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







 FOLLOWING THE MONEY: REPORT OF THE SPECIAL INSPECTOR GENERAL FOR THE 
                TROUBLED ASSET RELIEF PROGRAM [SIGTARP]

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 21, 2009

                               __________

                           Serial No. 111-88

                               __________

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
                      http://www.house.gov/reform










 FOLLOWING THE MONEY: REPORT OF THE SPECIAL INSPECTOR GENERAL FOR THE 
                TROUBLED ASSET RELIEF PROGRAM [SIGTARP]

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 21, 2009

                               __________

                           Serial No. 111-88

                               __________

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
                      http://www.house.gov/reform




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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              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      LYNN A. WESTMORELAND, Georgia
JIM COOPER, Tennessee                PATRICK T. McHENRY, North Carolina
GERALD E. CONNOLLY, Virginia         BRIAN P. BILBRAY, California
MIKE QUIGLEY, Illinois               JIM JORDAN, Ohio
MARCY KAPTUR, Ohio                   JEFF FLAKE, Arizona
ELEANOR HOLMES NORTON, District of   JEFF FORTENBERRY, Nebraska
    Columbia                         JASON CHAFFETZ, Utah
PATRICK J. KENNEDY, Rhode Island     AARON SCHOCK, Illinois
DANNY K. DAVIS, Illinois             ------ ------
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
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










                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 21, 2009....................................     1
Statement of:
    Barofsky, Neil, Special Inspector General for the Troubled 
      Asset Relief Program.......................................    14
Letters, statements, etc., submitted for the record by:
    Barofsky, Neil, Special Inspector General for the Troubled 
      Asset Relief Program, prepared statement of................    17
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............    70
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................    10
    Towns, Chairman Edolphus, a Representative in Congress from 
      the State of New York, prepared statement of...............     4
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................    73

 
 FOLLOWING THE MONEY: REPORT OF THE SPECIAL INSPECTOR GENERAL FOR THE 
                TROUBLED ASSET RELIEF PROGRAM [SIGTARP]

                              ----------                              


                         TUESDAY, JULY 21, 2009

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Edolphus Towns 
(chairman of the committee) presiding.
    Present: Representatives Towns, Cummings, Kucinich, 
Tierney, Clay, Watson, Lynch, Connolly, Quigley, Kaptur, Van 
Hollen, Cuellar, Speier, Driehaus, Issa, Burton, Mica, Duncan, 
McHenry, Bilbray, Jordan, Flake, Fortenberry, Chaffetz, and 
Schock.
    Staff present: John Arlington, chief counsel, 
investigations; Beverly Britton Fraser, counsel; Kwane Drabo 
and Katherine Graham, investigators; Jean Gosa, clerk; Adam 
Hodge, deputy press secretary; Carla Hultberg, chief clerk; 
Phyllis Love and Christopher Sanders, professional staff 
members; Mike McCarthy, deputy staff director; Jesse McCollum, 
senior advisor; Leah Perry, senior counsel; Jason Powell, 
counsel and special policy advisor; Ophelia Rivas, assistant 
clerk; Jenny Rosenberg, director of communications; Joanne 
Royce, senior investigative counsel; Ron Stroman, staff 
director; Lawrence Brady, minority staff director; John 
Cuaderes, minority deputy staff director; Jennifer Safavian, 
minority chief counsel for oversight and investigations; 
Frederick Hill, minority director of communications; Dan 
Blankenburg, minority director of outreach and senior advisor; 
Adam Fromm, minority chief clerk and Member liaison; Kurt 
Bardella, minority press secretary; Christopher Hixon, minority 
senior counsel; and Brien Beattie and Mark Marin, minority 
professional staff members.
    Chairman Towns. We will come to order. Good morning and 
thank you for being here.
    The Troubled Asset Relief Program [TARP], has evolved into 
a program of unprecedented scope, scale and complexity. TARP 
funds are being used in connection with 12 separate programs 
under which the Treasury has already committed $643 billion and 
spent $441 billion.
    Today we will hear from the Special Inspector General for 
TARP, Neil Barofsky, as he presents his quarterly report to 
Congress. His findings, quite frankly, are astonishing.
    According to the IG, ``TARP has become a program in which 
taxpayers are No. 1, not being told what TARP recipients are 
doing with their money; No. 2, have not been told what their 
investments are worth; and No. 3, will not be told the full 
details of how their money is being invested.''
    He found that even though Treasury receives monthly reports 
on the value of TARP investments, it will not make that 
information public. Incredibly, the Treasury Department has 
taken the position that it will not even ask TARP recipients 
what they are doing with the taxpayers' money. In short, 
taxpayers now have a $700 billion spending program that is 
being run under the philosophy of don't ask, don't tell.
    However, this committee has been asking a lot of questions 
about last fall's financial meltdown and its consequences. The 
key question is this: Are these programs being run for the 
benefit of the American taxpayers who are funding them or for 
the benefit of Wall Street? That is the question. Without more 
transparency in these programs, we cannot answer that question 
for sure. But what we have learned from the IG is not 
encouraging.
    Treasury has hired nine private firms to be asset managers 
for the Public-Private Investment Program. All of these large 
firms are engaged in extensive private investment activities. 
According to the Special IG, this arrangement is vulnerable to 
conflicts of interest, collusion, and money laundering. Yet 
Treasury is allowing these firms to share information between 
employees who make investment decisions on behalf of the 
Government and those who manage private funds. This arrangement 
is further indication that Federal financial regulation is a 
bit too cozy with Wall Street.
    Meanwhile, lending to American businesses and consumers 
remains weak. Some firms claim to have used TARP funds to 
increase lending but others have used it to acquire other 
businesses or shore up their own balance sheets and then award 
bonuses to employees. There is no evidence that Treasury has 
made any attempt to determine whether TARP funding has resulted 
in increased lending and whether that has had any effect on 
reducing unemployment.
    I also want to voice my deep concern over recent news that 
Treasury has requested a legal opinion from the Department of 
Justice challenging the Special Inspector General's 
independence. Congress would not have established a Special 
Inspector General to oversee the TARP if all we wanted was a 
yes man or yes woman that Treasury could ignore. It is critical 
that oversight, investigations, and audits of TARP remain 
unencumbered. Congress may have given Treasury some leeway when 
it comes to the TARP but we didn't give them a blank check.
    The problem is that we can't even say whether the TARP 
programs are working or not because the information that would 
allow Congress and the taxpayers to analyze whether they are 
getting a good return on their investments has not been made 
available.
    I hope today's hearing and the Special IG's report will be 
a wake-up call to the Treasury and the Federal Reserve that our 
financial system cannot be run behind closed doors. Again, I 
want to thank Mr. Barofsky for appearing today. I look forward 
to his testimony.
    At this time, I yield time to the ranking member from the 
great State of California, Congressman Issa.
    [The prepared statement of Chairman Edolphus Towns 
follows:]




    Mr. Issa. Thank you, Mr. Chairman. Thank you again for this 
vigorous oversight.
    As you have said so often, all we ask for is transparency. 
Today we will hear that all we are not getting is transparency.
    Mr. Chairman, because I am going to include them in my 
opening statement, I would like to ask unanimous consent that 
three pieces be put in the record. The first, Mr. Chairman, is 
your letter to Tim Geithner asking that he specifically include 
the recommendations of the Special IG, something which I am not 
sure there is an answer to, but it is from February 5th. The 
second is today's New York Times that says ``Big Estimate, 
Worth Little, on Bailout.'' I suspect that will be referred to 
many times today.
    The third is because it is related to TARP and to a case 
recently settled against the Government. I have a letter in 
response to a letter from myself, on which the chairman has 
been copied, from Maurice Hank Greenberg concerning his 
continued willingness to arbitrate rather than to litigate the 
disputes which so far he has been winning.
    Chairman Towns. Without objection, so ordered.
    Mr. Issa. Thank you, Mr. Chairman.
    Today we are going to hear about a $23.7 trillion figure 
related to the TARP. Additionally, we are going to hear that 
the full transparency, which we asked for and which this 
President and this administration have promised, is being 
blocked by the bureaucracy that often seems to say, ``just 
trust us and we will deliver.'' Now, just trust us and we will 
deliver, quite frankly, I am not making the comparison except 
for the purpose of people understanding why we can't trust, 
Bernie Madoff said, ``trust us, we have high returns.''
    The fact is Treasury is saying, ``trust us because you 
really don't have $23.7 trillion at risk.'' As a matter of 
fact, effectively they are saying that the only thing at risk 
is a fraction of the $700 billion that we have committed. Mr. 
Chairman, nothing could be further from the truth. Over my 
decades in business, one thing I learned was that insurance 
policies cost money because the amount insured is, in fact, at 
risk.
    Anyone who thinks that we mark to market assets to half of 
their original value with some regularity, when they include 
toxic assets and written-down homes, and then believes that 
there would be no risk in guaranteeing those, particularly 
Freddie, Fannie and the other guarantees that are out there, is 
simply living in a dream world. If we underwrite in various 
forms over $23 trillion, we will in fact have losses. There are 
no gains, for all practical purposes, in these assurances so 
they are not offset by profits.
    In the case of the TARP directly, and I know we are going 
to hear from the Special IG today, there will be some good 
news. There already has been some return and some profit on 
moneys extended in the TARP. That is not so of many of our 
guarantees. Most of our guarantees are, in fact, insurance 
without cost to both profit and nonprofit organizations.
    Mr. Chairman, I believe that this administration 
desperately wants the kinds of transparency that will allow us 
to uncover potential insider trading or cozy relationships 
between the part of a trading organization which is trading for 
the Government and the part which is trading for itself. I 
believe only through our vigorous oversight will this 
administration be able to create a kind of sandwich where on 
one side is the President asking for transparency, on the other 
side is the Congress demanding it, and in the middle is the IG 
trying to overcome a bureaucracy that has always been able to 
outlast administrations and chairmanships.
    Mr. Chairman, today we have to make sure that this Special 
IG goes back with the clear message that Congress will not be 
outlasted. Our patience is running out for the transparency 
promised by the administration, promised by the Congress, and 
not yet delivered by the people who transcend administrations 
one after another.
    Mr. Chairman, I look forward to the testimony of the 
Special IG and I commend you for continuing this vigorous 
oversight. I yield back the balance of my time.
    [The prepared statement of Hon. Darrell E. Issa follows:]



    
    Chairman Towns. Thank you very much. I thank the gentleman 
for his statement.
    We will now turn to our first and only witness, Mr. Neil 
Barofsky. It is the long standing policy that we swear all of 
our witnesses in. Will you please stand and raise your right 
hand?
    [Witness sworn.]
    Chairman Towns. Let the record reflect that the witness 
answered in the affirmative.
    He is the Special Inspector General for the Troubled Asset 
Relief Program [SIGTARP]. Prior to assuming this position on 
December 15, 2008, 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 counselor and headed the Mortgage Fraud Group, 
which investigated and prosecuted cases of mortgage fraud and 
securities fraud with respect to collateralized debt 
obligations. Notably, Mr. Barofsky led the broad investigation 
into the $55 trillion credit default swap market and is a 
recipient of the Attorney General's John Marshall Award for his 
work.
    We welcome you, Mr. Barofsky. You are allowed as much time 
as you may consume. We generally give people 5 minutes. We 
thought about giving you 10 minutes but then I thought about 
the importance of it and so I said as much time as you may 
consume. But try to stay within 10 minutes.

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

    Mr. Barofsky. Thank you, Mr. Chairman. Mr. Chairman, 
Ranking Member Issa, and members of the committee, it is an 
honor and privilege to appear before you today and to present 
to you our quarterly report to Congress. In my testimony I 
would like to outline what is contained in our quarterly 
report, section by section, going over some of the highlights.
    In Section 2 of our report, we do as we do in each of our 
quarterly reports to summarize what has happened in the last 3 
months in the TARP. This has been a busy quarter for the TARP. 
We have seen the expansion of several programs; the bankruptcy 
of General Motors and Chrysler, and the extraordinary 
Government support of those industries; and the expansion of 
the Mortgage Modification Program with the selection of 
servicers and the allocation of approximately $18 billion in 
support of that program.
    We have seen paybacks of TARP money, more than $70 billion 
from Capital Purchase Program recipients, and the launch of the 
Public-Private Investment Program with the selection of nine 
asset managers and the commitment to provide up to $30 billion 
of taxpayer funds to fund that program. That is all laid out in 
Section 2.
    In Section 3, we have attempted to put the TARP program in 
context. Originally started as a $700 billion program to 
purchase toxic assets from financial institutions, the TARP has 
expanded to 12 separate programs involving up to $3 trillion. 
But it doesn't stand alone in the support of the financial 
system from the Federal Government. Since 2007, more than 50 
different programs from different agencies have been announced, 
instituted, and implemented.
    A lot of what we have seen when hearing about TARP 
recipients and their participation is that it is not a loan. A 
bank may have an investment from the TARP but also participate 
or issue debt with an FDIC guarantee or borrow money from the 
Federal Reserve.
    There are so many numbers flying around that we thought to 
further the goal of transparency we wanted to put the TARP in 
the necessary context of these other programs. That is what we 
have done in Section 3. For each of the 50 programs, we put out 
three different numbers. One is the amount of money that is 
currently outstanding on each of those programs, which is about 
$3 trillion. Two is the high water mark from their inception 
until January 30, 2009, which is about $4.7 trillion. The third 
number is the total exposure of each of these programs were 
they fully subscribed to, if each of the insurance contracts 
were used, all of the different programs were used, and all the 
support in total, and that number totals $23.7 trillion.
    Now, since we have issued this report, there has been some 
harsh criticism coming from Treasury. I have seen some public 
statements that attack the numbers in our report as being 
inflated. One press comment said that a Treasury spokesman 
described them as ridiculous. We take offense to that.
    I think that if you look at the report, in context it is 
very clear where these numbers came from. They came from the 
Government itself. These are all open source, public source 
information. This is from the Web sites of the Treasury and the 
Federal Reserve, and submissions to Congress. If the numbers 
are inflated, then it was the Government itself that inflated 
them, not us.
    Second, as far as the suggestion that we are trying to 
shock and awe with this number, again, I think that we have 
made very clear in this report in black and white what this 
number means. We explain that this number involves programs 
that, yes, have terminated. We explain that some of these 
numbers are collateralized and that there is collateral. All 
that is set forth in black and white.
    But one thing is very clear: The number is basically just 
the accumulation of what these 50 separate programs are and 
what the total amount of financial support that the Government 
has committed to is.
    Frankly, this attack is a challenge to the basic 
transparency that we try to provide in this report so that 
Members of Congress and members of the public understand in 
total what is going on as part of the Government's support of 
the financial system in this crisis.
    That brings us to our next section, Section 5 of the 
report, where we talk about our recommendations. One of our 
primary recommendations brings us to the same issue of 
transparency. We have now been in existence for 7 months, my 
Office. Over those 7 months we have been pushing, really from 
my 8th day in my Office when I made the first recommendation, 
to push for greater and greater transparency. That 
recommendation is one that we continue to make today, that 
Treasury require TARP recipients to report on how they are 
using the money.
    Treasury has repeatedly refused to adopt this 
recommendation. As a result, in February we sent out letters to 
each and every financial institution to ask them directly to 
report to us to prove that they can provide meaningful 
information, that there is a purpose to requiring banks to 
account for their use of funds. Yesterday we issued that audit 
result and the evidence is as we suspected.
    Contrary to Treasury's suggestions, banks can and should be 
required to report on how they are using funds. Banks reported 
a variety of different uses aside from just lending, as the 
chairman noted. They used it to acquire other financial 
institutions, to make investments in mortgage backed 
securities, and to pay down debt, all different forms of use of 
funds that can and should be verified and that can be part of 
the basic transparency of the TARP program.
    As we note in our recommendations, this is not the only 
recommendation regarding transparency that has not been 
adopted. We set four different recommendations, including those 
related to basic concepts so taxpayers can know the value of 
the assets that they are the chief investors for. Treasury 
receives monthly reports on those valuation estimates but will 
not share them with the public. We think that, too, is a 
failure of transparency.
    Similarly, we have recommendations related to the TELF 
Program and the Public-Private Investment Program. They involve 
the basic concept of transparency so that one, the taxpayers 
can know what is going on with their investments; and two, as 
has been famously quoted, ``sunshine is the best 
disinfectant,'' and it will discourage and deter bad behavior.
    In Section 1 of our report, we talk about what we have been 
doing for the past 3 months, namely building our Audit and 
Investigations Divisions. We are concluding six audits this 
quarter. We have announced or are about to announce five 
separate audits. We talk about that. Our Investigations 
Division is continuing. We have 35 open criminal 
investigations.
    We will continue to strive forward with bringing greater 
transparency to this program. Mr. Chairman, Ranking Member 
Issa, it is again a privilege to be here today to present this 
report, which we believe is an essential part of continued 
transparency. We have had more than 12 million hits to our Web 
site since we have started and almost 700,000 downloads of our 
previous reports. I think that we act in deed as in word to 
bring this necessary transparency.
    I thank you for your indulgence on time. I look forward to 
answering any questions you may have.
    [The prepared statement of Mr. Barofsky follows:]



    
    Chairman Towns. Thank you very much. We really appreciate 
your being here.
    I understand that Treasury collects monthly data showing 
the value of its TARP portfolio. Is there any reason why that 
should not be made public?
    Mr. Barofsky. In our view, absent some maybe very limited 
circumstances, we believe it should be made public. One of the 
arguments that was offered against doing this was that it may 
impinge upon Treasury's ability to liquidate some of those 
assets. But frankly, we think that just like any asset manager 
or any mutual fund, the investors have a right to know what the 
value of their assets are. Frankly, the one good example of 
when you don't know is Ranking Member Issa's example of a 
Madoff-type hedge fund where investors can't see what is behind 
the numbers. We think this is an essential part of 
transparency.
    Chairman Towns. We are concerned about conflicts of 
interest. Treasury hired nine private firms to be asset 
managers for the TARP Public-Private Investment Program, 
including large companies such as BlackRock, GE Capital Real 
Estate, Invesco, and others. All of these large firms are 
engaged in extensive private investment activities. Yet 
Treasury has refused to require these firms to establish 
firewalls between their employees who makes investment 
decisions on behalf of the Government and those who manage 
private funds. Why does Treasury oppose firewalls at these 
firms to prevent conflicts of interest and collusion?
    Mr. Barofsky. We have been pushing this recommendation over 
the last couple of months. We have consulted with the Federal 
Reserve Bank of New York, which operates similar programs. They 
have asset managers both buying and selling assets. Even 
Treasury itself, we have taken a look at some of their 
programs. One constant is that when asset managers receive 
market moving information and have the ability to or know about 
information to set market prices, a firewall comes attached to 
that responsibility in every program other than in the PPIP 
program. We have made this recommendation.
    In our quarterly report, Treasury has detailed, I think, in 
a lengthy letter their explanation as to why they are not 
requiring this. In short, they say it is not practical in this 
program for a variety of different reasons.
    We strongly disagree. We think that the taxpayer is 
entitled to the exact same protection that the Federal Reserve 
requires when it hires an asset manager. We believe the same 
protections should and must be part of the TARP program.
    Chairman Towns. Is there a downside to this?
    Mr. Barofsky. Treasury makes a number of different 
arguments. One is that it may be more expensive, that there may 
be a limit as to the firms that are willing to participate with 
a wall.
    All of these may be valid arguments, but from our 
perspective, tilting the scales are the tremendous dangers that 
come from not having a wall ranging from being able to take 
advantage of conflicts of interest to wildly recognized profits 
in different parts of the firm to the reputational risk. People 
are going to ask the question, ``why does BlackRock operate 
under a wall when they are managing funds for the Federal 
Reserve but not when they are managing for the Treasury?'' If 
there are incredible profits, there is going to be a lot of 
explaining that needs to get done.
    Chairman Towns. I find your testimony quite amazing. Do I 
understand you correctly? Let me put it this way: Does Treasury 
ask TARP recipients what they are doing with the money? Do they 
ask them that question?
    Mr. Barofsky. Overall, no. They have asked Bank of America, 
CitiGroup, and AIG. They are the only capital recipients that 
are required to report the use of funds. Some of the other 
extraordinary assistance recipients also have reporting 
requirements. But as far as the rest of the recipients, 
Treasury says no.
    They say they won't do it because it won't be meaningful 
and it won't be reliable information. So of course the question 
we ask is, if it is a meaningless exercise, why are you doing 
it with respect to CitiGroup, Bank of America, and very 
recently AIG? We haven't really gotten an answer to that 
question.
    Chairman Towns. I think it is very, very important because 
in creating this in discussions early on, it was about job 
creation. I think that we need to have the information in terms 
of what they are doing with it. When I look at the fact that in 
the minority community the unemployment rate is 15.5 percent, 
and of course it is running 9 percent generally, it appears to 
me that is a legitimate kind of question that should be raised 
because we feel and recognize that job creation is important.
    Mr. Barofsky. Of course, Mr. Chairman. I couldn't agree 
with you more. What Treasury does is it puts out lending survey 
information. So it is already collecting information from each 
of the financial institutions reporting on lending. But as our 
audit demonstrates, that is only part of the story. It doesn't 
talk about all the other things that banks are doing with TARP 
funds like investments, retaining capital cushions against 
future losses, and all these types of things which go right to 
the heart of the question that you are posing.
    Chairman Towns. Let me ask you: Did the TARP recipients 
have any trouble telling you what they were doing with the 
money?
    Mr. Barofsky. We had a variety of responses. We had 364 
responses. Nearly every single financial institution was able 
to provide us with meaningful information on this survey.
    I have to remind you, this is a voluntary survey. What we 
are recommending is that Treasury actually require this 
information. But we just asked and we still got very meaningful 
responses.
    Chairman Towns. Is there any reason why the public should 
not be told what is happening with the TARP money or how it is 
being used?
    Mr. Barofsky. I can't think of one. The one argument that 
was presented to us was that it would be a meaningless 
endeavor. I think our audit report proves that to be false. I 
think that banks can and should be required to report on their 
use of funds.
    I think that this Congress can make better policy 
decisions. Frankly, I think it will assist the Treasury in 
making better decisions if they have a better understanding of 
what is being done with funds as we continue in the bailouts 
and the continuing administration of the TARP.
    Chairman Towns. Thank you very much, Mr. Barofsky. I yield 
to the ranking member.
    Mr. Issa. Mr. Chairman, before I begin my questioning, I am 
not sure that everyone understands that you came here on a day 
when others probably would have taken the day off. Mr. 
Chairman, is it actually true that today is your birthday? 
[Laughter and applause.]
    Chairman Towns. Thank you very, very much.
    Mr. Issa. That is the power of a chairman if I have ever 
seen it.
    Chairman Towns. Thank you so much.
    Mr. Issa. The coffee will be coming, Mr. Chairman.
    Chairman Towns. Thank you very much. I appreciate that. 
Thank you.
    Mr. Issa. Mr. Chairman, just in case anyone thinks this 
isn't a bipartisan committee, Jimmy Duncan has decided to have 
his birthday today just to make sure there was one on each 
side. [Laughter and applause.]
    Do your part. The chairman blew it out without even showing 
it. It is much harder as you go down the dais. Thank you, Mr. 
Chairman. Your coffee is coming.
    Mr. Barofsky, I am not sure I can begin to tell you how 
pleased we are to have you here today. We are pleased for a 
number of reasons.
    I will read from that New York Times article, if I may. 
``Andrew Williams, a spokesman for the Treasury Department, 
called the figures ``distorted'' because they did not consider 
the value of the collateral posted for loan programs.'' I would 
like you to put this into perspective. First of all, did you 
ever say anywhere in your report or in your findings that we 
would lose $23.7 trillion?
    Mr. Barofsky. Of course not. We explicitly point out in the 
report the existence of collateral.
    Mr. Issa. So when you talk about $23.7 trillion--or about 
30 times as much money as you would have if you gave away $1 
million a year from the birth of Christ until today, just for 
somebody to try to figure out if that is true or not--that 
quantity of money, what you are talking about is the amount 
other than the $700 billion that is essentially under 
assurances and insurance. Is that right?
    Mr. Barofsky. If every program is maximized to the greatest 
extent possible, that is what that number is. Coming from a 
slightly different persuasion, I would say that even if you 
went back to the time when Moses parted the Red Sea, you would 
still be in the right numbers.
    Mr. Issa. I think actually Abraham would be sitting here 
trying to figure it out, too. There is no question, this is an 
amazing amount of money. When you look at millions over 
thousands of years and not getting to that number, it is hard 
for people to understand.
    But let us look at it another way. If, in fact, just 5 
percent of this $23 trillion or $24 trillion under assurances 
of various sorts were to go bad, isn't that a dramatic amount 
more than we ever authorized or appropriated from Congress?
    Mr. Barofsky. It is, of course, a staggering large number. 
The TARP itself has staggeringly large numbers as it has been 
expanded through other programs as well.
    Mr. Issa. Now, our previous Neil came before us, Neel 
Kashkari, and we asked him about how much money the assets were 
worth. He said he didn't know but he would get it to us in 30 
days. Then 30 days later he said he would get it to us in 
another 30 days. He is gone now so you are the one we have.
    Has the Treasury been willing to cooperate and provide the 
information as to the current value of assets purchased?
    Mr. Barofsky. This is a recommendation we have made since 
early February. They have not yet made this information public.
    Mr. Issa. So the assurances made by Neel Kashkari, both in 
the last Congress and in this Congress, that this was 
forthcoming in fact were not truthful in the sense that it 
doesn't appear as though they were ever forthcoming in a, if 
you will, mark to market value of what the assets are worth?
    Particularly I am interested in AIG's assets. Do you have 
any idea how much money has evaporated permanently from the 
$180 billion that AIG has received?
    Mr. Barofsky. I don't have that information at my 
fingertips. We are doing a couple of audits on AIG where we are 
going to have a better sense and be able to report on what is 
going on in those portfolios, particularly in the context of 
its counter-party transactions. But I don't have that 
information.
    Mr. Issa. Do you think that Congress is overdue to find out 
how many dollars have gone out in a manner that can never be 
refunded?
    Mr. Barofsky. I think it is absolutely essential for 
transparency that Congress and the taxpayers who invested in 
this program know what Treasury's best estimate is as to the 
value of their investment, absolutely.
    Mr. Issa. We own AIG and there is litigation against the 
founder of AIG. You are obviously very familiar with the court 
decision and apparently follow-on litigation. Do you have any 
day to day contact or any ability to find out why we continue 
to spend my understanding is over $200 million in legal fees 
trying to recover initially $4 billion, which the court has 
said we are not entitled to get back from C.V. Starr and Co.? 
As a matter of fact, apparently they said it in very short 
time, essentially that the case never had merit. But we have 
spent over $200 million. Is that something that is on your 
radar screen?
    Mr. Barofsky. We haven't addressed that situation. We have 
two ongoing audits of AIG, which are consuming a good chunk of 
my audit staff. But, of course, we are always going to be 
continuing to look for followup aspects.
    That also, though, maybe included as well in an overall 
audit that we have just recently announced. We are doing an 
audit on corporate governance as a whole, including the 
Government's role in governing and as an 80 percent part owner 
of AIG. So it may come in that context as well.
    Mr. Issa. Is there any way that we can get an independent 
assessment of the Federal Government's pursuit of these 
lawsuits rather than going to binding arbitration, which was 
offered repeatedly when Mr. Greenberg was before this 
committee? Is there any way to second guess this as $1 million 
a week is being spent on legal fees?
    Mr. Barofsky. I think what we can bring through our audits 
is an explanation of what the Federal Government's involvement 
has been in those decisions. In other words, as an 80 percent 
owner, how involved is the Federal Government in making those 
decisions versus AIG's management itself?
    Mr. Issa. I want to go back to the firewall question that 
you have been working on and that this committee is very 
concerned about, I am a member of a public board. I own stock. 
Actually, my foundation owns stock. I am not allowed to trade 
that during blind periods. Is it any different to say that a 
Member of Congress who happens to have a foundation which owns 
stock and who also sits on the board as an individual, would 
you say that was unwieldy to say you can't trade on behalf of 
yourself while in fact you have inside information? Is that any 
more difficult than what you are dealing with, with various 
firms who are being given huge underwriting and leverage 
advantages at the Federal Government's expense in return for 
trading primarily on our behalf?
    Mr. Barofsky. I think that is exactly the right difference. 
Here, these fund managers have up to $3 billion of taxpayer 
money and the whole design of the program is to encourage them 
to set prices in an illiquid market. This is a remarkable 
amount of power. Once they make that decision, it is a 
remarkable piece of inside information. I think it would be 
difficult for any Member of Congress to replicate because 
actually the design of the program is to set prices. So I think 
it is a far more extreme example in the case of the PPIP.
    Mr. Issa. Thank you. Thank you, Mr. Chairman.
    Chairman Towns. I now yield 5 minutes to the gentleman from 
Maryland, a very active member of this committee, Congressman 
Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. Mr. 
Barofsky, it is good to see you again.
    Have you had a conversation with Mr. Geithner since you 
took office?
    Mr. Barofsky. I spoke to him in late January.
    Mr. Cummings. That is it?
    Mr. Barofsky. That is it.
    Mr. Cummings. For how long was that conversation?
    Mr. Barofsky. It was a couple of minutes before a larger 
meeting with Mr. Dinaro and Ms. Warren from the congressional 
oversight panel.
    Mr. Cummings. The reason why I ask that question is that as 
I listen to the chairman's questions and our ranking member's, 
it seems to me that you all should be on the same team, to a 
degree. I know there is a wall there but I guess a lot of the 
things that are coming up should concern all of us.
    I want to followup on some of the chairman's questions. You 
said a moment ago that you got 12 million hits. That is a lot 
of hits to your system. What that means is that apparently the 
public is very interested in what is going on with regard to 
this money.
    I think the thing that concerns me is something that you 
had said in the Joint Economic Committee not very long ago 
regarding your concern about the appearance of some conflicts. 
Do you still have those concerns?
    Mr. Barofsky. I think my concerns are greater today than 
they were a couple of months ago when I spoke to you in the 
Joint Economic Committee.
    Mr. Cummings. Why do you say that?
    Mr. Barofsky. Because of the absence of walls in this 
Public-Private Investment Program. I think that the danger here 
is the perception of picking winners and losers, of giving 
these nine economic firms out of the 100 that applied the 
ability to set prices and not put the right type of 
restrictions in place to make sure that they are not going to 
otherwise profit unfairly at the expense of the market.
    If these firms do start having those types of profits in 
other aspects of their firms, I think the criticism that has 
previously been leveled at Treasury, of picking the winners and 
losers and of the opaqueness in how decisions are being made, 
could be potentially devastating to the program and potentially 
devastating to the way the American people view their 
Government. So it is a very serious concern of mine.
    Mr. Cummings. This morning on Morning Joe they had a fellow 
named McDonald who has written a book. He used to work for 
Lehman Brothers. He alleged that Mr. Paulson intentionally 
allowed Lehman to fail. Now, normally I wouldn't pay too much 
attention to that. But then he laid out the evidence and it 
sounded pretty logical.
    The reason why I mentioned the 12 million hits is that--and 
I really believe this--in order for us to get past this 
economic situation that we find ourselves in, the public has to 
believe that we are doing the right thing. They have to 
believe. I think one of the things that makes them believe is 
transparency. I agree with you on that.
    One of the things that I am concerned about is that a lot 
of times when we see a report that doesn't look too favorable, 
a lot of times we have a tendency to shoot the messenger and 
not address the report.
    But there is one thing that you said here that is quite 
telling as a former prosecutor. I guess you are still a 
prosecutor now. You said something about 35 open criminal 
investigations. I know what it takes to even get to the point 
to start investigating. Let us assume only five of them have 
some legs on them. Are you seeing any kind of pattern?
    I think my concern is that if there is a pattern, maybe 
this Congress needs to be doing something. I am trying to 
figure out whether there is there anything that we need to be 
doing to give you more power than what you have to accomplish 
the things that you have to accomplish.
    One thing is for sure: If we cannot get to a point of the 
American people, at 12 million hits, if we can't show them that 
we are doing the right thing with their money, as the chairman 
has alluded to, we are going to have problems. I don't see how 
we can get past this because the American people are not going 
to buy it.
    Mr. Barofsky. I couldn't agree with you more about the 
importance of transparency for all the reasons that you stated, 
as well as just the fundamental fact that the taxpayers are the 
investors. I think the reason why we see 12 million hits and 
more than 700,000 downloads of our reports is because the 
American people want to know what is going on in their 
investments. They want to understand these programs.
    We serve a role, basically, to translate these programs 
from the very, very complicated descriptions that the Treasury 
puts out. We try to translate it into English with tutorials 
and explanations. So I do agree.
    As to your question about the criminal investigations, we 
haven't seen a major pattern. We have a lot of investigations 
related to the mortgage modifications. There are a lot of scams 
out there, people trying to take advantage of struggling home 
owners. So there are a fair number there. But the rest of the 
investigations really go across the board. We have some 
incredibly complex securities and accounting fraud 
investigations of banks that have either attempted to or 
actually applied for and received TARP funds that may have lied 
to the Government in order to get that funding. We have cases 
of insider trading, trading on inside information they may have 
learned about the TARP. Really, almost any type of white collar 
crime you can think of, we are touching on in our 
investigations. Really, it is what you would expect when you 
are putting so much money out over such a short period of time 
and in many instances with very few conditions. They really do 
cover the board.
    Mr. Cummings. Thank you very much.
    Chairman Towns. Thank you very much. I yield now to the 
gentleman from Florida, Congressman Mica.
    Mr. Mica. Thank you. Thank you, Mr. Barofsky.
    Let me followup on Mr. Cummings's questions. Actually, you 
stated that TARP and these programs have grown into more than 
50 different programs?
    Mr. Barofsky. Not within the TARP. Within the TARP there 
are 12 programs. In our report, we talk about approximately an 
additional 50 programs that are across the U.S. Government, 
everywhere from the FDIC to the Fed and FHFA.
    Mr. Mica. So there are about 12 TARP. But the 50, are you 
keeping sort of a watch over those or just the 12 TARP?
    Mr. Barofsky. Thankfully, we just have the 12. The rest are 
being covered by other agencies.
    Mr. Mica. Again, some of this seems to have dramatically 
expanded. Probably the nature of the responsibility required 
some of that. But to get to the point Mr. Cummings is raising, 
do you have enough resources to conduct sufficient 
investigations and oversight?
    Mr. Barofsky. We are building as an Office. We currently 
have 70 personnel onboard. We are building to about 160 with a 
target date of early next year.
    Mr. Mica. I read not all of your report but scanned through 
it. You do have recommendations in here. I notice that only 8 
of your 32 major recommendations have been implemented; 5 of 32 
have been partially implemented. Is there any way to enforce 
implementation? Do you have any recommendations as to how we 
can put some teeth into what you are doing or recommending?
    Mr. Barofsky. Really, we feel like our statutory role is to 
make these recommendations.
    Mr. Mica. We have to pick up the responsibility. But it 
appears that a number of your recommendations are not 
implemented or that some of your recommendations take a while 
to get implemented. For example, executive compensation, I 
guess that was finally adopted as a rule on June 15th?
    Mr. Barofsky. That is correct.
    Mr. Mica. So that is why we have seen since June 15th a lot 
of folks interested in paying back their loans?
    Mr. Barofsky. I think that is an explanation that has been 
offered.
    Mr. Mica. But it took us, what, 6 months to get that 
recommendation in place and implemented. Is that correct?
    Mr. Barofsky. I think it was about 4 months from our 
February report.
    Mr. Mica. I think part of what you said is you are trying 
to develop and encourage transparency. Many of the things that 
deal with transparency are recommendations that have not, in 
fact, been addressed by the various groups that you oversee. 
That still remains the case?
    Mr. Barofsky. It does.
    Mr. Mica. That is unfortunate. Finally, maybe you could 
tell me--first, I didn't vote for it--but we started out with 
about $700 billion that Members of Congress thought they were 
going to help bail out financial institutions with. Then you 
said some of the liability grew to $3 trillion. Maybe you could 
explain that?
    Then it was $4.7 trillion, and now the total exposure is 
$23 trillion. So how did a little tiny, teeny $700 billion 
program balloon into $23 trillion worth of exposure? Maybe you 
could tell us about the $3 trillion level you cited and how far 
we are at risk at that, followed by the $4.7 trillion, and $23 
as the ultimate.
    Mr. Barofsky. Sure. For the TARP, we start off with $700 
billion. We include a chart that gives the precise numbers for 
each program and where they come from. But then that number got 
expanded to approximately almost $3 trillion from other related 
Federal Government programs.
    For example, the Public-Private Investment Program, which 
we have been discussing, is seeded with about $100 billion of 
TARP money. But then the Federal Reserve, and at one point the 
FDIC, were going to issue nonrecourse loans from the Federal 
Reserve. Those are loans that don't have to be paid back but 
are posted with collateral.
    Mr. Mica. So that ballooned it?
    Mr. Barofsky. Right. Then there were also guarantees from 
the FDIC.
    You have the TELF Program, which has been up to a $1 
trillion program, seeded by $80 billion or $100 billion of TARP 
funds. So you have these other Federal Government entities 
coming in and supplementing these programs. You have an asset 
guarantee of $300 billion from CitiGroup, which is done partly 
by Treasury, partly by FDIC, and partly by the Federal Reserve. 
So that is how we get to the $3 trillion.
    Those other numbers are actually non-TARP programs. The 
$23.7 trillion does actually include the $3 trillion from the 
TARP, but it also includes other programs that have nothing to 
do with the TARP other than the fact that they are also 
supporting the financial industry and that the same 
institutions that can take advantage of the TARP also can take 
advantage of these other programs. At times they can use one 
perhaps to pay off another, something we have even coined as 
``bailout arbitrage.''
    Mr. Mica. So $700 billion seeded a potential of $23.7 
trillion?
    Mr. Barofsky. I would say the $700 billion seeded the $3 
trillion and then the other $20.7 trillion really comes from 
other Federal Government programs that are non-TARP related.
    Mr. Mica. They are riding sort of the same saddle?
    Mr. Barofsky. They are all for the support of the financial 
system.
    Mr. Mica. Thank you. Thank you, Mr. Chairman.
    Ms. Kaptur. Will the gentleman yield?
    Chairman Towns. The gentleman's time has expired.
    Ms. Kaptur. May I just ask, Mr. Chairman----
    Chairman Towns. The gentleman's time has expired.
    Ms. Kaptur. Is that in your report, sir? What you just 
stated to Congressman Mica's questions, is that summarized, 
that stair step?
    Mr. Barofsky. Yes. The $3 trillion and what is there is 
featured in the chart in the executive summary.
    Ms. Kaptur. Up to the $23 trillion?
    Mr. Barofsky. All of that is set forth in Section 3 of our 
report with the explanations of what those numbers really mean.
    Ms. Kaptur. Thank you.
    Chairman Towns. I now yield to the gentleman from Ohio, Mr. 
Kucinich.
    Mr. Kucinich. Thank you very much.
    Mr. Barofsky, I am reading your report about lending where 
you talk about how banks have been leveraging TARP funds to 
support lending activities. You say on commercial lending, 20 
percent of respondents reported that they used TARP funding for 
commercial lending activities, 17 percent of respondents 
deployed TARP funds for other consumer lending, and 13 percent 
used it for small businesses.
    You talk about the capital cushion and how some banks are 
basically parking their funds to create a cushion against loan 
losses. I looked at your report and I want to use that report 
as a backdrop for a news report that came in today.
    We went back into the TARP history here. We know that the 
first intent that Congress had was to purchase toxic assets, 
which were mortgage-backed securities. We were told that would 
keep people in their homes. Well, the last administration threw 
that out the door. Then we were told we are going to switch the 
TARP funds to help bail out the banks with a direct capital 
infusion.
    But I think something else has happened here. I want to 
make sure it doesn't escape this committee. I hope that you can 
tell me it hasn't escaped your notice. We are now seeing that 
we have another switch that has occurred. We actually have the 
Fed paying banks not to use their ``excess capital'' to make 
loans.
    I direct your attention to a news report today which says 
that ``banks' excess reserves at the Fed rose to a record 
$877.1 billion daily average in the 2-weeks ended May 20th from 
$2 billion a year earlier. Excess reserves, money available for 
lending that banks chose to leave with the Fed, instead 
averaged $743 billion in the first 2 weeks of this month.'' 
Sir, the Fed is paying banks higher interest rates now to keep 
their funds parked at the Fed instead of loaning the money to 
the American people. Is that not true?
    Mr. Barofsky. Yes. The reason I opened up the book is that 
on page 142 of our report we actually have a chart that depicts 
exactly what you are saying.
    Mr. Kucinich. Tell me about the chart. Tell this committee 
about that chart.
    Mr. Barofsky. It shows the increase in the amount of money 
that is being parked at the Federal Reserve over time. We link 
it to one of the Fed programs, a different program. But we do 
think there is a connection between the Federal programs and 
the increased reserves that are being held there.
    Mr. Kucinich. If the banks had not received this direct 
capital injection as a result of the TARP funds, is it 
conceivable that they would have had, according to this news 
report, an average of $743 billion in reserves parked at the 
Fed? Is it possible that they could have had that?
    Mr. Barofsky. It may be, but only because of all the other 
programs that we detail in Section 3 of the report.
    Mr. Kucinich. ``All the other programs'' meaning Government 
programs that have helped to sustain the banks, right?
    Mr. Barofsky. It would certainly appear to be the case.
    Mr. Kucinich. See, members of the committee, first we 
started out with being told that money was going to mortgage-
backed securities. They did a bait and switch on that. Then we 
were told it is being used to bail out the banks so we can have 
a loosening of credit through a direct capital infusion. Now, 
you and I know that there are businesses in our communities who 
are credit starved. Meanwhile, the Fed is paying banks a 
premium to keep their money parked at the Fed instead of 
loosening it up.
    This is one fraud after another on the American people. 
They might use the excuse that they are trying to control 
inflation. Check it out. Unemployment is skyrocketing. 
Businesses can't get money so they are laying off more people. 
We are thinking that somehow we have solved the problem, here.
    I want to submit for the record this report out of the 
Bloomberg News Service.
    Chairman Towns. Without objection.
    Mr. Kucinich. Thank you. I want to ask Mr. Barofsky, this 
money is fungible, as we know.
    Mr. Barofsky. Yes.
    Mr. Kucinich. But, generally speaking, you would agree that 
there is just no question that a significant part of the money 
that is being parked at the Fed right now is Government money, 
money from these Government programs that Congress created?
    Mr. Barofsky. I think we would have to look institution by 
institution. But I think if we did so, I wouldn't disagree with 
what you are saying.
    Mr. Kucinich. Mr. Chairman, I hope that we can get another 
hearing on this particular matter because this goes to the 
heart of the entire bailout program. This has been one thing 
after another, one bait and switch after another.
    Mr. Barofsky. Congressman Kucinich, in our audit, I think 
we described that the banks have communicated to us this 
tension that they feel as well that is really right in line 
with your comments. On the one hand they are getting pressure 
to increase lending and get this capital out there, but they 
are also getting pressure from the regulators to maintain the 
capital and increase their capital cushions.
    Mr. Kucinich. ``Regulators,'' read the Fed?
    Mr. Barofsky. The Fed, FDIC, OCC, and OTS. Indeed, that is 
what a portion of the stress tests were. So I think that is a 
very real dichotomy.
    Mr. Kucinich. I thank the gentleman. I thank the chairman.
    Chairman Towns. Thank you very much. I now yield to the 
gentleman from Tennessee, Mr. Duncan. Happy birthday.
    Mr. Duncan. Well, thank you, Mr. Chairman. Happy birthday 
to you, too.
    Mr. Barofsky, thank you very much for your report. I read 
with great interest the story in the Washington Post yesterday 
where the lead paragraph says, ``Many of the banks that got 
Federal aid to support increased lending have instead used some 
of the money to make investments, repay debts, or buy other 
banks.'' I read at one point that back a few months ago that 
the Bank of America had taken $7 billion of the first $15 
billion they got and increased their investment in the 
Construction Bank of China. I don't think any of us ever 
intended that this money be spent in that way.
    I think a part of the problem was that this legislation was 
rushed through. We weren't given proper hearings on it or a 
chance to offer amendments and things like that.
    But I can tell you that all of the business people, all of 
the small business people in Knoxville and east Tennessee have 
been telling me for months that what is being said at the top 
is not getting down to that level. The President and the 
Secretary of the Treasury have been saying under both 
administrations lend, lend, lend but these examiners on the 
local level are saying no, no, no. In fact, there was a cartoon 
to that effect in the Congress Daily publication that we get 
every day at each of our offices. It shows the President and 
the Secretary of the Treasury urging the banks to lend and 
shows the banks with huge piles of money and then these 
examiners on the local level saying no, no, no. I have heard 
that from realtors, home builders, other small business people, 
and bankers from all lines.
    But I want to read a portion of the letter I received from 
Robert S. Talbott, who has been one of the most successful 
business people in Knoxville. He wrote to me and said, ``I'd 
never seen anything like this in almost 30 years I have been in 
the business world.''
    Listen to this: He said, ``Holrob Investments''--that is 
his company--``is the mother company of over 50 partnerships 
and limited liability companies, all of which are involved in 
commercial and residential real estate projects. We have been 
in business for many years and currently own interest in 18 
shopping centers and numerous other retail and residential 
properties. Our loan obligations consistently are in excess of 
$100 million and we have multiple lenders with which we do 
business, large life insurance companies, regional lenders, 
banks. We are not currently in default with respect to any 
monetary obligation, nor have we ever been. Our business 
depends on access to credit and despite public protestations by 
our Government to the contrary, it has been our experience this 
year that credit is contracting. We have been told by numerous 
banks that unsecured lines of credit to developers are being 
frowned upon by bank regulators. And, consequently, we have 
been informed by SunTrust, Mountain Commerce Bank, and First 
Bank that they would not renew personal lines of credit. While 
Fifth Third did not technically extinguish our line, it was 
apparent to us that they did not want our business and 
consequently we are in the process of extinguishing our lines 
of credit with them.''
    This is what I am hearing, except this is a stronger 
letter. But is this what you have been finding out in your 
investigation of all of this? Is this true around the country 
or is my area unusual in this regard? Because I am hearing this 
from many, many people.
    Mr. Barofsky. I think this tension does exist. I think we 
have seen it across the board. On the one hand is the desire 
for banks to do more and more lending and then on the other 
hand is the regulators' desire for banks to buildup capital 
cushions against further losses. It is a very real tension.
    Mr. Duncan. I also have heard this from many bankers who 
say that they can't speak out publicly because they will 
receive retribution from the examiners and the situation would 
grow even worse.
    Mr. Barofsky. Well, we did see this in response to some of 
our survey questions. Our source of information for this is the 
banks themselves, who have come forward and have pointed out 
this tension. Frankly, it is natural. Part of the results of 
the stress test was to encourage the financial institutions to 
raise an additional $70 something billion. These additions to 
capital are that. They are additions to capital. Now, capital 
can be leveraged in certain instances to increase lending but 
there is a tension there. It is one from conflicting policy 
concerns.
    Mr. Duncan. I have written the top banking regulators 
twice--and those two letters were several months apart--to tell 
them that this situation is occurring in our area. I hope that 
other members of the committee who are running into this in 
their areas will also write these regulators. This money is not 
being used, I don't think, in the ways in which the Congress 
really intended for it to be used.
    Thank you very much.
    Chairman Towns. Thank you. I now yield to the gentleman 
from Illinois, Congressman Quigley.
    Mr. Quigley. Thank you, Mr. Chairman. Good morning.
    Sir, you spoke of the extraordinary power placed with the 
fund managers. But I think you have more faith in the firewall 
system than others do. Given this extraordinary power, almost 
life and death over so much money and what can happen to other 
companies, are firewalls enough? I guess there are firewalls 
and then there are firewalls, but is there anything else that 
can be done to protect the trust that is put in them?
    Mr. Barofsky. A firewall left standing alone would not be 
enough. There have to be vigorous and strict enforcement and 
compliance regimes set up over that firewall.
    Mr. Quigley. By whom?
    Mr. Barofsky. It should be both by the company itself 
within their internal functions and, of course, by Treasury. 
Our baseline suggestion where we thought the starting point 
should be--and just as a starting point--should be what the 
Federal Reserve Bank of New York does with BlackRock and its 
Maiden Lane facilities and with its four asset managers in its 
mortgage-backed security buying program. We thought that would 
be a good starting point because they do have walls and they do 
have vigorous compliance set up by FRBNY compliance.
    That is a starting point but it isn't the ultimate goal. We 
haven't gotten to that starting point and that is why our 
recommendations are where they are. But we agree. A wall 
standing alone isn't going to do it if it there is not a 
vigorous compliance regime in place as well.
    Mr. Quigley. Were you aware of whether these conflicts were 
discussed when Treasury made these decisions choosing the nine 
out of the over 100?
    Mr. Barofsky. We were not involved in the formation of this 
program before it was publicly announced. We learned about it 
really a couple days before it came out. We became involved 
during the selection process of the nine managers. One of the 
members of my audit team actually sat in on some of the 
interviews. We have been engaged in a dialog with Treasury, a 
back and forth on this issue, since at least early June.
    Mr. Quigley. Did the discussions of the conflicts of 
interest and protections that were needed, were those discussed 
after the fact to you?
    Mr. Barofsky. We have been engaged in an ongoing dialog. 
There is an amendment to one of the housing bills. It is called 
the Ensign-Boxer Amendment because of those two sponsors. It 
actually requires Treasury to consult with us in the formation 
of these rules. They certainly have abided by that.
    Mr. Quigley. Do you have the authority, the desire, and I 
guess the ability to audit Treasury's decisionmaking process to 
pick the nine?
    Mr. Barofsky. We certainly are going to be doing an audit 
on the conflicts issues and many of the issues associated with 
the PPIP program. We haven't announced it yet because the 
program itself hasn't had lift-off but we are going to do that. 
Frankly, there would be no way for us to do our job without 
auditing.
    Mr. Quigley. Well, given the lack of cooperation that you 
are facing now, how is that audit process going to work?
    Mr. Barofsky. I would have to say that when it comes to 
conducting our audits, Treasury has been cooperative. They have 
provided the documents that we have asked for. They have made 
their personnel available to us for interviews. So I see no 
reason to worry that we are not going to be able to conduct our 
audits as we have conducted our other audits without 
interference from Treasury.
    Mr. Quigley. Do you suspect that could be completed by the 
time you do your next quarterly report and repeat all your 
recommendations again?
    Mr. Barofsky. Because of the timing of the PPIP program, 
the final contracts haven't been written. The time the fund 
managers are being given to raise the funds is up to 12 weeks, 
which would take us into the next quarter. I think it is 
unlikely. We may be able to do something very quickly depending 
on what the timeframe of the program is. But until sort of all 
the terms are set and the conditions are set, it is difficult 
to launch an audit. But we are going to do so.
    Mr. Quigley. Very good. Thank you, Mr. Chairman. I yield 
back.
    Chairman Towns. Thank you very much. I now yield 5 minutes 
to Mr. Chaffetz.
    Mr. Chaffetz. Thank you. Mr. Chairman, I would ask 
unanimous consent to insert into the record the letter that was 
referenced in Congressman Duncan's questioning. He would like 
to have this submitted into the record.
    Chairman Towns. Without objection, so ordered.
    Mr. Chaffetz. Thank you.
    Thank you for being here. I appreciate your work. This is 
important work. Taxpayers' money is at hand and we have a role 
and responsibility in Government to make sure that it is dealt 
with in a responsible manner.
    My understanding is that Treasury has formally asked the 
Office of Legal Counsel in the Department of Justice to opine 
on whether SIGTARP is subject to the supervision of the 
Secretary of the Treasury. Can you give us an update as to 
where that is at and your understanding of that?
    Mr. Barofsky. My understanding is that is where it is. 
Treasury put in their request. We put in our response, giving 
our opinion that the intent of this Congress was quite clear 
that we be a strictly independent agency within Treasury. They 
have submitted their response to our response. The issue is 
still pending.
    Mr. Chaffetz. Other than trying to maybe get away from the 
obligation that SIGTARP puts upon them, have there been any 
further instances of Treasury attempting to exert control over 
your Office or investigations?
    Mr. Barofsky. Nothing even comes to mind. I think that they 
generally have been cooperative with our investigations and 
audits.
    Mr. Chaffetz. What would be the implications if they were 
to have control over your Office?
    Mr. Barofsky. I think that in the IG Act and where Treasury 
suggests that we fit within that scheme, the Secretary of 
Treasury has the ability to shut down an audit or an 
investigation of the Treasury IG. We have a great fear. We 
think that would be a great threat to our independence if the 
Secretary had that ability over us.
    By way of an example, obviously the Treasury has very 
strongly worded comments about portions of our report that they 
disagree with. Theoretically, could they use that type of 
supervision authority to order us to keep that out of the 
report and keep that information from the American taxpayers 
and Members of Congress? I am not sure. But we think that those 
are the types of dangers that we see if we are under the 
supervision of the Secretary. If that type of authority was 
asserted, I think that would be a direct threat to really the 
reason why we were created.
    Mr. Chaffetz. I concur with that. I would hope that you 
would let this body know, and me in particular, if there is any 
instance or movement toward them trying to exert that control. 
I think that the natural tension of having an independent 
auditor come in is a healthy one for the process and for the 
viability and visibility to the American people.
    Let me talk real briefly about the personnel and resources 
that you have in place. My question is, do you need more 
resources? My understanding is that at the end of June you had 
60 personnel with plans to get to 160 people. You have 35 
ongoing criminal and civil investigations and over 3,200 tips 
that have come in through the hotline and what-not. Help me 
understand what is happening within your department regarding 
the stress and workload with the personnel that you do have.
    Mr. Barofsky. We have been very busy. We have put together 
really an amazing team of auditors and investigators.
    Mr. Chaffetz. What are you short? What do you need 
immediately that you don't have at your fingertips?
    Mr. Barofsky. I think that right now we are just going 
through the normal process of hiring and finding the right 
people. The one thing that we identify in our report is that we 
are projected to basically run out of money mid-fiscal year 
2010. We have a budget amendment request to Treasury to get the 
necessary money that we would need to keep going through the 
end of fiscal year 2010. We have been working with them to 
achieve that, as well as with OMB. Obviously, if that is 
unsuccessful, we will have to come back to Congress and ask for 
a direct appropriation. But basically, assuming we get that 
necessary money, we will be good through fiscal year 2010.
    Mr. Chaffetz. In my short time that I have left, let me 
totally shift gears and talk about the value of the TARP 
portfolio. There is very limited exposure to this. Tell me what 
you are able to see and not see. What is the value to the 
public in having that information?
    Mr. Barofsky. Well, we think it is essential from a basic 
transparency point of view that members of the public, the 
investors, know what their investment is worth.
    Mr. Chaffetz. But how hard would that information be to 
provide?
    Mr. Barofsky. Treasury is getting monthly estimates right 
now.
    Mr. Chaffetz. So they have the information but we don't?
    Mr. Barofsky. It would just be a matter of making that 
information public.
    Mr. Chaffetz. It is just a matter of flipping the switch? I 
would urge this committee, I would hope that we would insist 
that those evaluations be made public so that the taxpayers can 
understand the valuation of their assets.
    Mr. Issa. Would the gentleman yield?
    Mr. Chaffetz. Yes.
    Mr. Issa. Is that something that you believe would be 
appropriate for us to consider subpoenaing under cover so we 
could at least see what they see once and then maybe reach the 
same conclusion you have reached?
    Mr. Barofsky. I don't think it is necessarily my position 
to suggest what the committee should or should not subpoena. 
But certainly if the committee wanted that information, the 
committee certainly should request it, evaluate it, and make 
its own determination.
    Mr. Chaffetz. I see my time is up. Thank you, Mr. Chairman. 
Thank you.
    Chairman Towns. Let me just say that is something we are 
considering as well.
    I now yield 5 minutes to the gentleman from Virginia.
    Mr. Connolly. Thank you, Mr. Chairman. Let me add my voice 
to happy birthday and good felicitations. I want to thank you 
for your leadership of this committee.
    Welcome, Mr. Barofsky.
    Mr. Barofsky. Thank you.
    Mr. Connolly. Let me ask a question. Is the TARP program 
working? Has it in fact achieved the ends for which it was 
designed?
    Mr. Barofsky. I think that really depends on what your 
definition of working is. I think that the goals of the TARP 
have changed over time. Different folks have different 
definitions of what is working and what is not working. I think 
if the goal was to remove $700 billion of toxic assets off the 
books of financial institutions, that clearly has not happened. 
If the goal was to increase lending, I think that, too, 
unfortunately has not happened. If the goal was to avoid a 
complete systematic collapse of the financial industry, that 
may very well have happened.
    I think that it is impossible to look in the crystal ball 
and know exactly what would have happened absent the TARP. But 
from what we have seen from what financial institutions have 
told us, we were on the precipice of a potential total 
collapse. Shoring up the capital may have indeed achieved that 
goal if that was a goal.
    Mr. Connolly. I haven't been a big fan of TARP either but I 
think you have to give credit where credit is due. I voted 
against the release of the second traunch, which was the only 
vote I got to have as a new Member of Congress on TARP, because 
I didn't feel that the accountability and transparency 
standards were in place. The House, in fact, had a statutory 
framework to allow that but the Senate didn't agree to it.
    But having said that, we were facing a systematic financial 
meltdown last September, were we not?
    Mr. Barofsky. In the conducting of our audits and gathering 
of information, that is certainly an opinion we have heard many 
times from the top regulators as well as members of the 
industry.
    Mr. Connolly. While the flow of credit may still be 
impeded, the fact of the matter is that stability in the 
financial system, the stress tests on 19 banks, for example, 
would seem to suggest that some stability has returned in the 
system that was lacking as recently as last fall.
    Mr. Barofsky. I think we are certainly in a much different 
situation than we were last fall. It may very well be that the 
TARP is responsible for that, or responsible in part. Again, 
part of the reason why we do Section 3 and talk about all these 
programs is so that you can have in one place all the different 
supports that were out there and that have been in place, of 
which the TARP is only a small part. I think GAO has pointed 
this out. It is hard to say specifically whether the effect is 
from the TARP or from a different program.
    Mr. Connolly. But it might be fair to say that had we not 
had some intervention of some magnitude such as TARP, we might 
have actually faced a much more serious situation?
    Mr. Barofsky. That is certainly the opinion of the people 
that we have spoken to who were there at the time, including 
Chairman Bernanke and former Secretary Paulson.
    Mr. Connolly. Let me ask about the $300 billion in TARP 
funding was invested directly in systematically important firms 
through the Capital Purchase Program, the Target Investment 
Program, and the Systematically Significant Failing 
Institutions Program. The Bush administration pretty much 
opposed giving the Federal Government a voting stake in banks 
in which the Federal Government made equity injections. Do you 
think oversight and accountability capabilities might have been 
improved if we had not resisted that?
    Mr. Barofsky. I am sorry. I just missed the last part of 
your question.
    Mr. Connolly. I said the Bush administration, in making 
those funds available through those programs, opposed giving 
the Federal Government a voting stake in banks in which it made 
equity injections. Did we make a mistake in that respect? Could 
oversight and accountability have been improved if we had a 
voting stake in those banks?
    Mr. Barofsky. I think oversight and accountability 
certainly would have been improved if there were more 
conditions that were in place and if there were oversight 
triggering mechanisms that accompanied those conditions. There 
were very, very few conditions put on the initial output of 
funds.
    I think it is a policy decision that increased 
transparency, as we look and see what has happened and as we 
report, hopefully, and convince Treasury to give us an 
accounting on the use of funds, I think we can be in a better 
position to make that evaluation by looking at exactly what has 
happened.
    That is why we push for transparency, so that the Members 
of Congress could make those determinations. You will have all 
the information available to look back and say, the next time 
that we are in a bailout, what worked, what didn't work, and 
what was the impact of the various decisions.
    Mr. Connolly. Let me give an example. The Bank of America 
is now attempting to back out of the Federal Reserve's ring 
fencing arrangement. If we had insisted as part of the $118 
billion we pumped into BOA that one of the tools would be to 
have a voting stake in BOA in return for that, would that be 
helpful from an oversight and accountability point of view from 
your perspective today?
    Mr. Barofsky. It certainly would have an impact on the 
decisionmaking process and that. I am not sure if voting in 
particular, from our perspective in SIGTARP, what difference 
that would make. Although it certainly would make a difference 
from Treasury's perspective on their ability to control the 
actions of these financial institutions.
    Mr. Connolly. Thank you. My time is up. Thank you, Mr. 
Chairman.
    Chairman Towns. Thank you very much. Now I yield 5 minutes 
to the former chairman of this committee, the gentleman from 
Indiana, Mr. Burton.
    Mr. Burton. Thank you, Mr. Chairman.
    I don't want to be redundant because I got here late so I 
apologize if I ask questions that you have already answered. 
But why do you think the Treasury Department is dismissive of 
your calculations?
    Mr. Barofsky. I don't know. I hate to try to crawl into the 
minds of some of the comments that have been made. I think that 
if they had read the report in total and had read some of the 
charts and pages they couldn't be saying some of the things 
they are saying with their dismissiveness and their description 
of numbers that are inflated when all the numbers came from 
them. So I am not sure.
    Mr. Burton. You haven't had a chance yet. I have been told 
that you have only been able to spend maybe 1 or 2 minutes with 
Mr. Geithner since he took over. Is that right?
    Mr. Barofsky. I had a several minute meeting with him in 
January. It was followed by a larger meeting that probably went 
about 45 minutes that included a number of members of Treasury, 
GAO, and the congressional oversight panel. That was all in one 
occurrence in late January.
    Mr. Burton. Did he take into consideration your comments 
and your positions?
    Mr. Barofsky. We didn't really have that much time in that 
one meeting.
    Mr. Burton. Did you make some suggestions to him?
    Mr. Barofsky. I think we conveyed where we were in late 
January. At that meeting he actually announced to the press his 
adoption of one of our recommendations, which was posting TARP 
agreements on the Internet. So that was some progress that we 
saw at that time.
    Mr. Burton. Well, do you think he wants to keep any 
information from the people? Do you think there is a deliberate 
attempt to do that?
    Mr. Barofsky. I am not sure, again, of what the intent is. 
The effect is that information that the taxpayers and Members 
of Congress we believe should have as part of transparency is 
not being provided.
    Mr. Burton. You said here, and you probably answered this 
already, that the total potential Federal Government support 
could reach up to $23.7 trillion. Obviously, there is some 
speculation there but the liability could reach that amount?
    Mr. Barofsky. I think the speculation is if every one of 
these programs was fully subscribed to, that is the total 
commitment in guarantees. But I don't think there is a 
speculation as to what the numbers are. These are numbers that 
have been provided to us by the Federal Government. Frankly, 
every one of these numbers any member of the public could go 
find. It is all publicly available information.
    Mr. Burton. Well, if even half of that is correct, we have 
a big problem.
    Mr. Barofsky. I think the important caveat which we set 
forth in the report is that we don't have $23.7 trillion 
outstanding right now. Right now the number outstanding is 
closer to $3 trillion. Since the inception of the crisis, again 
as we put out in the report, the total maximum amount has been 
about $4.7 trillion. But when you add up all of the different 
programs, including programs that have been paid back, ones 
that may have been canceled, and collateralized programs, the 
total amount of support, which is what we are trying to capture 
here, does total $23.7 trillion.
    Mr. Burton. We are concerned about the terrorist problem. 
That is one of the top issues that the American people are 
concerned about. I understand SIGTARP has recommended that 
Treasury require its private fund managers to collect 
information on whether any of their investors are involved in 
organized crime, terrorism, or fraud in order to prevent such 
groups from using PPIP to launder money.
    As currently designed, are you confident that the Obama 
administration has taken steps to prevent organized crime 
syndicates and terrorist groups from using PPIP money to 
launder?
    Mr. Barofsky. I think they are most of the way there but I 
think there is a little bit more that needs to be done. They 
are requiring these fund managers to use the normal procedures 
like KYC and different procedures to screen for that 
information. What we have recommended and what they have not 
adopted is that Treasury not only receive all the information 
about all the different investors in these programs but also 
have the unilateral right to kick one out.
    To use an example, let us say that a fund manager does all 
the right diligence but doesn't know that a particular investor 
has a pending FBI investigation into them being involved in 
drug trafficking, organized crime, or even terrorism. They 
would accept that person, that individual, or that institution 
into the program but wouldn't know any better. But we, 
Treasury, or our law enforcement partners could run those names 
in a data base, kick something out, and then reject that 
investor. We wouldn't necessarily want to tell the PPIP fund 
manager that we have a pending criminal investigation into one 
of their clients because it might be pending.
    But I still think it is important that Treasury have the 
ability to unilaterally knock those types of folks out of it. 
That is a recommendation that we have made and that has not 
been adopted.
    Mr. Burton. Well, let me just end up by asking this 
question: The TARP funds that have been allocated by Congress 
do not reach the $3 trillion level. What do you think is going 
to happen? Do you think they are going to ask for another 
bailout?
    Mr. Barofsky. Congressman, I don't have that crystal ball.
    Mr. Burton. Do you think it is going to be needed? Do you 
think additional funds will be required to meet their 
obligations or their requirements?
    Mr. Barofsky. I really can't answer that question. I don't 
know. I think there is a lot in question about what is going to 
happen in the economy in the next 3, 4, 5, or 6 months or in 
the next year. I am just not in a position to really answer 
that.
    Mr. Burton. What would your recommendation be?
    Mr. Barofsky. I think right now Treasury has stated that 
they don't need additional funds. So at this point I assume 
that is where we are.
    Chairman Towns. The gentleman's time has expired. Now I 
yield to a senior Member of Congress, not in age but in years 
of service, Marcy Kaptur.
    Ms. Kaptur. Thank you. Thank you, Mr. Chairman, very much. 
Happy birthday. This is just the beginning of your life.
    Mr. Barofsky, thank you so very much. You have a really 
important job on behalf of the American people and your staff. 
We thank you for that.
    My first question is what more can we do to help you do 
your job?
    Mr. Barofsky. Congress has been amazingly supportive of our 
agency since we have begun. We really have, I think, all the 
necessary tools in place right now.
    Ms. Kaptur. All right. Your report came out today. Most 
Members of Congress have not had a chance to digest it and take 
it apart. Would you or your staff be willing to come back and 
help us ferret out some of the information we feel we still 
need in its interpretation? Would you be willing to do that?
    Mr. Barofsky. Of course. At any time my staff will be 
available to brief your staff. Any time this committee or any 
of the subcommittees want to hear our testimony, we will always 
be available. We are a creation of Congress and part of our job 
is to inform the American people through its representatives of 
everything that is going on. So of course.
    Ms. Kaptur. Now, you have a hotline, 877-SIG-2009. Your 
report states that you received over 3,200 tips from the 
American people. That hotline is available to the American 
people if they work for one of these hotshot companies and they 
were involved in activity that they have now reflected might 
not have been cricket and above board. They can report that to 
you, can't they?
    Mr. Barofsky. Yes. They can and should also go to our Web 
site if they don't want to use the phone, www.sigtarp.gov. This 
has been a crucially important aspect of what we do. More than 
half of our criminal investigations have been initiated by tips 
from the hotline. So people are using it and we really strongly 
encourage it.
    Ms. Kaptur. So some of those tips are good?
    Mr. Barofsky. Some of the tips are very good.
    Ms. Kaptur. So the American people have to muscle up here 
as well. I think the fact it is a free phone number, 877-SIG-
2009, means people ought to use it. This was networked across 
the country. There is knowledge all across America and we need 
to pull it together.
    I can tell you, in my region of northern Ohio, mortgage 
foreclosures are going up. Unemployment is going up. Four 
businesses told me this weekend that they can't get credit, and 
these are excellent businesses. The system is not working at 
the grassroots level in Ohio.
    I voted against the TARP and I voted against the bailout 
because I thought that they weren't the right means to resolve 
a crisis inside the mortgage system. We had done that before 
back in the 1980's when we used mark to market accounting. We 
actually went into the books of troubled institutions using 
FDIC examiners and SEC accountants. So you had accountants plus 
bank examiners in there. The burden was not put on the American 
people. This was back when Continental Bank failed in Illinois 
and when all the banks in Texas went down but for one.
    When they came up with this concoction of these particular 
means, investing all this power in Treasury, and ramrodded it 
through Congress 6 weeks before an election, I have to tell you 
I became very, very suspicious. I still am.
    One of my questions to you is this: You have had background 
in your own life in mortgage fraud. Have you ever had a 
background in control fraud and systemic fraud?
    Mr. Barofsky. I don't know how much control fraud or 
systemic fraud as sort of cases are concerned. I have certainly 
been involved in securities fraud of what would probably today 
be considered some systematically significant institutions. I 
looked at some of the accounting frauds and frauds that those 
companies have committed.
    Ms. Kaptur. I would urge you very much to look at, of 
course, the Enron situation. Because this goes to the very 
highest levels of finance and of institutional structures in 
our country. Ultimately, it had international repercussions. 
But I would urge you to look at the Enron situation and to 
think about the kind of staff that you might hire up and the 
additional authorities that you have been given.
    Mr. Barofsky. Well, it is funny that you mention that 
because we just recently brought on, I prosecuted the Refco 
matter and we just recently brought on as one of our attorney 
advisors one of the prosecutors on the WorldCom matter. So we 
are gearing up with that in mind.
    Ms. Kaptur. Very good. One of the most insightful people I 
have read on this is Mr. Bill Black out of I think the 
University of Missouri, Kansas City. He had worked for the 
Commodity Futures Trading Commission back in the early 1990's. 
I don't believe he is for hire. But I am just saying his way of 
thinking about what went on is very, very useful. I wish to 
share that with you.
    I also want to put two issues out there. One is warrants 
and my deep concern about, for instance, Goldman Sachs and 
their warrants. It is my understanding that the American people 
have the right to 12.2 million shares of Goldman Sachs, 
according to the numbers that I have. Goldman Sachs actually 
has the privilege under the agreement of determining when our 
taxpayers have to sell those warrants and exercise their 
rights. So they control the price and they control the timing.
    I think it is really important on the warrant issue that 
you examine these warrant potentials, sales prices, and the 
timing of this for the American people. The other day the price 
was $1.60 per share and apparently Goldman was saying they will 
sell it to us for $1.229. That difference yields $450 million 
if we were to sell today. What if we held it for 9 years? 
Nobody is asking those questions, as far as I know.
    I am very concerned for the American people if Goldman and 
all these other companies get their money back plus.
    Mr. Barofsky. We have an ongoing audit into exactly these 
issues on the warrant repurchase process. So that is something 
that is pending that we are looking at.
    Ms. Kaptur. Mr. Chairman, I just wanted to say for the 
record--I don't have time to ask on the PPIP program--but what 
troubles me, Mr. Barofsky is some of the individuals. Forget 
the company names like BlackRock. I am concerned about the 
people who were involved in inventing the mortgage sub-prime 
instruments, then moving it to market, changing it from a bond 
to a security, and then creating the derivative instruments. 
They are changing the companies they were in so now they are 
the same people who have gone to the Fed and have gotten these 
contracts.
    I really think you need to look at people, where they were 
in the system over the last 20 years; what impact that has had 
now on our economy; and who is in place, in my mind, with the 
potential power to cover over some of their own very bad 
mistakes. I would urge you to look at those firms closely.
    Thank you.
    Chairman Towns. The gentlewoman's time has expired. I now 
yield to the gentleman from North Carolina, Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Chairman. The tune of $23.7 
trillion worth of taxpayer exposure for the bailouts is quite 
striking and frightening.
    I appreciate your testimony and your frankness. I am 
grateful that the President has not fired you like he has fired 
two other Inspectors General.
    Mr. Barofsky. Me, too.
    Mr. McHenry. But I do think it is a big concern that the 
administration is choosing to remove Inspectors General. You, 
as well as your colleagues within the various Inspector General 
Offices across the Government, do a yeoman's task of making 
sure the Government is accountable to the taxpayer.
    With that, I would like to yield to the ranking member the 
remainder of my time.
    Mr. Issa. I thank the gentleman.
    In following up on that line, I will bring to your 
attention that according to the Wall Street Journal, some of 
the private fund managers selected to participate in the PPIP 
may have consulted informally to the Obama administration in 
writing the PPIP itself. In other words, they wrote what they 
now participate on, which is not surprising.
    Additionally, the New York Times reports that BlackRock CEO 
Laurence Fink, who has been chosen as one of the PPIP fund 
managers, is a member of Larry Summers's inner circle. The 
program lets him select fund managers that use 75 percent of 
the taxpayers' money and assets.
    My question to you is if, in fact, these and other 
activities begin to look like a cordial relationship where 
information is being passed and positions are being given 
because of friendships of people that go in and out of 
Government, are you in a position to investigate that?
    Mr. Barofsky. I think that certainly any type of corruption 
is squarely within our mandate. But the points that you raise 
go so importantly to what we were discussing earlier as far as 
the reputational risk to Treasury. If, in fact, these 
individuals had a hand in writing these programs, it becomes 
all the more important that from a perception area alone we 
have the tightest and most significant ethical and 
informational barriers and walls to prevent them from taking 
advantage of a program that they may have had a hand in 
creating.
    Mr. Issa. Mr. Barofsky, you have been criticized a little 
bit for this $23.7 trillion, as we entered in the record 
earlier, partially because these are assurances and partially 
because it is outside of the TARP itself. How many IGs would 
have to be at your table if we were to cover all the 
guarantees, assurances, promises, and underwriting that the 
Government is doing? How many different parts of Government 
would we be dealing with here?
    Mr. Barofsky. If you go through our chart and count up the 
institutions, I don't have the number at hand, but certainly 
the FDIC, Federal Reserve, Pension Guarantee, and the National 
Credit Union. It would be basically the financial services 
roundtable of IGs.
    Mr. Issa. So if we can't fit them all at the present table, 
and the chairman has not yet said we are going to increase the 
size of the witness table, then is it fair for us to consider 
here the fact that when we created your position we were 
thinking in terms of $700 billion in TARP and today we are 
thinking in terms of the financial recovery and oversight 
process that now has a dozen or more IGs loosely associated who 
are not able to coordinate their activities, at least by 
design?
    Do you believe that either your position or another 
position should be created that would be the IG for financial 
oversight to bridge all these various IGs so that our systemic 
risk, which is $23.7 trillion of risk, could in fact be 
overseen in a coordinated way?
    Mr. Barofsky. I think the most vital thing that I have as 
an Inspector General, being obviously brand new to the 
Inspector General system, coming here last December----
    Mr. Issa. But not to the Inspector part of it?
    Mr. Barofsky. The most vital thing is my independence. The 
independence is the most vital thing for an Inspector General.
    I think it is very important for us to coordinate with one 
another. In the TARP, I formed an IG council so all the 
different IGs that touch on TARP programs meet monthly and we 
talk about audits and investigations. We have subcommittees. I 
think that type of coordination is very good. In fact, I will 
be going on Thursday, there is a monthly lunch for regulatory 
IGs. So we are coordinating with each other.
    I think putting an umbrella over other Inspectors General, 
I think that almost invariably will impinge on their 
independence. I think we are coordinating and will continue to 
do so.
    Mr. Issa. But in fairness, since we are seeing you, it is 
important that you be able to give us, if you will, the results 
of that coordination so that we are looking at the entire 
financial oversight as we are here today.
    Let me just ask you one closing question. In the case of 
Chrysler, it has been reported, and I believe this to be true, 
that we have given up $3.8 billion worth of DIP financing, 
meaning we gave them the money out of TARP in order to go 
through a process. We then sold them and took back nothing in 
return. Is that something that needs to be investigated, 
whether or not it was necessary to write off nearly $4 billion 
of the last money into Chrysler?
    Mr. Barofsky. Yes. In our report we detail those numbers of 
what has been waived, both in Chrysler and in General Motors, 
and what has been received on the other side, including equity 
interest. I think that sort of the facts are what they are on 
that and are certainly open to any fair inquiry as to how we 
got to that situation.
    Mr. Issa. So perhaps it is for us to decide whether it is 
worth investigating now that you have given us the facts?
    Mr. Barofsky. Yes. It is certainly something that we can 
look into potentially, or one of our oversight partners, as 
part of an audit as to what that decisionmaking process was.
    Mr. Issa. Thank you. Thank you, Mr. Chairman.
    Chairman Towns. The gentleman from North Carolina's time 
has expired. I now yield to the gentlewoman from California, 
Congresswoman Watson.
    Ms. Watson. Mr. Chairman, I want to say to you on your 
birthday that yesterday is the past, tomorrow is the future, 
but today is a gift from God. That is why it is called the 
present. Happy birthday, Mr. Chairman.
    Chairman Towns. Thank you very much. I appreciate your kind 
words.
    Ms. Watson. Thank you so much, Mr. Barofsky, for being here 
and being so open with us. I want to get back to the Bank of 
America. According to recent reports, Bank of America is now 
trying to avoid paying billions of dollars in fees to the U.S. 
taxpayers in return for the $118 billion in guarantees they 
received from the Federal Government. According to the Bank of 
America, the agreement was never signed but the guarantees have 
been announced as part of the assistance they received to 
complete the acquisition of Merrill Lynch.
    Do you believe that the Bank of America benefited from 
increased investor confidence because of the perception that 
they had Federal ring fencing of their toxic assets?
    Mr. Barofsky. I really am reluctant to comment as Inspector 
General on an ongoing negotiation between Treasury and Bank of 
America. I think that the events are what they are on that. But 
I think we may be crossing a line as an agency if we start 
publicly commenting on something that is an ongoing 
investigation. So respectfully I would ask for your permission 
not to answer that question.
    Ms. Watson. We had the former Secretary of the Treasury, 
Mr. Paulson, in here for 5 hours last week. It was like trying 
to unscramble rotten eggs. It is very frustrating to us.
    Has the Treasury Department provided an explanation for why 
they did not require Bank of America to join the Asset 
Guarantee Program agreement? Do you know?
    Mr. Barofsky. We haven't gotten that explanation. We have 
been monitoring the program since its announcement. We have a 
little bit of information basically that there has been ongoing 
discussions.
    We have an audit coming out I think that tracks a lot of 
the fine work of this committee on the Bank of America and its 
participation in the various TARP programs. We will be 
presenting that in September. I would be happy at that time to 
come back to the committee and discuss the findings if the 
committee would think that would be helpful.
    Ms. Watson. Yes. I would ask the Chair to hold a followup 
meeting in due time so that we can followup on some of this.
    You lead right into my next question I wanted to ask. Have 
you discovered any other large scale agreements which the 
Federal Government has entered into with financial institutes 
without valid contracts to enforce the proper repayment of the 
taxpayers' investments? This is a question that you can keep in 
mind for our followup meeting. I do hope we can set that 
sometime in the very near future.
    In your April quarterly report, you noticed the risk of 
conflicts of interest and collusion vulnerabilities inherent in 
the design of the Public-Private Investment Program [PPIP]. 
However, the Treasury Department has declined to adopt your 
recommendation to impose an informational barrier between the 
employees who do or do not handle PPIP funds at the nine PPIP 
fund managers. Can you comment on that or should we wait for a 
subsequent meeting?
    Mr. Barofsky. Absolutely. We think that this is a 
fundamental deficiency in the current structure of the PPIP 
program. We think that it is absolutely essential that there be 
an informational barrier or ethical wall that prevents the fund 
managers' firm from taking advantage of confidential market 
moving information that the fund managers are going to have. We 
think it is a problem and we think it is a deficiency in the 
program.
    Ms. Watson. Thank you. Why do you believe that the Treasury 
Department is unwilling to impose the measure despite having 
placed similar restrictions on asset managers in comparable 
Federal bailout-related programs?
    Mr. Barofsky. Treasury has provided to us and we have 
included in our report a very detailed written description of 
their justifications and reasoning. In our report, we address 
each of those and show why we disagree with them.
    One of them is that it is impractical, that the design of 
the program doesn't make it susceptible to such walls. It may 
very well be that the program is fundamentally flawed in its 
design in such a way that in its current structure it may be 
impractical. Our response is that, because this is such an 
important issue for such a variety of reasons, if it is 
impractical with the current nine fund managers then before 
selecting these nine fund managers Treasury should have changed 
its criteria or did what was necessary to put in the necessary 
walls to protect the taxpayers.
    Ms. Watson. My time is up. Mr. Chairman, I would hope that 
in our subsequent hearing with Mr. Barofsky that we can get 
these recommendations and get some ideas about how you would 
assess the standard functions of such a department. So thank 
you.
    Are we going to recess?
    Chairman Towns. No, we are going to continue all the way 
through. Just to give you an update, the House is in recess, 
which makes it good for us. We can continue. We are not in 
recess. When the House is in recess, that is when we really do 
our work.
    Ms. Watson. Thank you, Mr. Chairman.
    Chairman Towns. I now yield to the gentleman from 
California, Mr. Bilbray.
    Mr. Bilbray. Thank you, Mr. Chairman. I would like to join 
the committee in congratulating you on your birthday. All of us 
were witnesses to how quickly you blew out that candle so maybe 
we can negotiate with Mr. Waxman for a carbon credit for you on 
that item, OK? [Laughter.]
    First of all, I watched this morning, Mr. Barofsky, the way 
you were attacked for releasing this report. I would just like 
to say to you as one member of this committee, thank you for 
giving us the hard, cold facts. I just hope that you remember 
that when you get attacked like that, basically because you 
brought a message a lot of people didn't want to hear in this 
town, that contrary to public belief the ancient Egyptian 
tradition was to always send your best people to give bad news. 
The guys who were sent with the good news were sacrificed to 
thank the gods for the good news.
    So it should be a credit to you to understand that you are 
attacked because you are bringing this up. I want to thank you 
very much for that. I am sure that not just this committee but 
the public at large is going to thank you for your report. The 
hard, cold facts do get into trouble.
    Speaking of footprints, I want to talk about the whole 
concept of looking at BlackRock and some of these others, the 
nine players here, looking at the footprint of the Federal 
Government picking winners in this whole game. Do you have any 
idea, or if you don't and you need to have time I understand 
because you can get back to us in writing, how did these nine 
major players get chosen as the winners in this game to be 
blessed not just by the bureaucracy of the Federal Government 
but by all the taxpayers in the Federal Government? How did 
these nine players become the winners in this game as opposed 
to the other losers that were pointed out by the former Mayor 
of Cleveland, Mr. Kucinich?
    Mr. Barofsky. Treasury's explanation is that they put out 
applications. They received about 140 applications. The next 
step was to remove duplicative or incomplete applications. That 
came down to 102. They then applied the criteria, which they 
have put out on their Web site, of what they were looking for 
in the ideal asset managers. Basically, those that didn't meet 
that cut, I think they narrowed the number down to 13. They 
then did a series of interviews and ended up with the final 
nine.
    I think those are the numbers. I think the exact numbers 
are likely reflected in our report. That is essentially how 
Treasury has described their process.
    Mr. Bilbray. Thank you, Mr. Chairman. I just think this 
report, again, really reinforces the fact that we have ventured 
into a very, very scary territory. It is a brave new world 
where Washington decides what happens on Wall Street and Main 
Street. Hopefully, we can somewhere in the future find a way to 
have an exit strategy and remove ourselves from imposing our 
footprint over the rest of American society. I thank you very 
much for this report because I think it is a dose of reality to 
make all of us work together here.
    I yield back, Mr. Chairman.
    Chairman Towns. Thank you very much. I now yield 5 minutes 
to the gentlewoman from California, Ms. Speier.
    Ms. Speier. Thank you, Mr. Chairman. Thank you, Inspector 
General. It is a pleasure to have you before us. In your short 
time you have done an extraordinary job. We thank you on behalf 
of the American people.
    Let me first ask this question: Did any bank you surveyed 
not participate by returning the survey?
    Mr. Barofsky. No, we had 100 percent participation.
    Ms. Speier. Very good. Should we pass legislation to 
require the tracking of TARP funds since evidently it was not 
required in the actual providing of the TARP moneys?
    Mr. Barofsky. We believe that requiring recipients to 
account for their use of funds is a fundamentally important 
part of transparency. It is why we make this recommendation and 
continue to make this recommendation.
    As a policy, we tend not to cross into the policy 
recommendations as to what Congress should do or what Treasury 
should do. We do say what Treasury should do but we don't 
suggest legislation for Congress just as a policy matter and to 
maintain our independence. We certainly do feel it is our 
obligation to present to you why we think it is such an 
important factor of transparency.
    Ms. Speier. Did the contracts that the Treasury devised 
with the banks for the distribution of the TARP funds prohibit 
the use of the money for any purpose?
    Mr. Barofsky. There are different contracts and different 
programs. There are some restrictions on stock buybacks in the 
Capital Purchase Program and certain restrictions on increasing 
the level of dividends. So there are some restrictions, 
although not many.
    Ms. Speier. So the fact that they would use the money to 
make investments, pay debts, or buy other banks was all legal 
under the granting of the TARP funds?
    Mr. Barofsky. Absolutely.
    Ms. Speier. Should we change that?
    Mr. Barofsky. As I said, that is a real policy decision 
that needs to get made. I think in making that decision, we 
should take a look at both sides of these arguments. Part of 
the role of transparency, as the Special Inspector General we 
think that these debates are best informed by bringing 
transparency so we can see what happened. But I can give you 
arguments that I have heard on both sides of any one of these 
issues. I think one of the more controversial is acquisitions. 
I have heard some very powerful, strong arguments that is 
actually good for the banking system and arguments on the other 
side that it would be an inappropriate use of TARP funds.
    Ms. Speier. Let us talk about acquisitions. Which banks 
actually took the TARP money and made acquisitions?
    Mr. Barofsky. We are going to be publishing, necessarily in 
some redacted form, each of the responses that we received. The 
reason why I say redacted is that there is some confidential 
business information that we would be prohibited by law from 
making public. Since we are still in the process of that, I am 
reluctant to comment on any specific response that we had. We 
will be making that information public hopefully within the 
next 30 days.
    Ms. Speier. In terms of alarms that go off in your head 
because of what you have been able to ascertain through your 
surveys, what are those alarms that we should be particularly 
focused on?
    Mr. Barofsky. I don't think that there are any alarms. I 
think when we did this survey we were taking great care not to 
make any judgments for all the reasons that I have stated.
    The most alarming thing to me is that Treasury continues to 
refuse to adopt this recommendation even in light of the proof 
that we now have in this audit. They continue to tell us that 
it is a meaningless survey even though no one from Treasury has 
taken us up on our offer to come look at these survey responses 
in unredacted form. We said, ``come over, take a look at them, 
and see if you think that these are meaningless responses that 
can't provide transparency.'' So I think the most alarming 
thing to me is this steadfast refusal, this willful refusal to 
adopt a recommendation that we think is so important to provide 
transparency.
    Ms. Speier. So you are saying that even though you now have 
over 360 surveys that provide information on how the TARP funds 
have been used, no one from the Treasury Department has come 
over to look at this information?
    Mr. Barofsky. No. Their refusal to adopt our recommendation 
was made purely off of our audit report. They have not come 
over.
    Ms. Speier. I think that is astonishing. I yield back.
    Chairman Towns. Thank you very much. I now yield to 
Congressman Schock from Illinois.
    Mr. Schock. Thank you, Mr. Chairman. Likewise, happy 
birthday on your special day. I am just noticing your election 
to office in 1983. As someone who is 28 years old in Congress, 
that is a lifetime.
    Chairman Towns. I feel it, too.
    Mr. Schock. So thank you for your service this Congress and 
your country. Happy birthday.
    Mr. Barofsky, I am specifically interested in the change in 
purpose that has occurred under the new administration with the 
use of TARP funds and how that might change your role or add 
additional responsibilities. How does your responsibility as 
the Special Inspector General for TARP interface with our 
Federal Government's decision to bail out the automakers? Could 
you speak to that?
    Mr. Barofsky. Sure. I think that in the near term we are 
addressing that through our audit function. We have announced 
an audit of corporate governance, which of course oversees the 
fact that we do have a controlling equity interest in General 
Motors now and a minority interest in Chrysler Financial. My 
team is going to be heading out to Detroit next week, some of 
my audit team, to start that process.
    We are also going to be sending representatives of our 
Investigative Division as well to make the necessary contacts 
and make sure that the word is out, including the word about 
our hotline if anyone within these companies knows of any 
misrepresentations. There is a whole bunch of reporting that is 
required as a condition of the Federal funds. So we are going 
to keep a very close eye and dedicate the necessary resources 
to fulfill our oversight role.
    Mr. Schock. So you feel you are being given the latitude 
you need in terms of allowing your personnel into GM and 
Chrysler to oversee the use of those TARP funds?
    Mr. Barofsky. I will let you know next week. But I don't 
anticipate that we are going to have a problem.
    Mr. Schock. OK. The next question is your opinion. When 
this bill was sold to Congress last fall, it was predicated on 
the idea that this money, in the words of former Treasury 
Secretary Hank Paulson, would be if not all paid back, most of 
it. And there was a slim likelihood that we might actually make 
money on the TARP money for the taxpayers. Do you believe that 
the majority of this money will be paid back?
    Mr. Barofsky. I think if you look at the way the program 
has evolved, I think it is extremely unlikely that we are going 
to get $700 billion back. The Mortgage Modification Program 
alone is $50 billion. There is no anticipation that any of that 
money will come back. That money is being directly given to 
mortgage servicers to help convince them to lower mortgage 
payments and payments they will make on behalf of home owners. 
So I think it is very unlikely that TARP will turn a profit 
significant enough on other activities to generate a profit to 
cover that $50 billion.
    In addition, on some of the other programs, as the ranking 
member noted, the money has been written off from Chrysler. We 
still have to see what happens with our equity interest in 
those companies.
    So it is certainly possible that more may be retained or 
earned back over time than maybe we even suspect right now. But 
I think the idea of getting a dollar for dollar return would be 
extremely unlikely.
    Mr. Schock. Then I wonder specifically about your 
statements earlier about asking Treasury to detail or to 
basically collect information from TARP recipients and also the 
use of the taxpayer funds from those TARP recipients. Treasury 
kind of gives this response that would be meaningless and 
really is not necessary. What is your view of that?
    Mr. Barofsky. First of all, if it were meaningless, I don't 
understand why Treasury does this with respect to Bank of 
America, Citigroup, and AIG. Recently with AIG, are they 
including conditions in their contracts that they believe are 
meaningless? I certainly hope not.
    My view is that sure, money is fungible. That is a true 
concept. But just to use a simple example from my own life, I 
get direct deposit of my Federal paycheck. Normally I couldn't 
tell you if I buy some groceries whether it is from 1 week or a 
different week because money is fungible it all goes into my 
checking account. A couple of years ago when I won the John 
Marshall Award for my work on the Refco case, there is a small 
cash component. I knew that was going to be direct deposited 
into my checking account. Before I got that check, I knew what 
I was going to do with that money. I was going to pay off a 
piece of my student loan. Sure enough, the money came into my 
account and then went out to pay off the student loan. So sure, 
money is fungible but I could tell you with a great deal of 
certainty what I did with that bonus money, that extra money 
that came in.
    What we see is that the financial institutions have been 
able to do the exact same thing. The TARP was an extraordinary 
amount of money and an extraordinary investment. Banks can tell 
what they did with that money. If they are responsible 
companies, they are budgeting for the fact that they are 
increasing the capital by these amounts. This is all money that 
can be verified and tested.
    So much of Treasury's compliance system is based on similar 
types of self reporting where financial institutions report 
their compliance and then Treasury comes back and hopefully one 
day will test through its compliance function. This is no 
different. If a bank says, I used the money to acquire another 
financial institution which I wouldn't have been able to do 
otherwise because I wouldn't have had enough money, that is 
certainly a verifiable fact. If they go buy agency mortgage-
backed securities and say this is what we did with the money, 
we can look at what their total volume of securities were 
before the TARP money and afterwards and test that money.
    So we do believe that this is an important part of 
transparency. It is important for the Members of Congress, for 
the American people, and for Treasury as well to know what is 
going on with the taxpayer funds.
    Mr. Schock. I agree. Thank you very much for your 
testimony. I hope you will continue to press on. Thank you, Mr. 
Chairman.
    Chairman Towns. Congressman Schock's time has expired. I 
now yield 5 minutes to the gentleman from Massachusetts, 
Congressman Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. Mr. Barofsky, thank you 
for your great work. I appreciate the work being done by Mr. 
Dodaro and Elizabeth Warren as well. The work that you do 
obviously allows us on the Oversight Committee to do a lot of 
our work.
    Let me ask you: One of the programs that Treasury has set 
up was this Asset Guarantee Program where Treasury will 
guarantee certain toxic assets held by qualifying financial 
institutions. They have focused mainly on toxic assets held by 
Bank of America and Citigroup. I think those are the two big 
outfits that they focused on. Have you been able to get 
information on the specific assets that Treasury has acquired 
from Citigroup and Bank of America?
    Mr. Barofsky. We are in the process of putting together an 
audit that is going to address exactly that question. We 
received a letter request from Congress to look into that. We 
are right now in the process of putting together the audit 
structure that is going to address exactly that issue of what 
is in there, what the cash-flows are, and how it came to be. It 
will be really a thorough audit on the entire process and what 
is going on at Citigroup.
    For Bank of America, Ken Lewis, the CEO of Bank of America, 
indicated that they are withdrawing from that program. The 
contract was never signed and therefore it is not actually 
going to be imposed. We do have a pending audit that we expect 
to complete in September that addresses Bank of America and its 
participation in the TARP programs. So we will touch on that 
there but we won't be doing a similar study of the assets given 
the change in status of that program.
    Mr. Lynch. I know this was instituted in November 2008 and 
I am just wondering what actually was purchased. My question 
really focuses on our potential exposure. If we are providing a 
guarantee behind a credit default swap or some complex 
derivative, our exposure may be greater than what your monetary 
assessment has been, even at $3 trillion. I am just worried 
about our exposure there.
    Let me just shift. I certainly anticipate your report in 
September. That will be great.
    Let me ask you about your own position here. We originally 
set up the Special Inspector General for TARP in connection 
with the $700 billion that was allocated. I did not vote for 
that but it went through anyway. A lot of us didn't. Originally 
you were set up to oversee and to safeguard the taxpayers' 
money. However, recently I understand that Treasury has 
challenged your authority as an independent oversight body. 
Reportedly, Treasury has requested an opinion from the Justice 
Department Office of Legal Counsel questioning whether your 
Office in fact falls under Treasury's authority.
    Can you comment on Treasury's challenge to your 
independence, which you talked about earlier as being so 
important, integral to your operation there?
    Mr. Barofsky. Yes. We do think this is potentially an issue 
that could impair our independence. Treasury has sought this 
legal advice from LLC. We have submitted our own submission 
detailing our position. We think it is crystal clear what 
Congress's intent was, for us to be an independent agency 
operating within the Treasury Department. We are going to wait 
and see. But we think that there is a danger that Treasury 
could try to assert, depending upon what the LLC opinion is, 
the authority to shut down investigations or audits that we may 
seek to initiate. We think that would obviously be contrary to 
the intent of Congress. Certainly we will let Congress know if 
we do get an adverse opinion.
    I am pretty confident, though. I think the statute is so 
clear and the intent of Congress is so clear. I am hopeful that 
LLC will see it the right way, I think really the only way that 
makes sense based on how the statute is written and what the 
statements of Congress have been both at the time of enactment 
and since then. Hopefully this issue goes away. I always 
thought this was an unnecessary thing for Treasury to do. I 
continue to think so.
    Mr. Lynch. Obviously if this challenge is diverting the 
energies of your staff to defend itself, perhaps we in this 
committee can, there are some vehicles that are going through 
Congress right now, we could simply amend one of those just to 
clarify that our intent was that you would be independent and 
that you conduct oversight over the operations of Treasury in 
connection with this TARP program.
    I also heard that Treasury's decision to challenge this 
came immediately in response to some of your questions 
regarding the bonus payouts at AIG. Is that correct?
    Mr. Barofsky. That was the timing. I wouldn't go so far as 
to do a causal relationship between the two because I don't 
know for sure. It did come up, the issue, on the eve of an 
interview that we were going to have with a member of 
Treasury's General Counsel's Office who was involved in the 
executive compensation issue at AIG. So it certainly was at 
that time.
    Mr. Lynch. I only speak for myself and I know my time has 
expired. I just want to say that I think it would be a terrible 
miscarriage of what Congress's intent was to have you hamstrung 
by being put under Treasury. We established your Office to 
oversee and to protect taxpayer money. We do not expect you to 
be answering to Treasury. We expect you to be investigating 
them and conducting your oversight.
    Thank you. I yield back, Mr. Chairman. Happy birthday.
    Chairman Towns. You can't yield back. You don't have any 
time. [Laughter.]
    Congressman Fortenberry.
    Mr. Fortenberry. Thank you, Mr. Chairman. Mr. Barofsky, 
welcome. Thank you for your testimony today.
    You have made the news with your $23.7 trillion 
pronouncement in your report. I would like ask you to unpack 
that further. That obviously is the fullness of potential 
taxpayer liability, the potential exposure to taxpayer 
liability. Many of us have been operating off of a working 
assumption that total taxpayer liability was about $12 
trillion, that between the Fed and the FDIC as well as the 
Treasury Department that totaled about $12 trillion. Now, the 
other number that I thought was significant that you said was 
about $4 trillion of actual realized expenditures.
    So I have two questions. Let us just try to break this down 
into categories that are manageable. Tell the American people 
where that taxpayer liability is located. To whom has it has 
been gifted, basically? Then, again, under the $4 trillion 
actual realized expenditures, to whom is that going and in what 
form, direct expenditures, loans, guarantees? By whom, to whom?
    Mr. Barofsky. Your question actually encapsulates why I 
made this an entire section of our report. It is obvious there 
are some very complicated issues here. In Section 3 of this 
report, we do that breakdown. We talk about each of the numbers 
that we are talking about.
    The $3 trillion that is currently outstanding, the $4.7 
trillion that has been expended or guaranteed in total 
including money that has been paid back and canceled programs 
from the initiation of the crisis through June 30th, and then 
the $23.7 trillion number, which is the maximum number if every 
one of these programs was subscribed to to the highest amount, 
every guarantee was done.
    The purpose of this really wasn't to make the news or to 
make a splash. What we did here is we took the 50 programs 
because we thought it was important to show what the 50 
programs were in addition to TARP that address the Government's 
support of the financial system. Really, the $23.7 trillion 
which has generated so much controversy and so much comment 
from the Treasury Department is just adding up the number of 
what the total high water mark is for each of those 50 
programs. That is what is reflected in here.
    So it is not that the taxpayer is on the hook right now for 
$23.7 trillion. We do not say that and we do not suggest it. 
But that is the maximum if you take all of the programs that 
have been initiated since the inception of the financial 
crisis.
    Mr. Fortenberry. That is the total potential exposure. But 
again, let us get back, let us try to frame that a little bit 
more concisely. This is 250 pages, the particular section you 
are referring to I do not know how many pages is that, I do not 
know if you have a particular chart that categorizes this in 
broad terms so that we can all have a working framework that is 
useable so that we can understand the total liability that 
exists and actually where it is going.
    Mr. Barofsky. Table 3.4 on page 138. I would say that any 
taxpayer or anyone interested, this report is at our Web site 
www.sigtarp.gov, anyone can download this and see all the 
facts. But if you look at page 138, that has a table which is 
entitled Incremental Financial Systems Support. What we have 
done here is some existing programs were increased, so we have 
not included the total program but only the increase that is 
attributable to the financial crisis.
    What we have here is it lists the different sources of 
where the guarantees or support are coming from and lists what 
the current balance is, the maximum balance from inception, and 
what the total potential support is. And that is the phrase 
that I think is the right one, it is total potential support. 
Now each of these entries in here, and we list the Federal 
Reserve, the FDIC, Treasury TARP, Treasury non-TARP, and then 
others, is supported subsequently in the report by other 
charts.
    So, for example, if you wanted to see what the Federal 
Reserve portion of this is, you just turn the next page and in 
Table 3.5 we list each of the Federal Reserve programs that is 
described again with this same information, the current 
balance, the maximum balance, and the total support related to 
the crisis. What you do when you add up each of these charts 
and the total support, that is where the $23.7 trillion number 
comes from.
    Mr. Fortenberry. Now, out of this comes about $16 trillion 
between the Federal Reserve, Treasury, and the FDIC. Again, the 
operating assumption that we have been working off of for 
basically the balance of this year because there were no 
numbers available, easily available, was $12 trillion. So that 
is a very significant increase.
    Mr. Barofsky. That is one of the reasons why we have done 
this. We have come under some criticism for having done this. 
But every time that we would look at a different article or a 
different newspaper there would be a different number there. We 
thought it was important to put the TARP in context to collect 
what the major numbers were, and that is what we have tried to 
do here.
    Mr. Fortenberry. What level of detail does it go into in 
terms of actual recipients of these various funds between FDIC, 
Treasury, as well as the Federal Reserve?
    Mr. Barofsky. We had a page limit. Ultimately, this is TARP 
in context and given the number of these programs, what we have 
done is really a one or two paragraph summary of each program. 
Also, everything that is in here is based on publicly available 
information. This is all stuff that we got off the Web sites or 
congressional testimony of the different agencies. Getting into 
the recipients would be I think in a large part in many cases 
beyond what is publicly available and, frankly, beyond our 
jurisdiction or authority because these are non-TARP related.
    Chairman Towns. The gentleman's time has expired. Thank 
you.
    I now yield 5 minutes to the gentleman from Massachusetts, 
Mr. Tierney.
    Mr. Tierney. Thank you very much, Mr. Chairman. Thank you, 
Mr. Barofsky, for the work that you are doing and for being 
here today. I just have two lines of questions, should not take 
too long. One concerns the term asset backed securities loan 
facility, the so-called TELF. This is an idea where they need a 
AAA rating from two of the rating firms and a not less than AAA 
rating from the third firm. But we continue to have these 
rating agencies paid by the issuers, by the people whose 
product they are rating.
    You made mention of that in your report. You said 
essentially they are ``paid by the issuers of the very 
securities that they are rating. As a result, the agency has an 
incentive to issue a high rating to attract future business 
from that issuer.'' That is one of the problems that got us to 
where we are today in this whole financial crisis. It should 
boggle our minds that we are continuing down that path and in 
relying on those as part of this program. So you would agree, 
obviously, that we should be concerned about this. Moreover, 
what would you suggest that we do as a different methodology 
for the TELF program and others?
    Mr. Barofsky. This is something that we have been pushing 
for since our initial report to Congress in February. We have 
some suggestions. One of our concerns is a race to the bottom. 
Moody's actually came out, one of the three rating agencies, 
and has said basically that they are losing business because 
they have been more strict than the other two and, as a result, 
they have not been getting enough business.
    We have not investigated that. We think that the Federal 
Reserve and Treasury needs to investigate that further. But it 
sort of raises the ultimate issue of a potential race to the 
bottom. And then it was expanded when the TELF went into 
commercial mortgage-backed securities they added more rating 
agencies but kept the number at two that are required to get 
approval. That only exacerbates the issue of more rating 
agencies for that race to the bottom to occur.
    I think what they need to do is what the Federal Reserve, 
to their credit, has started to do, which is, stop relying on 
rating agencies to do the work, the diligence, the underwriting 
that stands behind these asset-backed securities. The Federal 
Reserve has hired a collateral monitor for commercial mortgage-
backed securities to come up with its own evaluations as to 
what these things might be worth in a stressed environment. We 
think that it is important to keep pushing in that direction, 
away from reliance or the importance of rating agencies in this 
process to make sure when we are dealing with taxpayer money 
that the level of protection is a little bit higher than what 
has, as you correctly state, got us into this soup in the first 
place.
    Mr. Tierney. What can Congress do to help you push that 
point? Obviously, if we are not going to have somebody other 
than the issuer pay, then we should do exactly what the Fed is 
doing with this program.
    Mr. Barofsky. It is not really our policy to advise 
Congress on specific legislation on these policy issues.
    Mr. Tierney. But saying that legislation would be the only 
thing we could do or one of the things we could do or whatever, 
it would be helpful, generally.
    Mr. Barofsky. I think it also is sort of worth noting that 
in the regulatory reform that this Congress is considering, 
taking a good hard look at what the reforms are for the rating 
agencies and whether the reforms truly and squarely address 
these conflicts of interest that had such disastrous 
consequences leading into the financial crisis.
    Mr. Tierney. Thank you. My other line of questioning has to 
deal with the credit derivative contracts that AIG held with 
third party counter-parties. The financial situation when it 
occurred obviously created a situation where the counter-
parties claimed that the contract terms had been violated. They 
demanded either payment or additional collateral from AIG. 
AIG's lack of liquidity obviously made that difficult to come 
up with, and there was a contest between AIG and those third 
party people as to whether or not there was money owed, if so, 
how much should it be, and there was a negotiation that was 
going on on that.
    When Mr. Liddy from the AIG was before the committee we 
asked him why it was they paid 100 percent on the claim. He 
said he did not believe they necessarily should have, that in 
fact there was contention amongst that, and he had been 
somewhat surprised because he and the people at AIG had not 
done it, that in fact it had been the Fed and the New York 
branch, in particular, that had done it. Are you looking at 
that at all? Are you able to tell us what happened that all of 
a sudden in contested claims they just up and forked over 100 
percent?
    Mr. Barofsky. We are. We are looking at that. We have a 
pending audit into that very specific issue, the credit party 
payments, the payment of 100 cents on the dollar, and who made 
that decision. I expect that audit will be finalized by 
September.
    Mr. Tierney. Thank you very much. I yield back.
    Mr. Issa. Would the gentleman yield?
    Mr. Tierney. Yes, I will.
    Mr. Issa. I have just one quick followup. Are you familiar 
with the XBRL and are you in a position to help get this kind 
of transparency data base access available to agencies that 
currently are not reporting in a transparent fashion?
    Mr. Barofsky. We are familiar with the XBRL product. I 
heard some testimony about it. Actually, my office received a 
presentation on it. It does appear to be a useful type of 
product to track these types of funds.
    Mr. Issa. Thank you. I yield back, Mr. Chairman.
    Chairman Towns. I yield to the gentleman from Indiana, Mr. 
Burton.
    Mr. Burton. Thank you very much. I want to thank 
Congressman Issa for the letter that he gave to me.
    We had Mr. Paulson and Mr. Bernanke before the committee 
just in the last couple of weeks. They had an epidemic of 
memory loss on a number of issues. Mr. Paulson was working of 
course very closely with Mr. Geithner, the now Secretary of 
Treasury, on a number of issues, as well as Mr. Bernanke. This 
whole pattern really kind of bothers me about how they have 
appeared to keep things from the Congress of the United States 
because they can't remember who did what on the Merrill Lynch 
deal with Bank of America and now Geithner's work with Paulson.
    Now they are in effect threatening you. I don't see how 
anybody can get anything out of this letter that we received 
other than they were putting the hammer to you to back off.
    You say here that on April 15th, Mr. Knight wrote to the 
OLC over at the Justice Department attaching a copy of 
SIGTARP's April 7th memorandum regarding the presented issues. 
They were asking whether or not you should fall under the 
jurisdiction or control of the Treasury Department. It is 
pretty clear I think to everybody on this committee that you 
should be independent because that is what your job is.
    But then there was some kind of correspondence between you 
and the Department of Justice. They asked you to redact a 
portion of the email exchange from OLC. That was to you, right?
    Mr. Barofsky. I think all of the information that our 
correspondence that we--oh, yes. I am sorry, yes. The response 
from OLC to us, which then generated an additional response 
from Treasury, yes. We were asked to redact that.
    Mr. Burton. I wonder why they asked you to redact that. Did 
they give you a reason?
    Mr. Barofsky. The stated reason from OLC is that the 
information was indicative of their current thinking on an 
uncompleted matter. Therefore, it was privileged information. 
Until they came to a final resolution, they didn't want----
    Mr. Burton. I was chairman of this committee for 6 years 
and I worked with the Justice Department on a number of 
occasions, a lot of occasions, as a matter of fact. They didn't 
give any information out or send any correspondence whatsoever 
that would have to be redacted. The reason they didn't is 
because until they made a final determination, they didn't want 
any information out there in the hinterlands.
    When they sent you this information, and then they tell you 
that it has to be redacted, it seems to me that is once again 
working with the Treasury Department to kind of keep the hammer 
on you and hold things in abeyance so that you will walk the 
chalk. Do you have any comment on that?
    Mr. Barofsky. I really can't, unfortunately.
    Mr. Burton. I didn't think you could. I think this is such 
a blatant attempt to intimidate you. I am so happy that you 
contacted Ranking Member Issa and Senator Grassley. What it has 
done is it has illuminated this issue so that these people that 
are trying to slow you down and not let this information get 
out in the public domain, they are going to be threatened by 
this right now.
    The only thing I would admonish you to do is to watch your 
back. You, as I understand it, are subject to the President. 
You serve at his pleasure. So I think there could be some 
reason they could come up with down the road that would get you 
replaced.
    But in the meantime, I want to congratulate you for having 
the intestinal fortitude--and I would use some other 
terminology if I weren't in public--to stand up for what you 
believe in. I think it is really great and I am glad you sent 
this letter to Mr. Issa. Thank you.
    Mr. Barofsky. Well, thank you very much. I can assure you 
and I can assure this committee that I will not spend a single 
moment worrying about my job security or my future. I am just 
going to continue to do the job that I have been hired to do, 
which is bring as complete transparency as possible and to 
continue to audit and investigate to the best of my abilities.
    Mr. Burton. I have not met you before but I like you, man.
    Mr. Barofsky. I have had a tough couple of days so I 
appreciate that.
    Mr. Issa. Would the gentleman yield?
    Mr. Burton. I would be happy to yield.
    Mr. Issa. I have one followup question. Much has been said 
of this $23.7 trillion plus or minus a trillion here or there. 
But because constitutionally we must authorize and appropriate 
moneys, wouldn't it be fair to say that we need to have the 
transparency so we can anticipate in each fiscal year the 
likely outlays of additional money where risk is beginning to 
become recognized? Wouldn't that be something that this 
committee has to be able to access if we are going to allow the 
appropriators to make those funds available, presumably because 
additional losses may still occur in a number of markets like 
the housing market?
    Mr. Barofsky. I have to confess that I don't have an 
intimate knowledge of the emergency authorities that have been 
invoked by the Federal Reserve and to a certain extent by the 
FDIC in authorizing these maximum amounts and what Congress's 
role is for authorizing them. So I am not really sure what the 
constitutional structure is.
    Mr. Issa. Assuming that we believe that, currently, in your 
opinion, are we getting that information assuming that we 
believe that we should appropriate moneys in the years in which 
the loss occurs?
    Mr. Barofsky. I think from a looking back perspective, we 
have done our best to bring that information to your attention 
to the best that we can based on publicly available 
information.
    Mr. Issa. Thank you, Mr. Chairman.
    Chairman Towns. Let me just say before I yield to the 
gentleman from Missouri that I like you, too. Let me just say 
that you also serve at the pleasure of the Congress as well. I 
don't think you have a problem because the President has said 
that he is for transparency. Every conversation I have ever had 
with him, he talked about the importance of transparency. So to 
me, you should be in good shape.
    Mr. Barofsky. Thank you, Mr. Chairman. Happy birthday.
    Chairman Towns. Thank you very much. I yield to the 
gentleman from Missouri, Congressman Clay.
    Mr. Clay. Thank you, Mr. Chairman. Happy birthday also.
    Chairman Towns. I am afraid this is making me even older. 
[Laughter.]
    Mr. Clay. Mr. Barofsky, thank you for being here. I look 
forward to your insight on questions that are asked frequently 
in Missouri's First Congressional District. I did not agree 
with the original thrust of TARP and am still troubled by some 
results that I see.
    One of the most important reasons for the legislation was 
to provide liquidity for businesses and home owners as the 
ultimate benefit of shoring up the banks and investment houses. 
We are seeing large banks and investment houses experiencing 
exorbitant profits but no relaxation of credit and no 
significant increase in liquidity. Why has liquidity not been 
restored to small businesses and individual consumers as a 
result of stabilizing these lenders? Do you find that too much 
of the moneys and profits are invested in Treasury bonds rather 
than in moneys made available for lending?
    Mr. Barofsky. I think that the lack of transparency and the 
failure to adopt our recommendations regarding requiring the 
recipients to report on their use of funds makes answering that 
question almost impossible. Until we know with some degree of 
precision exactly how the financial institutions are using the 
money, it is hard to answer the question of why they are not 
using it to increase lending. We do not know what they are 
doing.
    In our survey, our audit report, which was just their 
responses to our survey, we have a lot of answers that could 
lead to some conclusions. But that survey, of course, was from 
a certain point in time, basically March of this year. The 
banks that responded to the survey, 75 percent of them, said 
that they had not yet allocated or spent all of their TARP 
funds.
    Since the time of this survey, another 200 institutions 
received TARP money, including insurance companies, which, 
frankly, I do not think anyone expects is going to be using the 
money as part of their banking subsidiaries that entitle them 
to receive TARP funds.
    So it is very difficult to answer the question of why are 
they not increasing lending if we do not know what they are 
actually doing with the money. The only way we can get that on 
a more timely and regular basis is if Treasury adopts our 
recommendation and commits itself in deed as well as in word to 
maximum transparency.
    Mr. Clay. In your crystal ball, do you suspect that they 
are perhaps paying out lucrative bonuses or paying off debt? 
What do you think is happening?
    Mr. Barofsky. Based on what we saw from our snapshot back 
in March, a certain number are using it to pay off debt, 
different types of debt. Some are paying down lines of credit 
with the Federal Reserve with TARP funds.
    One smaller institution reported to us that, in substance, 
they were planning on using the TARP money for one purpose. I 
think it was to increase lending but right around the time that 
they got their TARP funds they got a line of credit that they 
had with another financial institution called in and they ended 
up using substantially all of the TARP funds to make good on 
this money that they had borrowed from another financial 
institution that they may have had real trouble paying back but 
for the TARP funds. So we get glimpses, at least from the dates 
of our survey, as to what happened.
    Mr. Clay. On another subject, how do you see the private 
program of AIG, the Systemically Significant Failing 
Institution Program, as having worked to the advantage of the 
taxpayers? AIG is the only company to receive funds under this 
program. We own 80 percent of the company yet allow fire sales 
of the most valuable assets, which are on the insurance side of 
the company. Why do we do this?
    Mr. Barofsky. That is a question I think is better 
addressed to Treasury than to myself. It is very hard to go 
back into the old way back machine and know exactly what would 
have happened if we had not bailed out AIG through the Federal 
Reserve or through Treasury and what the implications and 
ramifications would have been. Certainly from some folks' 
perspective, those who were responsible for the bailout and 
those at AIG warned that the consequences would have been 
disastrous. But it is hard to really know, to go back and know 
exactly what would have happened. What we have to do and will 
continue to do in our audits of AIG is to try to bring 
transparency to that decisionmaking process and transparency to 
what is happening over there. We are going to continue to do 
so.
    Mr. Clay. Who do you think are the recipients of these 
below dollar deals?
    Mr. Barofsky. For AIG to sell the AIG assets?
    Chairman Towns. Yes.
    Mr. Barofsky. I think AIG has disclosed some of their sale 
of assets and, to the extent that they have, those are included 
in our report.
    Mr. Clay. Thank you so much for your answers.
    Mr. Barofsky. Thank you.
    Chairman Towns. I now yield to Congressman Driehaus.
    Mr. Driehaus. Thank you very much, Mr. Chairman. Let me 
echo my colleagues in wishing you a happy birthday as well.
    Mr. Barofsky, thank you very much for your testimony. I 
share the opinion of many of the members of the committee that 
you should, in fact, be independent. If there are challenges 
with Treasury, we should certainly be addressing those because 
we value your independence. We certainly value the information 
that you have provided us here today.
    I, too, like many of my colleagues, am astonished by the 
potential exposure that you have identified. I guess I take a 
little different view. I go back to how this may have been 
prevented and am astonished that so few people are willing to 
look at the inaction and the failure of regulation to work 
properly to prevent the almost collapse of our financial 
markets. I was not serving in Congress last fall when the 
markets nearly collapsed but I said at the time that I would 
have reluctantly supported the TARP if only to stabilize the 
financial institutions. I subsequently voted against the second 
round TARP because it did not include many of the conditions on 
transparency that so many of my colleagues have talked about 
here today.
    But I go back to the failure of Congress and the failure of 
previous administrations to regulate mortgage-backed 
securities, CDOs, and CLOs while at the same time the banking 
industry was suggesting that they are the most regulated 
industry in the country and there was not any need for us to 
move forward. Many of these same folks that are complaining 
about the exposure are also working against regulatory reform 
in financial services. So I am struck by some of the comments 
that have been made by some of my colleagues.
    Specifically, I would like to pursue a line of questioning 
regarding some of these toxic assets and the valuation of the 
toxic assets. There was an article in the Wall Street Journal 
yesterday that I think was very interesting when they talked 
about collateralized debt obligation and the fact that this was 
related to the mortgage-backed securities which allowed the 
predatory lending to happen. But trying to pull all of these 
assets apart and value them in any real way is a Herculean 
task. There is so little in terms of collateral, in terms of 
capital that is actually behind them. From your perspective, 
when looking at these toxic assets, how do you believe we can 
best value them?
    Mr. Barofsky. I, too, read the Wall Street Journal article 
on the pulling apart of one of these CDOs. I think it was a 
great illustration of the problem of these unbelievably complex 
securities and the challenge that Congress has in creating the 
right type of regulatory reform that will ensure oversight so 
that these types of products do not reek the damage that they 
did.
    I think the valuation issue is a very challenging one and I 
think it is one that at first instance has to be done by the 
Treasury itself, to the extent that they have these assets on 
their books, whether it is through an asset guarantee of 
Citigroup or whether it is in its own collection of assets. It 
is a very complicated structure that needs a great degree of 
expertise and I think a great degree of skepticism.
    We also have to see what happens with the other programs, 
whether these complex derivative products start coming across 
in the actual purchase programs or other subsequent TARP 
programs where I think that issue will come more to the front.
    Mr. Driehaus. I realize your function is in evaluating the 
way in which the TARP moneys are being spent. But as you look 
at it and as you look at the causes of this financial collapse, 
can you offer advice as to moving forward, the type of 
regulation and the type of products that we should be looking 
to regulate as we move forward?
    Mr. Barofsky. I think that one is a little bit outside of 
my lane. I think I would be uncomfortable offering opinion on 
that. I think when it gets to the core issues of regulatory 
reform it is fair for us to identify some areas like the role 
of credit rating agencies because we are seeing that. But when 
you get into the nuts and bolts of regulatory reform, I would 
be uncomfortable offering my opinion.
    Mr. Driehaus. Is it fair to say that much of the exposure 
that you have identified is due to a failure to regulate 
appropriately certain products?
    Mr. Barofsky. I do not think that, short of an audit 
product or short of a more thorough examination of these 
causes, I would feel comfortable offering that opinion.
    Mr. Driehaus. Thank you, Mr. Chairman.
    Chairman Towns. Thank you very much. I now yield to the 
ranking member from California, Congressman Issa.
    Mr. Issa. Thank you, Mr. Chairman. I am just going to 
close. I realize there is a second round but our side will not 
be asking for it. We thank Mr. Barofsky. The fact is that you 
have been very generous with your time and you have given us a 
lot of food for thought.
    I just want to close, first of all, by thanking the 
chairman, and second, by asking the chairman if would he 
consider bringing the Treasury Secretary here next to help 
close the loop on a lot of these areas of transparency. I think 
Treasury deserves an opportunity to tell us from their 
perspective why they have not yet implemented these.
    Chairman Towns. The gentleman makes a good point. We will 
definitely look into it.
    Mr. Issa. Finally, in closing, I want to echo your words 
when you said, ``in deed as well as in word.'' President Obama 
promised us an unparalleled level of transparency and it is 
very clear that the bureaucracy that stands between President 
Obama and what he has told both the chairman and myself and all 
of us is in the way. So in closing, and we look forward to 
having you back here again in a quarter, I want to thank you 
for doing everything you can do to bring about that level of 
transparency.
    For myself, and the chairman has already said for himself, 
we want to promise that we will be your partners in bridging 
that bureaucratic nightmare that always exists between a 
President, like President Obama who has promised us 
transparency; the Congress who begs for transparency; the IGs 
who help produce it; and the bureaucracy that stands in the 
way. So you have our support on a bipartisan basis. You will 
continue to have our support because we agree with you that 
transparency, this light is the only form of disinfectant that 
is going to prevent Government waste.
    With that, Mr. Chairman, I thank you again for this series 
of very good oversight hearings. I thank our witness and look 
forward to seeing you in about 90 days. I yield back.
    Chairman Towns. Thank you very much. I now recognize the 
gentlewoman from Ohio.
    Ms. Kaptur. Thank you, Mr. Chairman. We appreciate this and 
we appreciate your endurance, Mr. Barofsky. I wanted to just 
state for the record that at least this Member and many of the 
people she represents believe that this is the largest transfer 
of wealth in American history that we have ever seen from those 
whose equity has been moved to Wall Street institutions that 
now have become even more concentrated as a result of what has 
occurred with the meltdown in the financial sector. I just 
wanted to again share information.
    It is interesting to me that some of the companies like 
BlackRock that are involved in the resolution are headed by 
individuals who were heavily involved formerly when they headed 
other companies in inventing the sub-prime instrument itself. 
We do not know where they did all of their handiwork 
necessarily, but I find it very interesting that the Federal 
Government now rewards them in very non-transparent processes. 
I said to myself, could they well be handling paper that they 
invented and trafficked 10 years ago or 15 years ago? The 
derivative instrument itself, I understand, was heavily 
influenced by a gentleman who is now the vice chair of PNC.
    At our home in Ohio, I have just received a notice that our 
certificate of deposit that has been with National City Bank is 
going to be transferred to PNC come this November. I do not 
want PNC owning our meager assets. That is not my choice and 
yet I see this having an impact. Ohio is now left with only 
three money center banks. National City is disappearing. I see 
this power gravitating elsewhere to the very people who caused 
this problem in the first place.
    One of my questions really has to do with Freddie Mac, and 
I could concentrate on Fannie Mae and FHA, because basically 
what has happened is all the bad paper is being dumped on the 
taxpayer, as you have well noted in your report, in different 
ways, putting it here, here, and every place else in the 
Federal Government so it is not easily traceable.
    But if one looks at Freddie Mac, which is central in terms 
of being a dumpster as well as an enabler during the 1990's, 
let me just ask you why, and when I looked at your report I 
could not find the word Freddie Mac, but why have Freddie Mac 
and Fannie Mae's paper been hidden behind the walls of Oz over 
at the Federal Reserve? Do you have any role at all in 
unwinding the role of Freddie Mac in all of this going back 
into the 1990's?
    Mr. Barofsky. We do not have jurisdiction over Freddie Mac 
in any aspect other than the fact that Treasury has hired them 
as a financial agent to help do compliance for the mortgage 
modification program. But other than that, since Freddie Mac is 
not involved in TARP specifically, we do not have jurisdiction 
over them.
    Ms. Kaptur. I do not know if you are aware of this or if 
the public is aware of this, but Freddie Mac had over $500 
million of fines placed on it already for fraudulent 
activities. The fact is that during the heyday of their 
nefarious activity they had blown up profits over 30 percent on 
their books, they underestimated risk, and they have begun to 
pay a heavy price for that.
    I am very interested in your opinion as an auditor, do you 
find it rather interesting that we cannot get at that paper 
even though the American people are the recipient of all the 
mistakes? Our mortgages are not being worked out at the local 
level. J.P. Morgan Chase is the worst forecloser in my 
district, including through one of its affiliates called 
Plymouth. Yet they can dump their paper, and theoretically a 
lot of it moves through Freddie and Fannie, and behind these 
walls of the Federal Reserve we cannot get at that.
    As I look at a capable individual like yourself and your 
staff, I am saying to myself, you are never going to get at the 
truth because they divided up the turf in such a way that you 
can never tell us the whole. How do you respond to that concern 
of mine? How do we get the whole truth?
    Mr. Barofsky. I think it should be no surprise at this 
point that I agree wholeheartedly that more transparency is 
better than less, that the more information that is out there 
for policymakers and the American people is better. Because it 
is not related to a TARP, it is outside of our scope and our 
jurisdiction.
    Ms. Kaptur. You are saying it is unrelated yet the Fed has 
just hired I believe Black Rock to help to resolve, whatever 
that means, the Freddie Mac and Fannie Mae paper. Let me just 
quote from the Washington Post: ``Freddie Mac's alleged 
manipulation and accounting errors caused it to understate 
profit by 30.5 percent in 2000 and 42.9 percent in 2002 and to 
overstate profit by 23.9 percent in 2001. These manipulations 
include transactions that shifted windfall earnings into later 
periods or it might have been hard for the company to meet Wall 
Street expectations.''
    My point is I do not see how we can know the whole truth 
and this troubles me, Mr. Chairman, because even the secret 
TARP report today, there are so many agencies, it is like they 
have divided up into a thousand pieces just like they did the 
derivatives so we can never know the truth. How do we get our 
arms around the whole? How do we do that? Can you think about 
that?
    Mr. Barofsky. I think the question is best addressed to the 
Inspector General for the Federal Reserve as well as the 
Inspector General for FHFA who oversees the conservatorship of 
Fannie and Freddie. They would be in a better position since 
these things are under their jurisdiction to help you find the 
answers.
    Ms. Kaptur. From a Federal Government standpoint, are you 
disallowed from working together?
    Mr. Barofsky. Oh, no, no, no. We do coordinate together. 
Those Inspector Generals are both on part of my TARP IG council 
because they do have actions that impact the TARP, and I am 
part of the Financial Regulatory IG Council and we do talk and 
do coordinate with one another where our interests intersect. 
Here, this is sort of apart from the TARP program so I do not 
really have an ability to go in and look at that information.
    Chairman Towns. The gentlewoman's time has expired. But I 
think she makes a great case as to why the Inspectors General 
should have independence. I agree, when there is $23.7 trillion 
at stake it is important that we make certain that they are 
independent.
    Let me thank you, Mr. Barofsky, for your testimony. I 
appreciate the interest of the Members who attended today's 
hearing.
    Earnings at the largest banks and the bank holding 
companies, such as J.P. Morgan, Goldman Sachs, are up yet 
lending remains down. It is unacceptable that profits go up 
while lending goes down. The taxpayers have invested very large 
amounts of money in these banks, but what have we gotten in 
return? It remains unclear. The taxpayers deserve to know how 
their tax dollars are being spent. The Treasury Department 
needs to publish full and detailed information on the use of 
TARP funds and publish the value of TARP portfolio on a monthly 
basis. They have that information and they should make it 
public.
    Moreover, Treasury also requires the largest banks to file 
monthly reports showing the dollar value of their new lending. 
That should be made public also. If Treasury does not put this 
information up on its Web site, this committee will. And if 
Treasury does not turn over this information voluntarily, 
Secretary Geithner will be brought before the committee to 
explain why not.
    What we have heard today convinces me that one of the best 
things Congress did when it created the TARP was to also create 
the Special Inspector General to oversee TARP spending. I can 
now understand why the Treasury Department would like to reign 
in SIG TARP. But we are not going to let that happen. You heard 
from the members on this committee today in terms of their 
commitment.
    Again, I thank our witness, Mr. Barofsky. We thank you for 
your time and information that you shared with us.
    Finally, let the record demonstrate my submission of a 
binder with documents relating to this hearing. Without 
objection, I enter this binder into the committee record.
    Without objection, the committee stands adjourned.
    [Whereupon, at 2:40 p.m., the committee was adjourned.]
    [The prepared statements of Hon. Gerald E. Connolly, Hon. 
Diane E. Watson, and additional information submitted for the 
hearing record follows:]




                                 
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