, in the words of Mr. Towns, that we will be 
able to come up with a plan to address this. But the question 
also becomes, does the Treasury Secretary have enough authority 
to do the things that he needs to do. And I am hoping that 
those questions will be answered today.
    So I look forward to the testimony of Mr. Kashkari and the 
other witnesses, and again, I thank you all for calling this 
hearing.
    Mr. Kucinich. Thank you very much, Mr. Cummings.
    The Chair recognizes Mr. Fortenberry of Nebraska.
    Mr. Fortenberry. Just briefly, Mr. Chairman, let me thank 
you for the opportunity to join you on the subcommittee. I 
think it is a critical subcommittee for the well-being of 
overview of public policy in this country.
    Also, I wanted to thank you for picking this particular 
topic as the one that clearly sets a priority for the tenor and 
the paradigm of this committee. Clearly, people want to know 
where their money is going to. Mr. Chairman, if I could offer 
this, I think it is very important to review back when the 
taxpayers were asked to bail out financial institutions in the 
name of resetting the economy, stabilizing the economy. There 
was a question floating around or the suggestion that these 
institutions were too big to fail. I think we should be asking, 
are they too big to succeed.
    One of the real problems that we have in this country is 
financial consolidation, the liberalized credit system that 
brought about the use of exotic financial instruments, as well 
as what seems to be reckless behavior. So I am hopeful that 
this subcommittee and this particular hearing delves deeply 
into this issue to at least answer one question as to where the 
money is going, and then second, if this is an appropriate 
investment.
    Mr. Kucinich. I want to thank our new committee member, Mr. 
Fortenberry of Nebraska, for his presence on the subcommittee 
and also for his observation. The question that you pose about 
whether or not a company is too big to fail, and your further 
question about the issue of consolidation and the economy and 
its effect on the economy is something that is a proper subject 
for this Domestic Policy Subcommittee.
    So with the cooperation of our chairman, Mr. Towns, we 
would look forward to delving deeply into that issue.
    Mr. Fortenberry. I appreciate your comment, sir, thank you.
    Mr. Kucinich. I thank the gentleman.
    The Chair now recognizes Mr. Welch of Vermont for his 
opening statement.
    Mr. Welch. Thank you, Mr. Chairman.
    There does seem to be clear unanimity here about the 
absolute requirement that there be full accountability. I want 
to focus attention on one specific area.
    We have used a lot of money from TARP and other programs 
for AIG. And there is going to be another $30 billion that 
already has been authorized with no additional requirement that 
AIG disclose to us how specifically that money is used. And 
this new use of TARP funds is a significant departure from 
previous TARP assistance to AIG. As long as it continues to be 
given without requiring AIG to fully disclose how that money is 
being spent, it is going to thwart our efforts to provide 
answers to the American taxpayer.
    AIG has been unwilling so far to provide significant 
information on what financial institutions, either domestic or 
foreign, are counter-parties, the counter-parties to its 
outstanding credit default swaps. That is why, for example, we 
still don't know who received much of the money that the 
Federal Reserve gave to AIG.
    I think we are all in agreement the taxpayers are entitled 
to know how their money is being spent. And what I would like 
to know, on behalf of the American taxpayer, is basically this: 
One, does Treasury agree that AIG can use this money to fulfill 
credit default swap obligations with taxpayer money from TARP? 
Two, if so, does Treasury have a specific plan to track each 
and every dollar that AIG uses to pay counter-parties? And 
three, what plans does Treasury have to compel AIG to release 
information to Treasury and the American taxpayer on what 
counter-parties are paid?
    Keep in mind, AIG is 80 percent taxpayer-owned. So in a 
way, AIG is us.
    Now, the justification, of course, for giving any aid to 
AIG is the systemic risk that Treasury and the Fed have 
concluded exist if we let it go under. It is one thing, 
however, if that systemic risk and the funds that are 
transferred are used to protect average Americans who have 
annuities and insurance policies with AIG. It is quite another 
if that money is being used basically to hedge the bets and 
reward speculators, investment banks, hedge funds that simply 
bet wrong on some of these credit default swaps.
    So Mr. Chairman, my question really goes to getting 
specific information on how money is being used to pay counter-
parties, and what counter-parties are on the receiving end of 
this benefit. I yield back.
    [The prepared statement of Hon. Peter Welch follows:]

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    Mr. Kucinich. I want to thank the gentleman for his opening 
statement, and to complement it, to introduce into the record 
an article in yesterday's Washington Post by David M. Smick 
called Tim Geithner's Black Hole, which discusses directly the 
point you raise about AIG and the credit default swaps. So I 
thank the gentleman.
    [The information referred to follows:]
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    Mr. Kucinich. The Chair recognizes a former chair of the 
Government Oversight Committee, Mr. Burton of Indiana. Thank 
you for being here, Mr. Burton.
    Mr. Burton. Thank you, Mr. Chairman. Thank you for having 
this hearing.
    You look the same in person as you do on TV. [Laughter.]
    I will tell you, Mr. Kashkari, I don't think there is a 
Member of Congress that really knows where all this money has 
gone. And I think that is one of the biggest problems we have, 
is we go back to our constituents and they say, ``Well, where 
are you spending all this money?'' And we can't give them an 
answer. And we say, ``Well, you just have to trust Mr. Kashkari 
and the Secretary of the Treasury and it will get done.''
    Today I see here that $8 billion of the TARP money that was 
given to Citigroup went to Dubai, a billion by J.P. Morgan 
Treasury Services was used in development of cash management 
and trade finance solutions in India, $7 billion investment by 
Bank of America in China Construction Bank Corp. We need to 
have a complete run-down, or as complete as possible, so we can 
explain to our constituents why we are doing this and what the 
end result is going to be. We can't do that right now. And we 
are supposed to grant you and other members of the 
administration the funds that are necessary to get this economy 
moving. For us to be able to do that, we need to be able to 
convince our constituents that it is the right thing to do.
    And we can't do that right now. The people back home are 
madder than hell about what is going on, and they need to have 
the facts.
    The other thing is currently only the largest 20 recipients 
of TARP CP fund are required to file reports of any type with 
TARP overseers. The other 297 financial institutions do not. I 
think that should be much broader. I think there should be a 
report that goes to the TARP overseers, but also to the 
Congress of the United States. You are going to have a much 
easier time when you come up here, Mr. Kashkari, if we have the 
facts so we can go back home and at least make the case that 
this Government is doing the right thing.
    Every time I got home, people say, ``Gosh, you spent $700 
billion on TARP, you spent $787 billion on the stimulus 
package, you spent $408 billion or $10 billion yesterday, I 
mean, we are talking about trillions of dollars.'' And then 
Geithner over at Treasury says he's going to have to put $2 
trillion or $3 trillion into the financial institutions to get 
them up and running the way they should.
    And we all want the economy to flourish. But we have to 
have the facts. I really hope you will take this to heart. I 
know that you hear all this stuff, and you say, ``Oh, my gosh, 
I wish these guys would shut up.'' But if you want to have the 
American people to be supportive, we have to have the facts.
    With that, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Kucinich. I want to thank the gentleman from Indiana. I 
just want to say in support of your statement I have here a 
news release from Citigroup with a headline, Citi arranges more 
than $8 billion for Dubai. They received $25 billion in bailout 
funds on, I believe it was October 26th. And this news release 
is dated December 14, 2008. Without objection, this will be 
submitted to the record.
    [The information referred to follows:]

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    Mr. Kucinich. The Chair recognizes, I think Mr. Kennedy is 
next, Mr. Kennedy from Rhode Island. Thank you for being here. 
You may proceed.
    Mr. Kennedy. Thank you, Mr. Chairman.
    Following up the former chairman from Indiana about Dubai, 
Bank of America sent $7 billion to China Construction Bank 
Corp. after it received funds from U.S. tax dollars, Mr. 
Chairman.
    I think the frustration that we all have here, and I heard 
it from my constituents last week, was that they are prepared, 
as one of my constituents said, ``We are prepared to take our 
medicine. But we want to make sure we take it the same as 
everybody else.'' They don't see themselves as taking their 
medicine the same as everybody else. They see us aggregating 
the profits of the very wealthy in this country, and 
socializing the loss of the middle class in this mess that we 
have here.
    They see their tax dollars going to pay off those who have 
savings, those who have dividends, those who have made out the 
best in the 1980's and 1990's during this great wealth that has 
been made and accrued over the last several decades, while 
they, the people who are the wage earners in this country, the 
people who don't have savings, the people who are paying 
payroll taxes, are bailing out the very wealthiest in this 
country.
    There is something inherently wrong in this picture. And 
they are not about to have the wealthiest in this country be 
the only ones with a voice down here. What's inherently wrong 
here is that we're aggregating the profits and socializing the 
losses, and we're not making sure that the medicine is shared 
equally amongst all the American people in terms of how we're 
making sure that we're all getting back on track evenly here. 
That, I think, Mr. Chairman, is what we need to get about 
doing, so that we're not making sure that just a few of the 
people, the American people are the ones who are left paying 
the bill here, and left letting all these others get off scot-
free.
    Mr. Kucinich. I want to thank the gentleman from Rhode 
Island and thank him for being on the subcommittee.
    The Chair now recognizes the gentlelady from California, 
Ms. Watson.
    Ms. Watson. I want to join with my colleagues in thanking 
you for holding today's hearing.
    The Emergency Economic Stabilization Act of 2008 authorized 
the TARP program for the disbursal of $700 billion of 
taxpayers' money in two tranches to attempt to restore 
liquidity and stability to the financial system. To date, the 
Treasury Department has committed approximately $299.6 billion 
to the TARP funds to participating financial institutions.
    With nearly half of the allocated TARP money drawn down, 
and an economy which continues to shed jobs and capital daily, 
it is crucial that today's hearing gives us an honest 
perspective on the Treasury Department's efforts to regulate 
the use of TARP funds and insight into how to guarantee that 
these funds are effectively spent in a manner that maximizes 
the eventual returns to taxpayers.
    While increasing liquidity to our banking system is a key 
consideration for the Treasury Department in orchestrating and 
distributing the TARP funds, it is also a legally mandated 
responsibility of the Treasury Department to maintain internal 
control of these funds to prevent waste and abuse of the 
taxpayers' money. The current global economy crisis is a result 
of a systemic unwillingness on behalf of institutions and 
individuals at all levels to routinely self-examine their 
financial practices to verify that they are responsible and 
sustainable in the long run. Now, as we continue to implement 
an unprecedented reorientation of the relationship between 
business and government, it is critical that we apply this 
lesson to the actions of the Treasury Department and to all of 
the TARP recipient institutions.
    Mr. Chairman, I would particularly like to thank each of 
today's panelists for cooperating with this committee. I 
sincerely hope that the testimony we hear today will provide us 
with a detailed assessment of the ways institutions have 
utilized their TARP funds and the ability of the Treasury 
Department to oversee the transactions.
    When we go home to our districts, as other Members have 
described, we get inundated with telephone calls and personal 
visits, ``what is going on?'' ``When can I lower my mortgage 
payment?'' ``When can I have the interest lowered?'' ``What are 
you doing?'' And these angry calls are constant. So I would 
like to take back information when I go back to the district 
tomorrow based on what we hear from the witnesses that will 
address their concerns.
    So I thank you very much, Mr. Chairman, for this very 
significant hearing today. I yield back.
    [The prepared statement of Hon. Diane E. Watson follows:]

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    Mr. Kucinich. I thank the gentlelady for her constant 
participation in these subcommittee meetings.
    The Chair recognizes Mr. Tierney of Massachusetts.
    Mr. Tierney. Mr. Chairman, I am prepared to go to the 
witness when we can. Thank you.
    Mr. Kucinich. I thank the gentleman for his presence here.
    If there is no other Member of Congress or of this 
committee who is ready to proceed, we are going to now move to 
introducing our first panel. Mr. Neel Kashkari was designated 
as the Acting Interim Assistant Secretary of the Treasury for 
Financial Stability on October 6, 2008. He was asked by the new 
administration, the Obama administration, to stay on for the 
sake of continuity and continues to serve in a difficult role 
during this transition. In this capacity, Mr. Kashkari heads 
the Office of Financial Stability, which oversees the Troubled 
Asset Relief Program.
    He is also the Assistant Secretary of the Treasury for 
International Economics and Development. Mr. Kashkari joined 
the Treasury Department in July 2006 as senior advisor to U.S. 
Treasury Secretary Henry Paulson, Jr. In that role, he was 
responsible for developing and executing the Department's 
response to the housing crisis, including the formation of the 
Hope Now Alliance, the development of the Sub-prime Fast Track 
Load Modification plan, and the Treasury's initiative to kick-
start a covered bond market in the United States.
    Prior to joining the Treasury Department, Mr. Kashkari was 
a vice president at Goldman Sachs & Co. in San Francisco.
    Mr. Kashkari, I want to thank you for being before this 
subcommittee today. I know I speak for all the Members in 
saying that. And we are looking forward to your testimony.
    As you know, it is the policy of the Committee on Oversight 
and Government Reform to swear in all witnesses before they 
testify. I would ask that you please rise and raise your right 
hand.
    [Witness sworn.]
    Mr. Kucinich. Thank you.
    Let the record reflect that the gentleman answered in the 
affirmative.
    We have already, at the beginning of this hearing, I had a 
unanimous consent for Mr. Kashkari to have 10 minutes if he 
needs it, 10 minutes, if you need it, sir, so that you will 
have sufficient time to make your statement.

STATEMENT OF NEEL KASHKARI, ACTING INTERIM ASSISTANT SECRETARY 
      FOR FINANCIAL STABILIZATION, DEPARTMENT OF TREASURY

    Mr. Kashkari. Thank you, Mr. Chairman, good morning. Thank 
you, Chairman Towns, Ranking Member Jordan, Ranking Member Issa 
and members of the subcommittee. I appreciate the opportunity 
to appear before you today.
    As you know, I was appointed by the prior administration, 
and the Obama administration asked me to remain at Treasury for 
a brief period to help with the transition. I am honored to 
provide whatever help I can to the new administration.
    The American people provided Treasury with broad 
authorities under the Emergency Economic Stabilization Act to 
stabilize the financial system. And it is essential we 
communicate our actions in a clear and transparent manner to 
maintain their trust. Today I will briefly review the actions 
Treasury has taken to stabilize the financial system and 
describe the steps we are taking to monitor the activities of 
recipients of Government capital.
    Many years in the making, the credit crisis erupted during 
the summer of 2007. Last year, the crisis intensified and our 
major financial institutions came under severe pressure from 
deteriorating market conditions and the loss of confidence. In 
a short period of time, several of our largest financial 
institutions failed. In March, Bear Stearns. In July, Indy Mac. 
In September, we witnessed the conservatorship of Fannie Mae 
and Freddie Mac, the rescue of AIG, the bankruptcy of Lehman 
Brothers, the distress sale of Wachovia and the failure of 
Washington Mutual. Eight major U.S. financial institutions 
effectively failed in 6 months, six of them in September alone.
    This stress was reflected in something called the LIBOR-OIS 
spread. It is a key measure of risk in the financial system. 
Typically, 5 to 10 basis points. On September 1st, the 1-month 
spread was 47 basis points. By the 18th, when Treasury and the 
Fed went to the Congress, the spread had climbed to 135 basis 
points. By the time the bill passed, just 2 weeks later, the 
spread had nearly doubled again to 263 basis points. Credit 
markets continued to deteriorate and the spread, just 1 week 
later, spiked to 338 basis points, almost 50 times normal 
levels. Our Nation was faced with the potential imminent 
collapse of our financial system.
    So many people asked me, what if the financial system had 
collapsed? Businesses of all sizes might not have been able to 
access funds to pay their employees, who then wouldn't have 
money to pay their bills. Families might not have been able to 
access their retirement funds. Basic financial services might 
have been disrupted. The severe economic contraction and large 
job losses we are now experiencing were triggered by the credit 
crisis. However, had the financial system collapsed, this 
recession, including terrible job losses and numerous 
foreclosures, could have been far, far more severe.
    Now, a program as large and complex as the TARP would 
normally take many months or even years to establish. But we 
didn't have months or years. We moved as quickly as possible to 
implement programs to rapidly stabilize the system and prevent 
collapse. In the 159 days since Congress passed the law, we 
have successfully implemented the capital purchase program, 
having now invested in 489 institutions in 47 States and Puerto 
Rico, 478 banks in 47 States. With approximately 30 new 
investments each week, the median investment is $16 million. 
The vast majority of these institutions are banks in our 
communities.
    Treasury also helped the Federal Reserve establish a 
lending program to reduce borrowing costs for consumers, 
including auto loans, student loans, credit cards, and small 
business loans. And that will begin funding this month. We are 
planning to expand this lending initiative to include other 
asset classes, such as commercial mortgage-backed securities.
    Under Secretary Geithner's new financial stability plan, 
Treasury also announced a new capital assistance program and 
launched a multi-part housing program to reduce borrowing costs 
and to encourage long-term sustainable loan modifications.
    Finally, we are developing a public-private asset fund to 
purchase illiquid assets from banks, also to support new 
lending.
    Now, during this time, Treasury has unfortunately had to 
step in to stabilize several large institutions whose failures 
would pose a systemic risk to our financial system and to our 
economy. We regretted having to take these actions, to put so 
many taxpayer dollars at risk to support firms that had made 
bad decisions. But our choice was clear, when the consequences 
of inaction so severe, and the potential cost to the taxpayers 
of inaction so much greater than the cost of intervention.
    Today, that LIBOR-OIS spread which had peaked at 338 basis 
points has now fallen to 34 basis points. We believe the 
combined actions of Treasury, the Federal Reserve and the FDIC 
have prevented a financial collapse. But we still have much 
more work to do to get credit flowing to our communities.
    Now, in terms of monitoring. In January, Treasury began 
collecting data from the 20 largest recipients of capital under 
the CPP, representing almost 90 percent of the capital deployed 
under that program.
    Mr. Kennedy. Mr. Chairman, could I just interrupt just for 
a second here?
    Mr. Kucinich. It is not customary to interrupt a witness. 
So unless it is something urgent, I would prefer that Mr. 
Kashkari proceed with his statement.
    Mr. Kennedy. OK. Thank you, Chairman.
    Mr. Kucinich. Thank you.
    Mr. Kashkari. We published our first monthly lending survey 
in February. This survey shows bank by bank the lending and 
intermediation activities of institutions by category, such as 
consumer, commercial and real estate loans. This survey is 
published monthly on Treasury's Web site.
    Now, in recessions, credit levels typically fall, as both 
borrowers and lenders become more cautious. The first survey 
shows that lending held up remarkably well despite one of the 
most severe quarterly economic contractions in recent decades. 
Without capital from Treasury, those lending levels would 
likely have been much lower. And we are also developing a 
narrower survey for smaller institutions that receive 
Government capital to monitor their lending monthly. So we will 
be serving all institutions.
    And the new CAP program that Secretary Geithner has 
announced will also require institutions to indicate their 
expected use of funds and to increase and track lending against 
a baseline so we can monitor that.
    Now, with investments in almost 500 institutions and 
hundreds more in the pipeline, we must ensure that our 
investments are targeted at stabilizing the economy. But we 
must also take great care not to try to micromanage recipient 
institutions. However well-intended, Government officials are 
not positioned to make better commercial decisions than lenders 
in our communities. The Government must not attempt to force 
banks to make loans they are not comfortable with, nor should 
we try to direct the lending from Washington. Bad lending 
practices were at the root cause of this crisis, and returning 
to those practices will not help end the turmoil.
    The EESA was one of several initiatives taken by the 
Federal Government to stabilize the financial system, an 
absolutely necessary precondition to economic recovery. We 
believe the combined actions of Treasury, the Federal Reserve 
and the FDIC have helped prevent a financial collapse. 
Nonetheless, the current crisis took years to buildup and will 
take time to work through. And we still face real economic 
challenges.
    There is no single action the Federal Government can take 
to end the financial market turmoil and end the economic 
downturn. But the authorities Congress provided last fall 
dramatically expanded the tools available to address the needs 
of our system.
    Mr. Chairman, I would just add, I know many members of the 
subcommittee have many questions. I have cleared my day, I am 
happy to stay as long as you would like and answer all of your 
questions in as thorough a manner as possible. Thank you, sir.
    [The prepared statement of Mr. Kashkari follows:]

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    Mr. Kucinich. We all appreciate your presence here, Mr. 
Kashkari. Thank you for your testimony.
    We are now going to proceed with questions. Members will 
have 5 minutes each for the purpose of asking questions. I am 
going to begin and then I will go to our ranking member, Mr. 
Jordan. I would ask all Members to please, try to observe the 
5-minute rule, because as Mr. Kashkari said, he will stick 
around. So we are open to having several rounds of questions.
    I would like to begin, Mr. Kashkari, with questions about 
the foreign uses of TARP funds. When Congress created the TARP, 
it was responding to a crisis in this country. U.S. businesses 
couldn't get a loan, American consumers couldn't get a loan. 
TARP was supposed to restore liquidity in the functioning of 
the credit market for them.
    So how do you justify to the American taxpayers a bank's 
decision, made after receiving tens of billions of dollars in 
TARP moneys, to make a $7 billion investment in a Chinese 
construction company?
    Mr. Kashkari. Mr. Chairman, thank you, sir. I will offer 
two comments to answer your question. First, we must remember 
that many of these financial institutions are global 
institutions, and they take deposits from savers all around the 
world and they make loans all around the world. While we may 
isolate and identify one transaction here or one transaction 
there, it is impossible, because money is fungible, I know you 
have all heard this comment before, to track, did that money 
come from U.S. deposits, did that money come from foreign 
deposits.
    We also have to be careful that if we set hard rules, not 
letting our largest institutions do business abroad, other 
countries may say, ``OK, they are going to reciprocate and not 
let foreign banks then lend in America.'' So I understand your 
concern. I absolutely do. But we also walk a fine line, let the 
businesses make commercial decisions, support the system as a 
whole, to get lending flowing.
    Mr. Kucinich. Now, isn't it true that this loan was made 
after Citigroup received TARP funds? Isn't that true?
    Mr. Kashkari. I don't know the details of it, but it 
appears to be the timing as such, yes, sir.
    Mr. Kucinich. Excuse me, I want to go back to that, I want 
to restate the question.
    Isn't it true that this decision to make this purchase 
happened after Bank of America made this purchase of stock?
    Mr. Kashkari. Sir, I do not know.
    Mr. Kucinich. And after they received the TARP funds?
    Mr. Kashkari. Congressman, Mr. Chairman, I don't know when 
Bank of America made various investment decisions. I do know 
the dates of the announcements. And it appears the announcement 
was after the TARP investment.
    Mr. Kucinich. Right. I have here, for the record, the Bank 
of America to exercise remainder of China Construction bank 
option, and it is November 17th, they received the TARP funds 
in October, Mr. Kashkari. When it is hard to get a loan in this 
country, is it Treasury's opinion that a bank that received 
TARP money is justified to arrange financing for an $8 billion 
loan to the Government of Dubai?
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    Mr. Kashkari. Sir, again, I want to provide a thorough 
answer to you, Mr. Chairman. Our highest priorities are two-
fold. No. 1, stabilizing the financial system, and No. 2, 
making sure these banks can pay the taxpayers back. And so we 
have taken great care to not try to micromanage institutions, 
to encourage them to use the capital in commercially reasonable 
ways. We put specific protections in. We prohibited them from 
buying back stock. We prohibited them from increasing their 
dividends to create economic incentives for them to want to 
lend the money and want to earn a return on that money.
    Mr. Kucinich. But people back home, as Mr. Cummings always 
likes to ask, people back home want to know, how does arranging 
an $8 billion loan to Dubai, after someone gets TARP funds, how 
does that benefit the U.S. taxpayers whose money is being used? 
How does helping a construction company in China get $7 billion 
after this Bank of America received TARP money, how does that 
help the U.S. taxpayers? Could you explain this?
    Mr. Kashkari. Sure, thank you, sir. When our global firms 
do business abroad, and if they can make money and earn money 
abroad, that makes those institutions stronger. It puts those 
institutions in a better position to pay back the taxpayers, 
because they are earning money, they are raising deposits 
around the world.
    Mr. Kucinich. So are these investments better, are you 
telling the American people that it is better to invest in 
another country than it is for these banks who have TARP money 
to invest in our own country?
    Mr. Kashkari. Absolutely not, Mr. Chairman. We absolutely 
want our banks investing in the United States, lending in our 
communities.
    Mr. Kucinich. Did you know they were investing in China and 
India and Dubai and God knows where else? Did you know that?
    Mr. Kashkari. Well, I know that our large global financial 
institutions do business around the world.
    Mr. Kucinich. But do you know specifically that companies 
got TARP funds, there was a credit freeze in this country, they 
get the TARP funds and then instead of investing in American 
businesses, many of whom are starved for investment capital, 
they then export American taxpayers' dollars that were given 
under emergency circumstances? Did you know that?
    Mr. Kashkari. Again, Mr. Chairman, this comes back to one 
of the hardest problems we have had, honestly, I have had in my 
seat, is communicating this concept of tracking the dollars and 
where did taxpayer dollars go versus other dollars they got 
from deposits abroad, as an example. It is this fungibility 
question that we keep coming back to.
    Mr. Kucinich. Right.
    Mr. Kashkari. So, Mr. Chairman, it has been very hard for 
us to say, well, this dollar went for this purpose, the tax 
dollars went for another purpose. We want our banks to be 
healthy, we want them to lend in our communities. We want them 
to use the capital appropriately. We want them to show judgment 
in light of the economic crisis that we are facing. These are 
tough issues, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman. My time has expired, I 
am going to go now to the ranking member, Mr. Jordan. You may 
proceed, Mr. Jordan. We will come back, there will be another 
round of questions.
    Mr. Jordan. Thank you, Mr. Chairman.
    Mr. Kashkari, we appreciate your being here. I want to 
attempt to, at least in my mind, cut to the chase. At the end 
of your final sentence in paragraph six, you say, ``Finally, we 
are developing a public-private investment fund to purchase 
illiquid assets from banks to support new lending.'' I mean, 
that in fact, wouldn't you agree, was the whole motive for 
doing the bailout in the first place? As I said to a group of 
farmers in my office this morning, I said, the $64,000 
question, or more appropriately, the $700 billion question, is 
when are we going to be able to go after these assets, these 
mortgage-backed securities that caused the problem? That is how 
it was packaged to Congress. That is why Members of both 
parties voted for it and supported the plan.
    And that was on October 3, 2008. To date, am I correct in 
saying that not one mortgage-backed security has been 
purchased?
    Mr. Kashkari. Yes, sir.
    Mr. Jordan. And so I want you to take as much time as you 
possibly can to talk about this developing program to do 
exactly what was supposed to happen 5 months ago. I think that 
in my mind is the key question, the key focus, and what has to 
take place if this is going to work. So take as much time as I 
have left on my 5 minutes and walk me through that.
    Mr. Kashkari. Absolutely, sir. This is a program that 
Secretary Geithner is working on right now. We have teams at 
Treasury working with the regulators to finalize the program. 
It will combine private sector capital with Government capital 
to go after and buy up these assets, sir.
    Mr. Jordan. If I could just interject here. And we have had 
Secretary Geithner in front of the Budget Committee, and he 
said basically the same sentences you just said right there. 
Can you give us an idea how quickly that is going to happen, 
and, as the chairman alluded to, I believe, in his opening 
comments, or someone on the panel did, is it a staffing concern 
that is prolonging this decision or this program getting off 
the ground? Talk about that as well.
    Mr. Kashkari. I expect, I believe Secretary Geithner has 
said he expects it to come out very quickly, as early as within 
a few weeks. Again, people are doing a lot of work on that 
right now, around the clock. It is not a staffing issue. These 
are complex issues that involve not just Treasury, not just the 
Federal Reserve, but the banking regulators. These are complex 
issues that we need to make sure we get right.
    Mr. Jordan. The public-private partnership you are talking 
about, what kinds of encouraging statements, comments, what 
kinds of comments are you getting from the private sector side? 
Are they buying into this approach that you are floating out 
there and talking about right now?
    Mr. Kashkari. We believe they are. In fact, we had received 
inbound unsolicited proposals from people in the private sector 
saying, we have capital on the sidelines, we want to go after 
these assets. One of the key challenges right now is, there is 
no financing available for the private sector investors. So by 
marrying Government capital, taxpayer capital, with the private 
sector capital and providing financing, you can enable those 
investors to then go after those assets at a price that makes 
sense for the investors and a price that makes sense for the 
banks. Because if the private sector capital doesn't have any 
financing behind it, the returns they need will result in 
prices that are too low and the banks won't want to sell.
    So providing the financing is a key component, and it is 
something that Treasury has to do with the regulators. It is 
complex, but the right people are focused on it.
    Mr. Jordan. OK, thank you. I yield to the gentleman from 
California.
    Mr. Issa. Mr. Kashkari, I wanted to followup on something 
that Chairman Kucinich had gotten into. Yesterday it was widely 
reported that Citibank had, I understand, 2 months in a row of 
making positive money. If they cased overseas loans, my 
understanding is, it is more than half of their total business, 
what would have happened to those profits? In other words, as 
much as we here on the dais want American taxpayer dollars to 
go to American investment, if in fact we limited them from 
continuing their overseas operations, what would be the effects 
on the profitability of companies like even Bank of America, 
but certainly Citibank?
    Mr. Kashkari. I expect the profits would fall dramatically, 
and they may in fact then need even more taxpayer dollars to 
support them.
    Mr. Issa. Thank you.
    Mr. Jordan. Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman, and we will come back 
on the Republican side to Mr. Issa. I am going to ask unanimous 
consent, in connection with your line of questioning, to 
introduce an article from the Washington Post on Friday, March 
6th, relating to this public-private partnership, ``U.S. to 
invite the wealthy to invest in a bailout'' by David Cho, 
Consumer Lending, it discusses this very matter.
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    Mr. Kucinich. Mr. Cummings, you are recognized for 5 
minutes. You may proceed.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Kashkari, I just want to talk about AIG for a moment. 
You realize they have these what they call retention payments, 
are you familiar with that?
    Mr. Kashkari. Yes, sir.
    Mr. Cummings. And one of the disturbing things about these 
retention payments was that they were supposed to, I mean, I 
understood it at first that they wanted to retain key people 
for certain units because it added value to those units. And if 
they were to sell them, they would sell for less if those 
people were to leave. But then the financial products division, 
they were giving, they gave over $400 million worth of bonuses. 
And this is the very unit that everybody admits pretty much 
caused a lot of the problems for AIG.
    Then later on they talked about, in SEC filing, recent 
filing, they say they were giving retention payments for people 
that were going to be terminated. Now, are you familiar with 
that?
    Mr. Kashkari. No, actually when you mentioned it earlier, 
that was the first I had heard about it.
    Mr. Cummings. That is shocking to the conscience, isn't it?
    Mr. Kashkari. It sure is.
    Mr. Cummings. See, that is the kind of thing. And when I 
talked earlier about the public being concerned, this is bigger 
than you. This is bigger than the Treasury. And the reason why 
I say that is because when people begin to hear these kinds of 
stories and they hear about retention payments being paid for 
people who are leaving, for people who brought down the 
company, what it does, and they are at the same time, they see 
the moving van coming up to their house, taking their stuff 
away. And they are afraid, like the man said in my district the 
other day, to even look at their statement. Or they are getting 
a pink slip. In some kind of way, we have to get around that.
    And then you said something that I hadn't heard before, 
when you talked about how, in your statement, you said we 
should not, you said the Government must not attempt to force 
banks to make loans whose risks they are not comfortable with 
or attempt to direct lending from Washington. Bad lending 
practices were the root cause. And I understand all that.
    But there has to be, No. 1, transparency. And the American 
people have to see that they are getting something out of the 
deal. That is the problem. And they are upset about that. They 
don't understand it. I know the President is doing a lot of 
great things, and I believe that we are going to, I know we are 
going to get through this, we have to get through it.
    But the question then becomes, while the President and all 
of you all are going in one direction trying to uplift the 
American people and get this economy right, is it that, I mean, 
it is already like going uphill. But I am wondering if you 
don't see the problem that the transparency has, the lack of 
transparency and accountability, what it does is it puts ice on 
that hill that you are trying to get up. And what does that 
mean? It means that it is going to take a longer time and it is 
going to mean that a lot of people are not going to have the 
trust.
    We need to get out of this mess as fast as we can. I just 
don't think a slippery slope helps it. You got me?
    Mr. Kashkari. I do, Congressman. I couldn't agree more that 
the communication challenge that we faced has been enormous. If 
you look at what the President has done and what Secretary 
Geithner has done around some of the new programs, they have 
put in place requirements that the banks specify, here is 
exactly how we are going to use the new funds, we are going to 
track that, we are going to measure and increase our lending 
relative to a baseline of what it would have been otherwise.
    And so there will be increased transparency. As the 
President said before the Joint Address to Congress, he gets 
it. The challenge that we all face is how do we get these 
programs to work, make sure we provide the right transparency, 
strike the right balance.
    Mr. Cummings. Listen to my question. At what point do we 
say to the banks, ``We are giving you a billion, bank, why 
don't you loan back a fourth of that or do something to help?'' 
In other words, you act like we have to sit by and say, ``Oh, 
bank, here is our money, stay afloat,'' and while our people 
can't get the kinds of loans that they want, and I know you are 
doing some things with regard to loans, but I am just saying, 
these are the banks that are getting the big bucks.
    Mr. Kashkari. Well, Mr. Cummings, I am glad you raised 
this. This is a really fundamental point that I think we don't 
talk about enough, which is, the banks are a big part of the 
story. Banks typically provide 60 percent of credit in our 
economy. The non-banks, the securitization market provides the 
other 40 percent. The banks are lending, not as much as we 
would all like, but they are lending. The securitization market 
is gone right now. It is completely frozen.
    So we have now launched this new consumer business lending 
initiative with the Federal Reserve specifically to get loans 
to people buying cars, small businesses, credit cards, etc., to 
get the lending going again. So part of it is the banks, part 
of it is transparency for the banks. But a big part of it is 
the non-bank market. And we have now launched a whole separate 
program to get at that problem.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    The Chair recognizes Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Kashkari, there are so many questions, and I appreciate 
your willingness to stay for a very long day. First of all, you 
don't know a lot about me, and people come in my office, they 
see a bunch of patents and they think that means technology. 
Long before I was fortunate enough to be in electronics, the 
Army paid for me to go to deck school, as it was called back 
then in Massachusetts. And I got to see early on how computers 
were not interoperable but how they could be, and how, when you 
needed to do big projects, you made them interoperable.
    When we look at XBRL, you are very familiar with that 
technology. In a nutshell, if everyone were reporting in an 
XBRL-complaint fashion, so that various companies that are 
developing software to read and to analyze were able to see 
with that common set of, if you were reporting, would your 
transparency that you don't have enough of today be virtually 
absolute? This is assuming that mortgages were put in that 
format, that credit cards were in that format, obviously that 
10Ks and 10Qs were all in that format, something that is 
coming. And of course, the FDIC, all the material that is 
already in that format, in addition to the 40 countries or more 
that are already reporting. If you had all that today here in 
Washington, would you have the transparency you need to do your 
job and do it well?
    Mr. Kashkari. Congressman, I think it would definitely help 
to provide common data formats and a seamless way to flow all 
that data up to one interface that the American people could 
look at easily. The only caution I will offer is, as a 
businessman, you know, you are hesitant, business people are 
hesitant to provide some of their details to their competitors. 
So it may still not answer, well, how many individual loans or 
to whom did this individual loan get. But it would certainly 
help the transparency.
    Mr. Issa. Assuming for a moment that where information goes 
is separate from whether or not it is in that format, if every 
one that you had or were willing to loan money to or were part 
of the stabilization already had the data in that format and 
could deliver it on your request, would you then have the 
transparency you want?
    Mr. Kashkari. I believe it would help. I don't know enough 
about it to know if it would be perfect, but I believe it would 
help.
    Mr. Issa. Can I have your commitment today, you know, the 
second panel, which we may not get to if we keep you all day, 
includes the president of that organization.
    Mr. Kucinich. If the gentleman will yield, we will get to 
them.
    Mr. Issa. OK. I am willing to stay into the night, too.
    But the second panel includes the president of that non-
profit organization. And I am not touting any one format for 
data, but I am concerned that unless we both go forward with a 
common interface that you can at least avail yourself of, and 
obviously find out, and I think we are going to hear that 
retrospectively, they can in fact analyze many of the things 
you are not analyzing, if we don't do both of those, you are 
going to be back here in 2 or 3 months, not having yet skied, 
and we are going to be asking you some of these same questions 
about transparency.
    Mr. Kashkari. I would be very happy to look into it, sir.
    Mr. Issa. Thank you.
    For the record, because I know it is not a fair question to 
hit you with today, I would appreciate this committee getting 
an understanding of where Treasury believes that if the figure 
is correct that I have read, that we are at about 300 percent 
of GDP in debt, historically, long-term historically, 100 to 
120, where you believe we are going to settle out in sort of 
the post-euphoria period, so that this committee could begin 
understanding how much contraction you are not trying to fight 
and how much contraction you are trying to fight in the loan 
market.
    Mr. Kashkari. Absolutely. I will work with our economist to 
look at that. You are completely correct, de-leveraging is 
taking place, it is necessary. We don't want it to over-
correct, and we don't want the adjustment to be too rapid or 
disorderly.
    Mr. Issa. I have one tough question, and I want to be fair, 
I hope we are not blind-siding you, but you are familiar with 
the Wall Street Journal report of the January 22, 2009 that 
talked about political influence?
    Mr. Kashkari. I am.
    Mr. Issa. You are. I would like to give you a full 
opportunity to talk in terms of the pressures that you or 
others have been under, what effect they are having, whether 
they provide guidance or whether that pressure is undue, coming 
from Congress. The Journal talked both about Ohio, potential 
influence, and it talked about Massachusetts influence. But I 
would like you to talk more broadly, not necessarily just that 
article, tell me what it is like when, for you, with various 
groups, including perhaps some of us on the dais, being 
concerned about our individual banks off of the dais.
    Mr. Kashkari. Thank you very much for asking me that, 
because that is a very important topic and I appreciate the 
chance to set the record straight.
    We have built a very robust process at Treasury for the 
banks that are applying for TARP funds. They send an 
application to the regulator, the regulatory submits a 
recommendation to Treasury. We have a formal process of 
reviewing that, getting more data if we need it, and then 
making decisions.
    I have certified, part of the Obama administration's 
transparency initiative has begun, having the head of the 
office, so I have certified to Congress now in January and at 
the end of February, that all of our investment decisions from 
the beginning October 3rd, through the current period, have 
been made purely on the merits of the case, the economic 
merits, and not due to any undue influence. And I feel 
completely confident that we have a great track record of that.
    Now, we do get calls from Members, we do get calls from 
Governors who are concerned about their districts or their 
businesses, etc. It is important for us to get that feedback of 
what is happening around the country. Most of the time we just 
refer people who call to the regulators, because the bank 
regulators regulate these institutions. So I feel very 
confident in saying there is no undue influence at Treasury. I 
am the person who signs each of these, and I am positive of 
that.
    Having said that, I am concerned that these stories have 
been out there because they serve to undermine confidence. So 
if you would like to ask further questions about that, I would 
love to go into it in more detail.
    Mr. Issa. Perhaps on the second round. Thank you, Mr. 
Chairman.
    Mr. Kucinich. The gentleman's time has expired. I 
appreciate his questioning.
    The Chair recognizes Mr. Tierney from Massachusetts.
    Mr. Tierney. Thank you, Mr. Chairman. Thank you for having 
this hearing, as well.
    Mr. Kashkari, thank you for being with us here today. May I 
ask you a question that I think our constituents have raised? 
We have extensive taxpayer money invested into these banks now. 
Their feeling is that we are investing in banks that are 
operated by individuals who were complicit in getting us into 
this financial situation. Why are we not using the leverage of 
our investment to change some of the boards of directors and 
some of the principal officers of these corporations to get 
them out and get other people in?
    Mr. Kashkari. Thank you. Sir, we must segment our broadly 
available programs. I mentioned we have 489 banks we have 
invested in. The vast majority of those are healthy banks, 
lending in their communities. There is no reason for us to go 
in there and try to make any management changes there.
    We also have these one-off institutions where we have had 
to intervene to stabilize them. In the case of AIG, as an 
example, we fired the management, brought in new management. 
And we are trying to help them have enough time to pay back the 
taxpayers.
    In the case of Citigroup, our recent agreement with 
Citigroup, they have agreed to change their board of directors 
so that a majority of the board is made up of independent 
outside directors. So we hear you, we agree with that 
perspective. When we have to take extraordinary action, we are 
coming in to make sure that these businesses are well managed 
and that we do not reward failure.
    Mr. Tierney. Is there an action that the Treasury can take 
to amend the agreements, to define waste, fraud and abuse, and 
then to put a provision in there that when we see it, and I 
assume at some point you are going to send people out to these 
banks as well as the surveys and things, when we see it, we can 
take action, whether it is to reverse that expenditure or not? 
People look, and they hear stories of money being invested in 
conferences and sporting events and endorsements, things of 
that nature, and perks and bonuses to people that ought not to 
be getting them.
    When we are going to have the position as investors here to 
be able to just take those out, set them aside and recapture 
that money, if it is happening?
    Mr. Kashkari. Congressman, in the new program that the 
administration has announced, we are going to make sure that 
boards of directors adopt very clear and published expense 
policies on things like airplane flights and conferences and 
perks, etc., and then certify that they are meeting their 
standards. The standards will be public for the world to see 
and for the world to judge. We can offer our opinion on what 
those standards look like, as well, when we see them, No. 1. 
No. 2, remember in terms of fraud, there are very strong laws 
in place for fraud already. And if anybody tries to defraud the 
Treasury or the taxpayer, we are going to bring the full 
arsenal of tools we have available to us to go after them.
    Then third, Congress has provided four bodies of oversight 
for the TARP: special inspector general, GAO, congressional 
oversight panel, financial stability oversight board. Later 
this afternoon, you are going to hear from the special 
inspector general whose very mission is to go after waste, 
fraud and abuse. So we are looking at it and there are 
independent oversight bodies looking at it as well.
    Mr. Tierney. And I think people do think that some of those 
conferences, jets, perks and bonuses get to be waste, fraud and 
abuse. As the definition of them is something, whether we will 
term them in those words of not, that money can be prohibited 
from being spent in that way during this interim period, or at 
least reclaimed if it was. It would be very important for 
people, I think Patrick made some good comments on that, about 
the way people are feeling.
    Let me ask you this as well. On the asset purchase program 
that you are planning to do, Secretary Geithner is planning to 
do, what will be the taxpayer assurance or protection for their 
money on this? Will they form a partnership with these hedge 
fund or other investment groups? How will they get their money 
back? What will be the collateral in the interim? Because the 
general impression of that now is going to be, here are these 
people, the hedge fund people or like that benefited most from 
a broken system that people think they are complicit in 
breaking. And now they are going to be partners, using taxpayer 
money to come in and get a tremendous profit, potentially, on 
the other end. How do we tell people that is a good concept, if 
you think it is? And tell people why that is being done, as 
opposed to some alternative method, and what is their 
protection that they will get their tax money back?
    Mr. Kashkari. Congressman, as I indicated earlier, the 
details are being finalized now. But one way of doing that, 
because I don't want to commit to this, but one way of doing 
that is if the taxpayer dollars are side by side, meaning exact 
economic terms with the private sector dollars. So if the 
private sector wins, the taxpayer wins. If the taxpayer loses, 
the private sector loses. By perfectly aligning our interests, 
we think that may be the best way to protect taxpayers.
    At the end of the day, there is an aversion to taking risk 
right now, because the markets are nervous. So we as the U.S. 
Government, as the taxpayers, have to now step in and be 
willing to take some risks.
    Mr. Tierney. They are no less nervous. They are more 
nervous, particularly playing what they think is a cast of 
characters, if I can use that loosely, that may or may not even 
be applicable or fair, but they perceive these people as being 
part of the problem who are now going to benefit. Would you 
just comment to that? And in the remaining time, what should 
you tell people, that these are the people we are dealing with 
now, they profited during the time that this was all being 
driven into crisis, and they may have been responsible for some 
of that, and now they are going to be our partners going 
forward, and they are going to benefit greatly from that.
    Mr. Kucinich. The gentleman's time has expired, but Mr. 
Kashkari, please answer the question.
    Mr. Tierney. Thank you, Mr. Chairman.
    Mr. Kashkari. Thank you, Mr. Chairman.
    We do not yet know which investors will come to the 
partnership. But my expectation is you will see pension plans 
coming, you will see people's retirement funds through mutual 
fund type organizations that will be investing. So there may be 
some well-known investors that people recognize. My assumption 
is that most of the capital is going to come from the savings 
of the American people.
    Mr. Kucinich. I thank the gentleman, and we are going to 
get more into that in the next round.
    Mr. Souder of Indiana, you may proceed with your 
questioning. Thank you.
    Mr. Souder. Thank you, Mr. Chairman.
    Mr. Kashkari, my district needs credit. It is the No. 1 
manufacturing district in the United States. Elkhart County has 
the RVs, we are at 18.3 percent unemployment there, LaGrange is 
at 18. Typically 13 to 17 percent throughout all my 8 counties.
    I have a couple of fundamental questions. It was a 
tremendous insight, not very understood in Congress, that only 
60 percent of the credit comes from banks. You said the 
securitization group is 40 percent, that it has zero right now. 
In the banks, do you know how much of that is going to 
refinancing in the loans, as opposed to actual new purchases?
    Mr. Kashkari. Congressman, I don't have that at my 
fingertips. I believe some of that is included in our survey. I 
can go back and find those numbers and get them to you.
    Mr. Souder. As a fundamental question, because Congress and 
the general public wants more transparency. Do you feel your 
problem is transparency right now?
    Mr. Kashkari. Forgive me, sir, which problem?
    Mr. Souder. We are talking about us being able to see, and 
transparency as we do oversight, building trust in the American 
people. Do you feel that you don't know what is going on? In 
other words, do you need more transparency?
    Mr. Kashkari. I don't believe so. I think the challenges 
that we are facing, this credit crisis has been unpredictable, 
and it has gotten deeper along the way. So the challenges we 
have are striking the right balance of taking aggressive action 
that we know is going to work, but also protecting the 
taxpayers.
    It would be easy, if we were willing to just throw money 
out the window and not care about protecting the taxpayers, we 
could probably clean this up. But it would cost the taxpayers a 
lot of money. Striking that balance is hard.
    Mr. Souder. Following up with that, as you have heard 
several times, we were told from the beginning that we were 
going to get the toxic mortgages. Yet every person who comes 
in, every angle that comes in, different Presidents say they 
are going to do toxic mortgages and they didn't. When you got 
into this, how much of this was actually toxic mortgages as 
opposed to toxic credit cards, toxic student loans, toxic car 
loans? And in the Troubled Asset, if you purchase this, is that 
really going to fix the problem?
    Mr. Kashkari. That is a good question. There is no question 
the start of this was about mortgages. But the crisis in the 
mortgage market, residential plus commercial mortgages is a $14 
trillion market. So the crisis in the mortgage market put a 
huge burden on the financial system, which made the financial 
system pull back from all of these other markets.
    So when we're doing things on student loans or credit cards 
or auto loans, that is not to try to solve the root cause of 
the problem. That is frankly dealing with the symptom to help 
the American people get through this while we stabilize the 
root cause, the mortgage market, the financial system. Does 
that make sense?
    Mr. Souder. Yes, because it would be much harder to take an 
L.L. Bean sweater back as an asset that has been securitized 
through a credit card than a mortgage. And that is why it is 
important to know what is in what, that many of us believe 
that, well, I want to ask the question about mark to market. 
Because that is partly under your assumption that you needed to 
get into the banking to provide capital when part of, at least 
in the banking sector, it is not clear in the securitization 
sector, that having a declining economy is turning things toxic 
that weren't toxic. And the banks don't know where their bottom 
is.
    In my area, where the unemployment is accelerating, where 
among the people who are employed are still the biggest GM 
pickup plant in the world, 50 percent of the GM suppliers are 
in my district, so if you are a lender right now, you don't 
know where the bottom is. You don't know whose house is where. 
And the mark to market has exacerbated that problem.
    Now, it also started some of the problem by not having real 
market values. And I understand that. But isn't there some way 
that in today's accounting era, and computers, that there could 
be some kind of a blending? Because a lot of these assets 
aren't going to be sold. In Indiana, many people don't move all 
that much. Yet the housing has just gone to nothing. So the 
bank assets are declining.
    What is going to happen to agricultural land if we don't 
support the ethanol as that market changes? And the assets 
don't have any value, so they don't know how to make a loan for 
a pickup or an RV or the various things that we make. Until we 
get that credit market, they don't even know how to do a credit 
evaluation on an individual.
    So why aren't we looking at some of this mark to market to 
stabilize their asset valuation? Because how can they make a 
loan when they don't know what their assets are?
    Mr. Kashkari. Congressman, this is a very important point. 
A lot of people have asked us about it. The challenge is, and 
there is no question, mark to market is what we call pro-
cyclical. So it exaggerates the swings in both directions.
    The challenge is right now, investors don't have confidence 
in the statements that they are seeing, even with the mark to 
market. So they are cautious. For us to go, in the middle of a 
crisis and to change the accounting rules, it is not going to 
increase confidence.
    Mr. Souder. Let me interrupt you for just a second here, 
because I have run out of time. Mr. Chairman, since I didn't do 
an opening statement, can I have just a followup to this?
    Mr. Kucinich. The gentleman's time has expired, but if you 
have a quick question, you can respond.
    Mr. Souder. In this challenge, it has been clearly 
documented even from the transference that there is, that there 
is really a small number of counties that got inflated from 
where these toxic mortgages are, that when you have only had 2 
percent inflation in your assets, the argument that they don't 
know what the value is is just not there. That is why, 80/20 
rule, 20 does 80 percent of your sales, that is clearly true 
here in these mortgages. Why can't that be applied in some way 
to these assets? It is not like there isn't a historical 
tracking, that these things aren't computerized. I don't 
understand why there is lack of confidence in everything all 
over the United States, when in fact it tends to be localized 
inflated markets.
    Mr. Kucinich. If you could respond briefly.
    Mr. Kashkari. Thank you. There is no question the housing 
market is very regional. There are regions where the maximum 
run-up and now the maximum run-down. But the crisis is so large 
and so severe, it has affected the confidence of the American 
people and investors. So they are all nervous right now. So 
again, it is hard for us in the Government to say, you 
shouldn't be nervous, go ahead and make that loan. What we need 
to do is attack the root cause of the problem, get credit 
flowing until confidence can return and then the system can 
start functioning as it should.
    Mr. Kucinich. I thank the gentleman.
    The Chair recognizes the gentlelady from California, Ms. 
Watson.
    Ms. Watson. Thank you so much.
    Mr. Kashkari, you might have answered this, but I am still 
confused. And to quote your words again, you are saying to us 
that we should not be involved in micromanaging recipient 
institutions, you know, where did the money go. And you said, 
however well-intended, Government officials are not positioned 
to make better commercial decisions than lenders in their 
community. Bad lending practices were at the root of the cause 
of this crisis.
    What would be your definitions of waste, fraud and abuse? 
How do you determine that there were bad practices? How did we 
get into this mess? And what are you going to do about it? 
Would you try to clarify for me what you define as abuse and 
fraud?
    Mr. Kashkari. Absolutely. What got us into this mess were 
banks making loans to borrowers who could not afford to pay. 
Also, homeowners have responsibility as well, for taking on 
loans that they couldn't afford to pay. Regulators had a role 
to play, because they are the supervisors of these 
institutions, allowing the banks to make bad loans.
    And so those are the bad lending practices that I was 
talking about. In a time when people are nervous, ordering a 
bank to make a loan that they think is too risky is a dangerous 
place to go.
    Now, in terms of waste, fraud and abuse, I think fraud is 
clear, especially when it relates to either banks lying to 
borrowers or borrowers lying to banks, or banks lying to 
Treasury and the U.S. Government. Again, we are going to come 
down on them very, very hard.
    In terms of waste, the administration has put out some 
specifications around when we have our new capital program up 
and running. The banks are going to have to define a very clear 
expense policy on what they think is appropriate and what is 
not appropriate. They are going to have to certify that they 
are meeting that policy, and that policy will be available for 
the American people to see.
    Ms. Watson. If I write you a letter in regard to what I 
just inquired about, would you respond, and can I put that up 
on my Web site for my constituents to refer to?
    Mr. Kashkari. Absolutely.
    Ms. Watson. We are trying to get to the bottom of this 
risky business. I am going to now give some of my time to my 
colleague, because there was a question that he had.
    Mr. Tierney. Thank you for yielding on that.
    Just to followup on that, you talked about this is what you 
are going to do on the next program. What about the money that 
is already out there? That is a substantial amount of money. 
How are we going to track that money and stop that practice 
from either continuing or being started with the funds that are 
already out there?
    Mr. Kashkari. Congressman, again, we have to, I segment 
those firms receiving exceptional assistance from the broadly 
available programs. We have, and we can debate this, we have a 
view that when we are lending to a small community bank that 
wasn't part of the problem.
    Mr. Tierney. Well, let's take them out of this.
    Mr. Kashkari. OK, I'll take them out.
    Mr. Tierney. Let's talk about the ones that are in the news 
every day that grate at you and me and our constituents on 
that. They are large firms, they have a big chunk of dough, 
they continue to have a conference in a very fancy place, they 
continue to fly like they are zillionaires, they continue to 
sponsor sporting events in these big boxes, corporate boxes or 
whatever. What about them?
    Mr. Kashkari. Absolutely. And we have been pretty vocal 
that we want the institutions to take prudent action and 
reflect on the kind of economic environment we are in and the 
help that they have already received.
    Mr. Tierney. But other than reflection, is there any 
enforcement mechanism? That's precatory language. I wish you 
would do better. And that would be great, we all wish that. Can 
we enforce them into doing better or has that train left the 
station?
    Mr. Kashkari. Well, I think we can. We have in many cases, 
for the exceptional cases, we have asked banks to put together 
expense policies that we are able to review, and that if they 
want to make any changes to their expense policies, they have 
to get Treasury's approval.
    Mr. Tierney. That is all going forward, that is policy.
    Mr. Kashkari. Some of that is going back as well.
    Mr. Tierney. So you are telling me that we can't do 
anything about the money that is out the door, that it can't be 
recaptured and that people cannot be--if those are the people 
that made those decisions and they have our money, maybe we 
should have some impact on having that money invested and get 
rid of them. These aren't the small community bankers, they are 
not the problem. We are all comfortable with that. But these 
fat cats that are running around and still wasting money in 
that sense, and not listening to the precatory language about 
what we wish they would do, why not use some leverage of us 
being the investors to just off with those people, and in with 
people that understand the gravity of the situation?
    Mr. Kashkari. I will say that when we have seen things that 
we thought were over the top and just really grated on us the 
way it is grating on you and grating on your constituents, we 
have let the banks know. And whether we have a legal ability to 
force them to do something, they generally get the message and 
say, ``we got it, sorry, it is not going to happen again.''
    Now, the fine line we all have to walk, I mentioned two 
objectives. There are many objectives, but our two biggest 
objectives are stabilizing the system and having the taxpayers 
paid back. So banks do need to market themselves. They 
unfortunately do need to have sales conferences, so people want 
to come in, learn their products, sell their products. Some of 
the press stories that have really inflamed people, when we 
have looked into them, they have been more ordinary core sales 
conferences that actually didn't cost the banks much money.
    I am not defending it. I am just saying, we have to walk a 
fine line and allow the banks to run their business and compete 
so that they can pay the taxpayers back.
    Mr. Kucinich. I don't believe we disagree with that, sir. I 
think we are talking about the ones that don't, the ones that 
go over the line and getting back the money that they wasted on 
that, and leaning on them legally or not to say, show good 
faith, and to get any future assistance from us, you had better 
find a way to get that money back into the till that the 
taxpayers have invested.
    The time is expired. I thank the gentlelady and the 
gentleman.
    The Chair recognizes Mr. Burton of Indiana. You may 
proceed.
    Mr. Burton. Thank you, Mr. Chairman.
    When you first started dispensing the TARP funds, did you 
have oversight procedures, definitions and allowable and 
prohibited uses of TARP funds, and uniform disclosure and 
reporting standards when you first started dispensing those? Or 
did you just start saying, ``oh, my gosh, we have to get money 
to this bank or this institution because it is about to go 
under?'' I just wonder how prepared you were to start loaning 
that money or putting that money out there?
    Mr. Kashkari. Congressman, we, as you remember, when we 
started out with asset purchases, then as the data that I 
reflected in my testimony, conditions deteriorated very 
rapidly, much more quickly than we had expected. So we moved as 
fast as possible to put capital into the system.
    One minor comment there is, remember, we are buying shares 
in these companies, preferred stock, getting warrants. So it is 
not literally giving cash, we are getting securities back, and 
the banks are paying dividends. We have received over $2 
billion in dividends in the first quarter.
    Mr. Burton. If you bought Citigroup, so far you have lost a 
ton. But the point I am trying to make is, did you have the 
time or the inclination to put these procedures in place before 
you started putting that money out there?
    Mr. Kashkari. We did not put specific tracking procedures 
in places in terms of----
    Mr. Burton. So you were trying to find out as quickly as 
possible and flying by the seat of your pants, so to speak?
    Mr. Kashkari. Moving as quickly as possible.
    Mr. Burton. Well, that is an old Hoosierism, flying by the 
seat of your pants.
    You were hesitant when Mr. Souder asked you the question 
about did you know really what is going on. And my question is, 
do you have the manpower over there? I have been told that Mr. 
Geithner, Secretary of the Treasury Geithner doesn't have an 
awful lot of the staff people in place or assistance in place 
so that he can really start completing his task as quickly as 
possible, because he doesn't have adequate staff. Do you have 
adequate staff and does Mr. Geithner have adequate staff? And 
if not, how long is it going to take?
    Mr. Kashkari. Congressman, I do. The Office of Financial 
Stability had zero people on October 2nd. We have more than 100 
full-time employees and we are growing every day. The staff is 
fully operational. It was one of our highest priorities, to 
make sure that the program could run well and we would have a 
smooth transition.
    In terms of Secretary Geithner, he has a very strong team 
of political appointees around him. And the Senate-confirmed 
appointees, the White House is moving as fast as possible and 
are making real progress, from what I understand.
    Mr. Burton. Well, it was reported in, I think the Wall 
Street Journal, that several of those slots that were very 
important had not been filled, and with the seriousness of the 
situation, I was wondering if you were up to speed. And you say 
you are?
    Mr. Kashkari. I am. Especially I can speak in great detail 
to my office, the Office of Financial Stability. We have a 
wonderful career staff of people who are passionate about these 
issues and are working around the clock.
    Mr. Burton. I have one last question. We have dispensed 
total, I don't know how much of that you have already put into 
the system, but $700 billion in TARP funds. How much more are 
you going to need? This is very important.
    Mr. Kashkari. I know it is.
    Mr. Burton. Because every time we talk to anybody about 
what is going on, we get kind of an ambiguous answer. When 
Secretary Geithner was testifying on how much in funds he was 
going to need to prop up the financial institutions, he said, 
well, $1 trillion or $2 trillion, maybe $3 trillion. I mean, 
you know, we are not talking about dollars here, we are talking 
about trillions.
    So what is the formula for letting us know how much more 
you are going to need, and can you give us that?
    Mr. Kashkari. We have enough. My staff just said that we 
have deployed about $325 billion cash dollars out the door, 
more than that has been obligated at this point.
    Mr. Burton. Is that the second tranche or the first?
    Mr. Kashkari. No, that is within the first tranche still. 
Actual cash dollars that have left Treasury. Again, more than 
that has been allocated to various programs. We have enough to 
get Secretary Geithner's new programs up and running and 
working. And as we get them up and running, we get them 
working, when the banks capital, they are under this capital 
assessment right now where the regulators are analyzing the 
bank's capital positions under various economic scenarios, that 
will give us a lot more information about how much more is 
needed. And as we see our programs get up and running, we are 
going to learn a lot. So Congressman, I cannot give you a 
number today, nor can I give you a date. But we will let you 
know.
    Mr. Burton. As soon as you can get that, we would like to 
have it.
    One more question. Do you think if we had across the board 
tax cuts plus capital gains tax cuts it would assist in 
stimulating the economy and helping you out?
    Mr. Kashkari. Congressman, I must respectfully defer to my 
colleagues who focus on tax and budget issues. I am solely 
focused on financial stability, sir.
    Mr. Kucinich. The Chair thanks Mr. Burton. Mr. Burton, I 
just want to let you know that at the beginning of the hearing, 
we introduced into the record an article from the Washington 
Post dated Tuesday, March 10, 2009, by David Smick that 
predicts that the bailouts will run another, as much as another 
$2 trillion. Here is a marked-up copy of it. We can go back to 
that in the next round.
    The Chair recognizes the gentleman from Rhode Island, Mr. 
Kennedy. Thank you for being here, sir.
    Mr. Kennedy. Thank you, Mr. Chairman. I appreciate your 
holding these hearings.
    Just to followup with my colleague from Indiana about the 
staffing issues, if I could, could you answer for me what the 
staff is at the Inspector General's office for rooting out 
fraud and waste at the IG's office or Treasury's office for 
this TARP program?
    Mr. Kashkari. You will hear from Mr. Barofsky, I believe 
his staff is on the order of 20 people or so right now. I'm 
sorry, could you hear me? Mr. Barofsky, the Special Inspector 
General, you will hear from him later today. He can give you an 
updated number. My understanding is he has about 20 people in 
his office right now, and is growing quickly as well.
    Mr. Kucinich. If the gentleman would yield briefly, Mr. 
Barofsky is on the third panel.
    Mr. Kennedy. So 20 people for 8,000 banks in this country, 
or how many banks have----
    Mr. Kashkari. We have invested in 489 institutions through 
the capital program.
    Mr. Kennedy. And how many more banks are----
    Mr. Kashkari. Several hundred, maybe 500 to 1,000 more are 
in the pipeline.
    Mr. Kennedy. But we are talking about banks also, top 
several banks with assets, 75 percent of our Nation's assets 
are in the top several banks, and we have 20 people? Twenty 
people doing the audits of those things?
    Mr. Kashkari. Well, again, sir, I will respectfully defer 
to Mr. Barofsky. I know that he is growing his staff quickly 
and is leveraging the resources of the other law enforcement 
agencies.
    Mr. Kennedy. See, I think that is where concerns come in, 
because before we are going to be able to pass another nickel 
in this Congress, we are going to have to get the due diligence 
on these things. Because our constituents are going to demand 
it.
    The foreign entities that have received dollars, I asked my 
first question, my Bank of America in Rhode Island received $45 
billion from the capital purchasing program. And Ken Lewis, the 
CEO of Bank of America, said taxpayers want to see how this 
money is used to restart the economy. And then they went around 
and laid off 121 employees at a facility in my district in 
Rhode Island.
    Then after they received $7 billion in TARP funds, they 
went ahead and loaned it overseas to China. So we have 
questions. And we want to know, where are these dollars going? 
Are they going to foreign entities? What dividends are they 
paying and to whom? I mean, are they going to paying little old 
grandmas' annuities? Are they going to be paying those 
bondholders? And what are the salaries that are being paid?
    There is a lot of the culture on Wall Street, people have 
gotten so accustomed to saying, they are worth $2 million a 
year. And I don't know, but when people are earning on average 
$40,000 a year in my district, and that is median wage, they 
just don't get people in Wall Street asking for hundreds of 
thousands of dollars, let alone millions. Yet that is the 
culture in Wall Street, to just ask for these sums of money.
    So I can tell you, we have to have a new kind of salary 
type compensation system. I know some firms have put new 
executive compensation systems in place. But that has to be 
done, because, and we need to insist on it in terms of our 
conditions in loaning these dollars, for no other reason than, 
they are not going to receive any more dollars. Because once 
our constituents learn that any one of these folks are earning 
these kinds of salaries in the wake of our constituents earning 
just what they are earning, they are just not going to be 
satisfied with the way this is going.
    So I might ask you to comment on that.
    Mr. Kashkari. Thank you, Congressman. This is an area we 
have done a lot of work on, beginning with imposing the 
executive compensation requirements that were specified in the 
EESA. We imposed those from day 1 in the program.
    The Obama administration has now, in early February the 
Treasury Department came out with new, tighter executive 
compensation policies. And then in the stimulus bill, there is 
an amendment that also has executive compensation policies. So 
we have taken this issue very seriously. There is a team right 
now at Treasury working on the stimulus, the new law, putting 
that together with the administration's new policy to come out 
with a robust set of new regulations that are going to govern 
the banks that are taking the TARP funds and covering many of 
their top executives on how much they can earn and what form 
that compensation is.
    So we heard it, we got the message, we are working hard on 
it.
    Mr. Kennedy. I understand it is a lot of mid-level 
management, too. We are not just talking to be talking.
    Mr. Kucinich. The gentleman's time is expired. I thank the 
gentleman.
    The Chair recognizes Mr. Turner of Ohio.
    Mr. Turner. Thank you, Mr. Chairman.
    Thank you, Mr. Kashkari. Appreciate your being here.
    I will tell you up front, I voted against this program. I 
voted against this program because of basically four reasons. 
One, I didn't believe there was a very good definition or focus 
on what the program was to do. We were first told it was toxic 
assets, now it has not been. Two, I think there was a lack of 
understanding of the process, what happens after the moneys are 
made available, that process. Third, I didn't think it 
addressed the practices that got us here to begin with, it 
didn't stop the practices that were occurring. And four, it was 
unclear as to where the money was needed and how much was 
needed.
    Now, you have been very forthcoming. I want to congratulate 
you, you are doing a very good job in answering our questions. 
But no one can still answer those four questions. We are now 
several billion dollars, hundreds of billions of dollars into 
this. And we are still where we don't have a clear focus of 
what we are going to be doing with these funds, we are not 
certain as to what the process is going to be. We have not 
addressed at all any of the practices that got us in this 
place. And still, you are unable to tell us how much money this 
is going to take.
    Now, I wanted to comment on one thing that you had said. 
You had said, when someone asked you how did we get in this 
situation, you said that banks loaned borrowers money that they 
couldn't pay, homeowners have responsibility and regulators 
have responsibility. I want to tell you that I come from Ohio. 
Montgomery County, OH, is the place where I live, it is in the 
center of my district. And we have the foreclosure crisis, and 
we have had it for over a decade.
    About 27,000 foreclosures have occurred in my county since 
the 6\1/2\ years that I have been here in Congress, of a county 
that has a population of around 500,000. Unbelievable numbers 
of foreclosure. I believe that it is not just that banks loaned 
money to people who couldn't pay. I believe, from the 
experience that we have seen in our county of people who have 
tried to address this issue that it is an actual structural 
issue, it is a leverage ratio that predatory lenders and sub-
prime lenders were actually targeting homeowners and loaning 
them money that was in excess of the value of the home, which 
of course results structurally in a situation where, when there 
is financial stress, that you have to go to foreclosure. If you 
have no equity, you have no option other than to go to 
foreclosure.
    And the big banks initially would say, well, we are not 
really part of that. But they were. Because what was happening 
is, I believe, the structural aspect of loaning greater than 
the value of the property, people didn't care because they were 
selling these things as securities on down the stream. So they 
didn't care if it was a workable loan or if the asset was over-
valued, because in the end, they weren't going to get stuck in 
the musical chairs of these assets.
    I think in the end, when we get these evaluated, we are 
going to find that this is somewhat the largest theft in 
history that has occurred, of people who over-valued assets, 
sold them down the stream and the American taxpayers are 
stepping in, unfortunately, with their own dollars to try to 
make up the gap.
    Here is my concern specifically about an issue that was 
alluded to in the beginning of this discussion. Some of the 
moneys that are being provided appear to assist in transactions 
where the money is leaving the country. Now, I think everybody 
up here understands that there are international practices of 
the flows of capital, and that needs to happen for our economy 
to be successful also. But the Fed chairman yesterday, Bernanke 
stated this, asking about the crisis itself. He said, ``In my 
view, however, it is impossible to understand this crisis 
without reference to the global imbalance in trade and capital 
flows that began in the latter half of the 1990's.''
    Well, back to my concern about the practices haven't 
changed. One of my concerns is that the manner in which this is 
occurring does not have any protections or requirements that 
the dollars address the issues of our economy and that large 
portions of these dollars are leaving our economy. That would 
put us on the wrong side of a ledger, and in the same types of 
practices that Bernanke just said are underlining this.
    We know that you can't, in providing dollars, stop 
international flows of capital. We don't want that. But I am 
concerned that what you are doing might facilitate or incent 
additional dollars leaving our economy that are specifically 
intended to prop up our economy. Could you please comment?
    Mr. Kashkari. Sure, Congressman. Thank you. I didn't catch 
all of Chairman Bernanke's remarks, but I believe he is 
referring to, many economists think that there has been a glut 
of savings around the world in developing countries that has 
been coming into our capital markets. So the cash has actually 
been flowing the opposite, it has been flowing to America, 
which has given us very low borrowing rates and encouraged us, 
some would say, to take on more debt, maybe more debt than we 
can afford.
    So I think we have to be careful, especially right now. We 
want all the capital we can get to get through this crisis. And 
we need to let the global economy restabilize to a new 
equilibrium, where savings and all of these things are 
balanced.
    So I take your point, I hear it, and I agree with the 
spirit of it. I am just offering a word of caution about 
saying, let's stop money flowing in this one direction, because 
it will end up stopping it coming back the way that we want it.
    Mr. Kucinich. The gentleman's time has expired, but I do 
want to say, we are going, I have two more Members to ask 
questions, and then we will take a brief recess.
    I also want to tell the gentleman from Ohio that since you 
raised the question about Montgomery County, and of course 
Dayton, and since my own community in Cleveland was the subject 
of a New York Times Magazine article this past week, we are 
going to go back to Ohio and we will come to your community as 
well. Maybe we can get the hearings on the same day in 
Cleveland and in Dayton.
    So I just wanted to let you know that this committee is 
going to be going deeply into these affected areas. I thank the 
gentleman for raising the question, and the Chair recognizes 
Mr. Welch.
    Mr. Welch. Thank you, Mr. Chairman, thank you, Mr. 
Kashkari.
    Just a few things to establish where we agree. You would 
agree, obviously, that the taxpayer is entitled to know how 
taxpayer money is spent.
    Mr. Kashkari. Yes.
    Mr. Welch. And I assume you would agree that shareholders 
would be entitled to know how shareholder money is spent.
    Mr. Kashkari. Yes.
    Mr. Welch. And of course, the biggest recipient of taxpayer 
money to date, or one of the biggest, is AIG. And that is where 
the taxpayer is fronting money and the taxpayer, in fact, is an 
80 percent owner, correct?
    Mr. Kashkari. Yes.
    Mr. Welch. And we are providing that money in order to 
avert a conclusion that has been reached at Treasury and the 
Fed that to let AIG go down would cause systemic failure, 
correct?
    Mr. Kashkari. Yes.
    Mr. Welch. Donald Kohn, who is the Vice Chair, as you know, 
of the Federal Reserve, says that AIG has no obligation to name 
the counter-parties who have been paid via taxpayer money that 
has been transferred to AIG. Correct?
    Mr. Kashkari. I read Vice Chair Kohn's testimony, but I 
don't remember that exact quote. But I defer to you, sir.
    Mr. Welch. Do you agree with him?
    Mr. Kashkari. I believe institutions such as AIG that 
receive extraordinary assistance have a moral obligation to 
disclose as much as possible to the American people. If you 
will permit me to give you a thorough answer, the challenge 
here is as I indicated earlier, we want to prevent a financial 
collapse, to stabilize the system, and we want to pay back the 
taxpayers. So we have to be careful that, just as any business, 
if you put, if you force businesses to expose all of their 
business decisions, all of who their customers are, all of who 
their counter-parties are, that may actually put them at a 
competitive disadvantage and it makes it harder to pay back the 
taxpayers.
    Mr. Welch. I get it. So then you agree with Governor Kohn, 
we will leave it to AIG to decide what information they will 
disclose and they won't disclose, with them making the final 
decision on whether that is a business interest or not, 
correct?
    Mr. Kashkari. No, I believe we can work with the Fed to 
work with AIG and figure out, take a look from Treasury's 
perspective and see what is appropriate to disclose.
    Mr. Welch. Let me ask you this. Some of that AIG money that 
is to avert the systemic failure is to make certain that 
average Americans who have AIG insurance policies, AIG 
annuities and AIG financial products in pensions don't get 
hammered, correct?
    Mr. Kashkari. Yes, correct.
    Mr. Welch. But some of the counter-parties are eyes wide 
open investors, some of the largest investment banks that we 
used to have in this country, hedge funds and speculators who 
made bets that turned out sour. Do you believe that it would be 
of interest to the American taxpayer to know whether their 
money is being used to protect those annuity holders, those 
insurance policy holders, those pensioners on the one hand 
versus the hedge fund speculators, investment banks on the 
other? Just yes or no.
    Mr. Kashkari. Congressman, I would like to provide you a 
thorough answer, because it is important.
    Mr. Welch. No, the question is a simple one. In your 
opinion, do you think it would be of interest to taxpayers to 
know whether it is the hedge funds, investment banks, 
speculators, being assisted with their money, or annuity 
holders, pensioners and insurance contract holders?
    Mr. Kashkari. And the answer is, they are all being 
benefited. Because unfortunately, there is no way we can go in 
to stabilize an institution and say, just the policy holders 
are stabilized.
    Mr. Welch. Why not?
    Mr. Kashkari. Because if we did that, the other counter-
parties would put the firm into bankruptcy and that would cause 
the whole firm to fail. That is the unfortunate choice we don't 
have. If we step in to support a systemic institution, all of 
their customers, all of their counter-parties benefit, whether 
we like it or not.
    Mr. Welch. So if the taxpayer, it is their taxpayer money, 
it is the shareholder money, and you believe they have a right 
to know how taxpayer and shareholder money is being used. 
Nevertheless, you are accepting allowing AIG to decide what we 
will know, when we will know it, and under what terms?
    Mr. Kashkari. Forgive me, sir, as I mentioned, I think that 
Treasury can work with the Federal Reserve, work with the 
company.
    Mr. Welch. Well, why haven't they done it? There is a lot 
of money out the door, a lot of time has passed. If they are 
going to do it, why wouldn't they have done it before the money 
is out the door, rather than after the fact?
    Mr. Kashkari. Congressman, it is a good question. I think 
that we are fighting a lot of fires at the same time and this 
is a very important issue and I hear the feedback.
    Mr. Welch. With all due respect, there is unanimous 
agreement, I think, on both sides of the aisle that we want to 
know how the money is being spent. There is an acknowledgement 
on your part that will give the taxpayer some basis to have 
confidence that we are doing something that really is a pretty 
bitter pill to swallow, but we are doing it for a good reason.
    Mr. Kucinich. The gentleman's time is expired.
    Mr. Welch. I yield back, thank you.
    Mr. Kucinich. Mr. Kashkari, if you want to respond briefly, 
then we are going to go to Mr. Fortenberry.
    Mr. Kashkari. Again, Congressman, thank you for the 
comment. We got the message. We will look into it, sir.
    Mr. Kucinich. Let me say to Mr. Welch, we are going to, on 
the second panel, we are going to get into some specifics about 
how the money has actually been spent. So just keep that in 
mind.
    We will go to Mr. Fortenberry for his 5 minutes and then we 
will recess.
    Mr. Fortenberry. Thank you, Mr. Secretary for appearing 
today. I am sure there are other ways and easier ways you can 
make a living. So I do want to say from the outset, I 
appreciate your professionalism and dedication to public 
service during these difficult times, and in spite of the 
tensions around these policies.
    Mr. Kashkari. Thank you.
    Mr. Fortenberry. There is an article in today's Omaha World 
Herald, it is basically the headline, it says ``Banks Remain 
Strong,'' referring to our local banks, ``Despite Profit 
Decline.'' And the director of our banking system in Nebraska 
says on average, they are very soundly operated. Now, these are 
fundamentally local banks, not the outside banks that are 
there.
    But an editorial comment before I start the questioning, I 
believe it is these local institutions mainly owned by local 
families that have proximity to their portfolio obligations 
which by their very nature then are more transparent as well as 
accountable. I think that is a lesson that we need to think 
through as we look at the entire systemic crises, difficulty, 
however you want to term it.
    In that regard, as I said in my earlier statement, and I 
appreciate the chairman's intent to unpack this further, 
perhaps later, and maybe we will see you again, is our 
financial system, are our financial institutions too 
consolidated? You have nine banks now with approximately 50 
percent of all deposited assets in this country. Five banks, if 
I recall correctly hold about 37 percent. Are we vulnerable 
because of that reason?
    Mr. Kashkari. I think we clearly are. Look where we are 
today. Look at the action we have had to take to support 
systemic institutions.
    There is no question that we must undergo as a country very 
thoughtful regulatory reform to look at what our financial 
system should look like in the future, to make sure that we are 
not here again.
    There is no question. There are benefits to scale. But when 
the costs, because these institutions get to be so big, are 
then going to be borne by the taxpayers, that is a real 
problem.
    Mr. Fortenberry. I appreciate that insight. Now let me move 
to a second, more specific question. It is my understanding 
that Goldman Sachs, the recipient of about $10 billion in TARP 
funds, actually repurchased their own stock to the tune of $2 
billion last December. Now, earlier you had said this is a 
prohibited activity. Can you explain?
    Mr. Kashkari. Sure. I don't have the details of the Goldman 
transaction. My understanding of it, because I think the 
chairman put out some data on this in the last few days, is 
that in the case of Goldman, my understanding is those were 
stocks that were repurchased over the course of a year, but 
reported at the end of the year, is my understanding. We have 
put in place restrictions, they cannot buy back their stock.
    The only way they can buy back their stock is if it is part 
of a normal, ongoing share plan for their employees. So if they 
want to incentivize, some of these banks incentivize their 
employees with, let's say, restricted stock, and they want to 
maintain their share account, we enabled that one carve-out. So 
if you want to incentivize your employees over the long term, 
then you can buy back the shares that are, only those shares 
that are associated with the long-term compensation agreements. 
That is the only place where firms under the capital purchase 
program are able to buy back their stock.
    Mr. Fortenberry. Is that exception consistent with what 
happened with Goldman Sachs?
    Mr. Kashkari. In that case, I don't know. Because my 
understanding of that, and I haven't looked at it in detail, 
but I can, my understanding is the bulk of those share 
repurchases were done before Treasury became an investor in 
Goldman Sachs. And so because it happened before we went in, it 
would not be subject to our agreements.
    Mr. Kucinich. If the gentleman would yield, that is my 
understanding, too.
    Mr. Fortenberry. Is that right? OK, thank you.
    The third question is related to Mr. Welch's question as 
well. Please explain how extensively you actually review the 
books of these companies receiving TARP funds.
    Mr. Kashkari. We review applications as they apply to the 
TARP. So they have an application that they submit to their 
regulator. The regulator in many cases has been regulating 
these institutions for many years. For the large institutions, 
the regulators are physically onsite. The regulators look at 
all of the data they have on these institutions and prepare a 
recommendation to Treasury. We then review that recommendation 
from the regulator and the data they provide us and we review 
the application in making our decision on whether or not to 
invest.
    I can walk you through that decision process if you are 
interested.
    Mr. Fortenberry. Ongoing review.
    Mr. Kashkari. For the vast majority of banks, I mentioned 
we have invested in 489 banks so far, 30 more or 40 more each 
week. We do not go in and do ongoing, going through their 
books. Again, we have taken a policy perspective that the vast 
majority of these are healthy, well-run institutions. We just 
want them to make good commercial decisions and extend loans in 
their communities.
    It is the one-off cases that we have had to go in and look 
at a lot of detailed analytics around their financial position, 
their balance sheet, etc., when determining, are they systemic, 
do we need to step in, how much do we need to step in.
    Mr. Fortenberry. Can you name those institutions and then 
how frequently you are doing this review?
    Mr. Kashkari. Well, in the one-off cases, it has been the 
auto companies, the auto finance companies, AIG, Citigroup, 
Bank of America are the one-off cases that we have done 
something extraordinary. In each case, we have gone in in a lot 
of detail, remember, with the regulators, the regulators are 
onsite. They are the ones sending us regular updates on what is 
happening at the banks, what is happening with their 
portfolios, etc.
    Mr. Fortenberry. So they are embedded. Thank you, Mr. 
Chairman.
    Mr. Tierney. Mr. Chairman, may I ask unanimous consent to 
ask Mr. Kashkari just two questions, not to be answered right 
now, but since you have the whole day, can Mr. Kashkari come 
back?
    Mr. Kucinich. Mr. Kashkari has agreed to come back. The 
Chair is declaring a recess for one half hour. I would remind 
you, we have two more panels [remarks off microphone].
    In the next panel, we are going to hear from some specifics 
on the use of TARP funds. And we are going to hear, on the 
third panel, from the Inspector General for the Troubled Assets 
Relief Program. So stay tuned. Recess for one half hour. Thank 
you.
    [Recess.]
    Mr. Kucinich. The committee will come to order. We will 
begin a second round of questioning of Mr. Kashkari. Thank you 
for remaining here. If necessary, we will have a third round.
    We will soon be going to the second and third panels, and I 
appreciate the patience of all of the witnesses. And I 
appreciate the continued presence of all Members. The House is 
just finishing up on votes, I expect we will have some more 
questions.
    I would like to begin, Mr. Kashkari, and point out that you 
are familiar that GAO has testified and will testify today that 
they are still concerned about the TARP's inability to track 
the use of TARP funds and that the challenges are going to grow 
as the TARP programs grow. The Special Inspector General will 
testify today that, ``If by percentage terms some of the 
estimates of fraud in recent Government programs apply to the 
TARP programs, we are looking at the potential exposure of 
hundreds of billions of dollars of taxpayer money lost to 
fraud.'' That is a direct quote.
    Can you, Mr. Kashkari, point to anything Treasury is 
currently doing to prevent waste, fraud and abuse of funds from 
the CPP program?
    Mr. Kashkari. Thank you, Mr. Chairman. First, as I 
mentioned previously, we rely very heavily on the regulators 
when assessing banks who have applied to invest for funds. So 
the banks apply to the regulators, the regulators make a 
recommendation to Treasury. The regulators have been regulating 
these institutions in most cases for years, in some cases they 
have people onsite.
    Mr. Kucinich. Isn't it true that regulators look for fraud, 
they don't look for waste and abuse?
    Mr. Kashkari. I think the regulators look at the entire 
business operations, to look at how well managed the banks are.
    Mr. Kucinich. But you are saying TARP doesn't look at it, 
you defer to the regulators?
    Mr. Kashkari. We work closely with the regulators, sir.
    Mr. Kucinich. You work closely with it, but your mission as 
you see it isn't to look for this, is that right?
    Mr. Kashkari. Our mission is to look for waste, fraud and 
abuse. We want to use the taxpayers' dollars efficiently and 
protect the taxpayers. And so we do it a number of different 
ways. In part, we do it in concert with the regulators, in part 
we put contractual provisions in governing what banks can do 
and cannot do.
    Mr. Kucinich. But you don't look at uses. That is what I am 
trying to get to. I really am looking at the function of the 
TARP here. We understand that you have taken this 
responsibility on and that you have agreed to stay to help with 
the transition. I understand that. We are trying to understand 
the systemic situation here, because if we don't know that 
Treasury is currently doing something to prevent waste, fraud 
and abuse from funds from the CPP program and we don't know for 
sure that your operation is looking at it, then the question 
comes, how can you find fraud if you don't know how they are 
using the money? Is that a fair question?
    Mr. Kashkari. Of course it is a fair question, Mr. 
Chairman. Let me just give an example of some of the compliance 
procedures we have built in. We have procedures that we are 
putting in place where CEOs must certify to Treasury that the 
statements they make to Treasury are correct, that they are 
meeting----
    Mr. Kucinich. I got the procedures. And excuse me for 
interrupting you, but I have 2 minutes left. I understand that 
Treasury is doing its best to understand impact. And I am sure 
you are aware of GAO's skepticism whether or not you are going 
to be able to do it. But as you know, promoting financial 
stabilization is only one of two goals of the Emergency 
Economic Stabilization Act. The other is public accountability.
    I would like to read from a legal memo prepared by the 
Congressional Research Service for this hearing. I call my 
colleagues' attention to this. And I move to put the entire 
memorandum in the record of this hearing.
    According to this memorandum from the Congressional 
Research Service, ``Given the objective of ensuring that the 
authorities and facilities provided to the secretary of 
Treasury, that is the TARP funds, are used in a manner that 
`maximizes overall returns to taxpayer' and provides `public 
accountability' the internal control system that TARP is 
required to establish arguably should include monitoring how 
those funds are being used by recipients.''
    It goes on to say, ``Therefore, it appears that TARP 
overseers will need to gather information on at least those 
recipients' major financial transactions, particularly in those 
areas that have been the primary areas of concern, executive 
compensation, payment of dividends, purchase of other banks and 
certain types of marketing promotions.'' This of course means 
naming rights, for instance, which is mentioned in a memo. At 
this time, does Treasury at least gather information on 
recipients' major financial transactions on an individually 
identifiable basis?
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T2883.126
    
    [GRAPHIC] [TIFF OMITTED] T2883.127
    
    [GRAPHIC] [TIFF OMITTED] T2883.128
    
    [GRAPHIC] [TIFF OMITTED] T2883.129
    
    Mr. Kashkari. Chairman, may I provide a thorough answer, 
sir?
    Mr. Kucinich. Can you give me a yes or no, though?
    Mr. Kashkari. We do not ask for transaction by transaction 
data.
    Mr. Kucinich. OK, so the answer is no.
    Mr. Kashkari. But if I may, sir, I would like to provide a 
thorough response.
    Mr. Kucinich. OK, you can respond, and my time has expired, 
and then we will go to Mr. Jordan. But we are going to come 
back on this question.
    Mr. Kashkari. Thank you, sir.
    The internal control provision that you are referring to in 
the law, I have it in front of me, specifies that Treasury 
shall establish an effective system of internal controls. We 
have Price Waterhouse Coopers working with us developing the 
internal controls within Treasury. We have spoken with both the 
GAO, the Special IG and Treasury's own analysis. This provision 
about the use of TARP resources is about Treasury's use of TARP 
resources. The law does not direct us to impose internal 
controls over the 500 banks that we have invested in, just to 
be precise.
    Mr. Kucinich. OK, thank you. I will come back to that in 
the next round of questioning.
    We are going to go to Mr. Jordan. Mr. Jordan, you are 
recognized for 5 minutes.
    Mr. Jordan. Mr. Kashkari, I want to go back to where I was 
about an hour and a half ago with this whole concept. And 
again, I was one of the individuals who did not vote for the 
TARP program back last fall. But here is what I am trying to 
understand. You are a sharp guy. Tim Geithner is a sharp guy. 
Hank Paulson is a sharp guy. Ben Bernanke is a smart guy.
    How was it that back in October, October 3rd, that all of 
you were convinced, and the package was sold to the Congress 
that you were going to be able to, what did you think then that 
was going to allow you to go after the toxic assets, the 
troubled assets, that since then you haven't been able to do? 
It was this assurance that Members got, the public got, 
taxpayers got, that you could in fact clear the bad stuff out 
and things would get moving back toward normal. And yet now, 5 
months later, still not there.
    So tell me what you thought you knew but yet found out you 
didn't really know. Walk me through that if you can.
    Mr. Kashkari. Thank you. I would be happy to.
    When we went to the Congress, you are right, we talked 
about, and the plan was to purchase mortgage-related assets in 
large volumes to get those markets moving again. The crisis 
intensified so much just in the 2-weeks we were negotiating 
with Congress and the 1 or 2 weeks that followed, that we had 
to move even faster. Dollar for dollar of putting a dollar of 
capital in goes much further, as I am sure you understand, with 
leverage, than just buying a dollar of assets. So we had to 
take the most aggressive action we could to stabilize the 
system. So that is why we ended up leading with capital.
    Now, for an asset purchase program to work, it must be done 
in very, very large scale. Once we concluded in the fall that 
we had to allocate almost half the money for a capital program, 
and we had these one-off contingencies that we had to deal 
with, we were left with fewer resources. And the question was, 
if we only spent half the money on asset purchases, would it be 
big enough in light of the $14 trillion residential and 
commercial mortgage market.
    What Secretary Geithner has done is say, look, let's take 
the available resources, let's combine it with the private 
sector and leverage it up so we can increase our purchasing 
power and go make a big dent on a very big market. So it is 
about speed of implementation, it is about impact, and it is 
about scale with which to go at the problem.
    Mr. Jordan. Let me ask you another question. In talking 
with some folks, reading about this phenomenon, would you agree 
that the mark to market concept is good in the framework of 
disclosure, but not so good in the context of, in the 
regulatory context? And if so, are there some reforms we can do 
that kind of fit that statement that are going to help us as we 
move forward?
    Mr. Kashkari. I think the mark to market issue has a lot of 
benefits. And I think it is good in terms of disclosure for 
investors. But keep in mind, right now we have an environment 
where investors are questioning the value and the meaning of 
regulatory capital standards. So if we said, well, there is 
going to be one set of standards for the books that the 
investors get to see, but don't worry, there is a different set 
of standards for regulators to use, that may not support more 
confidence for investors as they look at the institutions.
    I think mark to market is a very important issue. I know 
the SEC has recently done a study on it. And I think we need to 
look at it as we go after regulatory reform.
    Mr. Jordan. You personally, what do you think, if any, 
changes can be made to that, to the market to market rule that 
can be positive? Do you agree that there is some potential with 
what I just described, mark to market in a disclosure sense but 
some amending in the regulatory context?
    Mr. Kashkari. I think that is something that is worth 
looking at. I will tell you, I am probably not the best, there 
are better experts than me on the accounting treatment of mark 
to market versus accrual accounting, for example, and in the 
regulatory context. I think that these are things that we 
should look at. But especially in the middle of the crisis that 
we are in, I think we should be cautious about making changes 
that seem like a good idea at the time. I think we need to get 
through this crisis, we need to have a thoughtful discussion, 
analyze these issues and then make the long-term changes that 
we need to make.
    Mr. Jordan. OK. Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    The Chair recognizes Mr. Tierney.
    Mr. Tierney. Thank you.
    Thanks for coming back, Mr. Kashkari. We appreciate it.
    Earlier we talked about the fact that you are going to have 
these partnerships that are going to be partly with taxpayer 
money and partly with other investors going out and getting the 
bad assets. I mentioned that some of them might be hedge fund 
people, that taxpayers might think we are getting benefited 
after already doing things that caused part of the problem.
    You said that you thought instead that most of the money 
would come from pensions or other investors. So given the 
fiduciary responsibilities of people that run these pension 
funds, and given the stressed nature of these troubled assets, 
what is the sales pitch that you are going to make to them to 
think that they can invest in them and still meet their 
fiduciary responsibility? Because now I know there are a lot of 
people that have an interest in those pensions, because they 
are sitting out there going, ``oh, my God, that is where our 
money is going to go?''
    Mr. Kashkari. Thanks for providing me the opportunity to 
followup. If you look at pension plans, big pension plans and 
retirement programs for teachers or Government workers or 
employees, they allocate different parts of that money to 
different classes of investments. They will allocate some to 
Government securities, some to equities, some to alternative 
asset classes, such as private equity or even hedge funds. 
Those are typically much smaller asset classes, much smaller 
segments.
    So it would not surprise me to see major pension funds 
saying, OK, we are going to put a small slice of this toward 
real estate assets, or mortgage-related assets, because we 
think the prices for the long term are attractive. So I don't 
want to give anybody the impression that huge pockets of 
people's pension plans are going to be put at this. But I think 
if you look at the amount of savings we have as a country, 
retirement savings, small slices can add up to big dollars.
    Mr. Tierney. So you are basically saying then that it will 
be a good investment for that small slice to go in and buy 
these toxic assets, so that with your other investments, one 
little slice of it ought to go toward really troubled assets?
    Mr. Kashkari. I think that is a reasonable position that 
portfolio managers are going to be looking at and analyzing as 
they make their decisions.
    Mr. Tierney. I would think that you might get some of the 
hedge funds to do it, but I think people, unless they can see a 
bigger up side on that, it is going to be a stretch for them to 
do that.
    Just following up on another question you were asked 
earlier about AIG, Mr. Welch had asked about, can we favor 
those people that AIG is dealing with as co-partners or 
whatever over certain other group that maybe ought not to be 
favored as much. You said, if we do that, if we discriminate 
with one set of people against another, then the remaining 
people can bring the company into bankruptcy.
    Can you explain to us how it is that they are able to do 
that, and second, what would be the consequences of AIG's 
bankruptcy?
    Mr. Kashkari. Thank you. If I have a contract with a 
financial institution and that financial institution just 
decides not to honor my contract, I have recourse. I can sue 
them, as a creditor, I don't know the different legal 
requirements, a group of creditors could come together and say, 
``OK, you haven't honored your obligation to me. You may have 
paid off your policy holders, but you haven't honored your 
commitments to me. I am going to go to the courts to try to get 
my money,'' which may end up pushing the company into 
bankruptcy.
    So again, this is something that, as I indicated earlier, 
nobody wanted to do. But the unfortunate consequence of bailing 
out an institution is you help everybody in the institution. 
You really don't get to pick or choose.
    Now, if we had allowed AIG to go into bankruptcy, not only 
would potentially, AIG has 30 million policy holders in the 
United States; 30 million. Not only could those policy holders 
be put at risk, but all of the businesses that AIG provides 
insurance for, all of their business customers around the 
world, I think they operate in more than 100 countries, could 
all be exposed to some type of financial risk. There could be 
various collateral calls from other institutions.
    So the judgment was not, we like AIG or we want to help 
AIG, it was, the system as a whole could be put at risk if this 
were allowed to go into bankruptcy, especially at a time when 
the financial markets are still in a state of low confidence.
    Mr. Tierney. Your feeling is that all 30 million of those 
people would lose their policies and the businesses would all 
go under? That this whole thing would be such a tragedy you 
couldn't risk it? Or did you just have an uncertainty that 
nobody wants to risk?
    Mr. Kashkari. I think that there is a large uncertainty. 
And the down side, the risks of the down side are much larger 
than even the large dollars that we are having to spend to 
support the institution. I don't want to suggest that 
everybody's policies would be gone. I think that is an 
overstatement. But I think that is a lot of risk for everybody, 
that is a customer or a counter-party or a partner of AIG in 
any respect.
    Mr. Tierney. Thank you. I yield back, Mr. Chairman, thank 
you.
    Mr. Kucinich. I thank the gentleman.
    Mr. Souder, you may proceed for 5 minutes.
    Mr. Souder. I wanted to followup again on some credit 
questions. I have 58 percent of the RV market in the country in 
my district. I have the Silverado and Sierra, biggest GM pickup 
plant. And I need the credit opened up. And I wanted to 
illustrate a couple of different things. Congressmen Donnelly, 
DeFazio and I had an amendment to the Car, Truck, Motorcycle 
that included RVs, on retail floor plan financing. Because part 
of the problem in retail floor plan financing, and let me deal 
with the RV, the auto has a similar, is that there were 
basically three major companies that did it, Textron, GE 
Capital. They pulled out. You can't sell anything if you can't 
get it to the dealer. These are fairly large purchases, 
particularly for motor homes, and nobody would take the market.
    So we tried to get a trans-set, it didn't pass the Senate, 
it was a House advisory. And the similar, one of the problems 
there is is that in American manufacturing, because of legacy 
class, because of health and pension and our wage rate, we make 
bigger vehicles. The smaller stuff tends not to be American-
made. So they require bigger and longer term investments.
    Let me give you one illustration. In one lot in a major 
city in the south, they tried to clear their lot of some of the 
RVs and motor homes. They sold eight, which was not a good sale 
day. On those eight, two were in the $350,000 to $500,000 
range, four were in the $100,000 to $250,000 range, and two 
were used towables under $25,000. All had credit scores, the 
buyers, of over 700. Only one was actually financed, and it was 
a $15,000 used towable.
    The reason is that nobody wants to take a 15-year, $500,000 
mortgage right now, partly going back to the mark to market 
question, which I need to point out, assumes that you are going 
to liquidate, the premise underneath it. So the combination of 
the retail floor financing and the lack for bigger purchases is 
hammering the car, auto, truck, RV markets. Unless we can 
figure out how to get some liquidity into that system, 
Fleetwood declared bankruptcy this morning. They are going all 
over the place, it is spilling into manufactured housing. And 
we tried to address a little of the housing, with housing 
credits.
    But this is a huge double problem, compounded by, and one 
other thing I wanted to raise to you as you look at how to 
handle this is that there are buybacks, which the auto 
companies are starting to get into, but the RV industry, that 
aren't on the books. They have never had a problem before, 
because when one dealer can't sell it, they move it to another 
dealer. But if they can't get retail floor plan, all of a 
sudden this stuff is coming back. Out they go, thousands of 
people being laid off when in fact, there appears to be some 
market.
    How do we open that credit market up if they don't know in 
the lending institutions what their assets are? That is why we 
keep bringing up a variation of mark to market.
    Mr. Kashkari. Congressman, thank you. This is a huge issue. 
It is a huge issue that we have teams of people working on. 
This goes back to the new facility under the consumer and 
business lending initiative, it is called the TALF program that 
the Federal Reserve has set up. It is going to start funding in 
a couple of weeks, it is ready now, it is finally launched. It 
is going to specifically bring down costs of borrowing for auto 
loans, for credit cards, for student loans, for small business 
loans.
    Right now as a starting point, it is a $200 billion 
facility. We have a plan to increase it to a trillion dollar 
facility and to add other asset classes. So we are looking at 
all different sorts of asset classes to see what else we can 
put in there to get liquidity to the markets so that people can 
buy motor homes and RVs and cars and trucks, etc., until we get 
through this crisis.
    So I assure you, Congressman, we are focused on this too. 
We get the same calls that you get. Not as many as you get, 
because it is your district. But we get the same calls you get. 
We know it is a real problem, and we think we are on the right 
track to bring down these borrowing costs. Because who can 
afford today to go and buy a car and pay a 14 or 15 percent 
loan? No one is going to do it. We need to bring these rates 
down so that our businesses can continue to do business.
    Mr. Jordan. And there needs to be some kind of addressing 
of this. Size, volume of loan and length of loan question, some 
of the RV people had talked to me initially about, could they 
pool with a fee such to help share if some went bad. There has 
to be some kind of risk-sharing on the longer term and sizable 
loans, or that market will not free up. Those tend to be our 
American manufacturers, because we are skewed to the higher 
value ends. And those big areas, construction and auto truck, I 
believe, are close to 50 percent of much of our American 
economy. Retail sales, if you take a manufacturing job, or 
value-added, which could be software or whatever, is going to 
circulate at a different rate in a productivity multiplier 
effect than a service job or a labor-intensive job. And that 
sector is overwhelmingly tied to construction and auto. And it 
tends to go boom-bust.
    The way the financial markets have collapsed so deeply, it 
is not clear how we get it restarted, especially if the debt 
that the Government is taking on starts to crowd out private 
borrowing and private equity, and mark to market is chewing 
them up, which was a change, it is not, when you say it is a 
problem changing back, it was a change to it that partly 
triggered this, that it is not clear how we reopen the credit 
market. Because capital is going to be so tight.
    Mr. Kashkari. Congressman, we think the new facility that 
the Fed has set up is going to help restart not just the market 
and get rates down, but bring private capital back. Because the 
way it is designed, it is designed that the private sector puts 
in capital, the Government lends to it, gets the markets going 
again. And then our hope is, as the credit markets heal 
themselves that the private sector will be able to go back and 
then the Government can step away. So we are focused on this.
    The other thing I would add, don't forget the 
administration has an auto task force, a whole team of people 
focused just on the autos, to try to get them to a place of 
long-term viability. And so there is a team working there, 
Treasury, it is an inter-agency program, looking at autos, 
looking at auto suppliers, looking at some of their financing 
constraints as well. So we are coming at it from both 
directions.
    Mr. Kucinich. I thank the gentleman.
    The Chair recognizes Mr. Cummings.
    Mr. Cummings. Mr. Kashkari, there are a lot of banks that 
are returning their money, is that right, they want to return 
the money?
    Mr. Kashkari. Yes.
    Mr. Cummings. And they apparently want to return this TARP 
money because of restrictions and the things that you talked 
about a little bit earlier that the Obama administration is 
demanding, and the public is demanding. How do you feel about 
that? I am just curious, just in a few words, because I have 
some other things I want to ask you.
    Mr. Kashkari. I am concerned, because in many cases the 
banks that want to return the money, well, we have 200 banks 
that we have approved that have said, ``no, thank you.'' And in 
most cases, the ones who are saying, ``no, thank you,'' or who 
expressed an interest to return are the strongest, healthiest 
of our institutions. Those are the very ones we want to take 
more capital, because they are in the best position to extend 
credit.
    So I understand, well, in any case----
    Mr. Cummings. Well, that leads me to something else, then. 
So they are the stronger banks, they want to give the money 
back, because they don't want to abide by the Obama rules, 
President Obama's rules. And it seems like then they should be 
in a better position, particularly if they had the money, to 
make the loans. So it sounds like they are more, they might be 
more interested in continuing to operate as usual, as opposed 
to seeing our economy come out of this great slump that we are 
in. I am just curious.
    Mr. Kashkari. It is a tough problem to answer with 
precision, because as I indicated earlier, 60 percent of our 
credit is from banks, 40 percent is non-banks. I know the 40 
percent is not working right now. We are trying to get that 
going. If you look at the lending survey that we did do, which 
covers the majority of the banks in the country in terms of 
dollars, lending has held up remarkably well.
    A lot of banks, especially the smaller banks, will say they 
are just scared, because they are hearing so much noise out of 
Washington, they are saying, ``do I really need the headache of 
taking this additional money? I know if I took additional 
money, I could put it to work.'' But there is so much coming 
out of Washington right now, they are calling us and saying, 
``you know what? No, thank you. I don't know what is coming, so 
no, thank you.'' We are disappointed by that, because we want 
the strongest banks to take more money, because they can turn 
around and extend credit.
    Mr. Cummings. So you already said in your statement that 
you didn't feel that public officials like you have any 
business telling banks how to lend, because they are in a 
better position to do it, to make those determinations. And I 
don't know how you can say that with a straight face. After 
all, a lot of these banks did some poor decisionmaking and got 
us into this mess.
    So I am just wondering, and I know about that latitude that 
you talked about. But I am wondering, the new program that you 
are talking about with regard to the auto loans and freeing up 
the money, how does that work? And how might that have an 
affect on banks, negatively or positively?
    Mr. Kashkari. This program is a Federal Reserve, we call it 
a facility, where the Fed says they will lend money to people 
who buy securities. So new securities, a bunch of auto loans 
are packaged together, they meet certain standards, an investor 
wants to buy those securities, they can get a loan from the 
Federal Reserve to buy those securities. The investor has to 
put in some of their own money. And then they will have that 
for up to 3 years.
    So it enables private capital to come off the sideline to 
get money into these markets with the Federal Government 
providing some of the lending to those investors. So it is 
complicated. But the market, the investors have said they 
really want it. The car companies and the student loan 
companies and the small business companies have all said, this 
should really help them by bringing down rates for borrowers.
    At the end of the day, this program is all about bringing 
down rates for our consumers.
    Mr. Cummings. And how does that affect the banks?
    Mr. Kashkari. Well, the banks, in this case----
    Mr. Cummings. What is your hope?
    Mr. Kashkari. The banks in this case, it is not the main 
priority of this program. This program is about getting lending 
to consumers. The banks have a role to play, because they are 
the ones who buy all these auto loans, package them up and then 
sell them to investors. So the banks have a role, but this is 
not about the banks extending credit. This is about getting 
credit going from the non-banking market to the consumers and 
to the car buyers.
    Mr. Cummings. I got you. But I was just wondering if this 
then establishes some kind of competition. In other words, 
these are people who are borrowing money from a non-bank?
    Mr. Kashkari. Correct.
    Mr. Cummings. So I was just wondering how much competition 
that gives to the banks and whether that spurs any activity?
    Mr. Kashkari. I think it a good thing.
    Mr. Kucinich. You may respond, and then the gentleman's 
time is expired, but please respond.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Kashkari. Thank you, Chairman. I think the more diverse 
sources we have of credit in our economy, the better we are 
going to be. So we need to get the non-banking market going. We 
need the banks to do more. But we really need to get the non-
banking market going. That is where the big hole is right now. 
We need all of it.
    Mr. Kucinich. Thank you.
    We are going to go to round three. Mr. Kashkari, picking up 
where we left off, you said that Treasury's internal controls 
need apply only to Treasury and not to the banks that have sold 
equity to Treasury.
    Mr. Kashkari. Yes, Congressman. I am referring to the 
internal control provision in the EESA.
    Mr. Kucinich. I understand, but I would gently remind you 
that view is somewhat extreme, that is at odds with legal 
analysis of our duties to monitor the use of TARP funds by the 
banks that got them. CRS has spoken to this directly. And it is 
not alone. The GAO is also of the opinion that your legal duty 
is to monitor the use of TARP funds by the banks which receive 
them. It seems to me that you may be alone in the view that 
Congress didn't mean what it said in Section 116 of the EESA. 
We told you in there that we wanted Treasury to safeguard the 
TARP moneys from waste and abuse. That is the meaning of the 
incorporation of the Federal Managers Financial Integrity Act, 
Title 31, Section 3512(c).
    I think that you are taking a position that is not tenable 
and one that is pointedly lacking in responsibility for the 
office that you hold. And that is that you just say it is not 
your job. Now, granted, you have come in under extraordinary 
circumstances. But we have a new administration coming in. And 
I am hopeful they are going to take a fresh look at this law. 
If you want to comment on what I said, feel free to, and then I 
have some followup.
    Mr. Kashkari. Thank you, Mr. Chairman.
    We take protecting taxpayers' money extraordinarily 
seriously. Extraordinarily seriously. What I was referring to 
was the section you are referring to, the internal control 
provision of the EESA. I personally spoke with the GAO and the 
Special Inspector General about their interpretation of this. 
And they agreed with me, you will hear from them on the third 
panel, they agreed with our assessment that this internal 
control provision is talking about Treasury's own internal 
controls, within Treasury, and we are working, we have made a 
lot of progress on our own internal controls.
    Mr. Kucinich. You are saying that you publicly acknowledge 
that you have a responsibility for the internal controls of the 
TARP funds once they go to the banks.
    Mr. Kashkari. No, I am saying we have a responsibility for 
internal controls within the Treasury organization and we have 
responsibilities to the taxpayers to make sure the money is 
used appropriately and in the best policy interests of the 
control. The internal control provision is very narrowly 
focused. That doesn't mean we don't have to protect the 
taxpayers. We have other mechanisms for protecting the 
taxpayers.
    Mr. Kucinich. Are you saying Congress was not specific 
enough in its charge to you?
    Mr. Kashkari. I have been advised, Mr. Chairman, forgive 
me, I am not an attorney, I have been advised by our lawyers at 
Treasury that Section 3512(c) of Title 31, United States Code, 
is specifically about internal procedures within Federal 
Government agencies. And that is what we are referring to. That 
is what the law refers to right here on line 16.
    Mr. Kucinich. We are going to hear more about this point in 
the third panel. We don't think it is arcane, we think it 
relates directly to your responsibilities. When we began this 
day talking about how banks who got TARP funds are moving the 
money out of the country, it is my opinion, and apparently the 
opinion of some members of this panel, that there should be 
accountability from the Treasury Department as to U.S. 
taxpayers' funds being spent by TARP recipients in other 
countries, especially when we have such dire straits here.
    Now, in the time that I have remaining on this particular 
round, I want to talk about the impact of the TARP funds. 
Congress has heard repeatedly the representations of large TARP 
recipients about the billions of dollars of new credit they are 
creating. They are eager to tell the side of the story you 
repeated today. You stated on page 10 of your testimony that 
all loan amounts appear to be going up.
    But the lending is much reduced compared to the period 
before the crisis. Isn't that so?
    Mr. Kashkari. Yes, as I indicated.
    Mr. Kucinich. But then what about the other side of the 
picture? Are you collecting data from the banks on the 
contraction of existing credit that is occurring? Now, this 
goes to some of the questions Mr. Souder has raised. Where have 
you shown the decline in credit due to foreclosures and the 
suspension of credit lines that our constituents are 
experiencing? How do those numbers compare to past periods? And 
Mr. Kashkari, if the new credit doesn't more than offset the 
extinction of existing credit, does the economy experience a 
net positive effect from credit activities, or a net negative 
effect? If you can respond to that, and my time is expired.
    Mr. Kashkari. Thank you, Mr. Chairman. There is no question 
that in recessions, credit levels fall. Because both lenders 
and borrowers are nervous about taking on new obligations and 
extending credit. There is no question about that. When we look 
at the lending levels that we are seeing, we know that they are 
higher than they would have been absent the TARP funds. We 
think they have held up remarkably well in light of the severe 
economic contraction we had in Q4. But again, as I look at the 
broader credit problem, the banking sector is part of it. A 
much bigger problem at this point is the securitization market, 
the non-banking sector.
    So banking is not as high as we would like it to be, 
securitization is zero. And it was 40 percent before this 
started. So we need to get that going, too.
    Mr. Kucinich. My time is expired, I just want to comment 
that at no time in the history of this country have we ever had 
a period where we were in a recession and there is massive 
amounts of Federal dollars, by the time this thing is through, 
maybe trillions of Federal dollars going in to prop up the 
economy, and where is the money going in terms of a net new 
credit to report to us?
    Mr. Souder.
    Mr. Souder. I want to continue along this a little bit. 
Clearly, because of Enron, we had to look at what I guess is 
called fair value measurements, which is mark to market. The 
challenge here that we have, because that went in in November 
2007.
    So to talk about a change, it appears to be one of the 
changes that helped trigger the credit crisis, with all due 
respect. Because it exposed those who were not fair marketed 
value and then caused a panic beyond that, because it was a 
broad swipe at everybody's valuation, when in fact, in areas of 
the country like mine, we had been having 2, 3 percent growth, 
not 100 percent growth in housing. The national went up 200 
percent while the economy was growing at about 3. It doesn't 
take a rocket scientist, it takes Business 101 to see you have 
a mismatch.
    But that mismatch was not universal. So we did a universal 
solution that in particular, and I am fascinated, because the 
more you read, the more you study about this, there has been a 
major changing in finances in the country in securitization and 
moving outside the Fed regulated and into this 40 percent other 
sector that you are talking about. Yet the banks are tightly 
regulated and we slam fair market measurements on them.
    Now, if we fund the securitization group, getting to Mr. 
Cummings' question, are they going to have to play by the same 
rules as banks, and then if they have to do fair market 
measurements, we are right back to where we were. There has to 
be some kind of addressing an underlying concern.
    But let me first ask, in this trying to get the 40 percent 
securitization, that was where the biggest problem was, if they 
are going to compete on loans, are they going to come in under 
similar banking rules? Some of them are converting to banks.
    Mr. Kashkari. Correct.
    Mr. Souder. Is this going to be a mandatory thing? Is there 
going to be a supervisory? This is where transparency starts to 
become a huge deal. Because if the problem sector, really for 
the most part, it was not a bank, it was a division of a bank 
to compete with this 40 percent.
    Mr. Kashkari. The 40 percent part is made up of a lot of 
different types of institutions. So you have big banks, like 
CIT, non-banks, excuse me, like CIT or GE Capital, etc. You 
have pension plans, insurance companies who need to buy assets 
to match their liabilities, you have various kinds of funds all 
around the world. So it is hard to define them as one category, 
because there are all sorts of dogs and cats investing in the 
non-bank market and buying these securities.
    Most of them, to my understanding, are, in many cases, they 
are marking those securities to market. And so they do see the 
asset prices go up and down. So I think your points have a lot 
of merit.
    I would say the one other point, in terms of accounting and 
transparency, that has been at the root cause of this problem 
is it has been almost impossible to peer into these mortgage-
backed securities to figure out which loans are in there, who 
wrote the loans, how are they doing. And because investors had 
a hard time peering into the mortgage-backed securities, let 
alone the CDOs, when they were bundled together, they didn't 
know which mortgages were good, which securities were bad. So 
they pulled back from all of them. And that is an example 
where, like in your district, where their home prices didn't 
take off, they are suffering.
    Mr. Souder. It doesn't take too much time, we have had 
multiple hearings here, reading about Countrywide and so on, 
that basically, if you were paying 6 percent, there was less 
risk than if you were paying 14. When you start to see the high 
rates of return beyond the normal rates of return, I think it 
is Eric Paulson who made the $3.7 billion.
    Mr. Kashkari. John Paulson.
    Mr. Souder. When he was here and I asked him a similar 
question, he said, ``how do you think I made my money?'' He 
could see this, anybody who was studying it could figure out 
which ones were inflated and which ones weren't. It wasn't like 
that confused. It was sloppiness, people wanted the high 
returns. You had to either be in pharmaceutical speculation, 
energy speculation or housing speculation if you are getting 
higher than 6 or 8 percent. And the pension funds may have done 
that.
    I am not very tolerant of the people who say, ``oh, we 
couldn't figure out was going on, we need more transparency.'' 
But they weren't paying close enough attention.
    In this non-bank financial sector, in trying to monitor how 
they are doing, I have Lincoln Financial in my district, the 
center of annuities in the country. They bought a bank because 
they are now applying for TARP funds. And we saw a number of 
others convert to banks. But you suggested that the Federal 
Reserve is setting up a separate fund that won't require them 
to be like a bank.
    Mr. Kashkari. Correct, so that the new program that the Fed 
has set up, that Treasury is supporting to get lending going, 
many, many financial participants can use it.
    Mr. Souder. And who is going to regulate them, and what 
guidelines are they going to have, and are there going to be 
similar regulations? Because while we are all in Congress 
obsessed about the banking sector, you are telling us that 
there is a 40 percent and the Fed is floating out $2 trillion, 
while we are dealing with $700 billion in your funding.
    Mr. Kashkari. The Fed and Treasury designed very important 
procedures and restrictions to make sure we know the quality of 
the collateral that we are going to be getting. Because when 
the Fed loans in this new program, they are going to get the 
securities as collateral. So it is only going to be new loans, 
new securitizations in this current program. And very strict 
guidelines in terms of what is eligible to make sure that we 
protect the taxpayers. There is not with it, per se, going to 
be new regulations that go for the people who are lending money 
into that system, but we are making sure the taxpayers are 
protected.
    Mr. Souder. Thank you.
    Mr. Kucinich. Mr. Kennedy.
    Mr. Kennedy. Thank you, Mr. Chairman.
    You have painted for us a very stark picture in terms of 
what we have in front of us, and that is, we have the 
uncertainty of the markets, and yet we have the necessity to 
act quickly. We are going to be confronted with the choice as 
to how to put an end to this uncertainty by putting up however 
many more billions of dollars to stave off continued decline in 
the markets and continued recession that is going to lead to 
further dislocation of our workers in this country. And the 
President spoke very clearly of the need to act now or act 
later.
    The question I have for you is, given the fungibility that 
you say these financial institutions are involved with respect 
to the world markets, how can we be certain that the dollars 
that are going to be going into this public-private fund are 
dollars that are going to absolutely mean the end of the 
uncertainty with respect to those toxic assets, when we are 
part of an international world economy now? And we want to make 
sure that whatever final package is the final package and that 
there isn't going to be another shoe to drop, so to speak.
    That is what my constituents want to know. We want closure 
just as much as the President does. We want to be able to move 
on. We don't want this recession to drag on any further. And we 
also don't want to overpay for these toxic assets any more than 
they have to be. But we understand that if we let this 
recession drag on, it is going to cost us a great deal. I would 
ask you to comment on this, because I think this is a 
fundamental point that most economists have been talking about, 
what is it that we have to put the staunch to, wrap the 
tourniquet around? How do we wrap a tourniquet around something 
that is involved in a global economy in terms of assets?
    Mr. Kashkari. Thank you, Congressman. I will answer your 
question in two parts. The first part, the global nature. We 
cannot act alone. So we have our programs. We are consulting 
closely with our counter-parties in other countries who are 
taking similar measures that are tailor-made for their system. 
The world leading economies all need to act. I think that they 
are acting with different speeds, but they are acting, and we 
are going to continue to have an active dialog to encourage all 
of us to move in a coordinated fashion, No. 1.
    No. 2, Secretary Geithner's financial stability plan has 
laid out a broad framework to do this. There is not one piece 
of it that by itself will solve everything. We have the capital 
program that he has laid out to make sure our banks have enough 
capital, even in a worse economic environment, that they can 
continue to lend. That is very important. That is underway, the 
details are out there.
    No. 2 is the lending program that we talked about, scaling 
up from $200 billion to $1 trillion, to make sure our consumers 
and our small businesses can get the credit that they need 
right now. That is underway. It is going to start funding in a 
couple of weeks. And then third is the public-private 
partnership that we just talked about to go after the bad 
assets. Not one of these tools by itself will be the final 
solution. We believe these three tools, combined with the other 
tools that the Fed and other regulators have done, will get at 
this.
    Fundamentally, we have a credit crisis that has hurt our 
economy. And now the economy is looping back. It is a vicious 
cycle, and it is hurting the financial system again. So we have 
to go at it from the financial perspective, and then the 
stimulus bill that the Congress passed and the President signed 
is also going to be very important to getting the economy 
going. We need to go at it from both directions.
    Mr. Kennedy. I would say that obviously, as we have heard 
this morning, transparency. We need to be able to show the 
American public just how this links to them. And I understand 
the college loans, I understand the making payroll in 
businesses, I understand people's vested pensions and 
annuities. But we need to make that even clearer to people, 
because right now, that case has not been fully made. And until 
it is fully made, we are not going to be able to come back to 
the American people and say to them, ``this is in your 
interest.'' Because right now, they don't see it as in their 
interest.
    And there is only one person who can really make that 
argument, that is the President of the United States. You can't 
have 535 Members of Congress out there trying to explain to the 
American people how getting this financial system back on track 
by infusing it with more dollars is going to do this for them, 
when all they're seeing is that, you know, kind of trickle 
down. They have to understand that this is part of the 
lifeblood of the economy, and the lifeblood of our financial 
system is one and the same.
    Right now, that is not becoming very transparent, as you 
have seen from this hearing. Until that becomes transparent, it 
is going to be very hard for the people's representatives, us, 
to be able to give the President what he needs in order to 
infuse any more assets into this kind of recovery. So we 
certainly want to get out of this situation, but we need really 
clear leadership and explanation from the top, in the only way 
the President can deliver it.
    Mr. Kashkari. Thank you.
    Mr. Kucinich. The gentleman's time is expired.
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Kashkari, you have been as good as your word, it has 
been quite an afternoon, and I appreciate your time. One 
question I have for you. Earlier I asked about, if you will, 
pushback or influence or advocacy by Members of Congress. But 
now let's switch to the other side. Tell me about the pushback 
you inherently get or you are getting or resistance you are 
getting from the mortgage industry, from the banking industry, 
on giving you the facts and figures you might need in order to 
better analyze the underlying assets that we so often call 
toxic.
    Mr. Kashkari. So far, Congressman, every time we have asked 
for data from any recipient banks, they have all complied with 
us, because they know they need to. It is in the country's 
interest and their interest to comply. And that is really 
focused on lending levels, which many people ask us about. As I 
said, we are going out to all the institutions to collect the 
data, not just the top 20. We have not gone out and done a 
survey of so-called toxic assets per se. I think if we asked 
them for the data, they would provide it to us.
    Again, we work closely with the regulators who have a lot 
of this data already. I know that the OCC, the OTS and the 
FDIC, for example, collect loan level data from all of their 
banks and roll that out to look at what is happening in 
mortgages around the country. So we get the data from different 
places, partly from the banks, partly from the regulators. As 
yet, we haven't had any pushback to the data that we have asked 
for.
    Mr. Issa. Earlier today, there was some talk about loans 
going to Dubai and China and other places. Isn't it true that 
the United States is a net debtor around the world?
    Mr. Kashkari. Yes.
    Mr. Issa. So if we wanted back all the money that, if you 
will, we have loaned and invested in other places, and the rest 
of the world did the same in return, wouldn't we suddenly have 
trillions of dollars of shortfall far beyond what we are 
putting in with TARP?
    Mr. Kashkari. I believe so, yes.
    Mr. Issa. I had that impression, from a little CNBC and Fox 
Business News, it seemed it was that way.
    Congressman Kennedy has left, but he talked about 
certainty, one-time, etc. From your standpoint, having lived 
with multiple tranches of different solutions, TARP being one 
of them, do you think we are well-served by having one more, 
this is it, it encompasses everything, we will never come back, 
or should we look at smaller steps with more congressional 
oversight? In other words, do what you think is right, come 
back to us and tell us what you have done, rather than the $700 
billion which, by your own admission, really never got used in 
the original way and will be probably gone before we begin 
buying those assets in any great numbers.
    So I don't want to say that he was wrong, but wouldn't you 
say that the opposite is true, that we should ask for careful 
and deliberate actions, even if they are not complete, agree to 
those, authorize you and then have you come back when you learn 
more?
    Mr. Kashkari. I think that there is merit in that. But I am 
cautions, because sometimes we have to take action that is so 
unpleasant, but it is so urgent, we just have to move.
    Mr. Issa. Sure. And I am not suggesting little teeny sizes. 
But the $700 billion which was $350, $350, represented by your 
own statement, at least 489 different transactions. So going 
forward, you don't need a trillion all at once next time, that 
in fact, although we may authorize and anticipate a trillion, 
the periodic reporting that we could expect in a TARP II, the 
updates and the increments could in fact be more manageable, 
because we are not dealing with an overnight crisis in which 
you don't know how much you need to put out, but you might need 
to put it all out in 1 day, so to speak?
    Mr. Kashkari. I think it could be, and I think that this is 
consistent with the way Secretary Geithner is thinking about 
it. Because of his new programs, we can get going with the 
available capital we have. We can assess that they are having 
the desired effect and then come back and ask, if and when he 
decides to ask for more, do so then.
    Mr. Issa. Now, I have kind of a long-arm question for you, 
and it is a big one. It is a little outside yours, so if you 
feel uncomfortable completely answering it today, I hope you 
would come back with your thoughts. Up until now, Members of 
Congress have been saying, we have to put, and the 
administration, too, saying we have to put money in in order to 
free up mortgages. And I am not dissuading anyone today from 
that view.
    But another scenario, if we hadn't put a penny into the 
back end, the banks, and instead, we put a hypothetically 
sufficient amount, whatever it was, into the refinancing of new 
mortgages, so that if a bank said, ``look, I am calling the 
loan, here is the foreclosure,'' because you know, they are not 
doing foreclosures right now in many cases, people are staying 
in their homes months and months and months, waiting to see 
what happens.
    If they had done all the foreclosures and people who could 
make a monthly payment on a future mortgage had available 
mortgages, if we facilitated the front end of the new mortgage 
with trillions of dollars of capability, wouldn't we in some 
ways have mark to market, refinanced, found the good people, 
renegotiated in much less time than now we are putting money 
in, the chairman and others have made the point that it doesn't 
necessarily seem to be trickling down. We are pushing it on 
this end, asking it to end up here, rather than saying, do what 
you think is right and we will take care of people who are 
creditworthy, whether they are existing homeowners or future 
for homeowners on those foreclosed properties.
    Mr. Kucinich. The gentleman's time is expired, but I would 
ask if you would answer his question.
    Mr. Kashkari. Thank you.
    Congressman, I think we are doing both. So I think the 
actions taken to stabilize Fannie and Freddie, to make sure 
that mortgages were still available in FHA is very important. I 
don't think we could just say, forget the banks, we are just 
going to startup all new lending programs, because we would 
have no way of administering that. The banks, for all our 
frustrations, they have thousands of branch offices in all of 
our communities. And they are the tentacles out into getting 
credit out there.
    So I think we need to do both, providing the Government 
support for the lending like the new program that I talked 
about, as well as helping the banks get through this time.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    We are going to go to a fourth round with Mr. Kashkari. One 
of the things that I am concerned about, the Washington Post 
reports on a public-private partnership, they say last week, 
the Government is seeking to resuscitate the Nation's crippled 
financial system by forging an alliance with the very outfits 
that most benefited from the bonanza preceding the collapse of 
the credit markets, hedge funds and private equity firms. The 
article goes on to say that they would be invited to buy up 
recently issued highly rated securities. These securities 
finance consumer lending, such as credit cards and student and 
auto loans. The program would involve the Government lending 
nearly $1 trillion.
    Is this the public-private partnership you are talking 
about?
    Mr. Kashkari. Yes.
    Mr. Kucinich. OK. So in this graph that the, some art work 
that the Post puts out, they say that with Government 
assistance to stimulate purchases of the securities investors 
borrow from the Fed, for $10 million worth an investor might 
put up $1 million and borrow $9 million. Then it says, the 
second part, the public part, the Government offers to cover 
losses if consumers default and the asset-backed security 
declines in value. Then it goes on to say that if the asset-
backed security's value falls, an investor may lose only his 
original $1 million and the Treasury and the Fed would absorb 
additional losses, which means that the exposure under this, 
according to this report, the exposure of the Treasury and the 
Fed could be as much as 90 percent.
    Now, here is my question. The Obama budget says that he has 
put a marker, placeholder of $250 billion anticipating that 
would be the losses if the Government goes forward with this 
$750 billion TARP II. We see that there is a discussion among 
more money going to the FDIC. We know that the amount of 
losses, according to the President's new budget, is 33 percent, 
estimate. We know that the amount of loss that you had before 
is around 30 percent, that is the number that is being thrown 
about.
    Is it possible that if we go forward with a total of what 
could be about $3 trillion in TARP funds, rough figure, if the 
estimated loss would be 30 to 33 percent, we are looking at 
taxpayers being stuck with $900 billion to $1 trillion. Now, 
think about this. Every, you know, if you use $3 trillion and 
somebody else can do the math here, but you have 300 million 
Americans, is that like $10,000 per capita? Is that like 
$30,000 or more a family that we are into this already?
    And then you get to this, check this out. Today's headline, 
Washington Post, Rays of Hope for Big Banks Spur Rally on Wall 
Street. Citigroup apparently is doing some recovery. And the 
article says, and this goes to what Mr. Kennedy raised and what 
I want to laser focus on right now. Investors were being dealt 
more signs yesterday that corporations were shedding more jobs. 
Seen by many as a way for companies to steady themselves during 
a deepening recession, United Technologies, a large industrial 
company, said it expects to lay off 11,600 employees. AOL said 
it is executing a second major round of layoffs, shedding 10 
percent of its work force.
    I am from Cleveland. Our economy has been falling apart. We 
have foreclosures everywhere. The sub-prime loan bandits have 
capitalized in my city and crushed neighborhoods in my city. 
Our steel mills are in trouble, we have auto plants that are in 
trouble. And the banks are doing, are starting to come back, 
according to this. But we don't see any evidence that we are 
going to come back.
    What can you tell the people in neighborhoods across this 
country, that they should go ahead and put trillions of dollars 
of their money at risk when we are reading these reports that 
they could, it looks like huge losses are in the offing under 
the best of circumstances? Why aren't we taking a controlling 
interest in mortgage-backed securities and the Government 
directing loan modifications to lower principal, lower interest 
instead of leaving it up to people who are still freezing 
credit here in the States, while they are shipping jobs and 
money overseas?
    This to me is a textbook definition of political insanity. 
And I would just like, do you ever think about these things, 
about the inherent contradictions that are in this, about how 
Wall Street might have one view of the world, but the rest of 
America is just beset with all these problems as a result of 
Wall Street?
    Mr. Kashkari. Thank you, Mr. Chairman. I think about these 
things all the time. And you asked a very important but complex 
question, so please, permit me to give a thorough answer to 
your question.
    First, let's talk about the foreclosure piece. The 
administration has now come out with what I think is a very 
good loan modification program, a $75 billion program to 
encourage servicers and lenders to make long-term sustainable 
loan modifications. That program is getting up and running 
right now. We have teams of people, reporting to me, that are 
working on implementing that right now. We feel very good about 
that. I think that is going to make an important difference in 
our communities, No. 1.
    No. 2, in terms of the loss estimates, I would like to 
offer my perspective on that. I think we have to segment our 
different programs, because different programs have different 
classes of risk for the taxpayers. So for example, the lending 
initiative that I have spent a lot of time talking about today, 
which Secretary Geithner wants to take to $1 trillion, is 
secured by very high quality collateral. We expect, where 
investors are in the first loss, actually there are multiple 
losses for investors, before Treasury is exposed, the taxpayer 
is exposed.
    My expectation is the losses on that program or the risks 
on that program are much, much lower than the risks on some of 
the other things that we have had to do. So I am just telling 
you candidly, I don't think we can take the loss estimate for 
one program and scale it up and apply it. I don't think it is 
going to be that aggressive.
    Nonetheless, there are real risks. We are all taxpayers. 
And none of us like putting our dollars at risk to have to do 
what we are having to do. But the economic consequences for all 
of us are much, much greater if we don't do these distasteful 
things that we are having to do, putting taxpayer dollars at 
risk, intervening in these markets. It is in our own interests. 
We need to get through this crisis as quickly as possible so 
the economy can grow again, so we can create jobs. And then we 
need to reform our regulatory system so we don't get back here 
again.
    Mr. Kucinich. My time is expired. I would like to go to Mr. 
Souder.
    Mr. Souder. I thank you for your time today, and I wanted 
to leave you with a couple of thoughts. One encouraging thing 
is, all these hearings, which I know have to be frustrating to 
you, it is amazing how much about finance Americans are going 
to be learning in this process. It is like we forgot what risk 
was.
    My house, I bought it from a local small town bank, Grable 
Bank. The next thing I knew, I was sending it to Brussels, to 
Amro, Ambro or whatever that company is. Now it goes to a 
company owned by the Chinese. If we are not careful here, we 
will slam down our own mortgages on ourselves. This money is 
all over the place and split and securitized and much more 
complicated than most of us even think about when we get our 
home mortgage, which may not even have the name of the company 
we are paying it to.
    The transparency question, one is, I know that some banks 
are nervous about getting in because they are worried that if 
they get this fund, they are going to get a call from you or 
somebody that says, ``we noticed you put satellite radio in 
your car, why did you do that?'' They are very concerned about 
the big hand of Government here, because they are watching the 
micromanaging, what is a fair salary how do you do this?
    On the other hand, from the taxpayer perspective, you can 
hear today a lot of the frustration with transparency. I think 
while you need to have your private ability, and I am very 
worried we are about in the process of potentially destroying 
private sector capital because of the amount of money that the 
Government is going to be taking, how we are going to 
micromanage this, the different loan categories. It is a 
frightening thing. There might be public-private partnerships, 
but it is a scary time if you are more of a private sector 
person. Partly brought on by the private sector.
    But in the transparency question, I understand the point 
here. But even in mark to market, there is a deep suspicion 
that, because the change only occurred in 2007, that the reason 
we can't come back is that hedge fund, people who are buying 
short and long and all this kind of stuff, have a chokehold on 
the system. And it is not transparent. And what would seem 
logical to a traditional banking system, we can't see what is 
happening. That leads to a mistrust, because it seems to a 
hardworking person who gets up in the morning and goes to work 
and starts a small business and tries to get an expansion loan 
and the bank calls down and says, ``we are not going to keep 
your revolving loan credit there, we are having struggles,'' 
partly, is somebody speculating against me and I can't see it?
    So one of the advantages of the education process that we 
are going through is that it has also generated a fear that 
some people are manipulating us. I think that the demand of 
transparency is going to overwhelm the desire to have 
flexibility in your decisions. When you touch the Government, 
you get the full scale of the Government. This is very 
worrisome to many of us. At the same time, I don't know how to 
do it, because even I don't have a lot of trust right now.
    Mr. Kashkari. Thank you.
    Mr. Kucinich. I thank the gentleman.
    Mr. Cummings.
    Mr. Cummings. I was just sitting here thinking about what 
somebody watching this, whether the American people would, how 
would they feel about all of this, this hearing. The newspapers 
are running a story, by the way, just in case your staff hasn't 
told you, Kashkari says that we should stay out of the banks' 
business of lending. That is the story that has come out of 
this. That is what is all over the place.
    And then you have Reuters, just came out with a story an 
hour ago, I just want to quote from the story, it says, ``Six 
months after the United States Government stepped in and saved 
an insurance giant overwhelmed by derivative losses, AIG 
continues to bleed red ink. Its stocks and bondholders have 
been crushed, but one group has suffered almost no damage: 
banks that bought credit protection from AIG financial 
products. Regulatory filings show that since the Federal 
Reserve announced its rescue of AIG on September 15th, about 
$50 billion of Government money has passed through the company 
to the banks. `Treasury is providing a massive wealth transfer 
from taxpayers to Goldman Sachs and other parties, and it is 
something that absolutely should be investigated,' said Eric 
Hovde, chief executive of Hovde Capital Advisors, where he 
manages financial services focused on hedge funds.''
    The reason why I mention that, it seems like the banks are 
coming out of this pretty good. They are getting money, whether 
they want it or not, they get it. If they don't like the rules, 
you know what they say? ``Screw you, we will give it back.'' 
Then we have you saying we shouldn't meddle in their business, 
taxpayers are saying, ``we just want a loan.''
    Then you tell us, and I am sure this is a good thing, this 
entity that you are creating to help people get loans, auto 
loans and all of that. But the problem is this. It seems that 
we are helping the banks tremendously, but they basically, and 
they could be more of a part of a solution to the problem. But 
I kind of think maybe, whether it is intentional or 
unintentional, that we just said to them, you know, guys, we 
are going to keep on giving you the money and you do whatever 
you want.'' Because top guy says, Congress, we shouldn't be 
trying to determine who they lend to. They are the 
decisionmakers, as President Bush said, the deciders.
    And the deciders have gotten us into the jam that we are in 
today. I guess what I am trying to say is that I want to go 
back to that analogy that I gave. I believe that you all are 
doing everything in your power. I believe you lose sleep, I 
think you are giving it everything. And I think you are very, 
very competent. I think the whole team is. But I feel like you 
are going up a hill.
    But it is not becoming any easier, when the banks could 
help us up this hill by having some gravel down there so we 
could get a grip on something, we get ice. Sometimes I think 
that the folks on Wall Street operate in a whole different 
world. I don't know if they even have a clue, a clue about the 
people who are looking at this right now. I really don't. When 
they say, $1 million, it is like $25 to the folks who are 
losing their homes.
    So you have to say something to me, you have to do 
something for me to tell these banks to help out. I don't want 
us to leave this hearing with them saying, ``thanks, now we 
really have our way.'' And it is very, very painful.
    Mr. Kucinich. You may respond to Mr. Cummings, and then we 
will conclude this round.
    Mr. Kashkari. Thank you, Congressman.
    I share your frustration. Every time I open the paper and I 
read another story of some shindig somewhere, I just wonder, 
what are these guys thinking. They are not helping themselves, 
they are not helping me. They are not helping Washington or our 
leaders who are trying to get us through this. They are not 
helping the American people have confidence.
    So I think there have been many cases of enormous lapses of 
judgment in some of the actions that the banks have taken. And 
I also, sir, I don't want to leave you with the wrong 
impression. My comments about, we don't want to micromanage 
these institutions, I am talking about the hundreds, maybe 
thousands of institutions we are investing in, community banks 
all around our country, who did not create this problem. But we 
want to encourage them to participate, because they are in the 
best position to step up and increase credit. So that is where 
my comments were directed there.
    For the institutions, the one-offs that made terrible 
decisions and they need extraordinary assistance from the 
Federal Government to prevent them from being destabilized, 
then we absolutely have obligations and responsibilities to 
make sure that they run their businesses in a prudent and sound 
manner, and that they can pay back the taxpayers. Again, my two 
highest priorities are financial stability and paying back the 
taxpayers.
    Mr. Cummings. Thank you.
    Mr. Kucinich. I thank the gentleman.
    Mr. Kashkari, you have been here for four rounds of 
questioning. We are going to conclude the question of you and 
thank you for giving this committee your time here, and giving 
this country your service. We know this hasn't been easy for 
you as a witness. But I think that you have been a good witness 
in representing the point of view that Treasury has been 
conducting as policy. The difference that we have, this whole 
hearing has been about challenging the policies, about what we 
believe is Treasury's failure to monitor the ways in which 
financial institutions are using taxpayers' funds.
    And I think that as I conclude, and send you with the 
appreciation of this committee, one of the things I have seen 
here, and Mr. Souder brings it up, there is a fundamental flaw 
in Government intervention in the markets. This is why we are 
here. The Government is intervening in markets and it is 
picking winners and losers.
    So when the issue came up about micromanaging, you have to 
remember that Congress has a constitutional obligation for 
oversight. We are a co-equal branch of Government. We cannot 
defer to Treasury when there are trillions of tax dollars at 
stake. I know you understand that, which is the whole point of 
this hearing.
    The reason why we are here in the first place is that the 
banks did not perform their fiduciary responsibilities. So when 
we want to defer to the banks again, you could understand why 
we would have some problems with just letting that go 
unchallenged, and in not insisting that Treasury, as we move 
forward, has to look at their responsibilities for monitoring 
the ways in which financial institutions are using these 
taxpayer funds under the Troubled Asset Relief Program.
    So with that, I just want to say that you have appeared 
before this subcommittee on two occasions. You have conducted 
yourself in a way that I think reflects honor and service to 
the country, and I want to thank you for your presence here. 
And all the members of the committee who I have talked to about 
your presence here today, while we may take issue with your 
presentation, we think that you have certainly been an 
excellent witness for the Department of Treasury.
    So thank you, Mr. Kashkari.
    We are going to proceed, the first panel with Mr. Kashkari 
is now discharged. We are going to take a 5-minute recess, and 
it is only 5 minutes, as we get the second panel together. We 
are going to combine the second panel and the third panel 
together, without objection. But we are going to take a 5-
minute recess. We will be back in 5 minutes.
    [Recess.]
    Mr. Kucinich. The committee will come to order.
    We are fortunate to have an outstanding group of witnesses 
on our second panel. If you just joined us, we are combining 
the second and the third panels. This is the Domestic Policy 
Subcommittee of Oversight and Government Reform. The topic for 
today is ``Peeling Back the TARP: Exposing Treasury's Failure 
to Monitor the Ways Financial Institutions are Using Taxpayer 
Funds Provided Under the Troubled Assets Relief Program.''
    Our first panel has been with Mr. Neel Kashkari. And we are 
going to go to the second panel. And moving right into this, I 
want to introduce the members of the panel.
    They include Professor Anthony B. Sanders, professor of 
finance and real estate at the W.P. Carey School of Business of 
Arizona State University, where he holds the Bob Herberger 
Arizona Heritage Chair. He has previously taught at the 
University of Chicago, the Graduate School of Business, 
University of Texas at Austin Macomb School of Business, and 
the Ohio State University Fisher College of Business. In 
addition, he served as director and head of asset-backed and 
mortgage-backed securities research at Deutschebank in New York 
City.
    Mr. Stephen Horne is vice president of Master Data 
Management and Integration Services for Dow Jones Business and 
Relationship Intelligence. Mr. Horne has over 30 years 
experience in master data management, consumer relationship 
management, Web data applications and very large data base 
development. Mr. Horne specializes in large scale data 
integration and data utilization from the Dow Jones master data 
base and performs business development and strategy for these 
areas. Previously, Mr. Horne was a consultant for Generate, a 
startup relationship mapping and Web-based data collection form 
that was acquired by Dow Jones to become the Dow Jones BRI 
division.
    Mr. Mark Bolgiano is president and CEO of XBRL US, Inc., 
the leading advocate for the use of extensive business 
reporting language, which promises to increase the transparency 
of reporting and disclosure of corporate financial information. 
Mr. Bolgiano joined XBRL US as its first president and CEO in 
December 2006. Previously, he led the technology and online 
communications operation of the Council on Foundations as vice 
president and Chief Financial Officer.
    We are also joined by Mr. Neil Barofsky. Mr. Barofsky was 
confirmed by the Senate as a special inspector general for the 
TARP on December 8, 2008, and was sworn into office on December 
15, 2008. Prior to assuming the position of special inspector 
general, Mr. Barofsky was a Federal prosecutor in the U.S. 
Attorney's Office for the Southern District of New York for 
more than 8 years. In that office, Mr. Barofsky was a senior 
trial counsel who headed the mortgage fraud group which 
investigated and prosecuted all aspects of mortgage fraud, from 
retail mortgage fraud cases to investigations involving 
potential securities fraud with respect to collateralized debt 
obligations. Mr. Barofsky received the Attorney General's John 
Marshall Award for his work on the case that led to the 
conviction of the former president of Refco, Inc., and that is 
Tony Grant, and the guilty plea of Philip Bennett, Refco's 
former chief executive officer.
    Mr. Richard Hillman has served 31 years with the U.S. 
Government Accountability Office, and is currently the Managing 
Director of the GAO's Financial Markets and Community 
Investment Team. This team helps the Congress improve the 
efficiency of regulatory oversight in financial and housing 
markets, and the management of community development programs. 
Over the past decade, Mr. Hillman has produced scores of 
reports and led a wide variety of efforts assessing the 
economy, efficiency and effectiveness of Federal and State 
regulation of the financial services sector.
    It is the policy of the Committee on Oversight and 
Government Reform to swear in all witnesses before they 
testify. I want to thank all of you for being here, and I ask 
that now you would rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Thank you, you may be seated.
    Let the record reflect that each of the witnesses has 
answered in the affirmative.
    As with panel one, I ask that each witness give an oral 
summary of his or her testimony. I would especially ask that 
you keep this summary under 5 minutes in duration.
    I would like you to bear in mind that your complete written 
statement will be included in the hearing record. And we are 
going to go from my left to right, we are going to start with 
professor Sanders. You have 5 minutes, and I think we will 
cover some of the territory in the Q&A. So you may proceed.

STATEMENTS OF ANTHONY B. SANDERS, PROFESSOR, W.P. CAREY SCHOOL 
  OF BUSINESS, ARIZONA STATE UNIVERSITY; STEPHEN HORNE, VICE 
PRESIDENT, MASTER DATA MANAGEMENT AND INTEGRATION SERVICES, DOW 
JONES AND CO.; MARK BOLGIANO, PRESIDENT AND CEO, XBRL US INC.; 
NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL, TROUBLED ASSET RELIEF 
 PROGRAM; AND RICHARD J. HILLMAN, MANAGING DIRECTOR, FINANCIAL 
       MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

                STATEMENT OF ANTHONY B. SANDERS

    Mr. Sanders. Thank you, Mr. Chairman.
    Mr. Chairman and members of the committee, thank you for 
the invitation to testify before you today. I testified before 
you on November 14, 2008, on the subject of the Troubled Assets 
Relief Program [TARP]. At that time, we understood that the 
Treasury had not purchased any loans from the financial 
institutions using TARP funds. Instead, the TARP funds were 
deployed to numerous financial institutions.
    My testimony today focuses on the lack of transparency 
surrounding the use of the TARP funds as well as some related 
Treasury and Federal Reserve programs.
    Transparency is of critical importance to the stability of 
financial markets, as well as the reputation of the United 
States in the international economy. For example, research has 
found that the frequency of stock market crashes is higher in 
companies that are more opaque, or less transparent, to outside 
investors. A recent paper on asset mortgage securitization side 
has concluded that in order to attract investors, transparency 
is essential. The less transparent a market is, the more poorly 
understood it will be by investors, and the higher will be the 
yield those investors demand to compensate for the uncertainty.
    Thus, whether we are talking about loans that are 
originated and securitized by banks or how TARP funds are 
deployed to the banks, transparency is critical to returning 
trust to our financial system and comforting investors both 
United States and globally. When we consider that our own 
Federal Government borrows funds from overseas investors, 
transparency will be a vital tool in restoring confidence in 
the tarnished financial system of the United States.
    Greater transparency of the TARP can alleviate concern 
among U.S. taxpayers and the investment community that the 
funds are being used appropriately and not wasted. Without 
transparency, we are no longer the shining city on the hill. 
Rather, we are New York City during the blackout of 1977. For 
example, there should be more transparent asset valuation so 
that we understand how Treasury and the Federal Reserve are 
valuing the banks relative to the private market valuations, 
that is the stock market. If the Treasury systematically is 
over-valuing the banks, it is an indication that we are still 
in danger from toxic assets, particularly mortgages that have 
not been dealt with. Until asset valuation is more transparent 
and the market is confident that the banks have written down 
toxic assets, such as bad mortgage loans and accurately priced 
these assets, any effort to restore stability and confidence in 
our financial system will ultimately fail.
    One can argue that all assets, including TARP funds, are 
fungible, meaning that it is very difficult, if not impossible, 
to trace how TARP funds are spent. For example, if Bank A 
receives $15 billion in TARP funding, but is so large and 
complex that a paper trail cannot be followed, that presents 
serious problems. Despite our accounting and regulatory 
reporting on these institutions, the TARP funds seemingly sink 
into an abyss or black hole. Clearly, greater transparency is 
required so that the TARP funds are spent in a non-wasteful 
manner.
    Currently, financial institutions report that information 
that can be found in SEC filings, the 10Qs and 10Ks, and Call 
Reports that are produced quarterly. However, this information 
is not real time and is highly aggregated. As a consequence, it 
is difficult to follow the money from these filings. Although 
banks can report on the use of TARP funds in a timelier fashion 
with Treasury, even daily, the quality of these reports may be 
of dubious substance given the size and complexity of the 
financial institutions that have received TARP funds.
    For example, our largest financial institutions have 
hundreds of divisions and subsidiaries and perform operations 
in numerous countries. For example, Citigroup has operations in 
over 100 countries and includes such banks as Banamex. For a 
regulatory body, Congress, the executive branch or the 
financial institutions themselves to understand where the TARP 
funds have gone, there is a need for more aggressive forms of 
auditing that permit better disclosure.
    Traditional auditing of the financial institutions is a 
time consuming and labor-intensive process. The Office of the 
special inspector general for the Troubled Asset Relief Program 
produced an initial report to the U.S. Congress on February 6, 
2009 detailing the allocation of TARP funds, which is an 
admirable first step in providing transparency for the TARP 
program. But it does not address how the recipients of the TARP 
funds have actually spent the money.
    An approach that can offer real time measures of the 
expenditure of the TARP funds or any other recipient of 
Government funds is volumetrics. It is possible to obtain vast 
amounts of reported information on loans, corporate benefits, 
golf tournaments, concerts, retreats and aggregate them into a 
usable form for regulators and other market participants.
    Should the taxpayers be concerned about a particular bank 
using TARP funds for the naming of a sports stadium? Well, it 
can be argued that the naming of a sports stadium or 
professional golf tournament is part of a marketing strategy, 
but it can also be argued that the price that the bank pays for 
these naming rights is far in excess of their advertising 
value. While it may be a reasonable argument to name sports 
stadiums, these institutions must be aware of the backlash by 
taxpayers and regulators against perceived squandering of 
scarce taxpayer dollars in an economic crisis. The same 
argument applies to rock concerts, corporate events, executive 
compensation and perquisites.
    Mr. Kucinich. I would like to ask the gentleman if he could 
try to wrap up his testimony, and I know we will get back in 
Q&A.
    Mr. Sanders. Transparency for the use of funds by TARP 
recipients represents a step forward in understanding how 
taxpayer dollars are deployed, particularly in this economic 
climate. In summary, the TARP should be wrapped in Saran Wrap 
rather than a lead veil that Superman can't even penetrate. 
Taxpayers have the right to know what is being done with their 
wealth and transparency helps achieve more economically sound 
use of TARP funds and eliminate waste.
    Thank you for letting me share my thoughts with you.
    [The prepared statement of Mr. Sanders follows:]

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    Mr. Kucinich. Saran Wrap. [Laughter.]
    Mr. Bolgiano.

                   STATEMENT OF MARK BOLGIANO

    Mr. Bolgiano. Good afternoon, Mr. Chairman and members of 
the subcommittee. It is my privilege to testify today about 
XBRL, or Extensible Business Reporting Language.
    I am here as the president of a non-profit organization, 
XBRL US, that advances XBRL as an open, free, open-source 
standard. We all benefit from Internet standards, and I am not 
going to take any time to try to explain the concept. But just 
in the way that the Web standard brought us browsers and global 
access and search to a huge amount of information, or .pdf gave 
us high fidelity to the print document, or even emails made it 
possible for any of us to exchange messages, regardless of what 
software, what device or even where we are, XBRL simply makes a 
common dictionary available and a consistent structure, so that 
all financial reports can use a common format, so that it can 
be shared and exchanged at much lower cost with much lower time 
to do the processing.
    As we have heard for last few hours, it is very labor and 
time-intensive to analyze and parse financial reports.
    XBRL documents are more consistent, and they are searchable 
and they are machine readable. It can transform a 1,500-page 
10K annual report that is nothing but a long stream of text 
into a structured, indexed document that can be readily 
processed.
    But it is not the technology plumbing and wiring that is 
really the issue here. What is important about this standard 
and any standard is that the world chooses to agree on it. And 
the world has agreed on XBRL as the standard across the world 
for business reporting.
    I would like to take the next few minutes to elaborate on 
this and refer to my testimony in more detail to make the 
points that XBRL is real, it is ready and it is relevant to the 
discussion of the subcommittee today. First of all, it is real. 
Every quarter, 8,000 banks report to the FDIC using this 
format, and they have since 2005. I will again refer to the 
testimony on the efficiencies of oversight and regulation 
gained by the FDIC by using XBRL.
    A hundred companies today voluntarily file to the FCC their 
financial reports using XBRL. And over the next 2 years, SEC 
rules will phase in all publicly traded companies will submit 
their financial reports, including the industrial disclosures 
and footnotes that have numbers embedded in narrative text, 
like the pension footnote, in XBRL. All mutual funds, all 
credit rating agencies will be filing to the SEC phased in, 
these rules have just been promulgated, and they will be phased 
in over the next 2 years.
    So XBRL is real, it is in production. The dictionary that 
the SEC uses, developed by our non-profit, by bringing together 
lots of industries and professions for the common good, 
contains every concept in U.S. GAAP, Generally Accepted 
Accounting Practices. We are building on that, to include, as 
detailed in the testimony, mortgage-backed securities. This is 
ready for us and it is being applied right now in our market.
    It is also ready in terms of having a strong organizational 
underpinnings. Our non-profit brings together the accounting 
industries, the CFOs that issue, all the way to the investors 
and everyone in between, including technology companies, for 
the common good, to make sure that we get a high quality 
agreement between industry and Government to publish out these 
dictionaries.
    And finally, I am going to say it is relevant in that, 
again and again, we heard today about, we are not sure, we 
can't see, we don't know. The fact is, you can't provide 
oversight to something you can't see. And this common standard 
does offer a powerful tool for the Government and for markets 
to get true visibility and transparency into the facts, into 
the books.
    With that, I will conclude my remarks. Again, I thank you. 
I will just end with the one point that transparency is no 
longer a matter of technical capability. It is a decision that 
is waiting to be made.
    Thank you, Mr. Chairman, thank you subcommittee.
    [The prepared statement of Mr. Bolgiano follows:]

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    Mr. Kucinich. Thank you very much, Mr. Bolgiano.
    Mr. Horne, you may proceed.

                   STATEMENT OF STEPHEN HORNE

    Mr. Horne. Good afternoon, Mr. Chairman, Ranking Member 
Jordan, members of the committee.
    My name is Steve Horne, and I want to thank you for 
inviting us here to speak to you today.
    I am going to show you an example of what Professor Sanders 
and Mr. Bolgiano were just speaking of. The question is getting 
to TARP transparency. I have some slides up on the board, you 
may not be able to see them too well. Those who have the 
handouts have the slides included.
    The question you have raised is, ``where did the money 
go?'' I think that is the question everybody has been asking 
since this morning started. I am going to show you how to take 
what is complex financial information and make it simple and 
then transparent.
    I am showing on the slide here eight of the CPP 
institutions. I intentionally left off AIG, because being in 
SSFI, they have different things that we have to look at, and 
we can talk about those at another time, if you wish.
    But these companies collectively received just about $200 
billion of the total TARP outlay from tranche one. They 
collectively represent over $10 trillion in assets, they have 
greater than 14,000 subsidiaries, any of which could receive 
funds that had been fused into the institutions themselves. 
They have greater than 6,000 executives making decisions as to 
how to use these corporate assets. And in the first 100 days 
since TARP funds were approved, there have been greater than 
40,000 what we call public events, which consist of regulatory 
filings, press releases, and other kinds of public disclosure 
about these firms regarding TARP, specifically TARP.
    Now, let's look at an institution to illustrate the 
complexity. I don't expect anybody to read this eye chart. 
Rather, I am making a point of the structural complexity, in 
this case of just Bank of America. I chose Bank of America 
because they were alphabetical. So any other institution is 
going to kind of look this way.
    This is a portion, and only a portion, of BofA's 2,435 
subsidiaries and divisions. The reporting banks on the slide 
are shown in red, the investment firms are shown in blue. Any 
of these subsidiaries or divisions may be a beneficiary of the 
funds or part of the total $45 billion in total capital 
infusions that have come into this institution through TARP to 
Bank of America.
    A hundred and four of these subsidiaries and divisions file 
with up to 20 or more Government agencies. And there is no 
single holistic view of the institution that comes in through 
those agencies. Furthermore, the information sometimes comes in 
disparate and incompatible formats. My friend here, Mr. 
Bolgiano, has commented on the fact that we are very big 
subscribers to the concept of XBRL, because that is a 
computable and consistent format.
    In other cases, it is aggregated at a holding company 
level, but you lose all the detail of the transactions that are 
underneath it. Now, a lens can be put on individual 
transactions that roll the data into a single view of the 
institution. Now, in the time line that is shown on my chart 
here, instead of looking at greater than 10,000 of the Bank of 
America events, a regulator could highlight what they might 
call the seminal events, chosen by them, which show the key 
transactions of the funds that move through the institution. In 
addition, the aggregation of the non-public regulatory data, as 
proposed under Congresswoman Maloney's bill, TARP 
Accountability and Disclosure Act, would be available to the 
regulator as well.
    At the request of the committee, we have a sample of 
transactions that are in excess of $1 billion, as well as 
charitable contributions and marketing events during this first 
100 day period. The first capital infusion at the beginning of 
the chart took place in October 28th of last year, and $15 
billion were taken onto the Bank of America books as a partial 
receivable. The remaining $10 billion was paid out when the 
Merrill Lynch transaction was completed.
    Other events, including the issuance of new debt, to 
layoffs, to charitable contributions, continue to impact the 
balance sheet that is highlighted in this time line. So let's 
drill into one of these events. Just last week, the Bank of 
America filed their 10K SEC annual report for 2008. Now, here 
on the right side of the chart, what you are going to see is a 
statement about their new Q4 lending activity. Other 
institutions have made similar types of statements.
    To use an analogy, think of your own checking account. You 
know your balance, you just can't look at the deposits, you 
have to look at the withdrawals, too. So to add transparency, 
one must look at the offsetting activities shown in the 
summary, including write-downs, foreclosures, toxic asset 
reductions, etc., to get to the balance as you would in your 
own checking account. You might question the lending activities 
occurring between the banking institutions and federally 
sanctioned lending institutions, such as Freddie Mac, Fannie 
Mae, FHA, etc. None of this is contained within the filings 
themselves.
    Now, compare the single institution to looking at three 
separate, an aggregated view of three separate institutions, in 
this case Bank of America, Citigroup and J.P. Morgan Chase. 
These banks were recipients of more than $75 billion during the 
Q4 period of 2008 of TARP funds that reported increased lending 
activity. Similar offsets took place with these institutions as 
well.
    What we see here is $75 billion in capital infusions and 
less than $100 million in increased net credit facilities to 
the American people. That is what is on the balance sheet. What 
is off the balance sheet is another thing entirely, but that 
means it is not transparent. How do we reconcile the overall 
lending activity from the institutions that are reporting to 
the Federal Government? Public data, plus the addition of the 
data included in Congresswoman Maloney's bill, will enable the 
ultimate provider of information to go from a complex 
collection of separate transactions across thousands of 
organizations to greater transparencies of funds distributed 
through the Government to private institutions.
    I want to thank you, Mr. Chairman, Ranking Member Jordan, 
members of the committee, for your time and attention.
    [The prepared statement of Mr. Horne follows:]

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    Mr. Kucinich. You have given us a lot to think about here. 
I am sure there will be a lot of questions.
    Mr. Barofsky, special inspector general.

                   STATEMENT OF NEIL BAROFSKY

    Mr. Barofsky. Thank you, Mr. Chairman.
    Chairman Kucinich, Ranking Member Jordan, members of the 
subcommittee, I am honored to appear before you today as the 
special inspector general for the Troubled Assets Relief 
Program [SIGTARP].
    $300 billion has already gone out the door, and including 
the recently announced programs, Treasury intends to combine 
TARP funds with the Federal Reserve and others to more than 
quadruple the original $700 billion allotment to fund at least 
eight separate programs involving approximately $2.9 trillion.
    These huge investments of taxpayer money will invariably 
create opportunities for waste, fraud and abuse, and will 
require strict oversight. To meet this oversight challenge, I 
focused SIGTARP on three areas since our inception: 
enforcement, transparency and oversight.
    First, enforcement. Of the four primary bodies set forth in 
the Stabilization Act, we alone are responsible for 
investigating those who seek to criminally profit from the 
TARP. To meet this challenge, we have developed key 
relationships with other law enforcement and prosecutorial 
agencies from coast to coast, and have already shut down one 
securities fraud in Tennessee and have several other criminal 
investigations pending.
    Today I am also pleased to announce our newly formed TALF 
task force. The TALF has been announced as a trillion dollar 
Federal Reserve Bank of New York program that will be seeded 
with up to $100 billion in TARP money. It is intended to secure 
liquidity to the securitization market by lending Government 
money to investors, including hedge funds, to buy newly issued 
asset-backed securities.
    We have been vocal in our warnings about the susceptibility 
of this program to fraud. And today we convert those warnings 
into action by putting together a team of Federal law 
enforcement and regulatory investigators to address potential 
fraud in the TALF. Members of this task force will include the 
SEC, the FBI, the Postal Inspection Services [ICE], Treasury's 
Financial Crimes Enforcement Network, the Federal Reserve's 
Inspector General and the IRS. We will operate out of New York 
and Washington and provide training to both Federal and local 
law enforcement and prosecutorial agencies and provide a 
conduit, so we can ensure quick response to any tip or lead, 
whether generated from our hot line, 877-SIG-2009, the Federal 
Reserve or elsewhere.
    Together, the members of our task force will combine our 
shared experience in securities fraud investigations and 
combine our resources to identify and cutoff potential fraud 
schemes before they can fully develop, deter would-be criminals 
and bring to justice those who seek to commit fraud through the 
TALF. For any would-be fraudster, our message is clear: If you 
try and steal from this program, we will find you, we will 
investigate you, and we will put you in jail.
    My office has also focused on transparency since my first 
day in the office. And our audits are going to bring 
transparency both to those running the TARP program and the 
TARP recipients. We are conducting a survey on TARP recipients' 
use of funds, and on both the recipients' plans for complying 
with executive compensation conditions, as well as Treasury's 
plans on overseeing compliance.
    We are also conducting audits on the impact of outside 
influences, such as lobbyists, on the TARP application process, 
and a case study on the circumstances under which Bank of 
America received approval for $45 billion in cash, $100 billion 
in asset guarantee in four different transactions through three 
separate TARP programs.
    As for oversight, we have and will continue to coordinate 
our oversight activities with my co-panelist, Rick Hillman, and 
his colleagues at GAO, as well as the other inspectors general 
whose responsibilities touched on the TARP. We have also tried 
to have a positive impact on the TARP programs before the money 
goes out the door. Treasury has adopted several of our 
recommendations and we will continue to make recommendations to 
Treasury to address potential fraud as the new programs are 
rolled out.
    The TARP program has changed significantly since the 
Stabilization Act was passed last October. Originally intended 
to purchase and manage $700 billion of toxic assets, that 
effort now stands as just a portion of only one of the eight 
intended TARP programs, and less than 25 percent of the total 
$2.9 trillion involved. We must change with it, and I ask that 
you support S. 383, the Special Inspector General Act of 2009, 
which unanimously passed the Senate early last month, and would 
give my office important hiring flexibility to react as the 
TARP programs grow and evolve. Quick passage of this important 
and essential legislation will help me continue to build the 
necessary core of my office to meet this challenge.
    Chairman Kucinich, Ranking Member Jordan, members of the 
subcommittee, I commend you for your efforts to ensure proper 
oversight of the trillions of dollars of American taxpayer 
funds, and I would be happy to answer any questions that you 
may have.
    [The prepared statement of Mr. Barofsky follows:]

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    Mr. Kucinich. Thank you, Mr. Barofsky.
    Mr. Hillman is the person who is the Managing Director of 
Financial Markets and Community Investment for the U.S. 
Government Accountability Office.
    Thank you for being here, you may proceed.

                  STATEMENT OF RICHARD HILLMAN

    Mr. Hillman. Thank you, Mr. Chairman. I am pleased to be 
here today to discuss our work on the Troubled Assets Relief 
Program. My statement today is primarily based on our second 
60-day report required under EESA that was issued on January 
30, 2009. Specifically, my statement focuses on the nature and 
purpose of activities that have been initiated under TARP, and 
Treasury's efforts to establish a management structure for 
TARP.
    Regarding our first objective, Treasury has announced a 
number of new programs to try to stabilize financial markets. 
But most of its activities during our reporting period have 
continued to fall under its capital purchase program. As of 
March 5, 2009, Treasury had disbursed approximately $300 
billion in TARP funds, about $200 billion of which was for the 
capital purchase program.
    Our previous report emphasized the lack of monitoring and 
reporting for program investments and recommended stronger 
measures to ensure that participating institutions used the 
fund to meet the program's purpose and comply with program 
requirements on, for example, executive compensation and 
dividend payments. In response to our recommendation, Treasury 
developed plans to survey the largest 20 institutions monthly 
to monitor lending and other activity, and analyze quarterly 
call report data for all institutions.
    While the monthly survey is a step toward greater 
transparency and accountability for the largest institutions, 
we continue to believe that additional action is needed to 
better ensure that all participating institutions are 
accountable for their use of program funds. Our latest report 
recommended that Treasury expand the scope of its monthly 
surveys to include collecting at least some information from 
all institutions participating in the program.
    Further, our most recent report found that Treasury has 
made limited progress in articulating and communicating an 
overall strategy for TARP. This lack of a clearly articulated 
vision has complicated Treasury's ability to effectively 
communicate with Congress, the financial markets and the public 
on the benefits of TARP, and has limited its ability to 
identify personnel needs. While Treasury has continued to 
publicly report on individual issues, testify and make speeches 
about the program, it continues to struggle to convey clearly 
articulated and overarching methods about its efforts 
potentially hampering TARP's effectiveness and underscoring 
ongoing questions about its communication strategy.
    Without a clearly articulated strategic vision, Treasury's 
effectiveness in helping to stabilize markets may be hampered. 
Our most recent report recommended that Treasury clearly 
articulate its vision for TARP and to document needed skills 
and competencies to achieve that vision.
    Regarding our second objective on TARP's efforts to 
establish a management structure for TARP, our first report 
included several recommendations for Treasury to improve 
hiring, contract oversight and its system of internal controls. 
Treasury has taken important steps to address our 
recommendations, but in its latest report, we found that it 
still faces several challenges.
    First, it took proactive steps to ensure a smooth 
transition to the new administration by keeping positions 
filled and using an expedited hiring process, including direct 
hire authority. Moreover, after losing some potential 
candidates because of conflicts of interest, Treasury is now 
asking candidates to address potential conflicts earlier in the 
recruitment process to avoid unnecessary delays and finalizing 
employment offers. However, it continues to face difficulty 
providing competitive salaries to attract skilled employees.
    Second, consistent with our earlier report about 
contracting oversight, Treasury has enhanced such oversight by 
tracking costs, schedule and performance, and addressing its 
training requirements of personnel who oversee the contracts. 
However, as we previously recommended, Treasury needs to 
continue to identify and mitigate conflicts of interest in 
contracting.
    Similarly, in an earlier recommendation, our latest report 
found that a framework for adopting and organizing the 
development and implementation of a system for internal 
controls for TARP activities is progressing. The program plans 
to use this framework to develop specific standards, policies, 
drive communications on expectations and measure effectiveness 
of internal controls and the related policies and procedures. 
However, to date, much work continues to be needed to be 
accomplished in this area, including implementing a disciplined 
risk assessment process. Our latest report called for the 
development of a comprehensive system of internal controls over 
TARP activities, including detailed policies and procedures and 
guidance that are robust enough to ensure that the program's 
objectives and requirements are being met.
    In summary, Treasury is taking important steps to implement 
our previous recommendations, but we continue to identify a 
number of areas that warrant ongoing action by Treasury to 
improve the accountability and integrity of the program.
    Mr. Chairman and members of the subcommittee, I appreciate 
the opportunity to discuss these critically important issues 
and I would be happy to address any questions you may have.
    [The prepared statement of Mr. Hillman follows:]

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    Mr. Kucinich. Thank you very much, Mr. Hillman. I would 
like to go to questions now and begin with Mr. Horne.
    In your testimony, you made the pretty shocking statement 
that the new lending several of the largest TARP recipients 
have claimed they are doing has been grossly overstated. I am 
going to ask staff to help us with some of these Bank of 
America slides. How could their representations be so far at 
odds with your own?
    Mr. Horne. Mr. Chairman, I don't believe that the 
representations per se are at odds. What they are is one side 
of the story.
    Mr. Kucinich. Well, you are just looking at new credit, but 
not offset by credit contracted.
    Mr. Horne. If you are going to publish a story that says 
that you are giving $115 billion or whatever, $150 billion in 
the case of another institution, etc., it talks about new 
lending activities. A balance sheet would actually say to you 
that you should also show the opposite side of those 
transactions. That has not been what we have observed. And 
again----
    Mr. Kucinich. So we don't really have a clear view as to 
the net effect.
    Mr. Horne. Transparency would dictate that you would want 
both sides of it.
    Mr. Kucinich. So you could have a condition where a lot of 
money is going out the door, but the credit contracts and you 
have a new loss?
    Mr. Horne. Well, again, as I said, we are trying to 
represent information from a transparency standpoint.
    Mr. Kucinich. I know. Right. I get it.
    Mr. Horne. So our issue is, from a transparency 
perspective, if you want to be transparent, and we have been 
doing so for 100 years for the commercial marketplace, you have 
to show both sides of the picture. And it is impossible for you 
to say that you are giving out lending without having an 
offsetting amount that shows that you are retracting.
    Mr. Kucinich. Thank you, Mr. Horne.
    I want to ask Mr. Sanders, from the standpoint of impact on 
the economy, which is a more accurate description of bank 
lending activities, the method of representation employed by 
several TARP recipients, or the method that Mr. Horne has 
presented?
    Mr. Sanders. Well, I think that method Mr. Horne is 
presenting gives us a much better picture of how it is really 
impacting our economy and how it is impacting borrowers. 
Because again, the way the bank balance sheets are structured 
and the call reports, we just can't get a good picture.
    What Mr. Horne is talking about is much more in real time 
and is much more translucent, we can actually see what is going 
on.
    Mr. Kucinich. So let's go back to Mr. Horne. If the banks 
you have identified are creating so little new credit now that 
they have billions in TARP funds, what are they using TARP 
funds for?
    Mr. Horne. Well, again, most of the activities that we are 
seeing from a transparency perspective are reflected in the 
balance sheet. So if you looked along the time line of some of 
the examples of events, you can see some of the examples of 
events. The first transaction that took place in the Bank of 
America event was a $16.8 billion debt buy-down on Countrywide 
being infused into Bank of America. Now, at that point in time 
they had only received $15 billion, so they used some of their 
internal funds.
    They also, many of the institutions need money to make 
money. In other words, you can't go out and lend secured notes 
or create senior debt without having balances or relatively 
large sums in reserves. So they want to keep this money on 
their books, in some cases, in order to be able to try to get 
other institutions to invest in them.
    Mr. Kucinich. Well, can I get a true picture at Treasury of 
bank lending by relying on the monthly intermediation snapshot?
    Mr. Horne. No, you cannot. You need to have every 
individual event that occurs transactionally over time brought 
together into a single format and structure to answer that 
question.
    Mr. Kucinich. So all the necessary information is available 
to regulators to create transparency of how TARP funds are 
being used?
    Mr. Horne. All the necessary information is available in 25 
or some odd places.
    Mr. Kucinich. Mr. Bolgiano, Treasury can track how banks 
are using these funds?
    Mr. Bolgiano. Yes.
    Mr. Kucinich. And the technical capability is there, is 
that right?
    Mr. Bolgiano. Yes, that is correct.
    Mr. Kucinich. So it comes at a question of whether there is 
a will to do it?
    Mr. Bolgiano. That is right.
    Mr. Kucinich. Some have argued that since TARP funds are 
fungible, is it not possible to track the use of TARP funds? 
Mr. Horne?
    Mr. Horne. It is absolutely possible. Professor Sanders 
mentioned volumetrics. Volumetrics is, if you think of two 
glasses of water, and if you were pour the water, they were 
both half full and you pour the water out of one glass, and as 
long as you don't spill any into another glass, you should have 
the same volume of water. If you look at individual events, and 
remember, there is a Pareto principle, I don't know how many of 
you are familiar with the 80-20 Pareto law, well, in these 
cases of institutions that we are talking about here, it is 
more like 95-5, where 5 percent of the transactions make up 95 
percent of the actual movement of funds.
    So there is not, as a proportion of number of transactions, 
a large number volumetrically of funds that have to be looked 
at, nor to understand the ebbs and flows of the funds moving 
throughout the business. It is complex in terms of the 
interconnections. That is why it is so important to have a 
format such as XBRL, which would leave the ability to take two 
different systems together that are speaking totally different 
languages and bring them together as one.
    Mr. Kucinich. Thank you, Mr. Horne. My time is concluded 
this round. Mr. Jordan, you may proceed for 5 minutes.
    Mr. Jordan. Thank you, Mr. Chairman.
    Is it fair to say then, I am trying to gather this 
together, that it is almost too much information in too many 
different forms is actually leading to a lack of transparency? 
Is that the problem? And we will go with Mr. Horne again.
    Mr. Horne. Yes, Ranking Member Jordan. In some cases that 
is true. But I feel that it is mostly the lack of the ability 
for individual members of various committees of the regulatory 
agencies, etc., to read paper documents. We live in Washington, 
in a document-based world. We don't live in a data world.
    Mr. Jordan. Has there been a reluctance on the part of 
various financial institutions and/or the Treasury to embrace 
Mr. Bolgiano's XBRL that he talked about, or the process that 
is going to allow us to sort of synthesize this and get it in a 
readable format? Has there been a reluctance out there to go 
that direction?
    Mr. Horne. I would defer that to Mr. Bolgiano.
    Mr. Jordan. All right.
    Mr. Bolgiano. In our markets today----
    Mr. Jordan. And if there has been a reluctance, why is that 
the case?
    Mr. Bolgiano. I think there is certainly a reluctance, 
first of all, to change in general. But also, information is a 
very valuable commodity. And the absence of a standard and the 
absence of transparency makes the publishing of that 
information a very profitable enterprise. This is a commodity 
that flows through our economy just like any other.
    So the absence of transparency does protect certain 
businesses.
    Mr. Jordan. I want to go to the inspector general. Mr. 
Barofsky, your thoughts on the same question.
    Mr. Barofsky. We have taken a different approach to this. 
We made a recommendation to Treasury that they require banks to 
establish internal controls to account for the use of funds and 
report on the use of funds. We recommended that they do that on 
a forward-going basis.
    They haven't, so we have initiated our own use of funds 
survey. And we have pulled all of the banks and----
    Mr. Jordan. Wait. Go back. You made a recommendation to 
Treasury to increase transparency and they didn't?
    Mr. Barofsky. Yes. It is included in our February 6th 
report. We made a recommendation that for every agreement going 
forward, it is taking a step back, we initially made the 
recommendation back in late December. And they did adopt it 
with respect to Bank of America and Citigroup, in those 
extraordinary transactions, they did require those banks to 
establish internal controls at our recommendation and report 
quarterly on how they are using the funds.
    They have not adopted that recommendation with respect to 
any other financial institutions.
    Mr. Jordan. And give me your guess as to why.
    Mr. Barofsky. I don't want to hazard a guess. I think that 
Mr. Kashkari has articulated some things this morning that are 
probably consistent with that explanation. I don't want to 
speak for him, but concern about putting certain conditions on 
a----
    Mr. Jordan. Well, obviously that is an important question, 
particularly when in your written testimony you talk about the 
potential exposure of hundreds of billions of dollars of 
taxpayer money potentially being lost to fraud and that is in 
your written testimony, so that is an important question.
    Mr. Barofsky. It is absolutely an important question.
    Mr. Jordan. Talk about your thoughts on the XBRL, that 
concept as well.
    Mr. Barofsky. From our perspective, we are taking a look 
and we are doing a survey of all the financial institutions' 
use of funds. We are going to get their narratives, they are 
coming in, I think we have about 90 percent responded. I think 
XBRL would help us turn around and then test some of these 
responses. But we are taking a different approach really on 
starting with the financial institutions' own reporting on how 
they are using the funds.
    Now, our reports also require a certification, subject to 
criminal penalty, that if they lie to us, they would be 
committing a crime and we would investigate that. So we are 
hoping that provides a sufficient hammer to make sure we get 
accurate responses.
    Mr. Jordan. That is usually a pretty good incentive.
    Last question. XBRL, can this help us, and my guess is it 
can, get to the questions I posed earlier to Mr. Kashkari that, 
we still haven't got at the focus of this entire TARP program 
initially, the mortgage-backed securities? Can it help us in 
that regard as well?
    Mr. Bolgiano. Yes. Mr. Jordan, we have been working on the 
mortgage-backed securities dictionary for the last 6 months 
with this question in mind. It is not a substitute for policy, 
obviously, and it is not a substitute for access to the 
information or the Government authority to request that 
information. But it does give a consistent vehicle for that 
information to be delivered and for the Government to use it 
effectively.
    Mr. Jordan. I thank the chairman.
    Mr. Kucinich. I thank the gentleman.
    Mr. Cummings, 5 minutes.
    Mr. Cummings. Mr. Barofsky, you mentioned, I think you were 
talking about the task force. And then you just talked a moment 
ago about if folks lie to you. How do you deal with that, and 
what is the offense?
    Mr. Barofsky. Any official, senior executive officer, any 
person who lies to us, we are a Government entity, or a part of 
the executive branch, that is a crime under 18 U.S.C. 1001. It 
is the statute that Martha Stewart, for example, was prosecuted 
under, just to give an easy example. And we require each and 
every one of the recipients of our survey to sign a 
certification with a senior executive officer stating that the 
information that is contained in this report is true. And if 
they lie, that is a Federal crime.
    Mr. Cummings. When we try to get information from some of 
these folks, they seem to duck and dodge. We don't always get 
the whole truth and nothing but the truth. I am just wondering, 
do you feel that you are getting the kind of information that 
you need?
    Mr. Barofsky. My audit chief, who has begun the review of 
these surveys, we are holding off doing our full review until 
they are all in, which should be this week, has told me that 
his initial review, that they have been very good responses. We 
have gotten a lot of detailed responses about use of funds, 
according to him. He is encouraged that we are going to be able 
to do a very complete audit report. We will have to take a look 
at that.
    Then obviously there is going to be followup. We are not 
just going to take the banks at their word. We are going to be 
doing followup as part of the audit process.
    Mr. Cummings. Now, are you staffed up sufficiently?
    Mr. Barofsky. No. We are growing. We have been in existence 
a little bit under 3 months now. We have about 25 people on 
staff. We are aggressively hiring.
    It has been very difficult. S. 383, which is now in the 
House, will help us grow. It gives us some hiring flexibility 
that we desperately need. We are striving to build to about 100 
to 125 initially. So hiring is a challenge.
    But I also don't want to leave the impression that it is 
only me and my staff of 25 standing between the taxpayers' $2.9 
trillion and those who would try to take advantage of it. We 
are working with all of Federal law enforcement, as well as 
some State law enforcement, to make sure that we have the right 
protections in place.
    Mr. Cummings. I see we have a vote coming, but I have one 
question I have to get out. In your written testimony you 
indicate that you have ``begun an audit into the process under 
which the Bank of America received $45 billion in capital 
investment and it is to receive a guarantee relating to 
approximately $100 billion of toxic assets in four separate 
TARP transactions under three different TARP programs.'' You 
further state, and this is what I am getting to, as to 
coordinated oversight, it has been and will continue.
    Now, considering what you wrote in your testimony, I am 
interested to know whether Treasury knew about the $3.6 billion 
in bonuses awarded by Merrill Lynch in December, just before it 
was taken over by Bank of America. Did you know about that?
    Mr. Barofsky. Congressman, I really can't talk about any 
matters that are pending under review in our investigations.
    Mr. Cummings. I understand.
    Mr. Barofsky. It has been stated that we do have a pending 
investigation into the Merrill Lynch BofA bonus situation.
    Mr. Cummings. I understand. Let me ask you another way. And 
this may fall in the same category. Is this the kind of 
information, though, that would normally come through your 
office?
    Mr. Barofsky. Yes, Congressman, we would ask those types of 
questions and we would expect to receive those types of 
answers.
    Mr. Cummings. And you would expect to get truthful answers, 
is that right?
    Mr. Barofsky. It would also be a crime to lie to our 
office, if we asked that question, if somebody gave an 
untruthful answer, that would also be a crime. So yes, we would 
expect truthful answers.
    Mr. Cummings. Very well. I know we have a vote coming up, 
so thank you, Mr. Chairman. I yield back.
    Mr. Kucinich. We will go to Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    I am going to try and focus a little bit of attention again 
on XBRL. I apologize, I have been going through here and the 
Circuit City bankruptcy hearing next door. And actually, they 
have a lot in common, since it cost Circuit City $30 million to 
get a $50 million financing package. Needless to say, their 
Chapter 11 was short.
    But without getting into whether TARP funds should be used 
for DIP financing or to encourage the Debtor In Possession 
financing to stop corporations from going bankrupt completely, 
Mr. Horne, Mr. Bolgiano, let me go toward you again. I think I 
heard Mr. Jordan kind of get on this, but I want to be 
absolutely sure.
    If XBRL were to be implemented going forward, well, let's 
go the other way. If in fact we were to use XBRL to try to 
drill down into where the TARP money has gone today, would you 
be able to do that?
    Mr. Bolgiano. Yes, sir, with the proper authority from the 
Government, we would be able to provide the tool to be wielded 
by the Government for oversight.
    Mr. Issa. So you could provide the tool. They would need to 
make sure they had access to the data bases?
    Mr. Bolgiano. We would be able to provide the standard to 
be wielded as a tool, a dictionary. But it is not a system. It 
is not software. It's a standard.
    Mr. Issa. Should we realize that you allow other people to 
develop independently software that use your technology?
    Mr. Bolgiano. It is similar, if you had asked me in 1993, 
would it make it easier to get information from people if we 
had the Web, I would have immediately answered you yes. It 
would be a quantum leap in the efficiency, time and expense to 
gather information.
    Mr. Issa. So I guess, Mr. Horne, would you have the 
equivalent of Google, now that we have established that it is 
like getting the Web, would you have the ability to drill down?
    Mr. Horne. I would love to be using that analogy. I think 
the key is that we would actually create something that would 
be, to a greater extent, even more actionable relative to this 
subject matter. Because we would be dealing with the numbers of 
events that are specifically related to the financial instances 
that would be involved.
    So the answer to that, Mr. Congressman, is yes, we would be 
in that type of position.
    Mr. Issa. And then I think I will shift, obviously if we 
implemented this technology going forward, it wouldn't just be 
the two of you we would be asking, but in fact, all our 
regulators would then have the tools to do this themselves?
    Mr. Horne. That is correct. And it would also be on the 
basis of the fact that we are asking through Congresswoman 
Maloney and Congressman King and also in the Senate to pass a 
bill that would allow access to the regulated data, so it 
wouldn't just be the data that is publicly available but also 
the data that would be available only to those people who would 
have access for regulatory purposes.
    Mr. Issa. Mr. Barofsky, when we had Secretary Kashkari here 
a few minutes ago, he answered in very, very many ways that of 
course, he would love to have the ability to have more 
transparency, to know the value of these assets in order to 
value them and so on. But today, are we in fact, I am going to 
lead a little bit here, are we in fact asking for repeatedly, 
and are you asking for, repeatedly, production of documents 
almost in the way that attorneys do in a court case, where you 
have to know what you want, you ask for it, they turn it over 
to you, often you have to sift through it and say, but it is 
not in a format I can use, can you re-manipulate it and send it 
back to us? Is pretty much what is going on in the delivery of 
answers to your questions by the various TARP recipients?
    Mr. Horne. No, Congressman. From what my audit chief tells 
me, we have gotten good narrative answers that we think are 
going to be very useful.
    Mr. Issa. I was talking about production of data, not 
narrative answers. In fairness, Bank of America said they were 
solvent, so solvent that they could turn around and buy Merrill 
Lynch. Today we know that is not true, that in fact we would 
have been much better off having Merrill Lynch live or die on 
its own, BofA live or die on its own, and not have two 
organizations perhaps too big to fail be now two organizations 
made into one too, too, too big to fail.
    So back to the question. You are receiving answers to your 
requests, narrative answers. Mr. Kashkari, of course, if he 
asks for it, is receiving them. But the real question, the 
question that Mr. Horne was asked and answered was, do you or 
does anyone in the Federal Government have the ability to 
basically ask the question, if they have the access, and get 
the answers from raw data, diverse raw data, or do we in fact 
depend on often self-serving individuals at various large banks 
who do not want to fail to give us answers that cause us to 
give them money, only to later get answers that they need more 
money?
    Mr. Kucinich. The gentleman's time is expired, but please 
answer the question.
    Mr. Barofsky. We have not asked for that type of raw data, 
in part because it would be simply way too expensive for us to 
analyze it.
    Mr. Issa. So if I can conclude, so you don't ask for the 
information because you couldn't analyze it, people are here 
today talking about the tools to analyze it both prospectively 
and retrospectively. And we are being told, no, we are going to 
rely on companies to deliver us information that have proven to 
be unreliable.
    Mr. Kucinich. The gentleman makes a point, if I may, and 
that is, Mr. Barofsky, how do you know if people are telling 
the truth if you don't have a comprehensive data base against 
which to analyze the bank's reports?
    Mr. Barofsky. What we are doing in our survey and how we 
are going to test these answers is, there are several things 
that we have built into the survey. And it is a survey, to be 
very clear. We are initially, as the initial part of this 
audit, and as a part one, relying on the banks' responses. But 
not in a vacuum. For example, we have asked them to make 
reference to their budgets and plans. Our experience is that 
when a bank gets a huge influx of cash, they don't just say, 
``have a party.'' They budget, they plan for it.
    These TARP programs are expensive for some of these banks.
    Mr. Issa. Well, actually AIG did have a party, if I 
remember right.
    Mr. Kucinich. They did.
    Mr. Barofsky. They may have, but many of these financial 
institutions, they have plans, they have budgets, we make 
reference to internal emails, internal planning, and we are 
going to test it against that. And again, if they do lie, if 
they do tell us a story and it doesn't match up with their 
internal documents, with their public statements, with data 
that we can later obtain, they will have committed a crime and 
we are going to investigate that thoroughly.
    Mr. Kucinich. And if I may say, that this investigative 
party will continue.
    We have dozens, literally dozens of questions to ask the 
witnesses. But we are out of time. We are going to submit 
written questions as a followup, to the witnesses, I will ask 
Mr. Issa and Mr. Jordan to join me in this, that will help to 
fulfill the purpose of this particular meeting.
    We have had a very patient panel here in front of us, 
because this hearing has gone on over 5 hours. The title of the 
hearing, ``Peeling Back the TARP: Exposing Treasury's Failure 
to Monitor the Ways Financial Institutions Are Using Taxpayer 
Funds Provided Under the Troubled Assets Relief Program.'' We 
know that we could be looking at as much as $3 trillion in 
funds that are coming from our Government, from the taxpayers, 
to these various Wall Street interests. It is a mind-boggling 
amount of money. And we also know that if Treasury does not 
have the capability to keep track of those funds, we are 
looking at nightmare.
    And we are looking at a severe challenge to trust in the 
political system. We can worry about banks collapsing, but we 
also better worry about the trust that the American people 
should have in their Government collapsing. Because that is the 
basis for our entire Nation. It is all held together by trust.
    So I want to thank each of the witnesses for what they have 
done to try to take a path toward trust and toward 
accountability and toward reliability of the information which 
Congress is given.
    I want to thank you on behalf of this committee and on 
behalf of the American people. This committee meeting stands 
adjourned, but we will be back at this subject. I want everyone 
here who is paying attention to this to know this subcommittee 
will not relent in our efforts to make sure that the people of 
the United States know how their tax dollars are being spent.
    [Whereupon, at 3:08 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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